CHAPTER III: Scanning the Marketing

Environment for Opportunities

Objectives:

At the end of the chapter, the student shall be able to:

➢ Define and discuss the marketing information system
➢ Identify the major forces in the macroenvironment
➢ Understand the competitive environment

Marketing Information System

A marketing information system (MkIS) is a software program that provides information

about marketing research. It allows users to compile and analyze data in a very easy, organized
fashion. MkIS systems are also effective tools that help users make decisions about consumer
behavior and the marketing mix, including products and how they are placed, priced, and
promoted. The more sophisticated the management information system, the more information it
can provide.

Structure of Marketing Information System

Benefits of Marketing Information System

If you are a marketing manager or business owner, finding effective ways to market your
business is vital. Marketing information becomes even more important if you are part of a crowded
market with many competitors, or you have a product that isn't well known. If you don't have good
information, such as the data found in sales reports, you may end up wasting a lot of time and

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money on ineffective marketing activities. An investment in an MkIS system is an effective way
to help you organize and prepare your marketing campaigns. One of the key benefits of an MkIS
system is the insight it can provide about what your customers want and their perceptions of your
products. Through your MkIS, you'll be able to make better decisions about consumer behavior
and choices or product development.

Major Forces in the Macroenvironment

The macro-environment is more general - it is the environment in the economy itself. It has
an effect on how all business groups operate, perform, make decisions, and form
strategies simultaneously. It is quite dynamic, which means that a business has to constantly track
its changes. It consists of external factors that the company itself doesn’t control but is certainly
affected by.

The factors that make up the macro-environment are economic factors, demographic
forces, technological factors, natural and physical forces, political and legal forces, and social and
cultural forces.

• Economic factors

Basically, the very environment of the economy can have an effect on two essential aspects
– your company’s levels of production and the decision-making process of your customers.

Some examples of economic factors affecting business:

o Interest rates
o Exchange rates
o Recession
o Inflation
o Taxes
o Demand/Supply

• Demographic forces

Each and every chunk of the market is affected by universal demographic forces. These are
age, education level, cultural characteristics, country and region, lifestyle, and so on.

The crucial variables include:

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 o How income variables influence business
o Age variables that affect business
o Geographic Region Variables
o Education Level as a Variable

• Technological factors

These factors are related to skills and ability that are implemented into production, as well
as all the materials and technology that a particular product requires to be made. They are essential
and can have a big impact on how well your business is running. It boils down to even the most
basic factors, such as what kind of maintenance trolleys you use in order to preserve your tools
and equipment for as long as you possibly can.

Some of the most common technological factors are:

o Automation
o Internet connectivity
o 3D technology
o Speed/power of computer calculation
o Engine performance and efficiency
o Security in terms of cryptography
o Wireless charging

• Natural and physical forces

Every business must also take into account the very planet and its resources. There are
those that can be renewed, such as forests and agricultural products, and those that cannot, such as
coal, minerals, oil, and the like. Both are strongly related to production.

So, natural and physical forces can be:

o Climate change
o Pollution
o Weather
o Availability of both non-renewable and renewable resources
o Laws that regulate the environment
o Survival of particular biological species

• Political and legal forces

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 The market develops according to the political and legal environment in various areas. This
means that every business needs to be up to date with such forces worldwide in order to be able to
make the right decisions.

This generally includes legal factors such as:

o Copyright law
o Employment law
o Fraud law
o Discrimination law
o Health and Safety law
o Import/Export law

• Social and cultural forces

Finally, it is crucial to understand that the product that you bring to the market can have a
strong impact on society. For example, your production needs to eliminate every practice that is
hazardous to society, and show that it is socially responsible.

There is a wide variety of social and cultural factors, some of them being:

o Purchasing habits
o Level of education
o Religion and beliefs
o Consciousness about health issues
o Social classes
o Structure and size of a family
o Growth rate of the population
o Emigration and immigration rates
o Life expectancy rates and age distribution
o Different lifestyles

Analyzing the Competitive Environment

These days, you can assume that nearly every work environment is a competitive
environment. The primary source of the competition can vary from one work area to another, but
there's competition from other local or area firms, from out-of-state firms and from companies
located all over the world. Competition can emerge seemingly from nowhere, with the emergence
of new products that replace current products with more desirable products or with products that
provide the same benefits at dramatically lower costs. One oft-cited model describes the
competitive environment as having five distinct elements.

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Who Is Michael Porter?

In 1979, Michael Porter, a Harvard economist specializing in industrial organization, wrote

a Harvard Business Review article entitled "How Competitive Forces Shape Strategy." It's still the
best source on the subject of economic market competition. Not many economics articles remain
current for four decades, and most that do were written by Nobel Prize winners.

