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

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

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

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

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

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

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

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

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

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

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

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

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

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

Levels of Competition Generic Competition Form Competition Industry Competition Brand Competition

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

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

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

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

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

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

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

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