Market Analysis for the New Age Marketer
This article provides a market analysis for the new age marketers:- 1. SWOT Analysis 2. Internal Analysis 3. Missions and Objectives of Marketers 4. Macro and Micro-Environmental Analysis 5. Comparison Standards for Internal Analysis 6. Porter’s Approach to Competitive Structure Analysis.
1. SWOT Analysis:
The assessment of the internal and external environments is known as situational analysis or SWOT analysis. It helps a firm make maximum use of its existing assets and take adequate measures to correct the weaknesses.
Understanding Strengths and Weaknesses:
Strengths and weaknesses are internal to the firm and can be largely controlled by the management. Points of attention during analysis include the financial performance of the firm and supplier relation. The financial resources, physical assets, management skills, sales force, merchandise, employee attitude towards the company are some of the factors examined to identify the strengths and weaknesses of a firm.
While the strengths can be optimally utilized to achieve the firm’s objectives, strategies can be developed to overcome weaknesses by employing an external consultant with an expertise in the weak area or by training the personnel or by studying similar cases in other firms.
While assessing the strengths, the marketer pays maximum attention to the financial performance of the firm. Aspects like costs incurred, profits, sales, assets, liabilities and net worth are regularly monitored by retail managers. Operational efficiency is certainly a factor that can give the marketer an advantage over competitors due to the lower operating expenses it incurs. Such marketers (like Wal-Mart) often pass on a part of the savings in operating expenses to their customers, thereby attracting more customers.
The relationship with suppliers should also be given due consideration as it will have a significant impact on the operational expenses of a company Collaborations with suppliers can help significantly in reducing operational expenses while not-so-cordial relationships can have a detrimental effect on operational expenses.
Opportunities and Threats:
Opportunities and threats are factors external to the firm over which the marketer has little or no control. For this PESTEL analysis would help. Every firm is part of a much bigger sphere, i.e. the business environment, social environment, natural environment, economic environment and political environment. Businesses, therefore, need to keep in mind the constraints and responsibilities imposed by the external environment before taking any decision.
The knowledge of existing rules and regulations and upcoming trends in the legal, economic, social, and technological areas can help the marketer determine favourable changes that could be grabbed as opportunities as well as unfavorable changes that could pose a threat and need to be kept under check.
In order to make better use of the SWOT framework, Piercy proposes the following five guidelines:
(i) Focus the SWOT on a particular issue or element, such as a specific product market, customer segment, competitor, or an individual element of the marketing mix.
(ii) Use the SWOT analysis as a mechanism to develop a shared vision for planning. This can be done by pooling ideas from a number of sources and achieving a team consensus about the future and on important issues.
(iii) Develop customer orientation by understanding that strengths and weaknesses are irrelevant unless they are recognized and valued by the customer. One of the ways in which this can be done is by applying McDonald’s ‘so what?’ test.
In this test the marketing strategist looks at each of the claimed benefits from the viewpoint of the consumer and asks ‘well, so what?’ to assess its true significance. By doing so, the marketing strategist is also likely to move away from the trap of making a series of so-called motherhood statements (a motherhood statement is warm, reassuring and difficult to argue against).
(iv) Just as strengths and weaknesses must be viewed from the viewpoint of the customer, so should the analysis of opportunities and threats relate to the marketing environment relevant to the organization’s point of focus. Anything else simply leads to a generalized—and largely pointless—set of comments.
(v) The final guideline is concerned with what N. Piercy refers to as structured strategy generation. Piercy suggests that during SWOT analysis, the strengths and weakness should be recognized by the customers while the opportunities and threats should be valid from company’s perspective.
This means, the firms should assess their internal resources and capabilities by following the Resource Based View (RBV); then prioritize the actions/goals to be accomplished within a time frame.
Matching and Conversion Strategies:
Strengths must be matched to opportunities since strength without a corresponding opportunity is of little strategic value. Strategies though often difficult, are designed to change weaknesses into strengths and threats into opportunities. For example, let’s assume that competitors are proving to be an increasing threat.