Porter is the exception – although he's reportedly been in contention – probably because
until the 21st century, the Nobel Prize in economics was restricted to "pure economists." Porter's
area, industrial organization, is generally considered applied economics. For the same reason, it
has been and continues to be particularly influential on forward-thinking companies looking for a
competitive edge.

Porter's Five Forces

Porter's analysis of the competitive environment isn't complex. On the contrary, it's
straightforward and easily understood. He proposes that competition in a given industry depends
upon the interaction of five separate forces. How profitable or difficult the competitive
environment may be varies widely among given industries.

Producers of steel cans, for example, operate in a competitive environment which ensures
that profits remain generally low. Other industries, such as manufacturers of soft drinks and
toiletries, exist in competitive environments "where there is room for quite high returns."

1. Threat of Entry

Competitors can arise from more than one area. In an industrialized economy, a company
can make a strategic decision to enter an area for any number of reasons, among them: because the
area is under-served, because profit margins are unusually high or because the entering company
benefits from a patented process or product that gives them a unique advantage. It should be noted
that these advantages aren't permanent. The shape of the competition changes nearly continuously.

Porter observes that when Polaroid's instant photography patents expired, Kodak was well-
equipped to enter the market. Writing in 1979, Porter couldn't have known that in a few years
digitization would drive one company out of business and the other into Chapter 11. As it turned
out, the most significant competition was a company that in 1979 sold a grand total of 35,000
relatively inexpensive hobby products worldwide. By 2017, Apple was the world's ninth largest
company, with annual sales of $217 billion.

Porter's analysis indicates that Apple's security is no greater than Polaroid's. Threats can
come from anywhere, and are difficult to anticipate. In fact, Porter maintains that concentrating on
future sources of competition rather than on present products is key for company survival.

2. Supplier Power when Many Buyers

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 Porter points out that when there are only a few sources of supply but many buyers,
suppliers will dominate and command a greater share of profits. China's strategy for solar panel
cells is an example of a business strategy based on the expectation of driving prices down far
enough that suppliers in countries with higher labor costs can't compete, eventually leaving China's
solar industries as the predominating major supplier, at which point China will be able to control
profits throughout the industry.

3. Buyer Power when Many Suppliers

In the reverse situation, where there are only a few buyers and many suppliers, buyers will
dominate and will control supplier's profits. Apple, for instance, has more than 200 Chinese
component suppliers for its iPhone. Competition among these suppliers for a single buyer has
repeatedly driven down supplier prices to the point where workers have been mistreated and forced
to work long hours without breaks under difficult conditions.

Even FoxConn (Hon Hai Precision Industry) Apple's largest Asian supplier, has been
caught using student interns and forcing them to work overtime without overtime pay in an effort
to maintain market share. Apple has been criticized for the situation and has made some attempts
to ensure equitable working conditions for workers in these factories. As Porter might have
predicted, when the supplier/buyer imbalance shifts in favor of the buyer to such an extreme, the
resulting competition will drive prices down to a point where suppliers may believe that their
survival depends on lowering prices below the point at which keeping the workplace equitable and
humane for its workers is possible.

4. Threat of Substitutes

Another competitive threat comes from the availability of substitutes for a company's
existing product. The pharmaceutical industry's attempts to devise strategies that hold off the
entrance into the marketplace of generic drugs are an instance of a strategy opposing this threat.

Sometimes, however, the substitute can come from an unpredictable place. The volume of
first-class mail the U.S. Postal Service handles has declined dramatically since the introduction of
email. Suppliers of components for gasoline and diesel-powered automobile engines may soon
find that the coming proliferation of electric cars over the next decade or so threatens their
industries with substitution of components for electric vehicles, whereas other suppliers have more
experience and are better equipped to compete.

5. The Threat of Competitor Rivalry

Porter's fifth force is the cumulative effect of the first four. Competition can come from
anywhere, from innovative new products, from the emergence of powerful new suppliers or buyers
who control the marketplace, or from product substitutions made possible by deregulation,

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innovation or more cost efficient industrial processes, relying on innovative technology, a lower-
cost labor force, or both.

What this means, Porter argues, is that businesses need to look beyond existing products,
the current shape of the marketplace and the current competition and to focus on where competition
may come from in the near and intermediate future. Overlooking latent and emerging competitive
sources and potential new substitutes for current products will cost myopic businesses future
market share or even – as was the case with Polaroid – the survival of the company.

Marketing Opportunity Analysis

Today, in this competitive business environment, constant growth and profitability are
never a guarantee. With advancements in technology, life cycles of products and services keep
shortening. Additionally, business models keep changing and new competitors enter
from various industries. This persistent instability makes it very crucial for businesses to
seek new market opportunities to grow and stay ahead of the competition.

