The Analysis Of External Environment Factors Marketing Essay

Published Date: 23 Mar 2015

The major factors that affect the performance of any organization are the external environment change because these factors are beyond the control of an organization. In fact, for some companies, these factors bring milestones and big challenges to their smooth operation. because of the difficulty in predicting the future and high chances of uncertain or unavoidable situation ,the analyze of external environment factors can never be complete. The main objective of external analysis is to become aware about the external business environment, how it is changing and which factors bring the change. The analysis is likely to take place at three levels‐ changes in macro environment, changes in the industry and the changes in the operating environment. There are different types of analytical tools and models are available to attempt an assessment of the external environment. In reality, some of these tools will prove to be useful in providing great ideas in order to form a business strategy. Avaibility of a data and requirement of the context can help to choose a appropriate method.

By using appropriate tool to analyze external environment, management can have a good knowledge of forthcoming future which will help them formulating strategy to use new strategic opportunities and defend future threats leading the organization to its desired success.

1.0 Introduction

According to the tutor2u (2007), organisation must provide greater value towards consumer through offering low price as well as benefits or outstanding service in order to capture a market share from their competitors. The company will get the competitive advantage when they differentiated their product from their competitors (tutor2u.net, 2007). For example company applied different differentiation strategies and techniques in market research. As a result these will help the organization to seek opportunities which will beneficial for their consumer from their competitor. When the company will give low price from their competitors it will give them cost advantage. The company will get the differentiation advantage when they will give additional benefits from their competitors. Thus the organization will able to achieve greater consumer value as well as profit maximization and also get the sustainable competitive advantage (QuickMBA.com, 2006).

This assignment will discuss various model and theories which will help organisation to achieve competitive advantage over their competitors. Finally discuss the various approaches that a company can take re its planning to achieve an advantage over its competitors.

2.0 Literature Review

Porter's Five Forces

Porter's five force model is important tool to analyse the analytical assumption of the competitors core competency within the industry. It also helps company to identify the rivals in their industry and state the way how they can get competitive advantage over their competitors. (Harvard Business School, 2005)

Figure: Porter's Five Forces Porter, 1980

Competitor Intelligence

According to Grant (2005), Competitor Intelligence model is a systemic way to collect and analyse of consumer information of the rivals which helps a company in decision making.

Figure: Competitor Intillegence ‐ A Framework for Competitor Analysis Source: Grant (2002)

Market Intelligence Model

Market intelligence model helps to indentify the factors when a company decide to launch a competitive new product. (Paley, 1999).

Figure: Market Intelligence Model Source: Lynch, R. (2003)

Market Commitment Model

Market Commitment Model helps organisation to develop log term goals and objectives with the necessary commitment and develops the link to connect their consumer with the company in order to give new opportunities (Kare‐Silver, 1998).

Figure: The Market Commitment Model source: Kare‐Silver, Michael De (1998),

Ansoff's Product‐Market Growth Matrix

Figure: Ansoff's Product‐Market Growth Matrix Source: Inkpen and Ramaswamy (2006)

Porter's Generic Strategies

Figure: Porter's Generic Strategies Source: Porter, Michael E. (1998)

3.0 Evaluation of the Theories for Sustainable Competitive Advantage

To Forecast New Entrants in the Industry and Create Barriers: If the barriers of entry is low, its indicate that there is a high demand of consumers as well as new compaies are encouraged to enter within the specific industry (Alkhafaji, 2003). For instance, In the lighting industry Phillips has achieved a enormous market though mass production and economic of scale that creates barrier to other companies in their industry. (Electro Pages, 2007).

Understanding the Impact of Brand Image to cope up with Buyers' Bargaining Power:

'The House of Gucci', known as 'Gucci' is an iconic fashion and leather goods retailer in Italy in a highly competitive clothing industry. Gucci established their famousness and brand awareness through luxury branding strategy (Adamson, 2007).

Identify the Stage of Industry Life Cycle: Most products, services and the industries supplying them have a life cycle from birth, through growth, then to maturity and eventual decline (Macmillan and Tampoe, 2000). For instance, if we look at the typewriter industry manual typewriter has been replaced by electronic typewriter through IBM's gigantic innovation strategy. Later on computer, Microsoft's Word and desktop printing got the place of electronic typewriter. (Kalpan, 2007)

Availability of Suppliers and their Bargaining Power: Sometimes companies from different industry pose threat to the enterprise. For example, steel is one of the secondary key inputs in the oil industry. In terms of purchasing steel from the available suppliers, Venture Production, one of the North Sea oil producers competes not only with other regions in the oil industry, they have to compete with Toyota, the Chinese, the aviation industry and the shipbuilding industry. Possible steel crisis at the time of peak activity would severely dent the project timetables and balance sheets of the sector. (Akilade, 2007)

Evaluating Access to Distribution Channels: Access to low cost and wellorganized distribution channels is one of the components of efficient market characteristics. A study showed that 42% of the joint ventures entered by the foreigners in US over 1971/83 period were for access to suitable marketing and distribution channels and close to 60% of US joint ventures in Japan were for marketing and distribution channels (Julian, 2005)

For Immediate Response to Changing Needs of Customers: An example of Toyota, the ever successful automaker in the world can illustrate this point. Toyota realized success lies not in managing inventory but in eliminating it. It started thinking about pulling inventory based on

immediate customer demand rather than pushing inventory system that anticipates customer demand. So Toyota introduced Just‐in‐Time manufacturing system that gives its customers the right to choose what they want, how and when they want it. This revolutionary system enabled the company cutting its inventory cost at a nominal level and thus proving Toyota‐ an operational excellence as a strategic weapon (Liker, 2004).

