1. Evaluating Opportunities in the Changing Marketing Environment
CHAPTER FOUR Evaluating Opportunities in the Changing Marketing Environment
Chapter Four
Evaluating Opportunities in the Changing Marketing Environment
For use only with Perreault and McCarthy texts. © 2005 McGraw-Hill Companies, Inc. McGraw-Hill/Irwin

2. When we finish this lecture you should
1. Know the variables that shape the environment of marketing strategy planning.
2. Understand why company objectives are important in guiding marketing strategy planning.
3. See how the resources of a firm affect the search for opportunities.
4. Know how the different kinds of competitive situations affect strategy planning.
5. Understand how the economic and technological environment can affect strategy planning.
At the end of this presentation, you should:
Know the variables that shape the environment of marketing strategy planning.
Understand why company objectives are important in guiding marketing strategy planning.
See how the resources of a firm affect the search for opportunities.
Know how the different kinds of competitive situations affect strategy planning.
Understand how the economic and technological environment can affect strategy planning.

3. When we finish this lecture you should
6. Know why you might be sent to prison if you ignore the political and legal environment.
7. Understand how to screen and evaluate marketing strategy opportunities.
At the end of this presentation, you should:
Know why you might be sent to prison if you ignore the political and legal environment.
Understand how to screen and evaluate marketing strategy opportunities.

4. The Marketing Environment
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Resources and Objectives of the Firm
Competitive Environment
Direct Marketing Environment
Cultural and Social Environment
Economic Environment
Technological Environment
Political and Legal Environment
Summary Overview
The five basic areas of the marketing environment are shown in this diagram. Marketers should consider each area and how each area interacts with the others when planning strategies.
Key Issues
Direct market environment: customers, the resources and objectives of the company, and the firms’ competitors.
External market environment: the economic environment, the technological environment, the political and legal environment, and the cultural and social environment.
Marketers make decisions about the 4Ps in the context of the environment.
Discussion Question: How is it that a marketer can influence, but not directly control, the environment? Give an example.
Marketers must continually scan the environment and search for potential opportunities and threats. : :
External Marketing Environment

5. Objectives Should Set Firm’s Course
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Three Basic Objectives Provide
Guidelines
Socially and Economically Useful Function
Socially and Economically Useful Function
Develop an Organization
Develop an Organization
Earn Profit
Summary Overview
When top management sets objectives for an organization, it is especially important to consider the potential impact of the various sectors of the environment.
Key Issues
Company objectives provide guidelines for the present and future development of the firm. A company should:
Engage in specific activities that will perform a socially and economically useful function.
Develop an organization to carry on the business and implement its strategies.
Earn enough profit to survive.
Discussion Question: How are social good and economic viability interrelated?
A firm’s organization and infrastructure--the way it is set up--must be created and coordinated to support the firm’s strategies. Profit is necessary for continued operation. : : : :

6. Mission Statement and Objectives
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Mission Statement
Company Objectives
Production Objectives
Finance Objectives
Marketing Objectives
HR Objectives
R&D Objectives
Summary Overview
The three general objectives provide guidelines. But a firm should develop its own objectives.
Key Issues
A mission statement helps set the course. It sets out the organization’s basic purpose for being.
The whole firm should work toward the same objectives.
Company objectives provide the larger framework for setting marketing objectives.
Marketing objectives should be set for each marketing strategy.
They should be as detailed as possible.
Objectives should be explicit--quantified and related to time deadlines.
Discussion Question: What does it mean to say that objectives should be “quantified”? Why are quantified objectives preferable to objectives that are not quantified?
Product Objectives
Place Objectives
Price Objectives
Production Objectives
Finance Objectives
HR Objectives
R&D Objectives
Promotion Objectives
Personal Selling Objectives
Mass Selling Objectives
Sales Promotion Objectives : : :

7. Company Resources May Limit Search for Opportunities
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Financial Strength
Financial Strength
Summary Overview
It is important to evaluate how realistic each opportunity is in relation to the specific capabilities of the company.
Key Issues
Key areas that limit the search for opportunities are:
Financial strength--opportunities require capital.
Producing capability and flexibility:
As production increases, the cost of producing each unit decreases.
Making changes can be costly and take time.
Marketing strengths--competitive advantages, such as:
strong channel relations;
creative brand advertising;
industry-leading salesforces.
Discussion Question: Several years ago, Frito-Lay, a leading producer of snack foods, added cookies to its traditional line of salty snacks. What marketing strengths could Frito-Lay bring to bear in this extension of its product line?
Producing Capability and Flexibility
Producing Capability and Flexibility : :
Marketing Strengths :

8. Marketing Strengths This slide relates to material on pp. 94-95.
Summary Overview
A major marketing strength for many companies is a familiar brand name like Goodyear.
Key Issues
Major thrust of this ad is the promotion of Goodyear Eagle radial tires.
The Chevrolet Corvette complements the Goodyear Eagle tire.
This ad combines the strengths of two companies.
Discussion Question: What other marketing strengths does Goodyear have, in addition to a strong brand name?

