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Go Global !Global Economic Environment :External Marketing Environment                             By                     ...
Agenda1.   Global Marketing     Mix2.   Segmentation,     Targeting &     Positioning3.   External     Environmental     A...
Learning Objectives To explain what marketing is. To explain the constituents of  the macro and micro  environment. To ...
Introduction Marketing principles (5P) in foreign  markets are similar to those in domestic  markets  1. Product  2. Pric...
IntroductionMarketing as a Means of Pursuing an International Strategy
Marketing Strategies Marketing strategy depends on  marketing orientation   Production   Sales   Customer   Strategic...
Marketing Strategies Firms can segment and target  markets  By country  By global segment  Using multiple criteria
Product Policies :Why Firms Alter Products Firms alter products for   Legal reasons   Cultural reasons   Economic reas...
The Product Line:  Extent and Mix Product line decisions depend on  Sales and cost   considerations  Product life cycle...
Pricing Strategies Potential obstacles in international  pricing   Government intervention     Set minimum or maximum p...
Pricing StrategiesPricing tactics  Skimming strategy  Penetration strategy  Cost-plus strategyExport price escalation...
Pricing Strategies     Why Cost-Plus Pricing Pushes Up Prices
Pricing StrategiesGray market or product diversion  the selling and handling   of goods through unofficial   distributors
Pricing Strategies        Negotiating Import-Export Prices
Promotion StrategiesPromotion  the presentation of messages intended   to help sell a product or servicePush-pull mix  ...
Promotion Strategies Advantages of standardized advertising   lower cost   better quality at local level   common glob...
Branding StrategiesBrand an identifying mark for a product or service
Branding Strategies Advantages of a worldwide  brand   global image   global player identification Problems with globa...
Distribution Strategies Distribution  the course – physical path   or legal title – that goods   take between production...
Distribution Strategies Deciding whether to standardize  Distribution can vary   substantially among   countries  Distr...
Distribution Strategies When choosing distributors and channels  firms must consider  whether internal handling   is fea...
Distribution Strategies Distributors choose which products  to handle To get a distributor to work for  them, companies ...
Distribution Strategies Factors that can contribute to  distribution cost differences among  countries include   Infrast...
Distribution Strategies E-commerce and the Internet   Opportunities    can replace traditional sales methods    faster...
Managing the Marketing MixGap analysis a method for estimating a company’s  potential sales by identifying prospective  ...
Managing the Marketing Mix            Gap Analysis
Evolving Challengesto Segment Markets Disparities between “haves” and “have-nots” will  increase Companies will have con...
Global Market Segmentation,Targeting & Positioning             •   How to identify like groups of                 potentia...
Market Segmentation Represents an effort to identify and categorize groups of customers and  countries according to commo...
Targeting• The process of evaluating segments and  focusing marketing efforts on a country,  region, or group of people th...
Positioning•   Positioning is required to differentiate the product or brand in the minds of    the target market.
Global Market Segmentation• Defined as the process of identifying  specific segments—whether they be  country groups or in...
Contrasting Views ofGlobal Segmentation   • Conventional                  Unconventional     Wisdom                      ...
Global Market Segmentation                 •   Demographics                 •   Psychographics                 •   Behavio...
Demographic Segmentation•   Income•   Population•   Age distribution•   Gender•   Education•   Occupation                 ...
Demographic Facts and Trends• In India the number of people under the age of 14 is  greater than the entire US population•...
Demographic Segmentation• A widening age gap exists between the older populations  in the West and the large working-age p...
Segmenting by Income      and Population•   Income is a valuable segmentation variable     – 2/3s of world’s GNP is genera...
Per Capita Income
10 Most Populous Countries
Age Segmentation•   Global Teens-between the ages of 12    and 19     – A group of teenagers randomly chosen       from di...
Gender Segmentation In focusing on the  needs and wants of  one gender, do not  miss opportunities to  serve the other C...
Psychographic Segmentation Grouping people according to attitudes, values,  and lifestyles   SRI International and VALS ...
Psychographic Segmentation The Euroconsumer:   Successful Idealist –Comprises from 5% to 20% of    the population; consi...
Psychographic SegmentationThe Euroconsumer:                                  Disaffected Survivors   Comfortable Belong...
Psychographic Segmentation:Sony’s U.S. Consumer Segments
Behaviour Segmentation•Focus on whether people purchase a productor not, how much, and how often they use it•User status•L...
Benefit SegmentationBenefit segmentation focuses on the value equation  Value=Benefits/PriceBased on understanding the ...
Ethnic Segmentation                           Hispanic Americans• The population of  many countries             50 milli...
Assessing Market PotentialBe mindful of the pitfalls  Tendency to overstate the size and short-term   attractiveness of ...
Assessing Market Potential• Three basic criteria:  – Current size of the segment and anticipated    growth potential  – Po...
Current Segment Size and Growth• Is the market segment currently large enough  to present a company with the opportunity t...
Potential Competition• Is there currently strong competition in the market  segment?• Is the competition vulnerable in ter...
Feasibility and Compatibility• Will adaptation be required? If so, is this  economically justifiable in terms of expected ...
Feasibility and Compatibility• Is it advisable to source locally? Would it  make sense to source products in the country  ...
Framework for Selecting Target Markets • Demographic information is a starting point but   not the decision factor • Produ...
9 Questions for Creating a Product-MarketProfile1.   Who buys our product?2.   Who does not buy it?3.   What need or funct...
Target MarketStrategy Options Standardized global marketing    Mass marketing on a global scale    Undifferentiated tar...
Target Market Strategy Options• Concentrated global  marketing                 Differentiated  – Niche marketing         ...
Positioning• Locating a brand in  consumers’ minds over and  against competitors in terms  of attributes and benefits  tha...
Positioning Strategies                          • Global consumer culture                            positioning          ...
Positioning Strategies• Local consumer culture  positioning   – Identifies with local cultural     meanings   – Consumed b...
External Environmental Analysis (1)• Analyse the broad macro-environment of  organisations in terms of political, economic...
External Environmental Analysis(2)• Use Porter’s five forces analysis in order to  define the attractiveness of industries...
Slide 2.65             Layers of the business environment    Figure 2.1   Layers of the business environment
The PESTEL framework (1)The PESTEL framework categorisesenvironmental influences into six main types:   political,        ...
The PESTEL framework (2)• Political Factors: For example, Government  policies, taxation changes, foreign trade  regulatio...
The PESTEL framework (3)•   Technological Factors: For example, new discoveries and technology    developments, ICT innova...
Key drivers of changeKey drivers for change:• The environmental factors likely to have a high  impact on the success or fa...
Using the PESTEL framework• Apply selectively –identify specific factors which  impact on the industry, market and organis...
ScenariosScenarios are detailed and plausible views of howthe environment of an organisation might develop inthe future ba...
Carrying out scenario analysis (1)• Identify the most relevant scope of the study – the  relevant product/market and time ...
Carrying out scenario analysis (2)• Develop scenario ‘stories’ - That is, coherent  and plausible descriptions of the envi...
Scenarios for the global financial system,  2020Illustration 2.2
Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the s...
Porter’s five forces frameworkPorter’s five forces framework helps identify theattractiveness of an industry in terms of f...
Slide 2.77                         The five forces framework (1)    Figure 2.2       The five forces framework    Source: ...
The five forces framework (2)                The Threat of Entry & Barriers to Entry   • The threat of entry is low when t...
The five forces framework (3)                           Threat of Substitutes   Substitutes are products or services that ...
The five forces framework (4)                    The bargaining power of buyers    Buyers are the organisation’s immediate...
The five forces framework (5)                   The bargaining power of suppliers    Suppliers are those who supply what o...
The five forces framework (6)                            Rivalry between competitorsCompetitive rivals are organisations w...
Implications of five forces analysis• Identifies the attractiveness of industries –  which industries/markets to enter or ...
Issues in five forces analysis• Apply at the most appropriate level – not  necessarily the whole industry. E.g. the Europe...
The value netFigure 2.3   The value netReprinted by permission of Harvard Business Review. From ‘The Right Game’ by A. Bra...
Comparative industry structure analysisFigure 2.5   Comparative industry structure analysis
Types of industry (1)   • Monopolistic industries - an industry with one firm and     therefore no competitive rivalry. A ...
Types of industry (2)• Hypercompetitive industries - where the  frequency, boldness and aggression of competitor  interact...
Cycles of competitionFigure 2.6       Cycles of competitionSource: Adapted with the permission of The Free Press, a Divisi...
The industry life cycleFigure 2.4   The industry life cycle
Strategic GroupsStrategic groups are organisations within an industry or sector with similarstrategic characteristics, fol...
Characteristics for identifying strategic             groupsFigure 2.7   Some characteristics for identifying strategic gr...
Strategic groups in the Indian pharmaceutical             industryFigure 2.8       Strategic groups in the Indian pharmace...
Uses of strategic group analysis•   Understanding competition - enables focus on direct    competitors within a strategic ...
Market segments  A market segment is a group of customers who have similar  needs that are different from customer needs i...
Bases of market segmentation (1)Table 2.1   Some bases of market segmentation
Who are the strategic customers?A strategic customer is the person(s) at whom the strategy is primarilyaddressed because t...
Critical success factors (CSFs)   • Critical success factors are those factors that are either     particularly valued by ...
Blue ocean thinking  • ‘Blue oceans’ are new market spaces where    competition is minimised.  • ‘Red Oceans’ are where in...
Strategy canvasFigure 2.9      Strategy canvas for electrical components companiesSource: Developed from W.C. Kim and R. M...
Summary (1)  • Environmental influences can be thought of as layers    around an organisation, with the outer layer making...
Summary (2)• Industries and sectors are dynamic, and their  changes can be analysed in terms of the industry life  cycle, ...
Strategic Competitive AdvantageFactors that shape competitionCompetitive advantage at the industry and national levelsH...
Industry Analysis:Forces Influencing Competition Industry – group of firms that produce products that are close  substitu...
Porter’s Force 1:   Threat of New Entrants New entrants mean downward pressure on prices and reduced  profitability Barr...
Threat of New Entrants: Barriers to Entry Economies of Scale   Refers to the decline in per-unit product costs    as the...
Threat of New Entrants:Barriers to Entry          Distribution channels            Are there current distribution       ...
Porter’s Force 2:Threat of Substitute Products  Availability of substitute products places limits on the   prices market ...
Porter’s Force 3:Bargaining Power of Buyers Buyers=manufacturers and retailers, not  consumers Buyers seek to pay the lo...
Bargaining Power of Buyers“We do not quibble or argue with anyone’s right to  sing what they want, to print what they want...
Porter’s Force 4:Bargaining Power of Suppliers When suppliers have leverage, they  can raise prices high enough to affect...
Porter’s Force 5:     Rivalry Among Competitors Refers to all actions taken by firms in the industry to improve  their po...
Competitive Advantage Achieved when there is a match between a firm’s  distinctive competencies and the factors critical ...
Competitive Advantage“The only way to gain lasting  competitive advantage is to  leverage your capabilities around  the wo...
Generic Strategies for Creating Competitive Advantage Broad market strategies  Cost Leadership—low price  Product Diffe...
Cost Leadership Based on a firm’s position as the  industry’s low-cost producer Must construct the most efficient  facil...
Product Differentiation Product that has an actual or  perceived uniqueness in a broad  market has a differentiation  adv...
Cost Focus Firm’s lower cost position enables it  to offer a narrow target market and  lower prices than the competition...
