Transcript
Ch4 Environmental Analysis Tools to Identify Attractive Markets
4.1: Swimming Upstream or Downstream: An Important Strategic Choice
Macro environment: the sociocultural, demographic, and physical environments are but three of six components of macro environment. The other three are the political/legal, economic, and technological components.
4.2: Macro Trend Analysis: A Framework for Assessing Market Attractiveness
The Demographic Environment
Some 80% of the world’s population lives in the less developed countries, and 98% of the increase in population is expected to be concentrated in Asia, Africa and Latin America.
The biggest markets of this century will be Asia, Africa, and Latin America, although their purchasing power per capita may not follow this trend.
Because of population aging, elderly dependency ratios will rise in every major world region during the next 25 years.
Another global trend is the rapid shift of the populations in Asia, Africa and Latin America from rural to urban. By 2025, 60% of the world population will be urban versus 37% currently.
The Sociocultural Environment
This environment represents the values, attitudes, and general behavior of the individuals in a given society. Compared with economic, political, and technological changes, the sociocultural environment evolves slowly. People grow up in a system of values they tend to carry throughout their lifetimes.
Members of this generation are greatly concerned with simplifying their lives, with obtaining a college education, with their relations with their families and the opposite sex, and with economic security. Their coping includes living at home, postponing marriage, and delaying having children. They are realistic and pragmatic about surviving yet do not define success solely in terms of money.
Although sociocultural changes are slow to happen in any individual country, there are fundamental differences between countries that are driven by their cultural histories.
Implications of Sociocultural Trends for Market Attractiveness
The increasing importance of the individual has also given rise to a plethora of customized products, from made to measure jeans to business suits.
Sociocultural changes, influence the markets for a broad array of consumer products.
The Economic Environment
The economic performance of a country is measured by gross domestic product (GDP).
To realistically compare incomes across countries, it is necessary to use a purchasing power parity (PPP) approach that considers the cost of a standard basket of products for each country. Using a PPP analysis helps to compare the relative purchasing power of a given country with other countries.
Using PPP produces lower GDP per capita income for the wealthier countries and higher ones for the poorer nations. This “leveling” gap in real GDP has increased between rich and poor countries. But PPP does not take into account the subsidies provided by many countries for such essentials as food, utilities, shelter, transportation, education, and medical care, which account for about half of the average household expenditures in developed countries.
International Trade
Increasingly countries have become more economically interdependent as have many of their industries. Free-trade agreements are in place today in several regions of the world (ANDEAN), (APEC), (ASEAN), (EU), (NAFTA), (CEFTA), (MECOSUR).
Implications of Economic Trends for Market Attractiveness
Economic trends influence the level of demand in most markets, but they are particularly important in capital goods markets, real estate, and other markets where sensitivity to interest rates and the level of household or corporate income can be extreme. Economic trends often combine with other macro trend categories, with powerful effects.
The political/Legal Environment
The political/legal environment represents a firm with strategic opportunities as well as threats. The business regulations in a country reflect its economic maturity and political philosophy. At the extreme, political risk for the firm includes confiscation , expropriation (seizure with some compensation) , and domestication (requiring transfer of ownership to the host country and local management and sourcing).
Other risks include changes in exchange control, local content laws, import restrictions, taxes, and price controls- all of which usually operate to the advantage of local industry.
Governments can encourage foreign investment through policies such as tax concessions and tariff protection.
Countries commonly encourage certain kinds of investments while simultaneously restricting others.
Governments may encourage local firms to export to countries that have considerable political risk by providing insurance against losses from such risk.
An increasingly important issue in political/legal terms is the protection of intellectual property. Controversies over copyright infringement involve the highest stakes.
Government Regulation
The number and intricacy of laws and regulations make it difficult to understand regulatory elements affecting marketing. Most countries have regulations concerning food and drugs, as well as price, products, promotion, and distribution, but these vary considerably in their applicability to marketing.
Regulations cripple the economy and stifle innovation. This is true, but effects are frequently overstated since business will strive to find innovative ways to adhere to regulations at less than the anticipated costs.
Government Deregulation
Overregulation protects inefficiencies, restricts entry by new competitors, and creates inflationary pressures.
Deregulation has typically changed the structure of the affected industries as well as lowered prices.
