External Environment External Environment in the Asia Pacific in the Asia Pacific

RegionRegion

Asia-Pacific Marketing Asia-Pacific Marketing FederationFederation

Certified Professional MarketerCertified Professional MarketerCopyrightCopyright

Marketing Institute of SingaporeMarketing Institute of Singapore

OutlineOutline

IntroductionIntroduction The Company’s MicroenvironmentThe Company’s Microenvironment The Company’s The Company’s

MacroenvironmentMacroenvironment The CompetitorsThe Competitors Porter's Five Forces ModelPorter's Five Forces Model

IntroductionIntroduction

Definition:Definition:

The Company’s environment consists of The Company’s environment consists of "the actors and forces outside "the actors and forces outside marketing that affect marketing marketing that affect marketing management's ability to develop and management's ability to develop and maintain successful transactions with maintain successful transactions with its target customers" its target customers"

Kotler et al, 1994Kotler et al, 1994

Introduction (cont’d)Introduction (cont’d)

Companies must evaluate Companies must evaluate bothboth micro and micro and macro-environment to identify macro-environment to identify any trends that may affect their marketing any trends that may affect their marketing

strategies, and strategies, and opportunities that can be developed into opportunities that can be developed into

competitive advantagescompetitive advantages

Porter's Five Forces model analyses market Porter's Five Forces model analyses market structures to determine market structures to determine market attractiveness taking into consideration the attractiveness taking into consideration the micro and macro environments in its micro and macro environments in its constructionconstruction

Company’s MicroenvironmentCompany’s MicroenvironmentRelates to the internal forces or forces close to the Relates to the internal forces or forces close to the

company over which some control is possible company over which some control is possible Top managementTop management Other functions e.g. Other functions e.g. finance and accounting, R& finance and accounting, R&

D, manufacturing and purchasing D, manufacturing and purchasing SuppliersSuppliers Marketing intermediaries (channel partners)Marketing intermediaries (channel partners) CustomersCustomers CompetitorsCompetitors PublicPublic

Company’s Macro-environmentCompany’s Macro-environment

Relates to the larger forces having an Relates to the larger forces having an impact on society as a whole impact on society as a whole

A company has little influence on A company has little influence on these forces and therefore can only these forces and therefore can only adapt its marketing mix to account for adapt its marketing mix to account for the resulting opportunities and the resulting opportunities and threatsthreats

Major forces of the macro-Major forces of the macro-environmentenvironment

DemographicDemographic EconomicEconomicNaturalNatural TechnologicalTechnologicalCulturalCultural Political/legalPolitical/legal

Demographic EnvironmentDemographic Environment

Demographic trends:Demographic trends: Changing age structure Changing age structure Changing family structureChanging family structure Geographic shifts in populationGeographic shifts in population Higher education level & more Higher education level & more

white collar job holderswhite collar job holders Increasing globalization of cities Increasing globalization of cities

such as Singaporesuch as Singapore

Economic EnvironmentEconomic Environment

Economic trends affecting consumers Economic trends affecting consumers buying power and spending patternbuying power and spending pattern

Change in per capital real incomeChange in per capital real income Disposable Disposable DiscretionaryDiscretionary Income distributionIncome distribution

Savings & debtSavings & debt Consumer expendituresConsumer expenditures Change in interest rates and cost of livingChange in interest rates and cost of living

Natural environmentNatural environment

Natural trends include Natural trends include those natural those natural resources used in production or those resources used in production or those affected by marketing activitiesaffected by marketing activities

Raw material shortagesRaw material shortages Increase in energy cost Increase in energy cost Increase pollution levelsIncrease pollution levels Increase in Governmental intervention Increase in Governmental intervention

in natural resource managementin natural resource management

Technological EnvironmentTechnological Environment

Consists of forces that affect new Consists of forces that affect new technology, new product development technology, new product development and market opportunitiesand market opportunities

Faster pace of technological changeFaster pace of technological change Shorter PLCShorter PLC

Higher R&D budgetsHigher R&D budgetsConcentration on minor improvementsConcentration on minor improvements Increased regulationsIncreased regulations

Cultural EnvironmentCultural Environment

Affect society's basic values, Affect society's basic values, perceptions, preferences and perceptions, preferences and behaviorsbehaviors

Core cultural values and beliefsCore cultural values and beliefs Secondary cultural valuesSecondary cultural values Sub culturesSub cultures

Legal and Political EnvironmentLegal and Political Environment

Trends in the legal and political Trends in the legal and political environment includeenvironment include

Increased legislation regulating businessIncreased legislation regulating business Singapore’s Fair Trading Act (impending)Singapore’s Fair Trading Act (impending)

Changing government agency Changing government agency enforcementenforcement

Growth of public interest groupsGrowth of public interest groupsRegional groupingsRegional groupings

ASEAN FTZASEAN FTZ

Competitive AnalysisCompetitive Analysis

Who are your competitors?Who are your competitors?Do you know about your close Do you know about your close

competitors’ strengths and competitors’ strengths and weaknesses?weaknesses?