Focused DifferentiationThe product not only has actual uniqueness but it also has a very narrow target marketResults fro...
The Flagship Firm: TheBusiness Network with FivePartners Network Relationship   Commercial Relationship
Creating Competitive Advantagevia Strategic Intent “Few competitive advantages are long   lasting. Keeping score of existi...
The Flagship Firm• A collection of 5 partners   – Key suppliers do some tasks better than the     flagship (ex.: manufactu...
Creating CompetitiveAdvantage via StrategicIntent Building layers of advantage Searching for loose bricks Changing the ...
Building Layers of Advantage A company faces less risk if it has a wide portfolio of  advantages Successful companies bu...
Searching for Loose Bricks                Search for opportunities in the                 defensive walls of competitors ...
Changing the Rules of Engagement• Refuse to play by the rules set by  industry leaders Example Xerox and Canon   Xerox e...
Collaborating Use the know-how  developed by other  companies Licensing  agreements, joint  ventures, or  partnerships
Global Competition and NationalCompetitive Advantage Global competition occurs when a firm  takes a global view of compet...
Global Competition and NationalCompetitive Advantage(Porter’s Diamond)
Factor Conditions Human Resources – the quantity of  workers available, skills possessed by  those workers, wage levels, ...
Factor Conditions             Capital Resources – the              availability, amount, cost,              and types of ...
Demand Conditions Composition of Home Demand – determines how firms  perceive, interpret, and respond to buyer needs Siz...
Demand Conditions Rapid Home Market Growth –  another incentive to invest in and  adopt new technologies faster and  buil...
Related and SupportingIndustries            The advantage that a nation gains by             being home to internationall...
Firm Strategy, Structure, and Rivalry Domestic rivalry in a single national  market is a powerful influence on  competiti...
Firm Strategy, Structure,and Rivalry Capital markets and attitudes  toward investments are important  components of the n...
Current Issues inCompetitive Advantage Today’s business environment, market stability is  undermined by:    Short produc...
Current Issues in Competitive Advantage Hypercompetition is a term used to describe a dynamic  competitive world in which...
Current Issues in   Competitive Advantage In today’s world, in order  to achieve a sustainable  advantage, companies  mus...
Current Issues inCompetitive Advantage “I don’t think we’re moving towards ahypercompetitive world in which there areno tr...
Location of Companies withCompetitive Advantage
Conclusion“Our innovation strategy is to innovate for every one of those consumers on that economic curve, and if you don’...
Casestudy : SAB-MILLER1. Read    and   prepare   the   Casestudy on SAB MILLER   (Johnson, Whittington &   Scholes     (20...
Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008)  Business Economics in a Global Environment,  Napier Universit...
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  • The Learning Objectives for this chapter are To understand a variety of international product policies and their appropriate circumstances To be aware of product alterations when deciding between standardized and differentiated marketing programs among countries To appreciate the pricing complexities when selling in foreign markets To be familiar with country differences that may necessitate alterations in promotional practices To comprehend the different branding strategies companies may employ internationally To discern effective practices and complications of international distribution To perceive why and how emphasis within the marketing mix may vary among countries
  • International marketing is like domestic marketing in that a firm needs a desirable product or service, must tell people about it, price it at an acceptable level, and offer it in the right location. However, because international marketing managers operate in an unfamiliar environment each of these activities becomes more complex.
  • This Figure shows how international marketing fits in with a firm’s operations.
  • There are five common marketing orientations. The production orientation assumes that customers want lower prices or higher quality. This approach is generally only used for commodity sales, passive exports, and foreign niches. The sales orientation assumes that foreign customers are similar to domestic customers, so the company simply sells abroad what it can sell at home. The customer orientation, in contrast, holds the country as a constant and varies the product and marketing method. The strategic marketing orientation adapts product strategy by degree. Finally, the social marketing orientation considers decisions from the perspective of all stakeholders. Firms using this approach try to act in a socially responsible way.
  • Companies have to segment markets and identify specific segments to target. Three basic ways to do this is are by country, by global segment, and using multiple criteria.
  • Firms prefer not to alter their product for foreign markets because of the costs involved in doing so. However, in many cases different legal, cultural, and economic conditions in the target market make product alterations a necessity. When product changes are necessary, firms can still try to find ways to control alteration costs by changing only what needs to be changed and keeping everything else the same.
  • In addition to deciding whether a product needs to be adapted for a target market, firms also need to consider the extent and mix of the product line that will be sold in foreign markets. This requires sales and cost considerations as well as product life cycle considerations.
  • Pricing in international markets is more complex than domestic pricing. Governments, for example, may establish pricing guidelines or even forbid certain pricing strategies. Similarly, market diversity can encourage different pricing across markets.
  • Firms can use different pricing strategies. A skimming strategy involves charging a high price for a new product by aiming first at consumers willing to pay the price, and then progressively lowering the price. Firms using a penetration strategy in troduce a product at a low price to induce a maximum number of consumers to try it. A cost-plus strategy involves pricing at a desired margin over cost. Keep in mind that export price escalation may occur. This typically happens for two reasons. First, c hannels of distribution usually include additional intermediaries because exporters need to contract with organizations that know how to sell in foreign markets. Second, tariffs and transport are additional costs that may be passed on to consumers. Finally, remember that pricing in highly volatile currencies can be extremely troublesome.
  • This Figure shows why cost-plus pricing pushes up prices. Keep in mind that export price escalation can make it difficult to compete in foreign markets.
  • According to one consulting firm, U.S. companies lose as much as $63 billion per year because of grey markets. Today, easy access to information makes it much harder for firms to price on a country-to-country basis. Grey markets typically emerge when differences exist.
  • This Table shows ways that exporters can negotiate prices more effectively.
  • Promotion can vary significantly depending on the company, the product, and the country of operation. Push promotion uses direct selling while pull relies on mass media.
  • Companies face numerous challenges because of diverse national environments. Very often, companies find that they have to adapt their promotion to local market conditions. For example, companies may find that promotion in rural areas requires specially designed strategies. Similarly, government regulations can pose problems as can differences in income levels. Keep in mind that even if a standardized approach is possible it may not always be beneficial.
  • Brands give products instant recognition. Businessweek estimates that U.S. companies own 52 of the top 100 global brands.
  • Using the same brand worldwide helps a firm develop a global image, but may not always be possible because of language differences or because the firm has acquired a locally branded product. Country-of-origin can also be a factor in branding. A global brand can help a company overcome negative country-of-origin images, but keep in mind that images can change. Note also that the advantages of a well-known brand can be negated if the brand becomes a generic term.
  • When it comes to distribution, international marketing managers not only have to figure out how to get the product to a particular country, they also need to develop a strategy to get it to the end user.
  • As with other elements in the marketing mix, managers need to decide whether distribution can be standardized or whether it needs to be adapted to fit the needs of each market. In general, distribution is the most difficult element to standardize. Keep in mind that the cost and time involved in establishing a distribution system can make it difficult to change even when the situation changes.
  • Companies must decide whether to handle distribution in-house or outsource it. If a firm decides to outsource, it must ensure that it uses a qualified distributor. In addition, reliable after-sales service needs to be available especially for products using new technology.
  • Companies looking for distributors may find that many are locked into exclusive arrangements. In some cases, it may be necessary to offer distributors incentives or offer proven products as bait for taking on new ones. Companies may even find that they have to convince distributors of the viability of the company itself.
  • Distribution costs can vary between countries because of infrastructure conditions, the number of levels in the distribution system, retail inefficiencies, size and operating hour restrictions, and inventory stock-outs.
  • The growth in online availability creates new opportunities and challenges in selling globally over the Internet.
  • The difference between total market potential and a company’s sales is a result of gaps. A usage gap exists when collectively, all competitors sell less than the market potential. A product line gap exists when the company lacks some product variations. A distribution gap exists when a company misses geographic or intensity coverage. A competitive gap exists when competitors’ sales are not explained by product line and distribution gaps.
  • This Figure shows the different gaps companies can face.
  • What challenges will face international marketing managers in the future? There are several issues to consider. It’s anticipated that disparities between the “ haves ” and “ have-nots ” will grow in the foreseeable future, both within and among countries. Those who are better educated and more connected to the Internet will be better able to search globally for lower prices for what they buy. So, globally, the affluent segment will have even more purchasing power than their incomes indicate. At the other extreme, companies will have opportunities to develop low cost standardized products to fit the needs of those with lower disposable incomes. Attitudinal differences are also likely to affect demand in general as well as demand for particular types of products and services. Although global communications are reaching far-flung populations, different people react differently to them. Finally, companies will continued to be challenged by materialism, cosmopolitanism, and consumer ethnocentrism.
  • As noted in earlier chapters, two decades ago Professor Theodore Levitt advanced the thesis that consumers in different countries increasingly seek variety, and that the same new segments are likely to show up in multiple national markets. Thus, ethnic or regional foods such as sushi, falafel, or pizza might be in demand anywhere in the world. Levitt suggested that this trend, known variously as the pluralization of consumption and segment simultaneity , provides an opportunity for marketers to pursue one or more segments on a global scale. Authors John Micklethwait and Adrian Wooldridge sum up the situation this way:   The audience for a new recording of a Michael Tippett symphony or for a nature documentary about the mating habits of flamingos may be minuscule in any one country, but round up all the Tippett and flamingo fanatics around the world, and you have attractive commercial propositions. The cheap distribution offered by the Internet will probably make these niches even more attractive financially.   Global market segmentation is based on the premise that companies should attempt to identify consumers in different countries who share similar needs and desires. A. Coskun Samli has developed a useful approach to global market segmentation that compares and contrasts “ conventional ” versus “ unconventional ” wisdom. This is shown on the next slide.
  • For example, conventional wisdom might assume that consumers in Europe and Latin America are interested in World Cup soccer while those in America are not. Unconventional wisdom would note that the “ global jock ” segment exists in many countries, including the United States. Similarly, conventional wisdom might assume that, because per capita income in India is about $820, all Indians have low incomes. Unconventional wisdom would note the presence of a higher-income, middle-class segment. As Sapna Nayak, a food analyst at Raobank India, noted recently, “The potential Indian customer base for a McDonald’s or a Subway is larger than the size of entire developed countries.  The same is true of China; the average annual income of people living in eastern China is approximately $1,200. This is the equivalent to a lower-middle-income country market with 470 million people, larger than every other single country market except India.  
  • Today, global (multi-national) companies, and the research and advertising agencies that serve them, use market segmentation to identify, define, understand, and respond to customer wants and needs on a worldwide, rather than strictly local basis. As we have noted many times in this book, global marketers must determine whether a standardized or adapted marketing mix is required to best serve those wants and needs. By performing market segmentation, marketers can generate the insights needed to devise the most effective approach. The process of global market segmentation begins with the choice of one or more variables to use as a basis for grouping customers. This slide shows the most common segmentation categories. The following slides will discuss them more in-depth.
  • By 2030, 20 percent of the U.S. population—70 million Americans—will be 65 years old or older versus 13 percent (36 million) today. America’s three main ethnic groups—African/Black Americans, Hispanic Americans, and Asian Americans—represent a combined annual buying power of $2.5 trillion. The United States is home to 28.4 million foreign-born residents with a combined income of $233 billion.
