External Analysis

OVERVIEW External Analyze Global Societal (Macro) Factors Analyze Global Task (Micro) Factors Industry Competitors

SOCIETAL (MACRO) TECHNOLOGICAL TASK (MICRO) Industry ECONOMIC POLITICAL/ LEGAL INTERNAL Competitors SOCIOCULTURAL

INDUSTRY Definition: Share Analysis & Forecast Group of firms producing a similar product or service Often defined by government (SIC codes), analysts (Valueline and Investment Analyses) Share Analysis & Forecast Financial Trends & Forecast Porter’s 5 Forces of Industry Competition

Overall Assessment of Competitiveness Potential Entrants Five Forces Model Rivalry Among Firms Buyers Suppliers Substitutes

Industry Analysis Market Share Analysis Examples Definition of “market” Definition of competitors Examples

Segments Business Segments Geographic Segments Customer Segments Johnson Controls has 4 Auto; Controls; Plastic; Battery Geographic Segments U.S.; Europe; Pacific, etc. Customer Segments home market; business market; government market. Market Segments fruit-beverage market alcoholic beverage market

Two Segment Questions External question: Internal question: What share of the total market do we have? Internal question: How much does that market contribute to our: Sales; Net Income; Assets

Industry Analysis Con’t. Financial Analysis Sales Net Income Other Indicators Ratios

Competitor Analysis Who Are the Existing and Potential Competitors? What Strategic Groups Can Be Identified? What Are Their Levels of Sales, Share and Profits? What Are Their Growth Trends? What Are Their Strengths, Weaknesses, Strategies?

U.S. Restaurant Chains Strategic Groups High Red Lobster Olive Garden Bob Evans Shoney’s Denny’s Pizza Hut Chi-Chi’s IHOP Price McDonald Burger King Wendy’s Low Limited Menu Full Menu Product-Line Breadth

Levels of Market Competition Product Form - brands which directly compete Product Category - products with similar characteristics Generic Competition - products which satisfy the same customer needs Budget Competition - products which compete for the customer’s budget

Finding Hidden Competitors Although there may be many suppliers or brands of a product, customers may see only a small number as suitable Use research to identify your relevant competitors by determining your customers’ acceptable sets of suppliers or brands plus the criteria which distinguishes suppliers or brands

Market Structure Analysis Understanding Consumer Perceptions of Products and Brands in a Market Use of Product Mapping Technology to Visually Display Relationships among Products or Brands and Attributes which Define the Space Can be Used to Define Competitors

Which Competitors to Analyze? Number Depends on Planning Horizon - the longer the time horizon, the more opportunity there is for potential competitors to enter Market Rate of Change - the faster the rate of change the greater the opportunity for new entrants

Which Competitors to Analyze? Four competitors should always be included: The market leader (largest share) The most profitable competitor The competitor most like us The fastest-growing competitor

Competitor Strategic Profile Provide users with a broad understanding of competitive strategy, including management, goals, capabilities, business/market selection criteria and likely competitive behavior. Include description, direction, assessment of strategies and implications, in terms of threats and opportunities.

Information Required Cost structure of competitors Timing of competitor market entry How competitor will respond to a new product introduction, price change, etc. How competitors are positioned in the market Competitors’ product performance and degree of customer satisfaction/loyalty

Benchmarking 1. Determine which functions to benchmark 2. Identify key performance variables to measure 3. Identify the “best-in-class” companies 4. Measure performance of “best-in-class” companies

Benchmarking 5. Measure your own performance 6. Specify programs and actions to meet and surpass the “best-in-class” 7. Implement and monitor results

Market Analysis How Attractive Is the Market or Industry and Its Submarkets? What Are the Forces Reducing Profitability in the Market? What Entry and Exit Barriers? What are the Growth Projections? What are the Cost Structures? What are the Profitability Prospects?

Market Analysis What Are the Alternative Distribution Channels and Their Relative Strengths? What Industry Trends Are Significant to Strategy? What Are the Current and Future Key Success Factors?

Customer Analysis What Are the Major Segments? What Are Their Motivations and Unmet Needs?

Market Segmentation The process of dividing large heterogeneous markets into smaller homogeneous subsets of people or businesses with similar needs and/or responsiveness to marketing mix offerings.

Market Segmentation A managerial strategy that adapts a firm’s marketing mix to best fit the various consumer demand curves existing in a market. An adaptive strategy that seeks to obtain competitive advantage by doing a better job of satisfying customer requirements.

Steps in the Market Segmentation Process 1. Analyze the Market Size and Structure Attitudes and Usage Competitive Position 2. Develop Segment Profiles Identify Factors Which Differentiate Segments Describe Characteristics and Behavior of Segments

Steps in the Market Segmentation Process 3. Select Target Segments Which Represent Best Market Opportunity 4. Design Marketing Program for Each Target Segment Positioning Marketing Mix

Steps in the Market Segmentation Process 5. Analysis and Appraisal Do We Have the Resources? How Flexible Is Our Approach? Does Target Segment/Strategic Plan Meet Our Objectives? Does Target Segment/Strategic Plan Build on Our Strengths?

Bases for Consumer Market Segmentation State of Being: Demographic, Geographic State of Mind: Psychographic Social Class, Lifestyle Personality, Attitudes, Values Product Usage: Users vs. Non-Users of Brand Heavy vs. Light Users Users vs. Non-Users of Category Usage by Situation Benefits Sought

Segmentation Criteria Group Identity Within Segment Homogeneity Between Segment Heterogeneity Sufficient Size Measurable Market Potential Clear Variations in Behavior Relative to Other Segments Influence Via Available Media Segment Can Be Reached Efficiently

SUMMARY External Why do an External Analysis? Analyze Global Societal (Macro) Factors Analyze Global Task (Micro) Factors Industry Competitors Why do an External Analysis? To identify opportunities and threats.