It is in this context that the real importance of market opportunity analysis comes into the
picture. It helps businesses to examine various factors like direct and indirect competitors, brand
value propositions, existing regulations, supply chains, and the general business environment. All
these factors help frame winning business strategies and allow your business to flourish positively
amidst the competitive environment.

Market opportunity analysis is a tool to determine and access the desirability of a

business opportunity. It forms a portion of the business strategy; wherein, before launching a new
product or service, the market is analyzed to identify the anticipated revenues and profits
from it. Forecasted demand is one of the most important factors that should be considered and
analyzed during opportunity analysis. There are a few important questions that can be answered
through this analysis. Therefore, these questions must be considered by businesses that perform
market opportunity analysis:

• What are the most profitable segments of the market?

• What is the rate at which the opportunity is growing?
• What do competitor and gap analysis mean?
• What are the major sustainable differentiation points?

Importance of Market Opportunity Analysis

1. Market opportunity analysis helps identify the needs of the customers and accordingly plan,
design, and deliver the products or services to derive customer satisfaction.
2. It helps the company to stay ahead of the competition due to the introduction of customer-
oriented products.
3. It also allows the firm to make optimum use of resources.

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 4. It helps the business to accomplish goals like profit margin improvements and market share
etc.
5. It also enables an organization to extend and spread its business in new as well as existing
markets.

Marketing Strategies Based on Market Dominance

Based upon the market share, each company enjoys one of these positions:

• Dominant: A firm is in a dominant position, has control over other competitors.

Dominance in the market gives a firm chance to enjoy more freedom to select suitable
strategic options.
• Strong: A strong firm doesn’t control behavior of other competitors, but can take
independent actions without jeopardizing its long-term position. But, other competitors’
actions do not have a notable impact on its position.
• Favorable: These firms are in position to exploit opportunities to improve their positions.
They need to constantly adjust their strategies to continue enjoying the better-than-average
opportunities for which they have to remain alert and struggle constantly.
• Tenable (Average): These firms have satisfactory performance, but they suffer due to
dominant and strong competitors. These firms have less-than-average opportunities to
improve their positions.
• Weak: Weak firms have unsatisfactory performance. However, they need to keep a watch
on opportunities to improve their positions. Weak firms must change or adjust constantly
to exist.
• Nonviable (non-survivable): Such firms have unsatisfactory performance and have no
opportunity to improve their performance and position.

Depending on the position of firms in market, there are four types of market dominance
strategies. These are market leader, market challenger, market follower, and market nicher.

1. Market leader

Market leader has the largest market share in the relevant product in the industry. It has a
dominant position in the market. Obviously, it leads in new product development, price change,
distribution coverage, promotional activities, and novel experiments. The leader may or may not
be respected by other firms, but other firms have to acknowledge its dominance. Other firms can
challenge, follow or avoid the market leader.

A few market leaders enjoy monopoly in the market. They need to remain alert all the time
for maintaining their leadership position. Other firms constantly challenge leadership position. A
little mistake here and there can force the leader into second or third position. It has to adopt

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innovative practices in all the marketing areas. Sometimes, it has to incur excessive costs to
maintain the number-one position.

2. Market challenger

Market challengers are known as runner-up firms. They occupy second, third or lower
ranks in an industry. Market challengers are capable to attack the leader and other competitors.
Sometimes, capable challengers can overtake the leader. Market challengers also target smaller,
more vulnerable competitors. The fundamental principles involved are: to assess the strength of
the target competitor, keep searching opportunities to attack the target, to keep a watch on the
amount of support that the target might muster from allies. Challengers usually choose only one
target at a time. Challengers prefer to attack the target at a vulnerable moment. Challengers usually
launch the attack on narrow front.

3. Market follower

These firms prefer to follow leader rather than to use new strategies and waste energy and
resources. They do not face the leader directly. Some followers are capable to challenge but they
prefer to follow. However, market followers always react strongly in case of any loss. In some
capital goods industries like steel, cement, chemical, fertilizer, etc., product differentiation is low,
service qualities are similar, and price sensitivity is high. They decide to provide similar offers by
copying the market leader. But, one glaring fact is that followership is not always satisfying path
to pursue.

Market followers prefer to follow the leader doesn’t mean that they don’t require specific
market strategies. They cannot be simply passive or simply carbon copy strategies adopted by
leaders. They need to hold current customers and win a fair share of new customers. Followers
usually keep manufacturing cost low and offer better quality products with satisfactory services.
At the same time, they do enter new markets as and when there are opportunities. Market followers
are bound to exist in a mature market. The market followers are wider in case of online marketing
because online marketing has lower entry barriers and higher returns.