  • Demographic changes can create opportunities for marketing innovation. In France, for example, two entrepreneurs began rewriting the rules of retailing years before Sam Walton founded the Wal-Mart chain. Marcel Fournier and Louis Defforey opened the first Carrefour (“crossroads”) hypermarket in 1963. At the time, France had a fragmented shop system that consisted of small, specialized stores with only about 5,000 square feet of floor space such as the boulangerie and charcuterie . The shop system was part of France’s national heritage, and shoppers developed personal relationships with a shop’s proprietor. However, time pressed, dual-parent working families had less time to stop at several stores for daily shopping. The same trend was occurring in other countries. By 1993, Carrefour SA was a global chain with $21 billion in sales and a market capitalization of $10 billion. By 2008, sales had reached $124 billion; today, Carrefour operates 9,630 stores in 32 countries. As Adrian Slywotzky has noted, it was a demographic shift that provided the opportunity for Fournier and Defforey to create a novel, customer-matched, cost-effective business design.   After segmenting in terms of a single demographic variable—income—a company can reach the most affluent markets by targeting fewer than 20 nations: the European Union, North America, and Japan. By doing so, however, the marketers are not reaching almost 90 percent of the world ’ s population! A word of caution is in order here. Data about income (and population) have the advantage of being widely available and inexpensive to access. However, management may unconsciously “read too much” into such data. In other words, while providing some measure of market potential, such macro-level demographic data should not necessarily be used as the sole indicator of presence (or absence) of a market opportunity. This is especially true when an emerging country market or region is being investigated.   As noted previously, for products whose price is low enough, population is a more important variable than income in determining market potential. As former Kodak CEO George Fisher commented a decade ago, “ Half the people in the world have yet to take their first picture. The opportunity is huge, and it’s nothing fancy. We just have to sell yellow boxes of film.” Thus, China and India, with respective populations of 1.3 billion and 1 billion, represent attractive target markets. In a country like China, one segmentation approach would call for serving the existing mass market for inexpensive consumer products. (FYI, Kodak paralyzed their own growth by trying to suppress digital camera technology, even though they were the first to invent them, because of the fear their digital cameras would cannibalize their film business. They declared bankruptcy in 2012.)   Procter & Gamble, Unilever, Kao, Johnson & Johnson, and other packaged goods companies are targeting and developing the China market, lured in part by the possibility that as many as 100 million Chinese customers are affluent enough to spend a few cents for a single-use pouch of shampoo.
  • Young consumers may not yet have conformed to cultural norms; indeed, they may be rebelling against them. This fact, combined with shared universal wants, needs, desires, and fantasies (for name brands, novelty, entertainment, trendy, and image-oriented products), make it possible to reach the global teen segment with a unified marketing program. This segment is attractive both in terms of its size (about 1.3 billion) and its multi-billion dollar purchasing power. The U.S. teen market represents roughly $200 billion in annual buying power; the United Kingdom’s 7.5 million teens spend more than $10 billion each year. Coca-Cola, Benetton, Swatch, and Sony are some of the companies pursuing the global teenage segment.   The global elite is normally associated with older individuals who have accumulated wealth over the course of a long career, it also includes movie stars, musicians, elite athletes, and others who have achieved great financial success at a relatively young age.
  • In 2000, Nike generated $1.4 billion in global sales of women’s shoes and apparel, a figure representing 16 percent of total Nike sales. Nike executives believe its global women’s business is poised for big growth. To make it happen, Nike is opening concept shops inside department stores and creating free-standing retail stores devoted exclusively to women. In Europe, Levi Strauss is taking a similar approach. In 2003, the company opened its first boutique for young women, Levi’s for Girls, in Paris. As Suzanne Gallacher, associate brand manager for Levi’s in Europe, the Middle East, and Africa, noted, “In Europe, denim is for girls. ”
  • Data are obtained from questionnaires that require respondents to indicate the extent to which they agree or disagree with a series of statements. Psychographics is primarily associated with SRI International, a market research organization whose original VALS and updated VALS 2 analyses of consumers are widely known.   A psychographic study showed that, demographics aside, Porsche buyers could be divided into several distinct categories. Top Guns, for example, buy Porsches and expect to be noticed; for Proud Patrons and Fantasists, however, such conspicuous consumption is irrelevant. Porsche used the profiles to develop advertising tailored to each type.   As Richard Ford, Porsche vice president of sales and marketing, noted: “We were selling to people whose profiles were diametrically opposed. You wouldn’t want to tell an elitist how good he looks in the car or how fast he could go.” The results were impressive; Porsche’s U.S. sales improved nearly 50 percent after a new advertising campaign was launched.
  • The following characteristics come from a research team at D ’ arcy Massius Benton & Bowles. They focused on Europe and produced a 15-country study entitled: “ The Euroconsumer: Marketing Myth or Cultural Certainty? ” They identified four lifestyle groups which are highlighted here and on the next slide.
  • Behavior segmentation focuses on whether or not people buy and use a product, as well as how often, and how much they use or consume. Consumers can be categorized in terms of usage rates: for example, heavy, medium, light, and non-user. Consumers can also be segmented according to user status: potential users, non-users, ex-users, regulars, first-timers, and users of competitors ’ products. Nine country markets generate about 80 percent of McDonald’s revenues. This situation presents McDonald’s executives with strategy alternatives: Should the company pursue growth in the handful of countries where it is already well known and popular? Or, should it focus on expansion and growth opportunities in the scores of countries that, as yet, contribute little to revenues and profits?
  • Marketers of health and beauty aids also use benefit segmentation. Many toothpaste brands are straightforward cavity fighters, and as such they reach a very broad market. However, as consumers become more concerned about whitening, sensitive teeth, gum disease, and other oral care issues, marketers are developing new toothpaste brands suited to the different sets of perceived needs. The European pet food market represents $30 billion in annual sales. Nestlé discovered that cat owners’ attitudes toward feeding their pets are the same everywhere. In response, a pan-European campaign was created for Friskies Dry Cat Food. The appeal was that dry cat food better suits a cat’s universally recognized independent nature. Likewise, many Europeans are concerned with improving the health and longevity of their pets. Accordingly, Procter & Gamble is marketing its Iams brand premium pet food as a way to improve pets’ health.
  • From a marketing point of view, these groups offer great opportunity. Companies in a variety of industry sectors, including food and beverages, consumer durables, and leisure and financial services are recognizing the need to include these segments when preparing marketing programs for the United States.   In the two-year period 1999-2000, new-vehicle registrations by Hispanics in the United States grew 20 percent, twice the overall national growth rate. Honda, Toyota, and other Japanese automakers have been courting U.S. Hispanics for years and have built up a great deal of brand loyalty. Ford and GM are playing catch up, with mixed results; despite large increases in advertising targeting Hispanics, GM’s market share is slipping. Sales of Corona Extra beer in the United States have grown dramatically recently, thanks in part to savvy marketing to the Hispanic segment. In lower-income neighborhoods, imported premium beer brands represent “ affordable luxuries. ” Although a six-pack of Corona typically costs at least a dollar more than Budweiser at a local bodega, it is usually priced lower than Heineken. Marketers must understand, though, that many Hispanic Americans live in two worlds; while they identify strongly with the United States, there is also a sense of pride associated with brands that connect to their heritage.
  • After segmenting the market by one or more of the criteria just discussed, the next step is to assess the attractiveness of the identified segments. This part of the process is especially important when sizing up emerging country markets as potential targets. It is at this stage that global marketers should be mindful of several potential pitfalls associated with the market segmentation process.
  • India is the world ’ s fastest growing cell phone market. The industry is expanding at a rate of 50 percent annually, with 5 to 6 million new subscribers added every month. By mid-2008, India had 261 million cell phone users; that number approached 900 million by the end of 2011.   1.3 million cars sold annually, 3 million within 10 years, world’s largest car market.   75% of India’s population is under age 35, increasing affluent and looking for designer brands.   Even so, barriers originating in the political and regulatory environments have shackled private-sector growth. From the perspective of a consumer packaged goods company, for example, low incomes and the absence of a distribution infrastructure offset the fact that 75 percent of India’s population lives in rural areas. The appropriate decision may be to target urban areas only, even though they are home to only 25 percent of the population. Visa’s strategy in China perfectly illustrates this criterion as it relates to demographics: Visa is targeting persons with a monthly salary equivalent to $300 or more. The company estimates that currently 60 million people fit that description; by 2010, the number could include as many as 200 million people.
  • Over the past several decades, for example, Japanese companies in a variety of industries targeted the U.S. market despite the presence of entrenched domestic market leaders. Some of the newcomers proved to be extremely adept at segmenting and targeting; as a result, they made significant inroads. In the motorcycle industry, for example, Honda first created the market for small-displacement dirt bikes. The company then moved upmarket with bigger bikes targeted at casual riders whose psychographic profile was quite different than that of the hardcore Harley-Davidson rider. In document imaging, Canon outflanked Xerox by offering compact desktop copiers and targeting department managers and secretaries. Similar case studies can be found in earth-moving equipment (Komatsu versus Caterpillar), photography (Fuji versus Kodak), and numerous other industries.   Germany’s DHL tried to enter the U.S. package-delivery market in 2003; to achieve scale, DHL acquired Airborne Express. However, management underestimated the dominance of the entrenched incumbents FedEx and UPS. DHL finally withdrew from the United States market in 2008 after losses totaled about $10 billion.
  • If a market segment is judged to be large enough, and if strong competitors are either absent or deemed to be vulnerable, then the final consideration is whether a company can and should target that market. The feasibility of targeting a particular segment can be negatively impacted by various factors. For example, significant regulatory hurdles may be present that limit market access. This issue is especially important in China today Other marketing-specific issues can arise; in India, for example, three to five years are required to build an effective distribution system for many consumer products. This fact may serve as a deterrent to foreign companies that might otherwise be attracted by the apparent potential of India’s large population.
  • Finally, it is important to address the question of whether targeting a particular segment is compatible with the company’s overall goals, its brand image, or established sources of competitive advantage. For example, BMW is one of the world’s premium auto brands. Should BMW add a minivan to its product lineup? As former BMW CEO Helmut Panke once explained, “There is a segment in the market which BMW is not catering to and that is the minivan or MPV segment. We don’t have a van because a van as it is in the market today does not fulfill any of the BMW group brand values. We all as a team said “no.”
  • Global marketing expert David Arnold has developed a framework that goes beyond demographic data and considers other, marketing-oriented assessments of market size and growth potential. Instead of a “ top-down ” segmentation analysis beginning with, say, income or population data from a particular country, Arnold ’ s framework is based on a “ bottom-up ” analysis that begins at the product-market level. After marketing-model drivers and enabling conditions have been identified, the third step is for management to weigh the estimated costs associated with entering and serving the market with potential short- and long-term revenue streams. Does this segment or country market merit entry now? Or, would it be better to wait until, say, specific enabling conditions are established?   The term product-market refers to a market defined by a product category; in the automotive industry, for example, phrases such as “luxury car market,” “SUV market,” and “minivan market” refer to specific product-markets. By contrast, phrases such as “the Russian market” or “the Indian market” refer to country markets.   Marketing model drivers are key elements or factors required for a business to take root and grow in a particular country market environment. The drivers may differ depending on whether a company serves consumer or industrial markets. Does success hinge on establishing or leveraging a brand name? Or, is distribution or a tech-savvy sales staff the key element? Marketing executives seeking an opportunity must arrive at insights into the true driving force(s) that will affect success for their particular product-market.   Enabling conditions are structural market characteristics whose presence or absence can determine whether the marketing model can succeed. For example, in India, refrigeration is not widely available in shops and market food stalls. This creates challenges for Nestlé and Cadbury Schweppes as they attempt to capitalize on Indians’ increasing appetite for chocolate confections. Although Nestlé’s KitKat and Cadbury’s Dairy Milk bars have been reformulated to better withstand heat, the absence or rudimentary nature of refrigeration hampers the companies’ efforts to ensure their products are in saleable condition.
