1. External Environment in the Asia Pacific Region
Asia-Pacific Marketing Federation
Certified Professional Marketer
Copyright
Marketing Institute of Singapore

2. Outline Introduction The Company’s Microenvironment
The Company’s Macroenvironment
The Competitors
Porter's Five Forces Model

3. Introduction Definition:
The Company’s environment consists of "the actors and forces outside marketing that affect marketing management's ability to develop and maintain successful transactions with its target customers" Kotler et al, 1994

4. Introduction (cont’d)
Companies must evaluate both micro and macro-environment to identify
any trends that may affect their marketing strategies, and
opportunities that can be developed into competitive advantages
Porter's Five Forces model analyses market structures to determine market attractiveness taking into consideration the micro and macro environments in its construction

5. Company’s Microenvironment
Relates to the internal forces or forces close to the company over which some control is possible
Top management
Other functions e.g. finance and accounting, R& D, manufacturing and purchasing
Suppliers
Marketing intermediaries (channel partners)
Customers
Competitors
Public

6. Company’s Macro-environment
Relates to the larger forces having an impact on society as a whole
A company has little influence on these forces and therefore can only adapt its marketing mix to account for the resulting opportunities and threats

7. Major forces of the macro-environment
Demographic
Economic
Natural
Technological
Cultural
Political/legal

8. Demographic Environment
Demographic trends:
Changing age structure
Changing family structure
Geographic shifts in population
Higher education level & more white collar job holders
Increasing globalization of cities such as Singapore

9. Economic Environment
Economic trends affecting consumers buying power and spending pattern
Change in per capital real income
Disposable
Discretionary
Income distribution
Savings & debt
Consumer expenditures
Change in interest rates and cost of living

10. Natural environment
Natural trends include those natural resources used in production or those affected by marketing activities
Raw material shortages
Increase in energy cost
Increase pollution levels
Increase in Governmental intervention in natural resource management

11. Technological Environment
Consists of forces that affect new technology, new product development and market opportunities
Faster pace of technological change
Shorter PLC
Higher R&D budgets
Concentration on minor improvements
Increased regulations

12. Cultural Environment
Affect society's basic values, perceptions, preferences and behaviors
Core cultural values and beliefs
Secondary cultural values
Sub cultures

13. Legal and Political Environment
Trends in the legal and political environment include
Increased legislation regulating business
Singapore’s Fair Trading Act (impending)
Changing government agency enforcement
Growth of public interest groups
Regional groupings
ASEAN FTZ

14. Competitive Analysis Who are your competitors?
Do you know about your close competitors’ strengths and weaknesses?
How detail should we analyze the competition?
Use a systematic approach
Analysis competition at various levels (next slide)

15. Levels of Competition Generic Competition Form Competition
Industry Competition
Brand Competition

16. Levels of Competition (cont’d)
Generic competition—e.g. Honda against Silver Sea Cruise for the same consumer dollars
Form competition—e.g. Toyota against manufacturers of other vehicles that provide the same service such as Yamaha (motorcycle)
Industry competition—e.g. Honda against Mercedes, Lexus etc who make the same products or class of products (different prices)
Brand competition—e.g. Honda against Toyota, Nissan etc. who offer similar products and service to the same customers at similar prices

17. Industry Competition
Different industries can sustain different levels of profitability; partly due to the difference in industry structure
Porter’s Model of Industry Competition, commonly know as Porter’s Five Forces provides a framework for analyzing the influence of the forces on the industry to determine the industry’s profitability and competitiveness

18. Porter’s Model of Industry Competition
Barriers to Entry
Industry degree of rivalry
Suppliers
Buyers
Substitutes
(Source: Aakers pp.8487)

19. Porter’s 5 Forces— Barriers to Entry
Absolute cost advantages
Proprietary learning curve
Access to inputs
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
(Source: Michael Porter, “On Competition”)

20. Threats of Substitutes
Switching costs
Buyer propensity to substitute
Relative price performance of substitutes
(Source: Michael Porter, “On Competition”)

21. Buyer Power Bargaining leverage Buyer volume Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
Substitutes available
Buyers' incentives
(Source: Michael Porter, “On Competition”)

22. Supplier Power Switching costs of firms in the industry
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
Impact of inputs on cost or differentiation
Switching costs of firms in the industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in industry
(Source: Michael Porter, “On Competition”)

23. Degree of Rivalry Exit barriers Industry growth
Industry concentration ratio
Fixed costs/Value added
Product differentiation
Buyers' incentives
(Source: Michael Porter, “On Competition”)