The commercial environment

1

Role of the Product

Manager in a

changing

environment

Purpose of the Strategy Plan

• To make decisions for the future

• To identify and evaluate future growth directions

• To identify and evaluate opportunities and

threats

• To identify and evaluate corporate strengths and

weaknesses

• To identify current core competencies and

additional competencies that should be

developed

2

Elements of the Strategy Plan

1.0 Introduction

1.1. Terms of reference

1.2. Methodology (if required)

1.2 Background and context

2.0 The Challenge

3.0 Situation Analysis

3.1. Environmental Analysis

3.2. Market Analysis

3.2.1 Customer Analysis

3.3. Competitor Analysis

3.4. Internal Analysis

3.5. SWOT Analysis

4.0 Critical Success Factors

5.0 Vision and Mission

6.0 Strategy

7.0 Marketing Mix Objectives

Where are

we now?

Where should we be?

How are we going to

get there?

Elements of the Strategy Plan

The Situation Analysis

• Is, without question, the single most important section of the strategy plan

• Is the longest section of the plan

• Is the only section that requires research and analysis

• All other sections of the plan draw on insights and conclusions made in the situation analysis

3

Environmental

Analysis

Market Analysis

Competitor

Analysis

Internal Analysis

The Situation Analysis answers three basic questions

Customer Analysis

Opportunities &

Threats

Strengths &

Weaknesses

Strategy

Where are we now?Where are we going? How are we

going to get

there?

Environmental

Analysis

Market Analysis

Competitor

Analysis

Internal Analysis

The Situation Analysis

Customer Analysis

Opportunities &

Threats

Strengths &

Weaknesses

Strategy

The purpose of the environmental analysis is to identify opportunities and threats

4

Sample Page from Situation Analysis

Dairy Australia, Strategic Plan: 2004-2009

Note emphasis on change

Opportunities and Threats

Opportunities: Any favourable situation in the organisation's environment. It is usually a trend or change or an unmet market need. (ie positive forces)

Threats: Any unfavourable situation in the organisation's environment that is potentially damaging to its strategy. Threats may be barriers, constraints or other external factors that might cause problems, damage or injury(ie negative forces)

Source: Rowe, Mason, Dickel, Mann, Mockler; Strategic Management: A

Methodological Approach, 4th Edn, 1994.

5

Types of Opportunities

There are two broad types of opportunity:

1. Market Opportunities: “unmet or unsatisfied needs in

the marketplace that the firm has an interest in.”

2. Environmental Opportunities: “evolve from social,

political, economic or technological changes.”

Source: Mc Coll- Kennedy, 1997

Opportunities- Things to Note

Market Opportunities: “unmet or unsatisfied needs in

the marketplace that the firm has an interest in.”

[emphasis added]

“That the firm has an interest in” refers to the degree

to which an identified opportunity fits with the

corporation’s core business or core competencies

6

Opportunity - Example

“According to research commissioned by Mc Donald’s, 43% of

Australians regularly skip breakfast.”

Source: Mc Donald’s Media Release, 30 November, 2003

Opportunity – Market demand for simple, cheap and convenient

breakfasts catering to time-poor Australians

Product Strategy- Expand Breakfast Menu

Concept – Quickstart Menu launched December, 2003

Strengths & Weaknesses

Strengths and weaknesses derive from the firm’s internal competencies relative to the competition.

Strengths “Competitive advantages and distinctive competencies that a firm may exert in the market-place.”

Weaknesses “ An organisational deficiency that prevents it from moving in a given direction.”

Source: S.Jain, 1997

7

The Environment

Rationale for Environmental Analysis

“We are not fit to lead an army on the march unless we

are familiar with the face of the country – its

mountains and forests, its pitfalls and precipices, its

marshes and swamps.”

Sun Tzu, The Art of War

Components of Environment

Environmental

Analysis

Political

Economic

Social

Technological

8

The Environment Analysis

Object is to:

Identify broad changes that will give rise to opportunities and threats

Identify drivers of change

Specifically:

New markets? New entrants? New products or packaging? New ways of transacting business?

Changes to rules of competitive game? Emergence of sunrise industries?