  • A niche is simply a single segment of the global market. In cosmetics, the House of Lauder, Chanel, and other cosmetics marketers have used this approach successfully to target the upscale, prestige segment of the market. Similarly, Body Shop International PLC caters to consumers in many countries who wish to purchase “natural” beauty aids and cosmetics that have not been tested on animals.   Stolichnaya produces three brands of Russian vodka, each targeted at a different market segment: superpremium Stolichnaya Cristal, the premium “base” brand Stolichnaya, and low-priced Privet (the name means “greetings” in Russian).   In the cosmetics industry, Unilever NV and Cosmair Inc. pursue differentiated global marketing strategies by targeting both ends of the perfume market. Unilever targets the luxury market with Calvin Klein and Elizabeth Taylor’s Passion; Wind Song and Brut are its mass-market brands. Cosmair sells Tresnor and Giorgio Armani Gio to the upper end of the market and Gloria Vanderbilt to the lower end. Mass marketer Procter & Gamble, known for its Old Spice and Incognito brands, also embarked upon this strategy with its 1991 acquisition of Revlon’s EuroCos, marketer of Hugo Boss for men and Laura Biagiotti’s Roma perfume. In the mid-1990s, P&G launched a new prestige fragrance, Venezia, in the United States and several European countries. Conversely, in 1997 Estee Lauder acquired Sassaby Inc., owner of the mass-market Jane brand. The move marked the first move by Lauder outside the prestige segment.
  • The S001 is the flagship of Bridgestone’s Potenza tire line. The S001 is featured as original equipment on exotic automobiles from Ferrari and other manufacturers. In the replacement tire market, Bridgestone targets car enthusiasts who own high-performance cars and drive them under both wet and dry conditions. The S001 is positioned as a premium sports tire that performs well at high driving speeds. In this ad from Brazil, the headline Aproveite um Novo Limite (“Enjoy the New Limit”) underscores the S001’s performance qualities. More broadly, the tagline “Your Journey, Our Passion” supports Bridgestone’s core brand message of “supporting individuals.”
  • Global consumer culture positioning: “ United Colors of Benetton ” means the unity of humankind. High-tech: MP3 players, cell phones, luxury cars, financial services, Canon cameras, Adidas. High-touch: Nescafe coffee.
  • In any industry, competition works to drive down the rate of return on invested capital toward the rate that would be earned in the economist’s “perfectly competitive” industry. Rates of return that are greater than this so-called competitive rate will stimulate an inflow of capital either from new entrants or from existing competitors making additional investment. Rates of return below this competitive rate will result in withdrawal from the industry and a decline in the levels of activity and competition. According to Michael E. Porter of Harvard University, a leading theorist of competitive strategy, there are five forces influencing competition in an industry: the threat of new entrants, the threat of substitute products or services, the bargaining power of buyers, the bargaining power of suppliers, and the competitive rivalry among current members of the industry.
  • New entrants to an industry bring new capacity, a desire to gain market share and position, and, quite often, new approaches to serving customer needs. The decision to become a new entrant in an industry is often accompanied by a major commitment of resources. New players mean prices will be pushed downward and margins squeezed, resulting in reduced industry profitability in the long run. Porter describes eight major sources of barriers to entry, the presence or absence of which determines the extent of threat of new industry entrants. These barriers will be discussed in the next two slides.
  • Economies of scale: Although the concept of scale economies is frequently associated with manufacturing, it is also applicable to R&D, general administration, marketing, and other business functions. Honda’s efficiency at engine R&D, for example, results from the wide range of products it produces that feature gasoline-powered engines. When existing firms in an industry achieve significant economies of scale, it becomes difficult for potential new entrants to be competitive. Product differentiation : Differentiation can be achieved as a result of unique product attributes or effective marketing communications, or both. Product differentiation and brand loyalty “raise the bar” for would-be industry entrants who would be required to make substantial investments in R&D or advertising. For example, Intel achieved differentiation and erected a barrier in the microprocessor industry with its “Intel Inside” advertising campaign and logo that appear on many brands of personal computers. Capital requirements : Capital is required not only for manufacturing facilities (fixed capital) but also for financing R&D, advertising, field sales and service, customer credit, and inventories (working capital). The enormous capital requirements in such industries as pharmaceuticals, mainframe computers, chemicals, and mineral extraction present formidable entry barriers. Switching costs are caused by the need to change suppliers and products. These might include retraining, ancillary equipment costs, the cost of evaluating a new source, and so on. The perceived cost to customers of switching to a new competitor’s product may present an insurmountable obstacle preventing industry newcomers from achieving success. For example, Microsoft’s huge installed base of PC operating systems and applications presents a formidable entry barrier.
  • Distribution channels : If channels are full, or unavailable, the cost of entry is substantially increased because a new entrant must invest time and money to gain access to existing channels or to establish new channels. Some Western companies have encountered this barrier in Japan. Government policy is frequently a major entry barrier. In some cases, the government will restrict competitive entry. This is true in a number of industries, especially those outside the United States, that have been designated as “national” industries by their respective governments. Japan’s postwar industrialization strategy was based on a policy of reserving and protecting national industries in their development and growth phases. The result was a market that proved difficult for non-Japanese competitors. Cost advantages independent of scale economies: Access to raw materials, a large pool of low-cost labor, favorable locations, and government subsidies are several examples. Competitor response: If new entrants expect existing competitors to respond strongly to entry, their expectations about the rewards of entry will certainly be affected. A potential competitor’s belief that entry into an industry or market will be an unpleasant experience may serve as a strong deterrent. Bruce Henderson, former president of the Boston Consulting Group, used the term “brinkmanship” to describe a recommended approach for deterring competitive entry. Brinkmanship occurs when industry leaders convince potential competitors that any market entry effort will be countered with vigorous and unpleasant responses. This is an approach that Microsoft has used many times to maintain its dominance in software operating systems and applications.
  • The availability of substitute products places limits on the prices market leaders can charge in an industry; high prices may induce buyers to switch to the substitute. Once again, the digital revolution is dramatically altering industry structures. In addition to lowering entry barriers, the digital era means that certain types of products can be converted to bits and distributed in pure digital form. For example, the development of the MP3 file format for music was accompanied by the increased popularity of peer-to-peer (p-to-p) file swapping among music fans.
  • In Porter’s model, “buyers” refers to manufacturers (e.g., GM) and retailers (e.g., Wal-Mart), rather than consumers. The ultimate aim of such buyers is to pay the lowest possible price to obtain the products or services that they require. Usually, if they can, buyers drive down profitability in the supplier industry. To accomplish this, the buyers have to gain leverage over their vendors. One way they can do this is to purchase in such large quantities that supplier firms are highly dependent on the buyers’ business. Second, when the suppliers’ products are viewed as commodities—that is, as standard or undifferentiated—buyers are likely to bargain hard for low prices, because many firms can meet their needs. Buyers will also bargain hard when the supplier industry’s products or services represent a significant portion of the buying firm’s costs. A fourth source of buyer power is the willingness and ability to achieve backward integration.   Because it purchases massive quantities of goods for resale, Wal-Mart is in a position to dictate terms to any vendor wishing to distribute its products at the retail giant’s stores. This includes the recorded music industry; Wal-Mart accounts for approximately 10 percent of the market for CD sales. Wal-Mart refuses to stock CDs stickered with parental advisories for explicit lyrics or violent imagery. Artists who want their recordings available at Wal-Mart have the option of altering lyrics and song titles or deleting offending tracks. Likewise, artists are sometimes asked to change album cover art if Wal-Mart deems it offensive.
  • iTunes passed Wal-Mart to become the #1 music retailer in 2008. Until then Wal-Mart was the largest. In 2006 alone, 800 music stores including Tower Records closed. Wal-Mart has forced many artists to create versions of offensive lyrics.
  • Supplier power in an industry is the converse of buyer power. Microsoft and Intel are two excellent examples of companies with substantial supplier power. Because about 90 percent of the world’s nearly 1 billion plus PCs use Microsoft’s operating systems and 80% use Intel’s microprocessors, the two companies enjoy a great deal of leverage relative to Dell, Compaq, and other computer manufacturers. In fact, it was precisely because Microsoft became so powerful that the U.S. government and the European Union launched separate antitrust investigations.   As the trend toward tablets, smartphones, and netbooks continue, Apple and Android or Linux OS will diminish the market share of MS.
  • To the extent that rivalry among firms forces companies to rationalize costs, it is a positive force. To the extent that it drives down prices, and therefore profitability, and creates instability in the industry, it is a negative factor. Several factors can create intense rivalry. Once an industry becomes mature, firms focus on market share and how it can be gained at the expense of others. Second, industries characterized by high fixed costs are always under pressure to keep production at full capacity to cover the fixed costs. Once the industry accumulates excess capacity, the drive to fill capacity will push prices—and profitability— down. A third factor affecting rivalry is lack of differentiation or an absence of switching costs, which encourages buyers to treat the products or services as commodities and shop for the best prices. Again, there is downward pressure on prices and profitability. Fourth, firms with high strategic stakes in achieving success in an industry generally are destabilizing because they may be willing to accept below-average profit margins to establish themselves, hold position, or expand.
  • Any superior match between company competencies and customers needs permits for the firm to outperform competitors. There are two basic ways to achieve competitive advantage. First, a firm can pursue a low-cost strategy that enables it to offer products at lower prices than competitors. Competitive advantage may also be gained by a strategy of differentiating products so that customers perceive unique benefits, often accompanied by a premium price. Note that both strategies have the same effect: They both contribute to the firm’s overall value proposition.   Two different models of competitive advantage have received considerable attention. The first offers “generic strategies,” four routes or paths that organizations choose to offer superior value and achieve competitive advantage. According to the second model, generic strategies alone did not account for the astonishing success of many Japanese companies in the 1980s and 1990s. The more recent model, based on the concept of “strategic intent,” proposes four different sources of competitive advantage.
  • The quality of a firm’s strategy is ultimately decided by customer perception. Operating results such as sales and profits are measures that depend on the level of psychological value created for customers: The greater the perceived consumer value, the better the strategy. A firm may market a better mousetrap, but the ultimate success of the product depends on customers deciding for themselves whether or not to buy it. Value is like beauty; it’s in the eye of the beholder. In sum, competitive advantage is achieved by creating more value than is done by the competition, and value is defined by customer perception.
  • In addition to the “five forces” model of industry competition, Michael Porter has developed a framework of so-called generic business strategies based on the two types or sources of competitive advantage. The relationship of these two sources with the scope of the target market served (narrow or broad) or product mix width (narrow or wide) yields four generic strategies: cost leadership , product differentiation , cost focus , and focused differentiation . Generic strategies aiming at the achievement of competitive advantage or superior marketing strategy demand that the firm make choices. The choices concern the type of competitive advantage it seeks to attain (based on cost or differentiation) and the market scope or product mix width within which competitive advantage will be attained.