9. The Competitive Environment
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Avoid Head-On Competition!
Summary Overview
The competitive environment affects the number and types of competitors the marketing manager must face -- and how they may behave. Prudent managers choose strategies that avoid head-on competition and/or plan for competition when it is inevitable.
Key Issues
Marketers should understand the differences among types of market situations:
Monopoly: one company serves the entire customer base. Competitor-free environments are rare.
Monopolistic competition: a number of different firms offer marketing mixes that at least some customers see as different. Monopolistic competition is typical, and a challenge.
Oligopoly: a small number of firms controls the market. Barriers to competitive entry are high.
Pure competition: a large number of firms compete with essentially similar (commodity) products. Price is typically the determining factor in making a purchase.
Discussion Question: Can you think of an example for each of the four types of competitive situations? For which market situation(s) is it easiest to think of an example? For which type is it hardest to think of an example? Why? :
Know the Market Situation!
Monopoly
Monopolistic Competition
Oligopoly
Pure Competition :
Monopoly
Monopolistic Competition
Oligopoly : : :

10. Monopolistic Competition
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Summary Overview
There are many producers of plastics. General Electric, the producer featured in this ad, is one of them.
Key Issues
In monopolistic competition, the firm attempts to monopolize its own target market, but competition still exists.
As the ad indicates, General Electric attempts to avoid head-on competition by being innovative with newer products, lower costs, and faster service.
Discussion Question: How can General Electric be innovative and provide better service when dealing in an industrial product like plastics? What types of issues might be important to customers buying plastics from GE or another supplier?

11. Analyzing Competition
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Competitor Analysis
Key
Concepts
Competitor Analysis
Competitive Advantage
Competitive Advantage
Summary Overview
Competitor analysis is an organized approach for evaluating the strengths and weaknesses of current or potential competitors' marketing strategies. Marketers do this by gathering information on the competitors from a variety of internal and external sources.
Key Issues
Search for competitive advantage: new or better ways to satisfy customer needs and provide better value than the competition.
Competitive rivals: the firms that will be the closest competitors.
Marketing managers must anticipate future competition.
Successful marketers naturally attract competition.
Discussion Question: Think about a major grocery store chain that serves your area. What are the competitive rivals for this chain? Are these rivals the only relevant competitors? Why or why not?
Competitive barriers--the conditions that make it difficult or impossible for a firm to compete in a given market. : :
Competitive Barriers
Competitive Rivals
Competitive Rivals : :

12. Marketers Need Information About Competitors
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Seek Information About Competitors
Seek Information About Competitors
Ethical Issues
Ethical Issues
Summary Overview
Marketing managers should seek out information on competitive practices.
Key Issues
The search for information raises ethical issues.
Discussion Question: How would you answer the following questions?
Should people who go to work for their former competitors use information they gained from their previous employers?
Is there anything wrong with having computer hackers break into a competitor’s computer system to access information?
Competition can also vary from country to country, and gathering information about foreign markets can be very valuable in identifying new opportunities.
If direct competition cannot be avoided, the marketer has to deal with the competitive threat—either by leaving the industry or by trying to outperform the competition. : :
Competition May Vary From Country To Country
Competition May Vary From Country To Country
Direct Competition Can’t Always Be Avoided : :

13. The Economic Environment
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Global Economy
Rapid Change
Rapid Change
Key
Economic Forces
Summary Overview
The economic and technological environment affects the way firms and the whole economy use resources. The economic environment is affected by the interactions of all the elements of the macro-economic system.
Key Issues
The economic environment can change very rapidly. In periods of rapid business decline, even a well-planned marketing strategy may fail.
Discussion Question: Can you name a major world event that changed the economic environment and drastically altered the business practices of a major industry?
Interest rates and inflation affect consumer buying processes.
Interest rates can go up sharply in times of high inflation.
Buying power declines during high inflation.
The global economy is increasingly connected.
Competition can come from almost anywhere.
Global trade is affected by exchange rates. :
Interest Rates
Interest Rates : :

14. The Technological Environment
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Summary Overview
Technology is the application of science to convert an economy’s resources to output. Technology affects marketing in two basic ways: with new products and with new processes. In modern economies, the rate of technological change is very rapid.
Key Issues
Technological advances create new market opportunities.
Technology transfer is rapid from one country to the next.
Internet technologies are reshaping marketing.
As shown in this ad, Egghead.com, which used to be a traditional “brick-and-mortar” retailer, now sells products exclusively via the Internet.
Discussion Question: In what other ways has the Internet affected marketing? Hint—think about each of the 4Ps.
Technology also poses challenges.
Sometimes, new technological breakthroughs are rushed to market.
Technology also speeds up obsolescence.
Technology has also raised ethical issues about the privacy of personal information, ecological concerns, and the intrusiveness of telemarketing and Internet advertising.

