CHAPTER 2THE MARKETING ENVIRONMENT

INTRODUCTION SWOT ANALYSIS

Strengths and Weaknesses Opportunities and Threats

COMPETITIVE ENVIRONMENT Commodity‐like Markets: Productivity Product Differentiated Markets: Innovation Oligopoly Markets Monopoly‐Like Markets

POLITICAL LEGAL ENVIRONMENT ‐ Pro‐Competitive Laws Consumer Protection Laws

SOCIO CULTURAL ENVIRONMENT ‐ Population Structure: Ageing Population Changing Australian Family New Concerns Subcultures

ECONOMIC TRADE ENVIRONMENT ‐ Economic Trends and Events. Government Trade and Economic Policies

TECHNOLOGICAL ENVIRONMENT

SWOT Analysis

Strengths and WeaknessesAre acknowledged and evaluated in a process known as Internal Analysis. It examines the business’s controllable resources in production, finance, management and marketing; and their impact on growth, innovation and productivity. Internal analysis requires one to “look into the mirror”. The idea is to exploit strengths in marketing strategy formulation and overcome or correct weaknesses.

Identifying competitors’ strengths and weaknesses will also help strategy formulation — use your strengths to compete against your competitors’ weaknesses. Subway’s “eat fresh” and “97% fat free” sandwiches (a strength) successfully challenge McDonald’s alleged high‐ ‐fat and pre made burgers (a weakness) and will soon surpass it in worldwide store numbers‐ as it has done in the US.

Opportunities and ThreatsBusiness opportunities (and threats) are recognized and evaluated in an External Analysis. These arise from the largely uncontrollable and changing external environment. Opportunities should be quick to be capitalized upon, or they will be missed. Harmful threats must be overcome or minimized. External analysis involves “looking out the window”.

This avoids the common error of confusing an internal strength (or strategy) with an externally created opportunity. In this context, “the opportunity to diversify into energy‐ drinks” is incorrectly expressed as an opportunity statement. “Diversifying into energy drinks” is actually a strategy. It’s a strategy that capitalizes on “a 20% increased participation in sports”, i.e., the opportunity (external) being sought.Major industries (petroleum, mining, tourism, agriculture, etc.) are known to proactively shape policies and laws by directly influencing politicians through lobbying, political donations or political affiliation. The powerful tobacco industry (farmers, cigarette producers, etc.) has been able to exert considerable influence on government for decades — with respect to smoking issues.

Competitive situations are important because they affect the way products are marketed, i.e., the marketing strategy employed, and the way businesses operate.

Commodity like Markets: Productivity (Pure Competition)‐ Sellers go head to head‐ ‐ Undifferentiated products Sold to same buyers Market price or less Profits from productivity

These are similar to pure competition. Here, the many competitors offer near identical products (product parity or undifferentiated) to the mainstream market or the masses. In other words, the products offered have become a commodity. “Commoditization” occurs due to the inability (lacking technology, etc.) or reluctance (why bother?) to differentiate the products. (Banks, Not much difference with a visa card and a master card, Pizza and dominos, pure gold is pure gold)

In this situation, the business has to charge the prevailing market price, or less. In other words, the price charged is dictated by the market. The business competes on price, and tries to increase profits by reducing or managing costs. That’s where productivity or efficiency comes into the picture.

Ease of availability (convenience) is also very important. Customers will buy a particular brand simply because it’s there — and not due to any loyalty towards it. Buy Pepsi if Coke is not there.

Product Differentiated Markets: Innovation (Monopolistic Competition) Sellers avoid head to head‐ ‐ Differentiated products Sold to specific target markets More price freedom Profits from innovation

This is similar to monopolistic competition. In some sub markets, consumers are willing to‐ pay a premium for certain products. Therefore, innovative businesses differentiate their products aimed at a well defined target market that is willing to pay more and remain loyal. ‐

- Higher price (premium). Differentiated products have added value in that they come with attributes that are considered important to the customers

- Higher brand loyalty. Because of limited competition, differentiated products enjoy a more loyal following from their target market.

- Harder to copy. It is usually harder for competitors to copy a substantially differentiated product because of patent/trademark/copyright protection, inaccessible technology, trade secrets.

Product differentiation Can be based on “real” or tangible differences such as a product feature (laser dentistry), a product type (aspirin versus paracetamol versus ibuprofen for pain relief), or added benefits (titanium coated non stick cookware with a 10 year guarantee). Differentiation can also be‐ ‐ ‐

difficult — the business may not have the necessary technology or know how. Differentiation‐ can be short lived – some innovations can easily be copied by competitors. Pizza Hut’s‐ original pan pizza is widely copied because it was easy to.‐

Oligopoly Markets Few sellers control market Very high barriers to entry‐ ‐ Very competitive But easy to collude Profits from high market share

An oligopoly exists when a few sellers (not brands) control the supply of a large proportion of a product. Traditionally, oligopolies arose because of the high barriers of entry (to the industry). When was the last time a totally new car manufacturer started? Name a new petroleum company.

Fewer Competitors and the competition is often intense because the few competitors are equally formidable. On the other hand, collusive practices (price fixing, etc.) can be more‐ prevalent as these incumbent businesses can (illegally) agree to preserve their respective high market share by not competing.

Monopoly Like Markets‐ A single dominant seller Government regulated Possible deregulation Profits from high prices and lack of innovation

These rare markets are characterized as having one major seller with a lion’s share of the market. An unregulated monopolist is outright dangerous because it is a price–maker, i.e., it can charge a price as high as the market can bear; has poor quality products (why bother innovating, etc.?); and is unproductive (why be efficient when I can charge a high price?). Hence the need for close regulation, usually by government authorities.