  • Cost leadership advantage can be the basis for offering lower prices (and more value) to customers in the late, more-competitive stages of the product life cycle. In Japan, companies in a range of industries—35mm cameras, consumer electronics and entertainment equipment, motorcycles, and automobiles—have achieved cost leadership on a worldwide basis. Cost leadership, however, is a sustainable source of competitive advantage only if barriers exist that prevent competitors from achieving the same low costs. In an era of increasing technological improvements in manufacturing, manufacturers constantly leapfrog over one another in pursuit of lower costs. Cost leadership advantage can be the basis for offering lower prices (and more value) to customers in the late, more-competitive stages of the product life cycle. In Japan, companies in a range of industries—photography and imaging, consumer electronics and entertainment equipment, motorcycles, and automobiles—have achieved cost leadership on a worldwide basis. Cost leadership, however, is a sustainable source of competitive advantage only if barriers exist that prevent competitors from achieving the same low costs. In an era of increasing technological improvements in manufacturing, manufacturers constantly leapfrog over one another in pursuit of lower costs.
  • Differentiation advantage. This can be an extremely effective strategy for defending market position and obtaining above-average financial returns; unique products often command premium prices. Examples of successful differentiation include Maytag in large home appliances, Caterpillar in construction equipment, and almost any successful branded consumer product. Nike has a unique array of product features.
  • Cost focus. In the shipbuilding industry, for example, Polish and Chinese shipyards offer simple, standard vessel types at low prices that reflect low production costs. Aldi, a German-based no-frills “hard discounter” with operations in numerous countries, offers a very limited selection of household goods at extremely low prices. IKEA, the Swedish furniture company described in the chapter introduction, has grown into a successful global company by combining both the focused differentiation and cost focus strategies.
  • The world of “high-end” audio equipment offers another example of focused differentiation . A few hundred small companies design speakers, amplifiers, and related hi-fi gear that costs thousands of dollars per component. While audio components represent a $21 billion market worldwide, annual sales in the high-end segment are only about $1.1 billion. American companies such as Audio Research, Conrad-Johnson, Krell, Mark Levinson, Martin-Logan, and Thiel dominate the segment, which also includes hundreds of smaller enterprises with annual sales of less than $10 million. The state-of-the-art equipment these companies offer is distinguished by superior craftsmanship and performance and is highly sought after by audiophiles in Asia (especially Japan and Hong Kong) and Europe. Industry growth is occurring as companies learn more about overseas customers and build relationships with distributors in other countries.
  • According to Professors Alan Rugman and Joseph D’Cruz, Porter’s model is too simplistic given the complexity of today’s global environment. Rugman and D’Cruz have developed an alternative framework based on business networks that they call the flagship model. The flagship firm is at the center of a collection of five partners; together, they form a business system that consists of two types of relationships. The flagship firm provides the leadership, vision, and resources to “lead the network in a successful global strategy.” Key suppliers are those that perform some value-creating activities, such as manufacturing of critical components, better than the flagship. The double-headed arrows that penetrate the flagship and key suppliers in the figure indicate that this is a network relationship, with a sharing of strategies, resources, and responsibility for the success of the network. Other suppliers are kept at “arm’s length”; these traditional commercial relationships are depicted diagrammatically by arrows that stop at the border of the flagship. Likewise, the flagship has network relationships with key customers and more traditional, arm’s length commercial relationships with key consumers . Key competitors are companies with which the flagship develops alliances such as those described at the end of Chapter 9. The fifth partner is the nonbusiness infrastructure (NBI), comprised of universities, governments, trade unions, and other entities that can supply the network with intangible inputs such as intellectual property and technology. In the flagship model, flagship firms often play a role in the development of a country’s industrial policy.
  • An alternative framework for understanding competitive advantage focuses on competitiveness as a function of the pace at which a company implants new advantages deep within its organization. This framework identifies strategic intent, growing out of ambition and obsession with winning, as the means for achieving competitive advantage. This approach is founded on the principles of W.E. Deming, who stressed that a company must commit itself to continuing improvement in order to be a winner in a competitive struggle.
  • Japanese vertical and Korean have succeeded, Rugman and D’Cruz argue, by adopting strategies that are mutually reinforcing within a business system and by fostering a collective long-term outlook among partners in the system. The authors say “long-term competitiveness in global industries is less a matter of rivalry between firms and more a question of competition between business systems.” A major difference between the flagship model and Porter’s is that Porter’s is based on the notion of corporate individualism and individual business transactions.  
  • The book discusses the Komatsu/Caterpillar saga, and this is just one example of how global competitive battles are shaped by more than the pursuit of generic strategies. Many firms have gained competitive advantage by disadvantaging rivals through “competitive innovation.” Hamel and Prahalad define competitive innovation as “the art of containing competitive risks within manageable proportions” and identify four successful approaches utilized by Japanese competitors. These are: building layers of advantage , searching for loose bricks , changing the rules of engagement , and collaborating .   This approach is founded on the principles of W.E. Deming, who stressed that a company must commit itself to continuing improvement in order to be a winner in a competitive struggle. For years, Deming’s message fell on deaf ears in the United States, while the Japanese heeded his message and benefited tremendously. Japan’s most prestigious business award is named after him. Finally, however, U.S. manufacturers are starting to respond.
  • Japanese TV industry:1970s—largest producer of black and white sets and becoming world leader in color sets; Comp. Adv. = low labor costs   Next, they built factories large enough to serve the world market; sold under many brand names; added layers of Comp. Adv. of quality and reliability   Next, they invested in marketing channels and Japanese brand name recognition; new layer of Comp. Adv. of global brand franchise   Led to the introduction of new products like VCRs and photocopiers and to the establishment of regional manufacturing to adapt products to local market needs.
  • A second approach takes advantage of the “loose bricks” left in the defensive walls of competitors whose attention is narrowly focused on a market segment or a geographic area to the exclusion of others. For example, Caterpillar’s attention was focused elsewhere when Komatsu made its first entry into the Eastern Europe market. Similarly, Taiwan’s Acer Inc. prospered by following founder Stan Shih’s strategy of approaching the world computer market from the periphery. Shih’s inspiration was the Asian board game Go, in which the winning player successfully surrounds opponents. Shih gained experience and built market share in countries overlooked by competitors such as IBM and Compaq. By the time Acer was ready to target the United States in earnest, it was already the number one PC brand in key countries in Latin America, Southeast Asia, and the Middle East.
  • Canon introduced the first full-color copiers and the first copiers with “connectivity”— the ability to print images from such sources as video camcorders and computers. The Canon example shows how an innovative marketing strategy—with fresh approaches to the product, pricing, distribution, and selling—can lead to overall competitive advantage in the marketplace. Canon is not invulnerable, however; in 1991 Tektronix, a U.S. company, leapfrogged past Canon in the color copier market by introducing a plain-paper color copier that offered sharper copies at a much lower price.
  • History has shown that the Japanese have excelled at using the collaborating strategy to achieve industry leadership. As noted in Chapter 9, one of the legendary licensing agreements of modern business history is Sony’s licensing of transistor technology from AT&T’s Western Electric subsidiary in the 1950s for $25,000. This agreement gave Sony access to the transistor and allowed the company to become a world leader. Building on its initial successes in the manufacturing and marketing of portable radios, Sony has grown into a superb global marketer whose name is synonymous with a wide assortment of high-quality consumer electronics products.   More recent examples of Japanese collaboration are found in the aircraft industry. Today, Mitsubishi Heavy Industries Ltd. and other Japanese companies manufacture airplanes under license to U.S. firms and also work as subcontractors for aircraft parts and systems. Many observers fear that the future of the American aircraft industry may be jeopardized as the Japanese gain technological expertise.
  • The automobile industry has also become fiercely competitive on a global basis. Part of the reason for the initial success of foreign automakers in the United States was the reluctance—or inability—of U.S. manufacturers to design and manufacture high-quality, inexpensive small cars. For U.S. manufacturers, small cars meant smaller unit profits. Therefore, U.S. manufacturers resisted the increasing preference in the U.S. market for smaller cars, a classic case of ethnocentrism and management myopia. European and Japanese manufacturers’ product lines have always included cars smaller than those made in the United States. In Europe and Japan, market conditions were much different: less space, high taxes on engine displacement and on fuel, and greater market interest in functional design and engineering innovations. First Volkswagen, then Japanese automakers such as Nissan and Toyota discovered a growing demand for their cars in the U.S. market. It is noteworthy that many significant innovations and technical advances—including radial tires, anti-lock brakes, and fuel injection—also came from Europe and Japan. Airbags are a notable exception.   In the United States, foreign companies have provided consumers with the automobile products, performance, and price characteristics they wanted. If smaller, lower-priced imported cars had not been available, it is unlikely that Detroit manufacturers would have provided a comparable product as quickly. What is true for automobiles in the United States is true for every product class around the world. Global competition expands the range of products and increases the likelihood that consumers will get what they want.   The downside of global competition is its impact on the producers of goods and services. Global competition creates value for consumers, but it also has the potential to destroy jobs and profits. When a company offers consumers in other countries a better product at a lower price, this company takes customers away from domestic suppliers. Unless the domestic supplier can create new values and find new customers, the jobs and livelihoods of the domestic supplier’s employees are threatened.
  • According to Porter, the presence or absence of particular attributes in individual countries influences industry development, not just the ability of individual firms to create core competences and competitive advantage. Porter describes these attributes—factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry—in terms of a national “diamond” which is illustrated on this slide. The diamond shapes the environment in which firms compete. Activity in any one of the four points of the diamond impacts on all the others and vice versa. The following slides will discuss the various subsections of the model.
  • Human Resources: Countries with a plentiful supply of low-wage workers have an obvious advantage in the production of labor-intensive products. On the other hand, such countries may be at a disadvantage when it comes to the production of sophisticated products requiring highly skilled workers capable of working without extensive supervision.   Physical Resources: The availability, quantity, quality, and cost of land, water, minerals, and other natural resources determine a country’s physical resources. A country’s size and location are also included in this category, because proximity to markets and sources of supply, as well as transportation costs, are strategic considerations. These factors are obviously important advantages or disadvantages to industries dependent on natural resources.   Knowledge Resources: The presence of this factor is usually a function of the number of research facilities and universities—both government and private—operating in the country. This factor is important to success in sophisticated products and services, and to doing business in sophisticated markets. This factor relates directly to Germany’s leadership in chemicals; for some 150 years, Germany has been home to top university chemistry programs, advanced scientific journals, and apprenticeship programs.
  • Capital Resources: The advantage enjoyed by industries in countries with low capital costs versus those located in nations with relatively high capital costs is sometimes decisive. Firms paying high capital costs are frequently unable to stay in a market where the competition comes from a nation with low capital costs. The firms with the low cost of capital can keep their prices low and force the firms paying high costs to either accept low returns on investment or leave the industry.   Infrastructure Resources: Infrastructure includes a nation’s banking system, healthcare system, transportation system, communications system, as well as the availability and cost of using these systems. More sophisticated industries are more dependent on advanced infrastructures for success.
  • The nature of home demand conditions for the firm’s or industry’s products and services is important because it determines the rate and nature of improvement and innovation by the firms in the nation. These are the factors that either train firms for world-class competition or that fail to adequately prepare them to compete in the global marketplace. Three characteristics of home demand are particularly important to the creation of competitive advantage: the composition of home demand, the size and pattern of growth of home demand, rapid home market growth, and the means by which a nation’s home demand pulls the nation’s products and services into foreign markets.