However, by recognizing that a head-on battle is likely to prove expensive and counterproductive, the emphasis might shift to developing a strategic alliance which would provide both organizations greater combined strength and which, in turn, would allow both to capitalize on the growing opportunities.
As the marketing strategist goes through the process of identifying hidden strengths, matching strengths to opportunities, limiting weaknesses to the extent possible by for seeing the market conditions and competitions, the business models are set to be on the rolling.
2. Internal Analysis:
The resource-based view (RBV) consists of a well-developed set of concepts that help us analyze how a firm’s internal strengths and weaknesses affect its ability to compete.
The following sections provide a description of this concept:
The factors of production in a firm may draw on customers with valuable goods and services called assets for carrying on their business activity. One should note that the RBV defines assets more broadly than accounting does. Assets may be tangible or intangible. Intangible assets are just as real as tangible resources, but they can’t be touched or seen directly, For instance, Reliance Industries has the highest market capitalization in the country. Their asset includes the market cap along with RIL’s human and non-human resources.
RBV defines capabilities as the skills a firm needs to take full advantage of its assets. Without such capabilities, assets are of little value. For example, General Motors once had more assets than any other car maker in the world, including the best and the biggest plants, the most advanced technology the strongest brand name, the greatest market share, the largest workforce, and the most extensive distribution network.
Japanese competitor firms started with a much smaller base of assets but they challenged General Motors’ lead based on three different sets of capabilities. First, they became adept at lowering costs. Second, they went on to improve quality. Finally, they designed faster product-development processes.
When they competed on these capabilities, they dramatically reduced GM’s dominance in the industry Today Toyota is the number two car maker in the world, having pushed Ford pushed to third position. A new car comes out of a Toyota plant every six minutes! Economic downturn has taken a heavy toll on GM s prospects and the future of this giant seems bleak as its CEO has been asked by President Barack Obama to step down.
Although specialists argue about what constitutes competency the word simply refers to the ability to perform. The concept of competence has long been recognized in the literature of strategic management. Scholars have and continue to refer to core competence, at one time called ‘distinctive competencies’, are the critical bundles of skills that an organization can draw on to distinguish itself from its competitors.
Central to the RBV is the notion that what a firm can do is fundamental to its success. However, we should not attach value to just any competence—a firm might develop a competence that is of little competitive value.
For example, Amul says its butter taste is ‘Taste of India’. In fact, an essential part of using the RBV is the ability to understand which resources, capabilities, and competence are valuable. While specific critical success factors vary from business to business, research has identified four aspects that determine the success factors crucial for any business.
1. Industry characteristic:
Critical success factors (CSFs) are often industry- specific. Success factors for supermarket chains would include product mix inventory turnover, sales promotion, and pricing. In the airline industry these would be fuel efficiency load factor, and reservation system.
Thus, no one set of CSFs applies to all industries. Observe at the banking and financial services industry (BFSI) and the automobile industry’s fluctuating fortunes since the global meltdown in September 2008. The success factors which led them to become some of the most profitable organizations a few years earlier could not save them during the downturn.
2. Competitive position:
This may vary with a firm’s position relative to its competition. For example, in an industry dominated by one or two large competitors, the actions of the big players often produce new and significant problems that become CSFs for smaller firms.
At one time, the smaller players in the personal computer industry believed it was critical for them to offer products compatible with Lenovo PCs. So, Lenovo’s every move took on significance across the PC industry
3. General environments:
Changes in any of the major aspects of the general environment (Political, Environmental, Social and Technological, or PEST) can affect the emergence of CSFs in the market. For instance, interest rate for bank deposits was made very lucrative in 2008 when the stock market was doing well; the State Bank of India in fact offered a rate of 10.5 per cent for deposits of over 1,000 days. However, it slashed the rate to 8 per cent for the same deposit period when the stock market hit rock bottom in mid-2009 and withdrawn the scheme in 2010.
4. Organizational development:
Internal developments may sometimes give rise to new CSFs. Firms have to address short-term issues before dealing with long-lasting issues. Thus, internal organizational considerations become temporary CSFs. For example, if several key executives of an investment banking firm quit forming a competing ‘spin-off firm’, rebuilding the executive group would become the first priority for the original organization.