Saving Time and Money as an Efficient First Follower: Late starters can avoid the mistakes of the leaders saving both time and money with efficient launch (Macmillan and Tampoe, 2000). For example, Apple which had adopted the first mover strategy in personal computer failed terribly in its Newton handheld computer project. Firm such as Microsoft thrive on a second mover strategy, observing closely the innovations of first movers and then improving on them to gain advantage in the (Kurtz and Boone, 2005)

Adopting Best Practice Analysing the Competitors' Strategy: In a highly competitive industry, the key characteristics of a company's external environment are determined by the behavior of a few rivals possibly a single firm. For example, in household detergents, Unilever's strategies are determined by the strategies of Procter & Gamble. The same happens to Coke and Pepsi. (Grant, 2002)

Choosing the Best Alternative to Reduce Operation Cost: A firm could be the lowest cost producer, yet not offer the lowest price product or services. That firm would enjoy profitability above the average in the industry. (Macmillan and Tampoe, 2000). For example, Implementing a cost leadership strategy, Ford Motor Company launched "Model‐T" in 1918 as a standardized car and become market leader in USA. (Adcock, Halborg and Ross, 2001)

To Identify Quality & Cost Effective Suppliers: Good quality and cost effective supply can reduce production cost. A long term relationship with suppliers can help companies get raw materials at lower price and thus achieve cost leadership. A better negotiation and control over the suppliers can be formed. For example, Wal‐Mart can achieve cost efficiency because of its long term relationship with suppliers and control over them. (Wal‐Mart's Cost Leadership Strategy, 2004)

Understanding Customer Perceived Value of Products or Services: if a company can provide a higher value to their costumers then this will defiantly lead to a competitive advantagement. By adding more value to products and services through either quality improvements or support services, companies should improve customer satisfaction in order to strengthen relationship and build customer loyalty (McIvor, 2005)

Anticipating Future Needs: Companies should try to figure out why customers move from being happy to unhappy. They should try to predict future needs of customers and bring appropriate changes in products and services wherever needed. (Shiba and Walden, 2001)

Outsourcing Business Functions to Secure Investment for Growth: Organisations can outsource some business functions at which they are not efficient at and invest more at which they are competent at. For example, in early 2004 BT and HP announced an agreement of strategic alliance as a part of their outsourcing strategy. As per the agreement BT would manage HP's voice and data networks and product support callcentres in Europe, Middle East and Africa (EMEA). On the other hand, HP would manage the desktops and helpdesk for all BT's employees as well as the company's mid‐range servers and those of its customers. The deals will $1.5bn is expected to be split 50/50. (The Register, 2004)

Reviewing the Probable Strategies and Chances of Success of each Principal Competitor: In 2005, Beijing‐based computer maker Lenovo acquired IBM Corporation's personal computer division including the brand name "Think" to form the third‐largest PC maker in the world. The motive behind this acquisition strategy was to compete with Dell and Hewlett‐Packard in US market (Musil, 2005) Companies like Dell and HP have to understand all its competitors' strategies and defense them formulating new strategies.

Postulating Possible Future Scenarios: An assessment of the likely effects of each possibilities within and outside the company should be done to identify the actions necessary to survive and succeed. (Macmillan and Tampoe, 2000)

Targeting a Lucrative Market Segment: Procter & Gamble was the first company to introduce a special brand formulated for a woman's chemistry, specific packing and advertisement was done to attract the female coustmers. (Kotler and Armstrong, 1996) . The company succeeded to market its brands targeted to women with a keen advertising strategy.

Effective Positioning of Product or Services: While positioning a product or service for a target market, it should be kept in mind that the feature of the product or service should be something important to the market. For example, Volkswagen followed a positioning by feature strategy in its advertising line which was "Think Small". (Rogers, 2001)

To Recognize the Rapid Changing Cycle of Competition: Johnson, Scholes and Whittington (2005) examined that some industries and sectors are aware of the fact that competitive advantage gained on certain basis will not last for longer period so they characterized themselves by rapid pace of the change.

Analyzing the Co‐Operative Environment: Lynch (2003) proposed that cooperation between the organisation and others in the environment may help achieve competitive advantage, produce lower cost, help deliver sustainable relationship with those outside the organization

Considering the Role of Customer Service & Quality: A study claims that future competitive advantage for UK retail banks will only be achieved through quality and customer service ‐ such that everyone who works for a bank will truly care about their customers and offer discretionary effort for the fulfillment of customer needs. (Shepherd and Mookherjee, 2007)

Conclusion: after all the above discussion, we can see that, any organization need to have clear knowledge and understanding of the external factors that affect the business environment in order to get success in high competition. organization with clear understanding and knowledge of key factors which affect the business environment can make use of opportunities and fight with the threats. Strategies developed after considering all available opportunities , threats and other factors will defiantly lead an organization to provide best services to their customers in compare to their competitors.

4.0 Conclusion