2 Steps in Analyzing Environment Identify Market.Identify environment factor (s). / Focus on factor (s) which most impact your businessClassify as threat or opportunity & estimate magnitude of threat/opportunityEvaluate importance of factor and its impact on product/market
3 1. Identify Market (Alternative Diaper Markets) Super premium branded disposable diapers for children in CaliforniaDiaper Rash MarketSpecial Occasion MarketVersusHospitalsDaycare OperationsPrivate Label
4 2. Evaluate External Environment (forces and conditions which affect the corporation’s strategy).
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, pollutionPolitical/legalE.g. Taxes, copyright laws
9 Components of External Environment 2. CompetitionRivalry among competitors (Porter)Threat of new entrants (Porter)Threat of substitute products (Porter)
10 Components of External Environment 3. Market/CustomersSize/PotentialGrowth RateSeasonalityBargaining power of buyers (Porter)Sensitivity to price
11 Components of External Environment 4. IndustryBargaining power of suppliers (Porter)Industry profitabilityBarriers to entry/exit
12 Steps in Analyzing Environment Identify factorFocus on factor (s) which most impact your businessClassify as threat or opportunity & magnitude of threat/opportunityEvaluate importance of factor and its impact on product/market
13 Porter Five Forces Is it threat or opportunity? Bargaining Power of BuyersThreat of New EntrantsThreat of Substitute ProductsBargaining Power of SuppliersRivalry 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 powerThere are few large buyers who can band together to get concessionsSwitching costs are lowPossibility of backward integration (eliminate supplier)Low importance of product to performance of buyer’s productIf 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 unitIndustry has strong capital requirementsStrong product differentiation existsGaining distribution is particularly difficultIf 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 powerIndustry has limited number of suppliersSwitching costs from one supplier to another or to substitute product are highSupplier’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 firmLittle 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.
22 Estimating Demand Market-Buildup Method Multiple –Factor Index Identify number of purchasers X amount of their purchaseMultiple –Factor IndexIdentify 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 Number2. Geographic Territory3. Consumption Constraints4. Average Purchases per Year per Customer5. Total Purchases per year per Customer6. Average Price7. Total Dollar Purchases per Year8. Your Company's Share of Purchases
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?
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, sellingInitial financial investment requires extensive resourcesLack of access to sources of production (raw materials, technology, labor skills)Limited access to distribution channelsGovernment regulationsCustomer loyalty to existing sellers
31 Barriers and Profitability Low Exit BarriersHigh Exit BarriersLow Entry Barriers**Profit potential low but stable*Profit potential low but difficult to leave so industry depressed, overcapacityHigh 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