Obviously, there is a great deal of flexibility in identifying what constitutes CSFs. CSF is both an advantage, because it allows managers to tailor the general concept to a particular situation, and a disadvantage, because of a lack of specific direction. The value chain is a more directive framework that serves as a useful supplement to study the CSFs.
The Value Chain:
This method of assessing strengths and weaknesses divides the business into a number of linked activities that may each produce value for the customer. Customer value is a function of factors that usually fall into one of three broad categories: those that differentiate the product, those that lower its costs, or those that allow the organization to respond to customer needs more quickly.
The value chain framework helps analyse the contributions of individual activities in a business to the overall level of customer value the firm produces, and ultimately to its financial performance. If each part of the business produces value, the firm should be able to charge more and/or incur lower costs, either of which will lead to higher profit margin.
3. Missions and Objectives of Marketers:
The mission statement of a firm is the foundation of the whole planning process and hence should be precise and reflective of the firm’s attitudes and philosophy. Moreover, the strategies in the subsequent planning stages should be consistent with the mission statement.
A carefully-developed mission statement includes such details as the products and services to be offered, the scope of business, target customers, growth plans, the kind of customer service to be provided, and the attributes for competitive advantage.
For example, McDonald’s mission statement, ‘Quality, Service, Convenience, and Value’, emphasizes on delivering value to its customers by providing quality service and convenience. The company makes sure that every employee understands the spirit of the statement right from the day he/she joins the organization.
The marketers, after conducting a situational analysis, should set objectives and specify long-term and short-term targets. A firm can set sales objectives that include overall growth in sales, stability in sales and profits, and achievement of a higher market share.
Likewise, profit objectives can include the range of profits expected, the return on investment and operational efficiency. Objectives like achieving customer satisfaction, meeting the expectations of stockholders and enhancing the image of the store also have to be established.
To be effective, a good marketing system must be goal driven. The setting of marketing objectives is therefore a key step in the marketing process. In terms of its position within the overall planning process, objectives setting can be seen to follow on from the initial stage of analysis and, in particular, from the marketing audit. By setting marketing objectives, the planner is attempting to provide the organization with a sense of direction.
In addition, objectives provide a basis for motivation as well as act as a benchmark against which performance and effectiveness can subsequently be measured. The setting of objectives is the prelude to the development of marketing strategies and detailed marketing plans.
The process of moving from the general to the specific should lead to a set of marketing objectives which are not just attainable within any budgetary constraints that may exist, but which is also compatible with the environmental conditions as well as the organizational strengths and weaknesses.
It follows from this that the process of setting marketing objectives should form what is often referred to as an internally consistent and mutually reinforcing hierarchy.
Objectives should be time-specific, measurable, attainable and indicative of the business priorities. If the objectives are specific and measurable, they motivate the employees to perform better. In contrast, objectives that are not attainable discourage/frustrate employees. However, objectives would not serve their purpose unless they are reviewed and evaluated periodically.
4. Macro and Micro-Environmental Analysis:
(i) State of the Economy (National and Global):
The economic situation of the country determines the purchases that consumers make and the amount of money that they are ready to spend. During the downturn, ‘innovative strategies’ should be used by companies to enhance market share.
In such times, rather than attempting to induce the customers to spend more, the marketers should make efforts to gain a larger share of the market using innovative strategies. They can also do so by venturing into new markets. Weak and uncompetitive marketers are pushed out of business when the economic conditions are challenging. When the economic conditions leave little or no chance for sales growth, it is referred to as a ‘stagnant economy’.
Look at the financial condition of the world after the collapse of AIG, Lehman Brothers and with the takeover of Merryl Lynch by Amex. The turnaround strategy of the international financial market mechanism has yet to find its way to recovery. The result? The fall of the BSE index to below 8,000 points—a sharp decline of 65 per cent from its peak of 21,000 points, in a span of 10 months in 2009!
Now liquidity crisis is causing fears, among corporate and investors the world over. The huge loss of investor wealth, created during years of unrealistic growth, is taking its toll globally. In the US alone massive job cuts and closure of shops (600 Starbucks coffee shops shut within a week of the crisis) created panic among the public and in the international community, despite President Obama’s announcement of $3 trillion bailout package.
