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CHP 1:

THE EXTERNAL MARKETING


ENVIRONMENT

Michael Ndenga

1.0 Assessing the external environment

• Organizations have to always understand their


environment
• They need to understand the nature of their
relationship with the envt
• This understanding can enable firms to develop
ideal strategies to gain competitive advantage
• The assessment of the external environement will
involve the analysis of;
▫ Company info: Market share, unit sales, value sales, market
size, market size, number of distributors, profitability etc
▫ Qualitative data: envt factors, CSF, nature of industry, key
competitors, segmentation opportunities, ease of entry etc

Market structure & competitive advantage


• For an organization to trade in a market effectively,
it is vital for it to have detailed knowledge of the
market structure and behaviour therein. This will
cover:
▫ Who the main customers are
▫ What the main distribution channels are
▫ The specs of the products in the market
▫ The main suppliers to the market
▫ What are the regional differences in customer tastes
▫ How is the promotional industry and facilities
▫ Total market size
▫ How does the industry compare to and relate with the
related industries in the same market
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Porters 5 forces
Threat of
new
entrants

Bargaining Intensity Bargaining


power of power of
Suppliers of rivalry buyers

Substitutes
threat

Customers

• Companies must decide which customers they want


to sell to as it may not always be possible to sell to all
the customers. The decision on the desirable
customers will be based on:
▫ How strategic they are i.e their needs vs company
competences
▫ How significant they are i.e in size and potential
growth
▫ How profitable they are
▫ Likelihood of loyalty
• Customers behaviour has many sources of influence.
These must be understood by organizations

Channels
• These are important as they provide the medium
through which the company offers flow to the
customer. These include
▫ Retailers
▫ Wholesalers
▫ Distributors & dealers
▫ Agents
▫ Franchisees
▫ Multiple stores
• Channel design should done with many factors in
consideration. This will include;
▫ Customer: their number, characteristics, buying habits etc
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Cont…
▫ Product characteristics. This involves;
 Perishability
 Customisation
 After-sales service/technical service
 Franchising
▫ Distributor characteristics; their capacity and
influence
▫ Competitor channel choice; do their serve
competitors. If yes our stocks might suffer
▫ Supplier characteristics; this may determine their
ability to invest their own channels and therefore
by-passing the distributors

2.0 Evaluating the current strategic options


Strategic options should reflect
business strategy, be customer
focused and be defined relative to
competitors & market.

Customers

Business Competition

Cont…
• Whatever a firm’s objectives in its market the key to
achieving them is competitive advantage
• The 2 main kinds of approaches to achieving
competitive advantage is;

▫ Positioning approach: this is based on the concept of


marketing orientation whereby the business is
positioned to fit environmental requirements

▫ Resource-based approach: holds the idea that


competitive advantage comes from distinctive and
unique resources.
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Positioning

• This is the act of designing the company’s offer and


image so that it achieves a distinctive and valued
image in the place of the target customer’s mind
• It can be psychological or real
• Perceptual maps are used to identify positioning
options
• The foundation of positioning is to align what the
company can do with what customers want
• Repositioning is a risky and expensive response to
poor performance

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Positioning errors
• Underpositioning:
the brand doesn’t have a lcear identity in the
customer’s mind
• Overpositioning:
buyers have too narrow an image of brand
• Confused positioning:
too many claims made for the brand
• Doubtful positioning:
the positioning may not be credible in the eyes of the
buyer
# positioning variables: size, benefits, user profile,
product uniqueness, price/quality etc

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Competitor analysis
• Who are they?
It is easy to identify existing than potential ones
• What are their goals?
profit, marker share, cash-flow, technological
leadership, service levels
• What strategies are they pursuing?
• What are their strengths and weaknesses?
• How are they likely to respond?
▫ Laid back: they don’t respond
▫ Selective: respond to certain types of attack
▫ Tiger: they react to any attack
▫ Stochastic: impossible to predict their reaction
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3.0 Market sensing


• Managers need to be skilled in market sensing. This
is because some signals are hard to pick up from the
market even though they may have long term
significance
• Its not about the gathering and processing of the
information (mkt rsrch) but how the information is
interpreted and understood by the decision makers
in the company
• It involves a series of stages;
▫ Step 1: capture the information from the envt
▫ Step 2: review the events developing in the envt &
assess their probability of occurring & effects

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▫ Step 3:Categorise the events - probability & effect


▫ Step 4: Assess if the plans exist for possibilities
▫ Step 5: Relate the above assessment to mktg plans
▫ Step 6: Encourage participation across the firm
▫ Step 7: Vary info spec to give correct envt picture

Probability of event
High Medium Low
(Utopia) (dreams field)
Effect Low Likely , Unlikely,
Of desirable desirable
event (Things to
watch),
Medium
medium effect
(Danger) (Future crises)
Likely, Unlikely,
High undesirable undesirable

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