How detail should we analyze the How detail should we analyze the competition?competition? Use a systematic approach Use a systematic approach Analysis competition at various levels Analysis competition at various levels

(next slide)(next slide)

Levels of CompetitionLevels of Competition

Generic Competition

Form Competition

Industry Competition

Brand Competition

Levels of Competition (cont’d)Levels of Competition (cont’d) Generic competition—e.g. Honda against Silver Generic competition—e.g. Honda against Silver

Sea Cruise for the same consumer dollarsSea Cruise for the same consumer dollars Form competition—e.g. Toyota against Form competition—e.g. Toyota against

manufacturers of other vehicles that provide the manufacturers of other vehicles that provide the same service such as Yamaha (motorcycle)same service such as Yamaha (motorcycle)

Industry competition—e.g. Honda against Industry competition—e.g. Honda against Mercedes, Lexus etc who make the same Mercedes, Lexus etc who make the same products or class of products (different prices)products or class of products (different prices)

Brand competition—e.g. Honda against Toyota, Brand competition—e.g. Honda against Toyota, Nissan etc. who offer similar products and Nissan etc. who offer similar products and service to the same customers at similar prices service to the same customers at similar prices

Industry CompetitionIndustry Competition

Different industries can sustain different Different industries can sustain different levels of profitability; partly due to the levels of profitability; partly due to the difference in industry structuredifference in industry structure

Porter’s Model of Industry Competition, Porter’s Model of Industry Competition, commonly know as Porter’s Five Forces commonly know as Porter’s Five Forces provides a framework for analyzing the provides a framework for analyzing the influence of the forces on the industry influence of the forces on the industry to determine the industry’s profitability to determine the industry’s profitability and competitivenessand competitiveness

Porter’s Model of Industry Porter’s Model of Industry CompetitionCompetition

Industry degree of rivalry

BuyersSuppliers

Barriers to Entry

Substitutes

(Source: Aakers pp.8487)

Porter’s 5 Forces—Porter’s 5 Forces—Barriers to EntryBarriers to Entry

Absolute cost Absolute cost advantages advantages

Proprietary learning Proprietary learning curve curve

Access to inputs Access to inputs Government policy Government policy Economies of scaleEconomies of scale

Capital requirements Capital requirements Brand identity Brand identity Switching costsSwitching costs Access to distribution Access to distribution

Expected retaliation Expected retaliation Proprietary products Proprietary products

(Source: Michael Porter, “On Competition”)

Threats of SubstitutesThreats of Substitutes

Switching costsSwitching costsBuyer propensity to substitute Buyer propensity to substitute Relative price performance of Relative price performance of

substitutes substitutes

(Source: Michael Porter, “On Competition”)

Buyer PowerBuyer Power

Bargaining Bargaining leverage leverage

Buyer volume Buyer volume Buyer Buyer

information information Brand identity Brand identity Price sensitivity Price sensitivity

Threat of backward Threat of backward integration integration

Product Product differentiation differentiation

Buyer concentration Buyer concentration vs. industry vs. industry

Substitutes available Substitutes available Buyers' incentives Buyers' incentives

(Source: Michael Porter, “On Competition”)

Supplier PowerSupplier Power

Supplier Supplier concentration concentration

Importance of Importance of volume to supplier volume to supplier

Differentiation of Differentiation of inputs inputs

Impact of inputs on Impact of inputs on cost or cost or differentiation differentiation

Switching costs of Switching costs of firms in the industry firms in the industry

Presence of Presence of substitute inputs substitute inputs

Threat of forward Threat of forward integration integration

Cost relative to total Cost relative to total purchases in purchases in industry industry

(Source: Michael Porter, “On Competition”)

Degree of RivalryDegree of Rivalry

Exit barriers Exit barriers Industry growthIndustry growth Industry concentration ratio Industry concentration ratio

Fixed costs/Value added Fixed costs/Value added Product differentiation Product differentiation Buyers' incentivesBuyers' incentives(Source: Michael Porter, “On Competition”)