The early actions of firms following deregulation include improving pricing capabilities, finding new ways to differentiate their services, increasing their marketing skills, and conserving capital to maintain flexibility. Later, the strategies of the surviving companies center on fine-tuning their pricing capabilities, preempting competitors via strategic alliances, and developing their marketing skills.
The rise of internet retailing and Internet telephony has policy makers arguing over the degree to which these Internet activities should be subject to state and federal tax in the U.S..
The Technological Environment
Technology can have a substantial impact on an industry’s performance.
Identification of the commercial potential of technological developments has dramatically accelerate, and the lag between ideas, invention, and commercialization has decreased.
Technological progress over the next 10 years is predicted to be several times that experienced during the past 10 years; much of it will be spurred by the need to find solutions to our environmental problems. Major technological innovations can be expected in a variety of field.
Trends in Electronics/Telecommunications
Technology is changing the nature and scope of the telecommunications industry. The changes are revolutionizing how businesses operate, how goods and service as well as ideas are exchanged, and how individuals learn and earn as well as interact with one another.
Developments in telecommunications and computing have led to the rapid convergence of the telecommunications, computing, and entertainment industries.
Implications of Technological Trends for Market Attractiveness
Changes in technology have always created attractive new markets.
Technological developments are having a profound impact on all aspects of marketing practice, including marketing communication, distribution, packaging, and marketing research.
The physical Environment
Deserts are growing while forests are shrinking, lakes are dying, the quality and quantity of groundwater are declining, and the planet may be experiencing a rising temperature.
One of the frightening environmental scenarios concerns the buildup of carbon dioxide in the atmosphere that has resulted from heavy use of fossil fuels.
Evidence is increasing that greenhouse gases are changing the climate, there is considerable disagreement over the details of the warming effects.
Development of Green Products as a Response to Environmental Problems
Businesses can do a number of things to turn problems into opportunities. One is to invest in research to find ways to save energy in heating and lighting. Another is to find new energy sources such as low-cost wind farms and hydroelectric projects. Businesses also have seen opportunities in developing hundreds of green products such as phosphate-free detergents, recycled motor oil, tuna caught without netting dolphins, organic fertilizers, high-efficiency light bulbs, recycled paper, and men’s and women’s casual clothes made from 100% organic cotton and colored with nontoxic dyes.
Implications of Trends in the Physical Environment for Market Attractiveness
Global warming can create attractive opportunities for green products that are earth-friendly.
If global warming continues, it may play havoc with markets for winter vacationers, snowmobiles, and other products and services whose demand depends on the reliable coming of winter.
Other physical trends such as the depletion of natural resources and fresh groundwater may significantly impact firms in many industries serving a vast array of markets .
4.3: Environmental Analysis: Guides Marketing Decision Making
Managers charged with strategic responsibilities need to prioritize trend categories, so they know what to watch for. Also, they need to identify and then monitor sources of relevant information about macro trends. Third, as key developments are noted, they need to anticipate impacts and be prepared to change strategies if necessary.
Prioritizing Trend Categories
Apparel marketers closely watch sociocultural trends so as to provide garments in tune with today’s changing lifestyles.
Venture capitalists and high-tech entrepreneurs watch technological trends. Food marketers study demographic and sociocultural trends to provide new food products that fit modern lifestyles and satisfy rapidly growing demand for their ethnic foods.
Information Sources and Outputs of Macro Trend Analysis
There is an endless supply of information about macro trends, including popular and business press, the Internet, supplier and customer contacts, and so on.
A good place to start is with trade associations and trade magazines , both of which typically track and report on trends relevant to the industries they serve.
The key outputs of a competent macro trend analysis for any market should include both quantitative and qualitative data. Quantitative data should provide evidence of the market’s size and growth rate, for the overall market as well as for key segments. Qualitative data should include factors that will likely influence these figures in the future, whether favorably or unfavorably.
Anticipating and Responding to Environmental Change
Management needs systems to help identify, evaluate, and response to environmental events that may affect the firm’s longer-term profitability and position. One such approach uses an opportunity/threat to better assess the impact of the timing of an event, followed by the development of an appropriate response strategy.
Impact and Timing Event
Management must determine the probability of their occurrence and the degree of impact of each event. One relatively simple way to accomplish these tasks is to use a 2*2 dimensional opportunity/threat matrix.
The opportunity/threat matrix enables the examination of a large number of events in such a way that management can focus on the most important ones.
Exhibit 4.5 Opportunity/threat matrix for a telecommunications company