(ii) Technological Development:
Technological innovations have had a tremendous impact on the way businesses are run. Telemarketing, e-marketing and credit card purchases are some of the examples of technological innovations. Transactions have become simpler and more convenient.
Credit cards have efficiently replaced cash transactions. Customers can transfer money from their account directly into the retailer’s through electronic funds transfer. Another development is electronic or catalogue retailing, which is high on convenience and also effective in attracting new customers.
(iii) Product Life Cycle:
In the mature and decline stages of the product life cycle, the main objective of the firms will be to extract as much profit as possible from the existing formats and markets by refining the existing strategies (without making any further investments). For example, in areas where Wal-Mart reaches saturation, it closes down its smaller stores in the surrounding towns and opens regional ‘superstores’ that offer groceries, auto repair, and other services.
Marketers can also increase productivity by undertaking cost reduction, increasing merchandise turnover or prices and margins. Cost reduction can be achieved by implementing self-service schemes which will reduce labour requirements. Some other ways of reducing costs are reducing store hours, making better use of part-time helpers and cutting down on customer services.
Technology can also help reduce costs by providing information on individual contributions of each of the items in the merchandise towards the total profitability of the firm. The merchandise can thus be planned according to the merchandise movement, which will cut down inventory costs without compromising on availability. Using EDI with suppliers will also save costs by eliminating the need for paper-based transactions.
(iv) Brand Name:
An important element of any marketing strategy is the role played by brand names. Brands are designed to enable customers to identify products or services that promise specific benefits. As such, they create a set of expectations in the minds of customers about the purpose, performance, quality and price of the product. This, in turn, allows the marketing strategist to build added value into the product and to differentiate it from the competitors.
Because of this, well known brand names such as Rolex, Ray- Ban Coca-Cola and Lacoste are of enormous strategic and financial value and are in many cases the result of years of investment in advertising. The significance of this in the case of Microsoft has been highlighted by the suggestion that the company’s brand name is worth more than the GNP of many nations. It also helps to explain why pirating of brand names has developed so rapidly over the past decade. An organization can pursue various approaches in developing its brand strategy.
Some of these are:
1. Corporate umbrella branding:
This can either be used as a lead name such as Heinz, Kellogg’s or Cadbury’s, or as a supporting brand name such as P&G and HUL. In the case of Cadbury’s, for example, the umbrella is used to cover a wide variety of chocolates and sweets including Cream Eggs, Dairy Milk, Milk Tray Bournville, Celebrations, Fruit and Nut, Crackle and Roast Almond.
2. Family umbrella branding:
These are used to cover a range of products in a variety of markets.
3. Range brand names:
Range brand names are used for a range of products which have clearly identifiable links in a particular market. An example is the Park Avenue range of men’s clothing and accessories by Raymond’s.
4. Individual brand names:
This is typically used to cover one type of product in one type of market, possibly with different combinations of size, flavor, service options or packaging formats. Examples of this include Lux soap in green, pink and white colour for oily normal and dry skin with the sample, regular and family packs in cake/solid or liquid form.
For many organizations, branding is a fundamental element of the product strategy and provides the basis for consumer franchise which, if managed effectively allows for greater marketing flexibility and a higher degree of consumer loyalty, However, it needs to be recognized that branding involves a great deal more than simply putting a name on a package.
Branding is about creating, maintaining and proactively developing perceived consumer value. It is only in this way that an organization can promise and deliver to the consumer superior value than that offered by competitors. It follows from this that any brand strategy is necessarily a long-term process, involving an investment in and commitment to the development of the brand over time.
The challenge for businesses is to create or retain differentiation of their respective product or service so as to prevent such goods from being commoditized, thereby leading to destruction of value from the perspective of the stakeholders of such businesses. Traditionally, successful branding has served the purpose of creating and maintaining such differentiation to the benefit of the consumer, the retail channel, and the producer-owner of the branded product or service.