  • The best example of this is Japan’s rapid home market growth that provided the incentive for Japanese firms to invest heavily in modern automated facilities. Early home demand , especially if it anticipates international demand, gives local firms the advantage of getting established in an industry sooner than foreign rivals. Equally important is early market saturation , which puts pressure on a company to expand into international markets and innovate. Market saturation is especially important if it coincides with rapid growth in foreign markets. Push/Pull: When the U.S. auto companies set up operations in foreign countries, the auto parts industry followed. The same is true for the Japanese auto industry. Similarly, when overseas demand for the services of U.S. engineering firms skyrocketed after World War II, those firms in turn established demand for U.S. heavy construction equipment. This provided an impetus for Caterpillar to establish foreign operations.
  • Downstream industries will have easier access to these inputs and the technology that produced them, and to the managerial and organizational structures that have made them competitive. Access is a function of proximity both in terms of physical distance and cultural similarity. It is not the inputs in themselves that give advantage. It is the contact and coordination with the suppliers, the opportunity to structure the value chain so that linkages with suppliers are optimized. These opportunities may not be available to foreign firms.   Similar advantages are present when there are internationally competitive, related industries in a nation. Opportunities are available for coordinating and sharing value chain activities. Consider, for example, the opportunities for sharing between computer hardware manufacturers and software developers. Related industries also create “pull through” opportunities as described previously. For example, non-U.S. sales of PCs from Compaq, Dell, IBM, Acer, and others have bolstered demand for software from Microsoft and other U.S. companies.
  • The personal computer industry in the United States is a good example of how a strong domestic rivalry keeps an industry dynamic and creates continual pressure to improve and innovate. The rivalry between Dell, Gateway, Compaq, Apple, and others forces all the players to develop new products, improve existing ones, lower costs and prices, develop new technologies, and continually improve quality and service to keep customers happy. Rivalry with foreign firms may lack this intensity. Domestic rivals have to fight each other not just for market share, but also for employee talent, R&D breakthroughs, and prestige in the home market. Eventually, strong domestic rivalry will push firms to seek international markets to support expansions in scale and R&D investments, as Japan amply demonstrates. The absence of significant domestic rivalry can lead to complacency in the home firms and eventually cause them to become noncompetitive in the world markets.
  • Capital markets and attitudes toward investments are important components of the national environments. For example, U.S. laws prohibit banks from taking an equity stake in companies to which they extend loans. This drives a short-term focus on quarterly and annual gains and losses. This focus is carried into equity markets where low profits produce low share prices and the threat of a takeover. As a result, U.S. firms tend to do well in new-growth industries and other rapidly expanding markets. They do not do well in more mature industries where return on investment is lower and patient searching for innovations is required. Many other countries have an opposite orientation. Banks are allowed to take equity stakes in the customer companies to which they loan, which therefore take a long-term view and are less concerned about short-term results.   Chance includes such things as wars and their aftermaths, major technological breakthroughs, sudden dramatic shifts in factor or input cost, like an oil crisis, dramatic swings in exchange rates, and so on.   Governments devise legal systems that influence competitive advantage by means of tariffs and nontariff barriers and laws requiring local content and labor. In the United States, for example, the dollar’s decline over the past decade has been due in part to a deliberate policy to enhance U.S. export flows and stem imports. In other words, government can improve or lessen competitive advantage, but it cannot create it.
  • Dartmouth College professor Richard D’Aveni suggests that the Porter strategy frameworks fail to adequately address the dynamics of competition in the 1990s. In light of the information shared on this slide D’Aveni believes the goal of strategy has shifted from sustaining to disrupting advantages. The limitation of the Porter models, D’Aveni argues, is that they are static; that is, they provide a snapshot of competition at a given point in time. Acknowledging that Hamel and Prahalad broke new ground in recognizing that few advantages are sustainable, D’Aveni aims to build upon their work in order to shape “a truly dynamic approach to the creation and destruction of traditional advantages.” The next several slides will discuss his theory.
  • The only source of a truly sustainable competitive advantage is a company’s ability to manage its dynamic strategic interactions with competitors by means of frequent movements and counter movements that maintain a relative position of strength in each of the four areas.
  • Transcript of "Enu marketing 250812"

    1. 1. Go Global !Global Economic Environment :External Marketing Environment By Stephen Ong Edinburgh Napier University Business School chong@mail.tarc.edu.my Visiting Professor, College of Management, Shenzhen University 25 August 2012
    2. 2. Agenda1. Global Marketing Mix2. Segmentation, Targeting & Positioning3. External Environmental Analysis4. Strategic Competitive Advantage
    3. 3. Learning Objectives To explain what marketing is. To explain the constituents of the macro and micro environment. To assess the external marketing environment for an organisation through PEST analysis. To critically appraise processes and techniques used for auditing the marketing environment. To understand how external environment impacts on strategy development.
    4. 4. Introduction Marketing principles (5P) in foreign markets are similar to those in domestic markets 1. Product 2. Price 3. Promotion 4. Place 5. People However, some or all elements may need to be adapted to better fit local markets
    5. 5. IntroductionMarketing as a Means of Pursuing an International Strategy
    6. 6. Marketing Strategies Marketing strategy depends on marketing orientation  Production  Sales  Customer  Strategic marketing  Social marketing
    7. 7. Marketing Strategies Firms can segment and target markets By country By global segment Using multiple criteria
    8. 8. Product Policies :Why Firms Alter Products Firms alter products for Legal reasons Cultural reasons Economic reasons
    9. 9. The Product Line: Extent and Mix Product line decisions depend on Sales and cost considerations Product life cycle considerations
    10. 10. Pricing Strategies Potential obstacles in international pricing  Government intervention Set minimum or maximum pricing Prohibit certain pricing practices  Market diversity Consumers may be willing to pay higher prices
    11. 11. Pricing StrategiesPricing tactics Skimming strategy Penetration strategy Cost-plus strategyExport price escalationFluctuations in currency value
    12. 12. Pricing Strategies Why Cost-Plus Pricing Pushes Up Prices
    13. 13. Pricing StrategiesGray market or product diversion the selling and handling of goods through unofficial distributors
    14. 14. Pricing Strategies Negotiating Import-Export Prices
    15. 15. Promotion StrategiesPromotion the presentation of messages intended to help sell a product or servicePush-pull mix Push uses direct selling techniques Pull relies on mass media
    16. 16. Promotion Strategies Advantages of standardized advertising  lower cost  better quality at local level  common global image  rapid entry into multiple countries However, firms could have problems with  translation  legalities  market needs
    17. 17. Branding StrategiesBrand an identifying mark for a product or service
    18. 18. Branding Strategies Advantages of a worldwide brand global image global player identification Problems with global brands language brand acquisition country-of-origin generic and near-generic names
    19. 19. Distribution Strategies Distribution the course – physical path or legal title – that goods take between production and consumption
    20. 20. Distribution Strategies Deciding whether to standardize Distribution can vary substantially among countries Distribution can be difficult to change
    21. 21. Distribution Strategies When choosing distributors and channels firms must consider whether internal handling is feasible which distributors are qualified the reliability of after- sales service
    22. 22. Distribution Strategies Distributors choose which products to handle To get a distributor to work for them, companies may have to  give incentives  use successful products as bait for new ones  convince distributors that their product and company are viable
    23. 23. Distribution Strategies Factors that can contribute to distribution cost differences among countries include  Infrastructure conditions  The number of levels in the distribution system  Retail inefficiencies  Size and operating hour restrictions  Inventory stock-outs
    24. 24. Distribution Strategies E-commerce and the Internet  Opportunities can replace traditional sales methods faster customer service  Problems cannot differentiate sales programs between countries still must comply with local laws
    25. 25. Managing the Marketing MixGap analysis a method for estimating a company’s potential sales by identifying prospective customers it is not serving adequately Usage Product line Distribution Competitive
    26. 26. Managing the Marketing Mix Gap Analysis
    27. 27. Evolving Challengesto Segment Markets Disparities between “haves” and “have-nots” will increase Companies will have conflicting opportunities to serve both “haves” and “have-nots” Attitudinal differences will continue to affect demand Materialism, cosmopolitanism, and consumer ethnocentrism
    28. 28. Global Market Segmentation,Targeting & Positioning • How to identify like groups of potential customers? • How to chose the groups to target? • How to segment those groups? • How to position the brand in the mind of the customer?
    29. 29. Market Segmentation Represents an effort to identify and categorize groups of customers and countries according to common characteristics 77.5 million dogs are owned in the U.S. Who owns whom?
    30. 30. Targeting• The process of evaluating segments and focusing marketing efforts on a country, region, or group of people that has significant potential to respond• Focus on the segments that can be reached most effectively, efficiently, and profitably
    31. 31. Positioning• Positioning is required to differentiate the product or brand in the minds of the target market.
    32. 32. Global Market Segmentation• Defined as the process of identifying specific segments—whether they be country groups or individual consumer groups—of potential customers with homogeneous attributes who are likely to exhibit similar responses to a company’s marketing mix.
    33. 33. Contrasting Views ofGlobal Segmentation • Conventional  Unconventional Wisdom Wisdom – Assumes heterogeneity  Assumes emergence of between countries segments that – Assumes homogeneity transcend national within a country boundaries – Focuses on macro  Recognizes existence level of cultural of within-country differences differences – Relies on clustering of national markets  Emphasizes micro- – Less emphasis on level differences within-country  Segments micro segments markets within and between countries
    34. 34. Global Market Segmentation • Demographics • Psychographics • Behavioral characteristics • Benefits sought Skiing became a sport in Norway where it was invented 4,000 years ago.
    35. 35. Demographic Segmentation• Income• Population• Age distribution• Gender• Education• Occupation What are the trends?