Political Environment

What to look for:

Proposed or planned changes to government policy that are likely to impact on industry or corporation

Specifically

Statutes, Funding, Tariff and Trade Policies,

Why:

To identify new business opportunities, identify potential new entrants and changes to the rules of competition

What Not to Do:

Do not write a list of Statutes that govern current operations

9

Economic Environment

What to look for:

Potential or planned changes to economic circumstances that are likely to impact on industry or corporation

Specifically

Consumer confidence, Interest Rates and Exchange rates (for exporters and importers),

Why?

To identify changes in cost structures with implications for price setting and product substitution

What Not to Do:

Do not discuss general (un)employment and average wages unless there are clear category implications.

Social Environment

What to Look for:

Broad changes to population, their purchasing habits and lifestyles that have implications for industry or corporation.

Specifically

Demographic shifts, Consumption Trends, Fashions and Fads, Shopping channels and times, Use of Communications technologies.

Why?

To identify new and emerging market segments, new ways of transacting business, channel switching behaviour, new forms of product substitution.

What Not to Do:

Do not conduct a segmentation study, identify a target market or profile current target market/ secondary market

10

Technological Environment

What to look for?

Changes in materials, ingredients, packaging, logistics that have potential commercial applications

Specifically

Scientific discoveries, R & D breakthroughs, management theory and practice

Why?

To identify new product concepts, new formulations of existing products, new packaging concepts.

What Not to do:

Do not write a “Gee Whiz” account of the Internet and new communications technologies.

Technological Environment

Five technological environments have been

identified:

• Energy

• Materials

• Transportation

• Communications and Information

• Genetic (agronomic and biomedical)

Shubhash Jain,

11

Context of the Environment

Analysis

The triple bottom line (TBL)

Today most responsible corporations identify three desirable

outcomes:

1. Financial Outcomes (Profits/ROI)

2. Social Outcomes

3. Environmental Outcomes

To this end, many corporations produce social and environmental audits

along with profit statements as part of their standard corporate

reporting.

Context of the Environmental Analysis

Take care that you do not confuse environmental and social audits

(outcomes) with the environment analysis conducted as part of the

strategic planning process

The concept of “environment” has several meanings:

Environment = habitat, ecology, “tree-hugging” greenies

Environment = external landscape

12

Overview

Environment

Regulatory

Technological

Social

Economic

Why do it? / What to look for

New business opportunities, new entrants, substitutes

New materials or ingredients, new product concepts, new packaging, new modes of communication, new delivery modes

New markets, changing preferences, tastes

Cost structures, demand patterns. Product substitution

Techniques Used in

Environment Analysis

13

Environment Analysis

Techniques

• Environmental scanning

• Trend Analysis

• Data Mining and Data Fusion

• Precursor Analysis or Evolutionary Analysis

• Forecasting

• Issue analysis

• Macro-environmental (STEEP) analysis

• Scenario analysis

• Stakeholder analysis

Environmental Scanning• Environmental scanning is the most widely used research

method and analytical technique

• Environmental scanning involves the collection of data about change factors from a wide variety of sources.

• It is a broad surface scan designed to identify patterns and trends.

• General topics include: demographics, social, economic, sustainability, scientific, technological, political.

• This data is used to identify points of discontinuity, opportunities and threats.

14

Environmental Scanning - Phases

Scan without

an impetus

(Immersion)

Scan to

Illuminate

a Specific

Event

Scan to Make

an Appropriate

Response

Scan to

Identify

SCA

Primitive Ad Hoc Reactive Proactive

Face the

environment

as it appears

Watch out for

likely impacts

Protect the

future

Predict for a

desired future

Source: Based on S. Jain, Marketing Planning &

Strategy, p. 127

Scanning: Suggested Approach

1. Scan Internally: (general knowledge) for macro-trends and issues

2. Scan Externally: (e.g. trade Press, business press) to identify set of core issues

3. Analyse: list of core issues (use frequency analysis to identify core issues, organize and synthesize issues to condense the list)

4. Detailed Scan: Use terms/ concepts generated from the original scan to carry out more conventional research

5. Condense: Look for patterns, themes to reduce data into meaningful sets

6. Weighting: Devote more time and space to more important issues. Less time to trivial issues.

15

Environmental Scanning

Rules of Environmental Scanning

1. Use 5-9 different types of sources of information to identify trends (e.g. newspapers and trade press, government reports, industry reports, commercial research)