However, the forces of change make the task that much more formidable (to serve a national, regional or global market, and yet ideally serve each market as if it has a ‘single’ consumer). Add to this the increasing media options, a flurry of new product launches, and an economy that is not galloping and the challenge is very clear—brand building is getting tougher and the costs keep rising.
Established brands like Coca-Cola spend as much as 20 per cent of their revenue on marketing. Indian brands such as Raymond’s and Titan spend up to 5-6 per cent of their annual revenue on marketing and brand building whereas Madura Garments has reportedly earmarked as much as 15 per cent of its current annual revenue for this purpose in 2010.
Indian best practice examples include Jet Airways, Taj (Indian Hotels) and Oberoi Hotels, and more recently AirTel—each having built a distinct business identity on the strength of their product and service. Unflinching orientation to customer needs is the second key success factor. Proactive tracking of shifts in consumer behavior, anticipating needs, and then reacting in real time’ are essential to attract and retain customer loyalty—a key element of creating brand equity.
The matrix given in Table 3.1 focuses on the product (what is sold) and to whom it is sold (the market).
It highlights four alternatives open to the strategist:
1. Selling existing products to existing markets.
2. Extending existing products to new markets.
3. Developing new products for existing markets.
4. Developing new products for new markets.
Although in practice, there are relative degrees of newness, both in terms of products and markets, and hence the number of strategies open to an organization is infinite, Ansoff’s matrix is useful in that it provides a convenient and simple framework within which marketing objectives and strategies can be readily developed.
5. Comparison Standards for Internal Analysis:
Any assessment of strengths and weaknesses is meaningless without an appropriate standard for comparison. This fundamental statement applies to both quantitative and qualitative assessments, regardless of whether you are analyzing critical success factors, elements of the value chain or the core processes. Therefore, we consider the pros and cons of three common comparison standards for internal analysis.
The first is designed to establish the various dimensions of the marketing environment, the ways in which they are likely to change and the probable impact of these changes upon the organization. The second stage is concerned with an assessment of the extent to which an organization’s marketing systems are capable of dealing with the demands of the environment. The final stage involves a review of the individual component of the marketing mix along with its key competitors and customers.
The implications of new challenges during slowdown arising out of globalization and information technology, both individually and collectively are significant and demand far more from an enterprise if it wants to survive the competition and sustain its growth momentum. This necessitates a strong need to understand the forces with which the enterprise is competing against and their capabilities.
However, for mapping such forces, the marketing planner needs to focus not just upon the ‘hard’ factors (e.g. size, financial resources, production capability), but also upon the ‘soft’ elements (managerial cultures, commitment to particular markets, market offerings, the assumptions the management holds about itself and the market).
Without this, it is almost inevitable that the marketing planner will fail to identify any competitive threats. Competitor analysis can be defined as a set of activities to examine the comparative position of competing enterprises within a given strategic sector.
It seeks to provide an understanding of a firm’s competitive advantages/disadvantages relative to its competitor’s position and helps in generating insights into competitor’s strategies—past, present, and potential—and provide an informed basis for developing future strategies to sustain/establish advantages over competitors.
The new competitive environment demands a far more focused approach to strategic marketing based upon a greater understanding of the consumer. In short, this new environment is characterized by features such as generally higher levels of and an increasing intensity of competition (Airtel v. Vodafone, Linux V. Microsoft), new and more aggressive competitors who are emerging with ever greater frequency (Jet Airways v. Kingfisher), changing basis of competition as organizations search harder for competitive edge (Reliance Fresh), the geographic reaches of competition becoming wider (Pepsi v. Coke), niche attacks becoming more frequent (MTR v. ITC in the ready-to- eat foods category), increasing strategic alliances (becoming necessary, like Airtel, Vodafone, Reliance and Idea Cellular coming together for sharing transmission towers).
The pace of innovation is speeding up (Nokia, Sony, Mind Tree Consulting in Bluetooth technology); stronger relationships and alliances with customers and distributors are becoming ever more frequent and necessary (e.g. booking air tickets at petrol pumps and post offices, apart from the Internet and travel agents); value added strategies are becoming more necessary (Country Club launched the Millennium Club life membership card with great success in 2007 by adding 300 network clubs and 52 own resorts in India and abroad).