    36. 36. Demographic Facts and Trends• In India the number of people under the age of 14 is greater than the entire US population• In the EU, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
    37. 37. Demographic Segmentation• A widening age gap exists between the older populations in the West and the large working-age populations in developing countries• In the European Union, the number of consumers aged 16 and under is rapidly approaching the number of consumers aged 60-plus• Asia is home to 500 million consumers aged 16 and under• Half of Japan’s population will be age 50 or older by 2025
    38. 38. Segmenting by Income and Population• Income is a valuable segmentation variable – 2/3s of world’s GNP is generated in the Triad but only 12% of the world’s population is in the Triad• Do not read into the numbers – Some services are free in developing nations so there is more purchasing power• For products with low enough price, population is a more important variable
    39. 39. Per Capita Income
    40. 40. 10 Most Populous Countries
    41. 41. Age Segmentation• Global Teens-between the ages of 12 and 19 – A group of teenagers randomly chosen from different parts of the world will share many of the same tastes• Global Elite–affluent consumers who are well traveled and have the money to spend on prestigious products with an image of exclusivity
    42. 42. Gender Segmentation In focusing on the needs and wants of one gender, do not miss opportunities to serve the other Companies may offer product lines for both genders  Nike, Levi Strauss
    43. 43. Psychographic Segmentation Grouping people according to attitudes, values, and lifestyles  SRI International and VALS 2 Porsche example  Top Guns (27%): Ambition, power, control  Elitists (24%): Old money, car is just a car  Proud Patrons (23%): Car is reward for hard work  Bon Vivants (17%): Car is for excitement, adventure  Fantasists (9%): Car is form of escape
    44. 44. Psychographic Segmentation The Euroconsumer:  Successful Idealist –Comprises from 5% to 20% of the population; consists of persons who have achieved professional and material success while maintaining commitment to abstract or socially responsible ideals  Affluent Materialist –Status-conscious ‘up-and- comers’– many of whom are business professionals – use conspicuous consumption to communicate their success to others
    45. 45. Psychographic SegmentationThe Euroconsumer:  Disaffected Survivors  Comfortable Belongers  lack power and affluence  25% to 50% of a country’s population  harbor little hope for upward mobility  conservative  tend to be either resentful or resigned  most comfortable with the familiar  concentrated in high-crime urban inner  content with the comfort of home, family, city friends, and community  attitudes tend to affect the rest of society
    46. 46. Psychographic Segmentation:Sony’s U.S. Consumer Segments
    47. 47. Behaviour Segmentation•Focus on whether people purchase a productor not, how much, and how often they use it•User status•Law of disproportionality/Pareto’s Law–80% ofa company’s revenues are accounted for by20% of the customers
    48. 48. Benefit SegmentationBenefit segmentation focuses on the value equation Value=Benefits/PriceBased on understanding the problem a product solves, the benefit it offers, or the issue it addresses
    49. 49. Ethnic Segmentation  Hispanic Americans• The population of many countries  50 million Hispanic includes ethnic Americans (14% of total groups of significant pop.) with $978 billion annual buying power size  “$1 trillion Latina” 24 million Hispanic women:• Three main groups in 42% single, 35% HOH, the U.S. include 54% working African-Americans, Asian-Americans, and Hispanic Americans
    50. 50. Assessing Market PotentialBe mindful of the pitfalls Tendency to overstate the size and short-term attractiveness of individual country markets The company does not want to ‘miss out’ on a strategic opportunity Management’s network of contacts will emerge as a primary criterion for targeting
    51. 51. Assessing Market Potential• Three basic criteria: – Current size of the segment and anticipated growth potential – Potential competition – Compatibility with company’s overall objectives and the feasibility of successfully reaching the target audience
    52. 52. Current Segment Size and Growth• Is the market segment currently large enough to present a company with the opportunity to make a profit?• If the answer is ‘no,’ does it have significant growth potential to make it attractive in terms of a company’s long-term strategy?
    53. 53. Potential Competition• Is there currently strong competition in the market segment?• Is the competition vulnerable in terms of price or quality?
    54. 54. Feasibility and Compatibility• Will adaptation be required? If so, is this economically justifiable in terms of expected sales?• Will import restrictions, high tariffs, or a strong home country currency drive up the price of the product in the target market currency and effectively dampen demand?
    55. 55. Feasibility and Compatibility• Is it advisable to source locally? Would it make sense to source products in the country for export elsewhere in the region?• Is targeting a particular segment compatible with the company’s goals, brand image, or established sources of competitive advantage?
    56. 56. Framework for Selecting Target Markets • Demographic information is a starting point but not the decision factor • Product-Market must be considered – Market defined by product category • Marketing model drivers must be considered – Factors required for a business to take root and grow • Are there any enabling conditions present? – Conditions whose presence or absence will determine success of the marketing model
    57. 57. 9 Questions for Creating a Product-MarketProfile1. Who buys our product?2. Who does not buy it?3. What need or function does it serve?4. Is there a market need that is not being met by current product/brand offerings?5. What problem does our product solve?6. What are customers buying to satisfy the need for which our product is targeted?7. What price are they paying?8. When is the product purchased?9. Where is it purchased?
    58. 58. Target MarketStrategy Options Standardized global marketing Mass marketing on a global scale Undifferentiated target marketing Standardized marketing mix Minimal product adaptation Intensive distribution Lower production costs Lower communication costs
    59. 59. Target Market Strategy Options• Concentrated global marketing Differentiated – Niche marketing global marketing – Single segment of  Multi-segment targeting global market  Two or more distinct markets – Look for global depth  Wider market coverage rather than national  Ex.: P&G markets Old breadth Spice and Hugo Boss for Men – Ex.: Chanel, Estee Lauder
    60. 60. Positioning• Locating a brand in consumers’ minds over and against competitors in terms of attributes and benefits that the brand does and does not offer – Attribute or Benefit – Quality and Price – Use or User – Competition
    61. 61. Positioning Strategies • Global consumer culture positioning – Identifies the brand as a symbol of a particular global culture or segment – High-touch and high-tech products • Foreign consumer culture positioning – Associates the brand’s users, use occasions, or product origins with a foreign country or cultureBeer is associated with this German’s culture; the symbolon his shirt is not German!
    62. 62. Positioning Strategies• Local consumer culture positioning – Identifies with local cultural meanings – Consumed by local people – Locally produced for local people – Used frequently for food, personal, and household nondurables – Ex.: Budweiser is identified with small-town America Clydesdale = Which Beer?
    63. 63. External Environmental Analysis (1)• Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental (‘green’) and legal factors (PESTEL).• Identify key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change.
    64. 64. External Environmental Analysis(2)• Use Porter’s five forces analysis in order to define the attractiveness of industries and sectors and to identify their potential for change.• Identify successful strategic groups, valuable market segments and attractive ‘Blue Oceans’ within industries.• Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.
    65. 65. Slide 2.65 Layers of the business environment Figure 2.1 Layers of the business environment
    66. 66. The PESTEL framework (1)The PESTEL framework categorisesenvironmental influences into six main types: political, economic,social, technological, environmental legalThus PESTEL provides a comprehensive list ofinfluences on the possible success or failure ofparticular strategies.
    67. 67. The PESTEL framework (2)• Political Factors: For example, Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU).• Economic Factors: For example, business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends.• Socio-cultural Factors: For example, population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion.
    68. 68. The PESTEL framework (3)• Technological Factors: For example, new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D.• Environmental (‘Green’) Factors: For example, environmental protection regulations, energy consumption, global warming, waste disposal and re- cycling.• Legal Factors: For example, competition laws, health and safety laws, employment laws, licensing laws, IPR laws.
    69. 69. Key drivers of changeKey drivers for change:• The environmental factors likely to have a high impact on the success or failure of strategy.• For example, the birth rate is a key driver for those planning nursery education provision in the public sector.• Typically key drivers vary by industry or sector.
    70. 70. Using the PESTEL framework• Apply selectively –identify specific factors which impact on the industry, market and organisation in question.• Identify factors which are important currently but also consider which will become more important in the next few years.• Use data to support the points and analyse trends using up to date information• Identify opportunities and threats – the main point of the exercise!
    71. 71. ScenariosScenarios are detailed and plausible views of howthe environment of an organisation might develop inthe future based on key drivers of change aboutwhich there is a high level of uncertainty.• Build on PESTEL analysis .• Do not offer a single forecast of how theenvironment will change.• An organisation should develop a few alternativescenarios (2–4) to analyse future strategic options.
    72. 72. Carrying out scenario analysis (1)• Identify the most relevant scope of the study – the relevant product/market and time span.• Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes.• For each key driver select opposing outcomes where each leads to very different consequences.
    73. 73. Carrying out scenario analysis (2)• Develop scenario ‘stories’ - That is, coherent and plausible descriptions of the environment that result from opposing outcomes• Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.• Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.
    74. 74. Scenarios for the global financial system, 2020Illustration 2.2
    75. 75. Industries, markets and sectors An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry. A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)
    76. 76. Porter’s five forces frameworkPorter’s five forces framework helps identify theattractiveness of an industry in terms of fivecompetitive forces:• the threat of entry,• the threat of substitutes,• the bargaining power of buyers,• the bargaining power of suppliers and• the extent of rivalry between competitors. The five forces constitute an industry’s ‘structure’.
    77. 77. Slide 2.77 The five forces framework (1) Figure 2.2 The five forces framework Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved
    78. 78. The five forces framework (2) The Threat of Entry & Barriers to Entry • The threat of entry is low when the barriers to entry are high and vice versa. • The main barriers to entry are:  Economies of scale/high fixed costs  Experience and learning  Access to supply and distribution channels  Differentiation and market penetration costs  Government restrictions (e.g. licensing) • Entrants must also consider the expected retaliation from organisations already in the market
    79. 79. The five forces framework (3) Threat of Substitutes Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process. Customers will switch to alternatives (and thus the threat increases) if: • The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts) • The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre)
    80. 80. The five forces framework (4) The bargaining power of buyers Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers. If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits . Buyer power is likely to be high when:  Buyers are concentrated  Buyers have low switching costs  Buyers can supply their own inputs (backward vertical integration)
    81. 81. The five forces framework (5) The bargaining power of suppliers Suppliers are those who supply what organisations need to produce the product or service. Powerful suppliers can eat into an organisation’s profits. Supplier power is likely to be high when:  The suppliers are concentrated (few of them).  Suppliers provide a specialist or rare input.  Switching costs are high (it is disruptive or expensive to change suppliers).  Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).
    82. 82. The five forces framework (6) Rivalry between competitorsCompetitive rivals are organisations with similar products and services aimed atthe same customer group and are direct competitors in the same industry/market(they are distinct from substitutes).The degree of rivalry is increased when : Competitors are of roughly equal size Competitors are aggressive in seeking leadership The market is mature or declining There are high fixed costs The exit barriers are high There is a low level of differentiation
    83. 83. Implications of five forces analysis• Identifies the attractiveness of industries – which industries/markets to enter or leave.• Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated.• The forces may have a different impact on different organisations e.g. large firms can deal with barriers to entry more easily than small firms.
    84. 84. Issues in five forces analysis• Apply at the most appropriate level – not necessarily the whole industry. E.g. the European low cost airline industry rather than airlines globally.• Note the convergence of industries – particularly in the high tech sectors (e.g. digital industries - mobile phones/cameras/mp3 players).• Note the importance of complementary products and services (e.g. Microsoft windows and McAfee computer security systems are complements). This can almost be considered as a sixth force.
    85. 85. The value netFigure 2.3 The value netReprinted by permission of Harvard Business Review. From ‘The Right Game’ by A. Brandenburger and B. Nalebuff, July–August 1996, pp. 57–64.Copyright © 1996 by the Harvard Business School Publishing Corporation. All rights reserved
    86. 86. Comparative industry structure analysisFigure 2.5 Comparative industry structure analysis
    87. 87. Types of industry (1) • Monopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market. For example, BT in the UK fixed line telephone market. • Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers. • Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are ‘perfect’ but may have features of highly competitive markets, for example, mini- cabs in London.
    88. 88. Types of industry (2)• Hypercompetitive industries - where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.• Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones).• Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and aggressive as firms vie for market leadership.
    89. 89. Cycles of competitionFigure 2.6 Cycles of competitionSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetitive Rivalries: Competing in Highly Dynamic Environments by Richard A.D’Aveni with Robert Gunther. Copyright © 1994, 1995 by Richard A. D’Aveni. All rights reserved
    90. 90. The industry life cycleFigure 2.4 The industry life cycle
    91. 91. Strategic GroupsStrategic groups are organisations within an industry or sector with similarstrategic characteristics, following similar strategies or competing on similarbases.• These characteristics are different from those in other strategic groups in thesame industry or sector.• There are many different characteristics that distinguish between strategicgroups.• Strategic groups can be mapped on to two dimensional charts – maps.These can be useful tools of analysis.
    92. 92. Characteristics for identifying strategic groupsFigure 2.7 Some characteristics for identifying strategic groups
    93. 93. Strategic groups in the Indian pharmaceutical industryFigure 2.8 Strategic groups in the Indian pharmaceutical industrySource: Developed from R. Chittoor and S. Ray, ‘Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis’, Journal of International Management, vol. 13 (2009),pp. 338–55
    94. 94. Uses of strategic group analysis• Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (E.g. Tesco will focus on Sainsburys and Asda)• Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry.• Analysis of ‘mobility barriers’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.