2. Use independent sources to confirm trends (especially important trends)

3. Specialist and fringe sources are preferred (collaborative research centres)

4. Use sources that provide a 360O perspective (look for strategic focus)

5. World Wide Web should be avoided

6. Corporate propaganda should be avoided

Environmental Scanning

Note that the approach does not involve going onto the web to gather “content”

Instead, the approach requires two scans:

1. First scan- is broad, surface (general immersion) and is designed to identify issues

2. Second scan – is a detailed analysis of important issues

• Desk research (marketing intelligence) is the principal research method

• Diversity of sources is the key

• Ideas must be organised thematically throughout the analysis

16

Environmental Scanning(Summary)

Purpose: To understand the forces that govern competitive and market environments, to identify issues that are likely to impact on corporate growth and marketing activities

Data Requirements: copious amounts of diverse data from at least 5-9 different types of sources

Skills Required: critical thinking, ability to organise concepts thematically, “detective” type skills in gathering data.

This method is not for quitters or minimalists

Trend Analysis/ Extrapolation

Trend extrapolation:

• is the simplest form of futures research

• is based on an assumption that patterns in the past

will continue into the future.

Trends may be:

• quantitative

• qualitative

17

Trend Analysis

Trend analysis begins with the systematic collection of data documenting actual events; that is, measurable changes in such indicators as the number of elderly people, the standard of living, and global warming.

These measurements generally indicate a certain direction or trend that can be used to make crude forecasts by estimating the trend line into the future.

Trend Analysis

Trend analysis can be more powerful when the analysis identifies and describes the underlying patterns.

Trend analysis uses time series data (requires a minimum of seven data points, but more are preferred)

Statistics merely describe patterns economically and succinctly. Without understanding the forces driving change, there is a real danger obtaining false trends.

18

Trend Analysis

0

5

10

15

Sales (%)

1 2 3 4 5 6 7 8 9

Year

Market Share

This example is based on the launch of Stella

Artois Beer in the USA, reported in John Phillip

Jones, The Ultimate Secrets of Advertising, 2002

Quantitative Example

Trend Analysis

Commentary on preceding slide:

• Most analysts understand that the brand’s share is

increasing, albeit at a declining rate

• It is tempting to extrapolate this trend into the

future by suggesting small increases in share

• Actual data, however, yields a different picture as

seen in the next slide

19

Trend Analysis- Quantitative

0

2

4

6

8

10

12

14

16

18

Sales (%)

1 2 3 4 5 6 7 8 9 . . . . . . .

Year

Market Share

National Launch

Source: Stella Artois Case

The point is that more data points can uncover

unexpected trends.

Trend Analysis

1977

1990s

Micro-Wave

Oven

Answering

Machine

Flexi-Time/

Job Sharing Catalog

Shopping

Personal

Computer

Home Office/

Telecommuting

The Internet

Insta-Food

Cell

Phones

E-commerce

Source: Euro RSCG, Strategic Marketing Research, 2002

Qualitative Example

20

What is the trend?

Notes on qualitative example

Although the previous slide appears to present a random set of

trends, skilled researchers identified a can identify “HIGH

PACE/ HIGH PEACE” dichotomy as the underlying trend.

• “Personalising” time and technology in an attempt to create

timestyles

• Need to gain control and a sense of “high peace” in a “high

pace” world

• Convergence of “private” and “public” worlds

• Drivers: increased stress, time-poor generation, technology,

adoption rates

Trend Analysis

Summary

Purpose: To analyse the probable long term status of an

observed trend

Data Requirements: longitudinal data for focal variable

(minimum of least 7 data points eg. 7 years, but more

data points are preferred)

Skills Required: analytical mind, basic level statistical

skills, willingness to draw conclusions and make

inferences

21

Product Evolutionary Cycle

Based on four key concepts about

change:

• cumulative effects

• motivated by generative, selective,

and mediative forces

• direction of change tends towards

increasing diversity, efficiency, and

complexity

• patterns or themes can be detected

Tellis and Crawford, 1981

Product Evolutionary Cycle

Can be used to suggest:

• Future trends for category growth

• Future trends in product proliferation

• New ideas for product development

22

Precursor Analysis(Summary)

Purpose: To suggest possible future category development by comprehensively mapping its evolutionary path

Data Requirements: longitudinal data, from product inception to current times

Skills Required: graphical representation (middle secondary arithmetic) plus the ability to visualise evolutionary branches in the family tree

Problems With Marketing

Intelligence

Desk research methods tend to give rise to a number of problems, including:

1. Available data not at required level of aggregation

2. Information Gaps

3. Conflicting and contradictory information

23

Problems with Desk Research

• Not only are these problems frequent in marketing

intelligence, but it is also a major headache for military

intelligence

• However, there are many ways that you can legitimately

cope with these issues

• This section presents some general principles plus a

series of applied examples to illustrate various

techniques.

General Techniques for

Handling Intelligence

Several techniques that can be used to cope with

inadequacies include:

1. Analogy Methods

2. Extrapolation Methods

3. Data Fusion and Data Mining

4. Assumptions/ Proxy Variables

5. Critical Analysis

24

Techniques for Handling

Information Gaps

Before you employ any of these methods, first ensure that your information search has been comprehensive

Important Distinction

Comprehensive = made reasonable attempt to access all relevant information in the subject area

Exhaustive = confident that all publications in the field have been consulted

NB: You cannot claim comprehensive research if you have only used the web.

Coping with Gaps in

Marketing Intelligence

25

Techniques for Handling

Information Gaps

Analogy Methods

– International analogy – use data from comparable

foreign country

– Historical analogy – use data from former time period

– Product Category analogy – use data from comparable

product category

– Market Segment analogy – use data from comparable

market segment

Analogy methods use implied assumptions

about comparability.

Techniques for Handling

Information Gaps

Extrapolation Methods

Out of Date Data –Can data that is 5 or 10 years

old be extrapolated to the current period?

Data Fusion/ Data Mining – Can two or more data

sources be fused or synthesised to illuminate the

problem? (Examples have already been discussed

in this presentation)

26

Demographic Analysis of Wine

Consumption

To illustrate some of these techniques, I have done a comprehensive search of the wine literature and have encountered real difficulty locating Australian data on three areas:

1. Wine Consumption By Demographic (age and gender)

2. Wine Price Segment By Demographic

3. Comparative Usage rates (light, heavy drinkers)

Wine Consumption By

Demographic

• Marketers constantly search for this type of market analysis

• Yet it can be surprisingly difficult to locate

• The most obvious solution is to purchase commercial data from Nielsen or Roy Morgan. Let’s assume that my budgetary constraints rule out.

27

Is wine the main alcoholic beverage you drink?

45%

69%

87%79%

0%

20%

40%

60%

80%

100%

20-24 25-32 33-39 40+

Yes

n=636

Source: Roz Howard, “Wine Marketing to Generation

X”, Presentation to Australian Wine Marketing

Conference, 2001

Comprehensive Research : Australian Data

Coping with Incomplete Information

• The preceding examples are designed to illustrate different

ways of managing data

• None of the solutions is “perfect”

• But we should note that survey findings are equally

“imperfect”

• In some situations your best estimate, is a far sight better

than no estimate at all!

28

Inconsistencies

• Secondary sources tend to give rise to estimates that vary enormously – even contradict other available evidence

• When using inconsistent facts and figures in your reports, you will need to do one of two things:

1. Explain the inconsistency

2. Reconcile the apparent contradictions

Causes of Inconsistencies

In order to cope with inconsistencies, we must first

understand their causes, which might include:

– Different collection methods

– Different time periods

– Different levels of aggregation

– Selective perception

– Vocal minority viewpoints

29

Coping with Inconsistencies

• The main technique for coping

with inconsistencies is:

Critical Analysis

Issues in the Australian

Environment

The slides in this section have been included for

student’s benefit. They are designed to suggest some

of the more important issues affecting the Australian

environment. Students are encouraged to study this

section to gain ideas for the type and level of analysis

expected and to examine a variety of ways of

presenting data.