It is a simple way to follow the leader. The follower who wants to be imitator duplicates
the leader’s product as well as package and sells it in the market through disrepute distributors.
Products are marketed secretly to avoid legal complications. The product seems exactly similar to
original product except basic quality and features. This is common strategy in auto-parts and
electronics products. People, knowingly or unknowingly, buy such duplicate products as they are
made available at low price.

4. Market specialist or nicher

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 A niche is a more narrowly defined small market (limited number of buyers) whose needs
are not being well-served by existing sellers. It is a small segment that has distinctive needs and
is, mostly, ready to pay high price. Marketers can identify niches by dividing a segment into sub-
segments or by dividing a group with a distinctive set of traits.

Nichers understand their niches’ needs so well and minutely that their customers are willing
to pay a premium price. They design special products with distinctive features, qualities, uses, and
value for special group which are tailor-made to suit the buyer’s needs. Nichers have special skills
to serve their market in luxury goods segment and fashion industry. They gain certain economies
through specialization. Nichemanship strategy is also called focus strategy. The objective is
focusing marketing efforts on one or few narrow market segments and tailoring the marketing mix
to give those chosen customers tailored offer. The firm typically looks to gain a competitive
advantage through effectiveness. The most successful nichers tend to have the following
characteristics:

• They tend to be in high value (luxury goods) industries and are able to obtain high margins.
• They tend to be highly focused on a specific market segment.
• They usually market high end products and are able to use a premium pricing strategy.

Entrant Strategies
Market entry strategy is a planned distribution and delivery method of goods or services to
a new target market. There are a variety of ways in which a company can enter a foreign market.
No one market entry strategy works for all international markets. There will be a number of factors
that will influence your choice of strategy, including, but not limited to, tariff rates, the degree of
adaptation of your product required, marketing and transportation costs. While these factors may
well increase your costs it is expected the increase in sales will offset these costs. The following
strategies are the main entry options open to you.
1. Direct Exporting

Direct exporting is selling directly into the market you have chosen using in the first
instance you own resources. Many companies, once they have established a sales program turn to
agents and/or distributors to represent them further in that market. Agents and distributors work
closely with you in representing your interests. They become the face of your company and thus
it is important that your choice of agents and distributors is handled in much the same way you
would hire a key staff person.

2. Licensing

Licensing is a relatively sophisticated arrangement where a firm transfers the rights to the
use of a product or service to another firm. It is a particularly useful strategy if the purchaser of
the license has a relatively large market share in the market you want to enter.

3. Franchising

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 Franchising works well for firms that have a repeatable business model (eg. food outlets)
that can be easily transferred into other markets. Two caveats are required when considering using
the franchise model. The first is that your business model should either be very unique or have
strong brand recognition that can be utilized internationally and secondly you may be creating your
future competition in your franchisee.

4. Partnering

Partnering can take a variety of forms from a simple co-marketing arrangement to a

sophisticated strategic alliance for manufacturing. Partnering is a particularly useful strategy in
those markets where the culture, both business and social, is substantively different than your own
as local partners bring local market knowledge, contacts and if chosen wisely customers.

5. Joint Ventures

Joint ventures are a particular form of partnership that involves the creation of a third
independently managed company. It is the 1+1=3 process. Two companies agree to work together
in a particular market, either geographic or product, and create a third company to undertake this.
Risks and profits are normally shared equally. The best example of a joint venture is Sony/Ericsson
Cell Phone.

6. Buying a Company

In some markets buying an existing local company may be the most appropriate entry
strategy. This may be because the company has substantial market share, are a direct competitor
to you or due to government regulations this is the only option for your firm to enter the market.
It is certainly the most costly and determining the true value of a firm in a foreign market will
require substantial due diligence. On the plus side this entry strategy will immediately provide you
the status of being a local company and you will receive the benefits of local market knowledge,
an established customer base and be treated by the local government as a local firm.

7. Piggybacking

Piggybacking is a particularly unique way of entering the international arena. If you have
a particularly interesting and unique product or service that you sell to large domestic firms that
are currently involved in foreign markets you may want to approach them to see if your product
or service can be included in their inventory for international markets.

8. Turnkey Projects

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 Turnkey projects are particular to companies that provide services such as environmental
consulting, architecture, construction and engineering. A turnkey project is where the facility is
built from the ground up and turned over to the client ready to go – turn the key and the plant is
operational. This is a very good way to enter foreign markets as the client is normally a government
and often the project is being financed by an international financial agency such as the World Bank
so the risk of not being paid is eliminated.

9. Greenfield Investments

A greenfield investment is where you buy the land, build the facility and operate the
business on an ongoing basis in a foreign market. It is certainly the most costly and holds the
highest risk but some markets may require you to undertake the cost and risk due to government
regulations, transportation costs, and the ability to access technology or skilled labor.

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