15. The Political Environment
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Nationalism
Nationalism
Regional Economic Groupings
Regional Economic Groupings
Characteristics of the Political Environment
Summary Overview
The political environment refers to the way societies order their governments and to the attitudes of the government and people toward business.
Key Issues
Nationalism is an emphasis on a country’s interests before anything else.
Nationalism can be limiting in international markets, by reducing sales and blocking marketing activity.
Regional economic groupings are becoming more important.
The European Union has unified European markets.
The North American Free Trade Agreement (NAFTA) is building trade cooperation in North America.
Discussion Question: Are regional groupings a form of nationalism? Explain.
Consumerism: a social movement that seeks to increase the rights and powers of consumers.
Companies that practice the marketing concept see this movement as an ally for better products and higher customer satisfaction. :
Consumerism : :

16. Exhibit 4-3 The Legal Environment
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The Legal Environment
Summary Overview
The legal environment refers to the rules and laws that set standards for conduct that are enforced by legal power. This exhibit shows some of the important Federal legislation governing marketing in the United States.
Key Issues
In the United States, laws try to encourage competition.
There is also a relationship between antimonopoly laws and marketing mix planning.
For example, the Sherman Act prohibits monopoly or conspiracy to control a product, distribution channels, or prices.
Prosecution is serious and can lead to a variety of penalties, including heavy fines and jail terms.
Discussion Question: In light of all of the legislation prohibiting anticompetitive behavior and deceptive practices, why do you think we still see false advertising claims or deceptive prices?

17. “Let the Seller Beware”
Exhibit 4-4
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Consumer Protection
Summary Overview
This slide provides a description of some important Federal regulatory agencies, many of which deal with consumer protection.
Key Issues
Consumer protection is not new.
Sellers are required to be truthful, meet contracts, and stand behind their products.
Food and drugs are controlled by the Food and Drug Administration (FDA).
One major initiative of the FDA is the development of standards for nutritional labeling.
Product safety is also controlled.
The Consumer Product Safety Act of 1972 empowers its commission to remove unsafe products from the market.
State and local laws may vary widely.
For example, every state has different automotive franchise legislation governing the retailing of new vehicles.
Marketers must know the laws.
“Let the seller beware”--marketers must adapt to an environment in which lawmakers are becoming increasingly concerned with consumer protection.
Discussion Question: What are some areas of consumer protection that are of current interest to the courts and to political leaders?
“Let the Seller Beware” :

18. The Cultural and Social Environment
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Summary Overview
The cultural and social environment affects how and why people live and behave as they do. This ad for SRDS shows how firms like SRDS help marketers to keep track of the changing cultural and social environment by providing objective, research-based data and lifestyle analyses.
Key Issues
The changing role of women illustrates the importance of the cultural environment. In the United States, there are:
Greater career opportunities, because more women are in the workforce.
Increased time demands from jobs and careers, so women and their families often suffer from “a poverty of time.”
Discussion Question: What types of products and services are aimed at women and their families who suffer from a poverty of time?
The economic power of women is increasing. More firms are recognizing this fact and designing unique marketing mixes for them.
Changes in the cultural and social environment tend to come slowly:
Marketers need to identify current attitudes.
Marketers can try to anticipate new trends, using companies like SRDS.

19. Using Screening Criteria to Narrow Down to Strategies
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Dollars
Years 1 2 3 4 5
Product A
Years 1 2 3 4 5
Product B
Sales
Sales
Total cost
Summary Overview
Successful, innovative firms have strong programs for evaluating opportunities that they identify as a result of scanning the environment. These techniques help them select the opportunities most appropriate for the firm’s particular competitive position.
Key Issues
Marketers must develop and apply screening criteria.
Quantitative criteria include sales, profit, and return on investment goals.
Qualitative criteria summarize what businesses to be in and what strengths and trends on which to build.
The whole marketing plan should be evaluated.
Discussion Question: Consider the graph shown in the slide--which one is the better opportunity for the firm to pursue? Is it Product A or Product B? Why?
A total profit approach can help evaluate possible plans.
Product A has high start-up costs.
Product B earns profits within one year.
If the firm can afford the start-up costs and delayed profits, the long term profit potential for Product A is greater.
A return on investment (ROI) approach can help evaluate plans, too.
ROI compares sales and profits against the cost of the resources the company must use to generate revenues.
Total cost : :