30

Regulatory/ Political Environment

Key Issues for Australia:

• De-regulation (global trend)

• Shift towards industry self-regulation

• Diminishing Government role in

enforcement

• Relaxed statutory controls

• Relatively stable environment

Political/ Regulatory Environment

Source: AMI, Marketing Update (Newsletter of the

Australian Marketing Institute -Victorian Division),

April, 2004

In web site development,

marketing communications,

“.. The basic test of

copyright infringement

requires that copyright owner

approval is required for the whole

of a work or a substantial part.”

31

Political Environment

Source: RMR, RMR Update (electronic newsletter), June, 2003,

www.roymorgan.com.au

The impact of the introduction of smoking bans on

gambling is demonstrated graphically here.

Other data suggests not only a reduction in the number of

gamblers, but also a reduction in time spent at venues.

Top Economic Trends

• Privatisation (and provision of

uneconomic services)

• Rising discretionary incomes in some

segments

• Widening gap between `haves’ and

`have-nots’

• The “working-poor” as an underclass

• Organised consumerism (green lobby

as a political force)

• Global market-places

32

Economic Environment

Source: Roy Morgan Research, RMR Update

(electronic newsletter), October, 2003

www.roymorgan.com.au

Economic Environment -

Examples

Source: The Age, 16 April, 2004

“The richest 20% of

Australian

Households own

63% of all net wealth.”

33

Economic Environment -

Example

Source: Forseechange, “Evaluating Advertising Return on Investment,” Discussion Paper,

c.2002

Not all segments exhibit the same responses to

environmental stimuli, nor are their responses constant

over time. High price sensitivity segments nominate cheap

prices as an important attribute. During the economic

boom of the late 90s, price sensitivity dropped.

Societal Trends

A literature review reveals the following top social

trends identified by market research companies

with strategic specialisations:

– Global shift to a civil society

– Population Dynamics

– Household Structure and Family Type

– Generational Differences

– Age in Motion

– The Gender Agenda

– The Working Woman

34

Top Societal Trends (cont’d)

– The Time Equation

– Rise of religious fundamentalism

– Environmentalism

– Consumerism (Second Wave)

– Mediated Relationships (e.g virtual reality)

– Spiritualism and Alternative Lifestyles

Social Trends - Example

The Age Good Living, 11 September, 2003

“When Maxim – one of America’s

best selling lad’s magazines-

starts giving away

samples of Nair For Men,

there’s no denying that we’re

in the midst of a seismic

cultural shift.”

David Smiedt, journalist

35

Social Trends - Example

Neos (the luxury spending segment)

.. Have shaken the very foundation

of marketing in the 21st Century

[In Australia, they account for]

..24 percent of the

population who know more,

read more, eat out more,

drink more wine, expect to pay

more for an experience

Source: The Australian, 15 April, 2004

Social Trends- Example

Source: AMI, Marketing Update (Newsletter of the Australian

Marketing Institute -Victorian Division), April, 2004

“People over 55 control 23.9%

of total spending … and 50%

of national wealth.”

36

Social Trends- Example

Consumerism is exerting pressure in a

diverse range of demands – including

improved product labelling

Top Technological Trends

• The Wired World - Speed of electronic

communications

• Technology and rise of `virtual’ communities

• Emerging new media (SMS, Digital TV, Digital

radio)

• The Internet’s failure to attract advertising dollars

• The search for new business models

• The Internet’s shift towards user pays

37

The Environmental Audit

• Covers sweeping range of issues

• Requires breadth and skill in research

• Requires a great deal of analysis and interpretation

• Requires the ability to spot macro-trends

• Arguably, one of the most sections difficult to research and

write

• Arguably, one of the most important sections of the report

• Generally one of the most poorly handled sections in terms

of its research, conceptualisation, analysis and direction

A Final Note About SourcesIn strategic planning, we need to be creative about sources.

• Use traditional desk research

• Use non-traditional sources ( e.g. observation, mystery shoppers )

• Try to use longitudinal data, wherever possible

• Think laterally

• Look for any source of information that could provide a competitive edge

• Do NOT rely on the Internet for all information needs

• In your reports, not more than 10% of sources should be e-resources

• Always interrogate sources for reliability and credibility (ie critical analysis)