1. Step 1. Analyze External Environment
Tool To Identify Attractive Markets

2. Steps in Analyzing Environment
Identify Market.
Identify environment factor (s). / Focus on factor (s) which most impact your business
Classify as threat or opportunity & estimate magnitude of threat/opportunity
Evaluate importance of factor and its impact on product/market

3. 1. Identify Market (Alternative Diaper Markets)
Super premium branded disposable diapers for children in California
Diaper Rash Market
Special Occasion Market
Versus
Hospitals
Daycare Operations
Private Label

4. 2. Evaluate External Environment (forces and conditions which affect the corporation’s strategy).

5. Components of External Environment (Disposable Diaper Market)
1. Macro environment trends
Demographic
E.g. Aging: Baby boomers

6. Socio cultural Economic E.g. Self denial vs. self fulfillment
E.g. GDP and purchasing power

7. Technological E.g. Cloning, internet, velcro
1. Stay-dry bottom barrier - keeps moisture away from your baby's skin.
2. No-leak inner cuffs and comfortable outer leg gathers for proper fit and leakage protection.
3. Soft Super-absorbent core - quickly pulls wetness into carefully positioned moisture pockets.
4. Gentle Foam Waistband - soft, comfortable and moves with baby.
5. Colorful, Easy to use fastening tapes - The diaper fastening tapes are easy to fasten and easy to release.
6. Soft Cloth Outer Cover - makes our diaper more comfortable for you and your baby.
7. Refastenable tabs

8. Physical Political/legal
E.g. Global warming, shortage of raw materials, pollution
Political/legal
E.g. Taxes, copyright laws

9. Components of External Environment
2. Competition
Rivalry among competitors (Porter)
Threat of new entrants (Porter)
Threat of substitute products (Porter)

10. Components of External Environment
3. Market/Customers
Size/Potential
Growth Rate
Seasonality
Bargaining power of buyers (Porter)
Sensitivity to price

11. Components of External Environment
4. Industry
Bargaining power of suppliers (Porter)
Industry profitability
Barriers to entry/exit

12. Steps in Analyzing Environment
Identify factor
Focus on factor (s) which most impact your business
Classify as threat or opportunity & magnitude of threat/opportunity
Evaluate importance of factor and its impact on product/market

13. Porter Five Forces Is it threat or opportunity?
Bargaining Power of Buyers
Threat of New Entrants
Threat of Substitute Products
Bargaining Power of Suppliers
Rivalry Among Competitors

14. Is it threat or opportunity? E.g. Bargaining Power of Buyers
Threat, If bargaining power of buyers is high.
Conditions leading to high bargaining power
There are few large buyers who can band together to get concessions
Switching costs are low
Possibility of backward integration (eliminate supplier)
Low importance of product to performance of buyer’s product
If buyers earn low profits then likely to bargain harder

15. Is it threat or opportunity? E.g. Threat of New Entrants
Threat, If threat of new entrants is high.
Conditions discouraging new entrants:
Industry requires strong economies of scale i.e. it takes time to obtain volume and learning to yield necessary low cost per unit
Industry has strong capital requirements
Strong product differentiation exists
Gaining distribution is particularly difficult
If buyer incurs switching cost in moving from one supplier to another

16. Is it threat or opportunity? E.g. Threat of Substitute Products
Threat, If threat of substitute products is high.
Profits reduced because prices are lower

17. Is it threat or opportunity? E.g. Bargaining Power of Suppliers
Threat, If bargaining power of suppliers is high.
Conditions leading to high bargaining power
Industry has limited number of suppliers
Switching costs from one supplier to another or to substitute product are high
Supplier’s product contributes large part of buyer’s value added

18. Is it threat or opportunity? E.g. Rivalry Among Present Competitors
Threat, If Rivalry is intense.
Conditions leading to greater rivalry:
Industry requires high capital investment (requires firm to operate at or near capacity; strong downward pressure on prices when demand weakens)
Industry consists of many small firms or no dominant firm
Little product differentiation

19. Evaluating Market Demand/Potential Is it threat or opportunity?
Market Demand – total volume that would be bought by a defined customer group in a defined geographical area in a defined time in a defined marketing environment under a defined marketing program.

20. Market Demand

22. Estimating Demand Market-Buildup Method Multiple –Factor Index
Identify number of purchasers X amount of their purchase
Multiple –Factor Index
Identify factor(s) correlated to sale of product, e.g. % of U.S. population in state correlated to % of Drug Sales

23. Steps In Calculating Demand Potential
1. Target Market Total Number
2. Geographic Territory
3. Consumption Constraints
4. Average Purchases per Year per Customer
5. Total Purchases per year per Customer
6. Average Price
7. Total Dollar Purchases per Year
8. Your Company's Share of Purchases

24. Competition

25. Competition Is it threat or opportunity?
Direct Competitors - Firms likely to gain or lose a substantial share of customers from each other over time because they serve the same customers and offer similar benefits.

28. Factors Affecting Competitive Intensity
Are Competitors numerous or roughly equal in size & power?
Is Industry growth slow?
Are Products and services essentially undifferentiated?
Is Cost to buyers of switching from one supplier to another low because sellers have not developed a way to tie their customers into long term relationships?
Do Companies remain in the market in spite of low profits because of management’s loyalty to a business or because the business involves specialized assets which are difficult to sell?

29. Barriers to Entry

30. Economies of scale in production, delivery, advertising, selling
Barriers to Entry (Conditions which make it difficult to become a significant competitor in a new market) Are they threat or opportunity?
Economies of scale in production, delivery, advertising, selling
Initial financial investment requires extensive resources
Lack of access to sources of production (raw materials, technology, labor skills)
Limited access to distribution channels
Government regulations
Customer loyalty to existing sellers

31. Barriers and Profitability
Low Exit Barriers
High Exit Barriers
Low Entry Barriers
**Profit potential low but stable
*Profit potential low but difficult to leave so industry depressed, overcapacity
High Entry Barriers
****Few new firms can enter; Unprofitable firms can exit. Profit potential high, stable returns.
***Profit potential is high, but riskier since low performers must fight it out. High profit potential; risky returns