1. External Analysis 1 Market/Industry Features
SM352 Strategy
External Analysis 1
Market/Industry Features

2. The Strategic Process External Analysis Current Strategies Key Issues
Options
Strategy
Implementation
SWOT
Internal
Analysis
Current
Objectives

3. Markets and the Far Environment
External Environment 1
Industry and the
Near Environment
Markets and the Far Environment
The Organisation

4. External Environment 2
Environmental change has a major influence on the development and performance of business organisations
Objectives of environmental analysis:
To assess major changes in the external environment which impact on business
To analyse industry and markets and hence identify opportunities and threats

5. 1. Industry and Market Features
Definitions
Market
size, trends, geography, segmentation
Industry
size, main activities, key players, geography, trends
Marketplace
Nature of competition
Key factors for success

6. Industry? Market? How do you define a market?
By consumer needs; markets reflect consumer demand
How do you define an industry?
Porter: group of firms producing products or services that are close substitutes (output)
Kay: the industry is defined by related firm capabilities and based on supply technologies (output/supply)

7. The simplest case: Collection of Sellers Collection of Buyers Goods
Industry
Market
Money
Marketplace

8. The Business The market + industry define the business
What business are we in? Not always easy to define, e.g.:
Whisky
Wine
Consumers
Alcopops
Cider
Brewing
Soft Drinks

9. You must attempt to draw industry and market boundaries as this helps to determine competition and profit potential
Too wide a definition will yield poor results because the analysis will not give us useful information about our chosen organisation
The firm must understand with whom it is competing

10. Market Features
Market Size: estimates of actual size can be based on, e.g.
Government figures
Trade association findings
Market Trends: estimates can come from, e.g.:
historical data
current trends
forecasting techniques
market reports

11. Market Decline
Early warnings of market decline can come from product life cycle characteristics:
price pressures caused by overcapacity
buyer sophistication and knowledge
existence of substitute products and technologies
market saturation - difficult to increase market share
lack of customer interest

12. Market Geography Market Geography
is the market localised, e.g. due to factors such as climate?
or, is there a much wider market but based in, for example the developed countries?
limit is a global market where demand is very similar throughout the world

13. Market Segmentation How is the market segmented?
Need to identify customer groups that respond differently to other customer groups to competitive strategies
Divide a market into sub-markets with their own distinct sets of customers who can be targeted all together

14. Each market segment can be analysed for:
current size
growth potential
benefits sought by customers
price sensitivity vs quality
brand loyalty
threats from current and new competitors
opportunities

15. Market segmentation by customer characteristics:
Consumer Markets:
Age, sex, race, income, family size, location, lifestyle
Industrial Markets:
Industry, location, size, technology, profitability

16. Market segmentation by purchase/use situation:
Consumer Markets:
Size and frequency of purchase, brand loyalty, purpose of use, purchasing behaviour, choice criteria
Industrial Markets:
Application, importance, volume, frequency, distribution, choice criteria

17. Market segmentation by user needs and preferences for product characteristics:
Consumer Markets:
Product similarity, price preferences, brand preferences, desired features, quality
Industrial Markets:
Performance, service, brand, features, quality

18. Industry Features Size Activities
in the simple case industry size = market size
Activities
define principal activities common to members of the industry, e.g. marketing, manufacturing, retailing, design etc…
define outputs
identify sector

19. Who are the key players? Geography the largest businesses
the top brand names
Geography
Where are they based?
Does the industry show characteristics of localisation or globalisation?

20. Trends Is the industry growing, contracting or static?
Is it characterised by many new entrants (especially from abroad) or many firms exiting?
Are there signs of consolidation, such as mergers and/or acquisitions?
Is it characterised by other partnerships such as alliances and/or joint ventures?
Is there a trend towards globalisation?

21. Marketplace What sort of marketplace are we in? Manufacturers of:
Cider
Alcopops
Beers
Soft Drinks
18-25 Year-olds
Pure competition?
Monopolistic competition?
Oligopoly?
Monopoly?

22. Marketplace 2 Each marketplace differs in terms of:
Number of competitors
Size of competitors
Nature of the product
Sellers control of price
Ease of market entry
The less competitive the market, the higher the returns are likely to be
Revisited when we look at analysis of the near environment which brings in the supply-side

23. Key Factors for Success
Skills, resources and attributes essential to success in the market, e.g.:
R&D and drug marketing in the pharmaceutical industry
Reliable and efficient supply and distribution arrangements, low labour costs in the wholesale fresh food industry
Brand name in certain consumer markets
A checklist for the rest of the analysis