20. Planning Grids Help Evaluate a Portfolio of Opportunities
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Industry Attractiveness
High
Medium
Low
High
Summary Overview
Graphical planning grids help managers summarize the interaction of several key factors identified by the company to be important to successful business ventures.
Key Issues
General Electric strategic planning grid: positions opportunities according to industry attractiveness and business strength.
Industry attractiveness--characteristics such as size, growth, and competitive structure.
Discussion Question: What characteristics of an industry would be attractive?
Business strength--resources of the organization like people skills, technological position, growth, market share or profitability, among others.
Using industry attractiveness and business strength, a manager can show where any opportunity appears on this grid.
Opportunities occupying the green area of this matrix are growth opportunities and should be pursued.
Opportunities falling in the red area are areas that the firm should avoid.
In the middle, the yellow areas are borderline opportunities that the firm needs to analyze more fully in order to determine if they are worthwhile.
Business Strength
Medium
No Growth
Low
Borderline
Growth : : :

21. Multiproduct Firms Have a Difficult Strategy Planning Job
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Summary Overview
In addition to planning grids, there are other tools available for evaluating opportunities. The more products and services a firm offers, the greater the task is.
Key Issues
Siemens is an example of a multiproduct firm. Strategy planning for firms like Siemens is a complex task.
The idea of a strategic business unit (SBU) may help--an organizational sub-unit of a larger company that focuses on some product-markets and is treated as a separate profit center.
Some firms use portfolio management--treats each SBU like stock in an investor’s portfolio. Some SBUs warrant greater investment, some should be dropped or sold.
The main weakness of this approach is that it encourages management to take a short run view of financial returns.
Discussion Question: How might financial returns and the marketing concept be at odds with each other?

22. Exhibit 4-8 Evaluating Opportunities in International Markets
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Evaluating Opportunities in International Markets
Insensitive
Sensitive
Summary Overview
Planning grids and portfolio analysis also apply to international opportunities as well. However, it might be more difficult to be completely familiar with all of the environmental variables at work in foreign countries. The farther one goes from familiar territory, the greater the risk of making big mistakes.
Key Issues
Marketers must evaluate the risks.
Risk assessment varies from market to market.
International markets may be evaluated according to the likelihood of drastic political changes.
Discussion Question: What types of changes in the political environment might dramatically change the marketing opportunities in a particular country?
Risks tend to vary with environmental sensitivity.
Most industrial products are relatively insensitive to their environment.
Consumer products closely linked to other social or cultural variables are very sensitive to their environments.
If the risks are still hard to judge, it may be wise to look first for international opportunities that involve exporting.
Industrial
Basic
Consumer
products
commodity-type
products that
consumer
are linked to
products
cultural
variables : : :

23. Key Terms Mission statement Competitive environment
This slide refers to boldfaced terms appearing in Chapter 4.
Mission statement
Competitive environment
Competitor analysis
Competitive rivals
Competitive barriers
Economic and technological environment
Technology
Internet
Nationalism
North American Free Trade Agreement (NAFTA)
Consumerism
Cultural and social environment
Strategic business unit (SBU)
Portfolio management
Summary Overview
These are key terms you should be familiar with based upon the material in this presentation.
Key Issues
Mission statement: sets out the organization's basic purpose for being.
Competitive environment: the number and types of competitors the marketing manager must face, and how they may behave.
Competitor analysis: an organized approach for evaluating the strengths and weaknesses of current or potential competitors' marketing strategies.
Competitive rivals: a firm's closest competitors.
Competitive barriers: the conditions that may make it difficult, or even impossible, for a firm to compete in a market.
Economic and technological environment: affects the way firms--and the whole economy--use resources.
Technology: the application of science to convert an economy's resources to output.
Internet: a system for linking computers around the world.
Nationalism: an emphasis on a country's interests before everything else.
North American Free Trade Agreement (NAFTA): lays out a plan to reshape the rules of trade among the U.S., Canada, and Mexico.
Consumerism: a social movement that seeks to increase the rights and powers of consumers.
Cultural and social environment: affects how and why people live and behave as they do.
Strategic business unit (SBU): an organizational unit (within a larger company) that focuses its efforts on some product‑markets and is treated as a separate profit center.
Portfolio management: treats alternative products, divisions, or strategic business units (SBUs) as though they are stock investments to be bought and sold using financial criteria.