CompetitionSome industries are “protected” or regulated. It is not an ideal market situation because prices are kept high and product quality low, but the local companies need to be nurtured. However, when these industries mature, they should be deregulated so that consumers will enjoy the lower prices and higher quality. (Ex: Making cars in a closed market and when it is deregulated to the to compete, company has to come up with innovation, cheap and higher quality)

Pro Competitive Laws‐Competition benefits the business by forcing it to become;

More innovative (better products, higher quality, wider range, etc.) Productive (efficiency to drive down costs and prices).

The economy benefits too When these local businesses become good enough to market overseas (export), and Lower prices keep inflation down

Consumers benefit as well

Paying less for high quality imported and local products.

Misuse of market power. Protected industries where existing sellers are allowed to prosper due to the lack of competition are being deregulated. The market is then opened to more entrants and the resulting increase in competition will ensure that no one seller can control the market.

Price fixing. Competitors cannot collectively agree (collude) to set high prices. Sellers are expected to compete by reducing prices, and not agree to maintain high prices.

Resale price maintenance. A supplier cannot force retailers to follow its Recommended Retail Price (RRP) or any stipulated price. The RRP is only a guide, and retailers are expected to compete against each other by charging prices much lower than the RRP.

Exclusive dealings. A supplier cannot prevent retailers from carrying competing products or brands. For example, Coca Cola cannot make a deal with a retailer or restaurant to exclude Pepsi‐ products.

Consumer Protection Laws

Misleading conduct. It is illegal to mislead or deceive consumers especially through pricing and advertising practices.Bait and Switch advertising. ‐ ‐It is a common practice among retailers to advertise certain products at a special low price in order to draw shoppers into the store. A retailer who advertises a heavily discounted BMX bicycle only to disparage it in front of customers can be guilty of a bait‐

and switch practice if it can be found that his primary intention was to sell higher priced‐ bicycles to them.Sale of Goods Acts. Spell out the seller’s responsibilities with regards to the selling of the product. A sale is final if the product:1. Is fit for its purpose: The product must do the job that it was designed for 2. Is of merchantable quality: The product must meet a reasonable level of quality 3. Matches its description: The product must match any description given through its packaging,

Legally, refunds and exchanges only apply when the product fails to meet all the above conditions.

Sociology involves the study of society and culture. Demography is the study of a population's characteristics. Together they provide a good insight into the understanding of the markets (customers) and how they impact on a business.

Population Structure:

Ageing PopulationThe government is struggling to meet the demands for medical care from an ageing population — long waiting lists for surgery, etc. Of course, to the private sector, it’s an opportunity with almost no end. Other opportunities include retirement villas, overseas holidays, domestic help, nursing assistance, minor home repairs and maintenance, etc.

Working mothers.

66% of mothers in couple families with children are in paid employment. Such increased participation in the work force can only be good news for child care centers, domestic ‐helpers, convenience foods producers, modern kitchen appliance manufacturers, etc.

New Concerns

Health and fitness. An estimated 30% of cigarettes, beer and packaged foods sold are of the “light” variety. The very “idea” of leading a fit and healthy lifestyle is enough to get people to don surf wear and running shoes.

Environmental protection and preservation. Australians are increasingly more educated and concerned about the environment. Some are acting on their concerns by avoiding environmentally irresponsible businesses.Consumerism. In general terms, consumerism is an informal movement of concerned consumers and governments to enhance the rights and powers of the buyer in relation to the seller. More specifically, consumerism is concerned with product performance and safety, good marketing practices and adequate information disclosure about significant aspects of a product.

Subcultureso Subcultures are groupings of people with common values, behaviors or interests. Each

group is distinct from another.o Subcultures can be based on ethnicity (Asians, Eastern Europeans, Africans), religion

(Islam, Hindu), o age group (“tweens” – in-between being a child and a teen!), interest (surfies, bikies)‐

or o Even sexual orientation (gays & lesbians).‐

Economic Trends and Events.

These include the external factors that can influence a consumer’s ability to purchase (purchasing power). Consumers’ willingness to spend (consumer

confidence) rather than save is also considered. In general, these are influenced by the following related factors:

Disposable and discretionary income. Disposable income is the take home pay after taxes and other immediate deductions. Discretionary income is money left after paying for life’s basic necessities like food, mortgage/rent (shelter), and basic clothing. That’s why basic grocery products, clothing and rent are nearly recession proof. In some wealthy Asian countries, private tuition is a‐ necessity. Discretionary income is then used to buy or upgrade furniture, big ticket‐ appliances, motor vehicles and other durables.

Consumer credit and interest rates. Cheap available credit and a secure job are enough to persuade consumers to buy luxuries using money that they actually don’t have. Money too, becomes a product, bought and sold at a price (interest).

General economic conditions. This refers to the overall/general health of the economy, often reflecting business cycles of prosperity, recession, depression and recovery. Depression or recession is an extreme economic state characterized by high unemployment, low wages, low consumer confidence and low total disposable income.

Government Trade and Economic PoliciesPolitical, economic, and trade decisions often have a direct and far reaching impact on‐ business operations. These government policies include fiscal and monetary policies, industry subsidies, foreign trade policies (especially tariffs and quotas), and the 2000’s introduction of the goods & services tax (GST).

Technological EnvironmentA company's decision to adopt new technology is influenced by its capacity to use it and whether it will result in a competitive advantage for the business. Sometimes, its application is just to keep up with the competition. Some years ago, it was optional for a business to have a website. Technology can be used to enhance the Product by improving quality, adding features, reducing the price, etc. It can also be incorporated into marketing for the business to operate more efficiently — websites for promotion, on line ordering & payment, on line research &‐ ‐ feedback.