Price competition is becoming ever more aggressive (Airtel, Reliance, BSNL, Vodafone all offer One India STD plan) and long-term differentiation is becoming more difficult to achieve. As a result, a number of enterprises are finding themselves stuck in the marketing wilderness with no obvious competitive advantage (Food world supermarkets and Big Bazaar retail outlets). ‘Bad’ competitors (i.e. those not adhering to the traditional and unspoken rules of competitive behaviour within their industries) are becoming more common and difficult to cope with (Reliance Petroleum v. IOCL in petroleum retail pricing).
6. Porter’s Approach to Competitive Structure Analysis:
One of the major contributions in recent years to our understanding of the ways in which the competitive environment influences strategy has been provided by Porter. Porter’s work is based on the idea that ‘Competition in an industry is rooted in its underlying economics, and competitive forces that go well beyond the established combatants in a particular industry’.
The first determinant of a firm’s profitability is the attractiveness of the industry in which it operates. It is possible to see competition operating at four levels, such as competition among companies offering a similar product or service to the target market, utilizing a similar technology, and exhibiting similar degrees of vertical integration, e.g. Reebok, Adidas and Nike in sportswear and shoes.
Competition consists of all companies operating in the same product or service category, e.g. malls like Garuda and Forum in Bengaluru, PVR and Inox in movie theatre, banks like HDFC, ICICI and SBI with their retail, corporate and investment banking services and insurance providers like HDFC Standard Life, SBI Life, ICICI Prudential and ICICI Lombard. Competition can also consist of all companies’ manufacturing or supplying products that deliver the same service (Nokia, Motorola and Sony Ericsson in the GSM handset market). Competition can be among all companies for the same spending power (Visa and Master Card).
In most industries, the competitors can be usefully portrayed in terms of how intensely they compete with the business that is motivating the analysis. There are usually several very direct competitors, others that compete less intensely, and still others that compete indirectly but are still relevant.
A knowledge of this pattern can lead to a deeper understanding of the market structure. The competitor group that competes most intensely may merit the most in-depth study but other groups may still require analysis. The identification of the most competitive group will depend upon a few key variables and it may be strategically important to know the relative importance of these variables.
Dynamic enterprises device strategies to seize the opportunities and to fight the threats of environmental changes. The technological explosion, information revolution, emergence of well-developed international financial markets, cosmopolitan nature of consumers, growing democratization of nations, expanding world market, and so on tend to drive such enterprises multinational. New rules of the game include: tackling uncertainty by emphasizing a set of new basics, world class quality and service, enhanced responsiveness and continuous short-cycle innovation and improvement aimed at creating new markets.
Marketing strategies must not only identify direct competitors but indirect competitors as well who reflect the same general approach to the market, but also consider those who ‘interact’ with the company in each market, who possibly approach it from a different perspective, and who ultimately might pose either a direct or an indirect threat. As part of this, one need also to identify potential new entrants to the market and, where it appears necessary, develop contingency plans to neutralize their competitive effect.
It is vital for a marketer to view planning as an integrated and on-going process, not as a fragmented and one-time-only concept. Considerations in integrated marketing strategy: planning procedures and opportunity analysis, defining productivity performance measures, and scenario analysis. Planning can be optimized by following a series of coordinated activities such as senior executives outlining the retailers’ overall direction and goals.
This provides written guidelines for middle- and lower-level managers, who get input from internal and external sources. These managers are also encouraged to generate new ideas. Top-down (upper management) and bottom-up or horizontal (middle- and lower-level management) plans are combined. Specific plans are enacted, including checkpoints and dates. Opportunities need to be systematically examined in terms of their impact on overall strategy, and not in an isolated manner.
While evaluating new opportunities, marketers should develop sales opportunity grids which rate the promise of new and established goods, services, procedures, and/or store outlets across a variety of criteria. Opportunities are evaluated on the basis of the integrated strategies the marketer would follow if the opportunities were pursued. Just look at Cannon’s analysis and its key elements given in Table 3.4.
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