    95. 95. Market segments A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market. • Where these customer groups are relatively small, such market segments are called ‘niches’. • Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy. • Customer needs vary for a variety of reasons -these factors can be used to identify distinct market segments. • Not all segments are attractive or viable market opportunities – evaluation is essential.
    96. 96. Bases of market segmentation (1)Table 2.1 Some bases of market segmentation
    97. 97. Who are the strategic customers?A strategic customer is the person(s) at whom the strategy is primarilyaddressed because they have the most influence over which goods orservices are purchased.Examples:• For a food manufacturer it is the multiple retailers (e.g. Tesco) that are thestrategic customers not the ultimate consumer.• For a pharmaceutical manufacturer it is the health authorities andhospitals not the final patient.
    98. 98. Critical success factors (CSFs) • Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost. • Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them). • Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).
    99. 99. Blue ocean thinking • ‘Blue oceans’ are new market spaces where competition is minimised. • ‘Red Oceans’ are where industries are already well defined and rivalry is intense. • Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served. • A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.
    100. 100. Strategy canvasFigure 2.9 Strategy canvas for electrical components companiesSource: Developed from W.C. Kim and R. Mauborgne, Blue Ocean Strategy, 2005, Harvard Business School Press
    101. 101. Summary (1) • Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments. • The macro-environment can be analysed in terms of the PESTEL factors, from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop. • Industries and sectors can be analysed in terms of Porter’s five forces – barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.
    102. 102. Summary (2)• Industries and sectors are dynamic, and their changes can be analysed in terms of the industry life cycle, comparative five forces radar plots and hypercompetitive cycles of competition. competition• In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.• Blue Ocean strategies characterised by low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals.• The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS
    103. 103. Strategic Competitive AdvantageFactors that shape competitionCompetitive advantage at the industry and national levelsHypercompetitive industry
    104. 104. Industry Analysis:Forces Influencing Competition Industry – group of firms that produce products that are close substitutes for each other Michael Porter identifies five forces that influence competition 16-104
    105. 105. Porter’s Force 1: Threat of New Entrants New entrants mean downward pressure on prices and reduced profitability Barriers to entry determines the extent of threat of new industry entrants
    106. 106. Threat of New Entrants: Barriers to Entry Economies of Scale  Refers to the decline in per-unit product costs as the absolute volume of production per period increases Product differentiation  The extent of a product’s perceived uniqueness Capital requirements  Required investment for manufacturing, R&D, advertising, field sales and service, etc. Switching costs  Costs related to making a change in suppliers or products
    107. 107. Threat of New Entrants:Barriers to Entry  Distribution channels  Are there current distribution channels available with capacity?  Government policy  Are there regulations in place that restrict competitive entry?  Cost advantages independent of scale economies  Is there access to raw materials, large pool of low-cost labor, favorable locations, and government subsidies?  Competitor response  How will the market react in anticipation of increased competition within a given market?
    108. 108. Porter’s Force 2:Threat of Substitute Products  Availability of substitute products places limits on the prices market leaders can charge  High prices induce buyers to switch to the substitute
    109. 109. Porter’s Force 3:Bargaining Power of Buyers Buyers=manufacturers and retailers, not consumers Buyers seek to pay the lowest possible price Buyers have leverage over suppliers when:  They purchase in large quantities (enhances supplier dependence on buyer)  Suppliers’ products are commodities  Product represents significant portion of buyer’s costs  Buyer is willing and able to achieve backward integration
    110. 110. Bargaining Power of Buyers“We do not quibble or argue with anyone’s right to sing what they want, to print what they want, and say what they want. But we reserve the right to sell what we want.” - Wal-Mart’s response to the accusation that it is using its financial power to dictate what is appropriate music and art
    111. 111. Porter’s Force 4:Bargaining Power of Suppliers When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers Leverage accrues when  Suppliers are large and few in number  Supplier’s products are critical inputs, are highly differentiated, or carry switching costs  Few substitutes exist  Suppliers are willing and able to sell product themselves
    112. 112. Porter’s Force 5: Rivalry Among Competitors Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other  Price competition  Advertising battles  Product positioning  Differentiation
    113. 113. Competitive Advantage Achieved when there is a match between a firm’s distinctive competencies and the factors critical for success within its industry Two ways to achieve competitive advantage  Generic strategies—four types  Strategic intent—also four types
    114. 114. Competitive Advantage“The only way to gain lasting competitive advantage is to leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts. Being an international company– selling globally, having global brands or operations in different countries–isn’t enough.” - David Witwam, CEO, Whirlpool
    115. 115. Generic Strategies for Creating Competitive Advantage Broad market strategies  Cost Leadership—low price  Product Differentiation—premium price Narrow market strategies  Cost Focus—low price  Focused Differentiation—premium price
    116. 116. Cost Leadership Based on a firm’s position as the industry’s low-cost producer Must construct the most efficient facilities Must obtain the largest market share so that its per unit cost is the lowest in the industry Only works if barriers exist that prevent competitors from achieving the same low costs
    117. 117. Product Differentiation Product that has an actual or perceived uniqueness in a broad market has a differentiation advantage Extremely effective for defending market position Extremely effective for obtaining above-average financial returns; unique products command a premium price
    118. 118. Cost Focus Firm’s lower cost position enables it to offer a narrow target market and lower prices than the competition Sustainability is the central issue for this strategy  Works if competitors define their target market more broadly  Works if competitors cannot define the segment even more narrowly
    119. 119. Focused DifferentiationThe product not only has actual uniqueness but it also has a very narrow target marketResults from a better understanding of customer’s wants and desireseg. High-end audio equipment
    120. 120. The Flagship Firm: TheBusiness Network with FivePartners Network Relationship Commercial Relationship
    121. 121. Creating Competitive Advantagevia Strategic Intent “Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today. An organization’s capacity to improve existing skills and learn new ones is the most defensible competitive advantage of all.” - Gary Hamel and C.K. Prahalad
    122. 122. The Flagship Firm• A collection of 5 partners – Key suppliers do some tasks better than the flagship (ex.: manufacturing) – Key customers (ex: car dealers) – Key consumers (ex: car buyers) – Selected competitors like global Strategic Partnerships – Non-business infrastructure: universities, governments, trade unions that supply intangibles like technology and intellectual property
    123. 123. Creating CompetitiveAdvantage via StrategicIntent Building layers of advantage Searching for loose bricks Changing the rules of engagement Collaborating
    124. 124. Building Layers of Advantage A company faces less risk if it has a wide portfolio of advantages Successful companies build portfolios by establishing layers of advantage on top of one another Illustrates how a company can move along the value chain to strengthen competitive advantage
    125. 125. Searching for Loose Bricks  Search for opportunities in the defensive walls of competitors whose attention is narrowly focused  Focused on a market segment  Focused on a geographic area to the exclusion of others
    126. 126. Changing the Rules of Engagement• Refuse to play by the rules set by industry leaders Example Xerox and Canon  Xerox employed a huge direct sales force; Canon chose to use product dealers  Xerox built a wide range of copiers; Canon standardized machines and components  Xerox leased machines; Canon sold machines
    127. 127. Collaborating Use the know-how developed by other companies Licensing agreements, joint ventures, or partnerships
    128. 128. Global Competition and NationalCompetitive Advantage Global competition occurs when a firm takes a global view of competition and sets about maximizing profits worldwide The effect is beneficial to consumers because prices generally fall as a result of global competition While creating value for consumers, it can destroy the potential for jobs and profits
    129. 129. Global Competition and NationalCompetitive Advantage(Porter’s Diamond)
    130. 130. Factor Conditions Human Resources – the quantity of workers available, skills possessed by those workers, wage levels, and work ethic Physical Resources – the availability, quantity, quality, and cost of land, water, minerals, and other natural resources Knowledge Resources – the availability within a nation of a significant population having scientific, technical, and market-related knowledge
    131. 131. Factor Conditions  Capital Resources – the availability, amount, cost, and types of capital available; also includes savings rate, interest rates, tax laws, and government deficit  Infrastructure Resources – this includes a nation’s banking, healthcare, transportation, and communication systems
    132. 132. Demand Conditions Composition of Home Demand – determines how firms perceive, interpret, and respond to buyer needs Size and Pattern of Growth of Home Demand – large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets
    133. 133. Demand Conditions Rapid Home Market Growth – another incentive to invest in and adopt new technologies faster and build large, efficient facilities Products being pushed or pulled – do a nation’s people and businesses go abroad and then demand the nation’s products and services in those second countries?
    134. 134. Related and SupportingIndustries  The advantage that a nation gains by being home to internationally competitive industries in fields that are related to, or in direct support of, other industries
    135. 135. Firm Strategy, Structure, and Rivalry Domestic rivalry in a single national market is a powerful influence on competitive advantage  The absence of significant domestic rivalry can lead to complacency in the home firms and eventually cause them to become noncompetitive in the world markets Differences in management styles, organizational skills, and strategic perspectives also create advantages and disadvantages for firms competing in different types of industries
    136. 136. Firm Strategy, Structure,and Rivalry Capital markets and attitudes toward investments are important components of the national environments Chance events are occurrences that are beyond control; they create major discontinuities Government is also an influence on determinants by virtue of its roles as a consumer, policy maker, and commerce regulator
    137. 137. Current Issues inCompetitive Advantage Today’s business environment, market stability is undermined by:  Short product life cycles  Short product design cycles  New technologies  Globalization Result is an escalation and acceleration of competitive forces
    138. 138. Current Issues in Competitive Advantage Hypercompetition is a term used to describe a dynamic competitive world in which no action or advantage can be sustained for long Competition unfolds in a series of dynamic strategic interactions in four areas: cost quality, timing and know- how, and barriers to entry
    139. 139. Current Issues in Competitive Advantage In today’s world, in order to achieve a sustainable advantage, companies must seek a series of unsustainable advantages The role of marketing is innovation and the creation of new markets Innovation begins with abandonment of the old and obsolete
    140. 140. Current Issues inCompetitive Advantage “I don’t think we’re moving towards ahypercompetitive world in which there areno trade-offs. We’re probably moving in theother direction. There are more customersegments than ever before, moretechnological options, more distributionchannels. That ought to create lots ofopportunities for unique positions.” Michael Porter
    141. 141. Location of Companies withCompetitive Advantage
    142. 142. Conclusion“Our innovation strategy is to innovate for every one of those consumers on that economic curve, and if you don’t do that, you’ll fail.” Robert McDonald, CEO, Procter & Gamble
    143. 143. Casestudy : SAB-MILLER1. Read and prepare the Casestudy on SAB MILLER (Johnson, Whittington & Scholes (2011)) for discussion and presentation next week.2. Identify and evaluate the global marketing challenges facing SAB MILLER by conducting External Environment, Industry, Competitor analysis, SWOT, Marketing Mix and Gap Analysis .
    144. 144. Core Reading Juleff, L, Chalmers, A.. and Harte, P. (2008) Business Economics in a Global Environment, Napier University Edinburgh Daniels, J.D., Radebaugh, L.H. and Sullivan, D.P. (2012) International Business: Environments and Operations. 14th edition, Pearson Keegan, W.J. and Green, M.C. (2013) Global Marketing, 7th edition, Pearson Johnson, Whittington and Scholes (2012) Exploring Strategy, 9th Edition, Pearson
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