A critical assessment of marketing analysis tools - Essay Example

? A Critical Assessment of Marketing Analysis Tools Background Companies are often challenged externally or internally to examine their positioning in the given marketplace, business or industry. To complement this, a multitude of models and theories have been established (Koch, 2000). The intention is to evaluate, develop as well as disseminate the competitive advantages for an organization. In the current study two competitive strategies have been critically evaluated. Porter’s five forces model The configuration of porter’s five forces differs from industry to industry. In commercial aircraft market, rivalry is strong among dominant producers Boeing and Airbus as bargaining power is strong, while threat of substitutes and threat of entry and supplier power is less. In sector of Movie Theatre, substitute entertainments forms are proliferated as power of distributors as well as dominant movie producers are important. The competitive force which is strongest determines industry profitability and becomes crucial for strategy formulation (Porter, 2004) Economy has become more dynamic as well as volatile, and strategies require moving beyond conventional ideas of positioning and competition while understanding profitability and industry competition (Porter, 1980; Hubbard and Beamish, 2011). In order to describe the five basic forces of competition, economist and professor, Micheal E. Porter created a model which can be considered by companies while developing and implementing business strategies (Porter 2008). The various forces constituting micro level external environment were supplier power, threat of new entry, customers or buyer power, substitute power as well as competitive rivalry (Grant, 2011). The overall configuration and strength of the above forces differ by sector, and these forces determine overall potential for profitability and attractiveness. With the decrease in the intensity, attractiveness and productivity of the industry becomes higher. The goal of business managers is to determine and evaluate the factors, drivers or sources which influence these forces so that they can be shaped to favour the strategy implementation process. New entrants introduce themselves in the market with new capacities. They are interested in gaining share in the market and pressurise the pricing strategy and tend to shake the established restructuring as well as industry competition. The influence of these threats depends on how strong is the industry barrier, strategic decisions influencing the industry and overall incumbent reaction (Bain, 2001). Other factors which influence these treats include product differences, economies, switching costs of buyer, brand identity, ease of distribution, capital requirements, government policy, expected retaliation as well as cost advantage. The height of entry barriers has been constantly proven as one of the most critical predicator to overall industry profitability (Frank, 2008). Suppliers have the bargaining power to control and limit profitability of the industry by increasing prices or reducing the services or product qualities. Thus, industry participants find it difficult to achieve profit from increased costs. Various factors influence the supplier power. these can be supplier input differentiation, concentration of supplier in the industry, selling volume of supplier products and its relative importance, information available about supplier products, profitability of the suppliers as well as presence of supplier substitutes. Other factors include forward integration of important suppliers, costs to suppliers relative to overall purchases as well as supplier incentives. Customer or buyers also exert some power in the market. They have the power of bringing down prices of products or services. They can look for better quality as well as intensify internal competition among brands. All of these can result in decrease in the supplier as well as industry profitability. factors which influence the power of buyers include importance of the volume of purchases, importance of the quality of products to buyers, differentiation in the purchased products, buyer information regarding industry products, relative costs compared to total purchases as well as threat is cases where major buyers go for backward integration. Substitutes are essentially those services or products which perform almost similar or same function as the product of the industry but through different means. For example, Videoconferencing has become a substitute for travel; plastic is replacing aluminium as substitute. Substitute threat may be indirect or downstream and have always been present in the industry (Grundy, 2006). Till 1978 fibre-glass insulator producers enjoyed unaltered demand as a result of the severe cold weather and high cost of energy. However, the ability of the industry to raise prices was limited by a host of substitutes such as rock wool, cellulose and Styrofoam. Over time these substitutes became even strong that fibre insulation. However, there presence is largely overlooked as they generally appear to be very different from the actual industry product. They limit the profitability of industry products by differentiation, improving quality of products and ceiling prices (Johnson, 2008). Factors which influence power of substitutes include level of trade-off as well as price performance of substitutes, cost of switching between substitutes and industry products and the propensity of buyer to the substitute. The final force is the porter’s model is the degree or intensity of rivalry in industry among competitors. This comes in various forms such as new product or service introductions, price competition, advertising slugfests as well as improvement is services (Morris, 2003). Various factors can be held responsible for the power and influence of this force over the industry. these are higher fixed costs, product differences, overcapacity disrupting demand-supply balance, complexities in product information, brand identity, switching costs, diversities in personalities and strategies, concentration, competitor commitment as well as exit barriers. Ansoff matrix Since its conception in 1947, Ansoff Matrix has been one of the well known and recognised strategies used in analysing growth alternatives in various corporate strategies. The matrix comes with two elements: product mission and product line. Physical characteristics as well as performance of the products are incorporated through the product line. Product mission talks about job description of the product or what the product or service is intended to do (Ansoff, 1957). A review of the general marketing and business literature revealed the early applications of this matrix. For example, Moszkowics and Moszkowics (1989) took the help of Ansoff’s matrix in order to investigate various policies of a company in non-market economy. Varadarajan and Berry (1983) implemented the matrix in banking strategies and expanded the matrix with specific contributions to the banking sector. Apart from that Mason (1986) also started an investigation concerning various short period corporate planning and found out that there is a need to expand the application. With the help of the matrix, strategists can look at various ways for business growth. The matrix is composed for four strategies. Market penetration- It is composed of existing markets and products. It occurs when a company enters into an already established market with current services and products. Market development- market development constitutes existing products and new market. It occurs when a firm with existing products or services targets a new market through altering or tweaking the product and then marketing to new target customers (White, 2004) Product Development- Product development constitutes new products and existing markets. A company opts for new product development when existing or current market plans a strategy of new product creation and catering to the same target market (Ansoff, 1969). Diversification- Diversification comprises of new markets and new products. An organization opts for diversification when it embarks of that business area which it had no prior presence. Diversification carries the highest amount of risk. However, the gains in this strategy are also abundant. The strategy of market penetration greatly contributes strategic marketing activities as a lot of bigger companies have been suing this strategy. For example, proctor and Gamble increases the sale of their products through influential advertisements even though they distribute same products in the same market. With the help of good packaging and increasing the product effectiveness, the overall quality as in turn demand for the products is increased. It cannot be considered as a risky strategy as markets are already established and majority of the brand enjoy a dominant share in the market (Kotler, 2004). Product development is a strategy which every company needs to employ sooner or later, as no service or products will last long. Products need to be constantly developed in order to remain useful to the consumers and in demand. The strategy for product development is useful in many sectors especially in the fashion market. Fashion trends change from season to season and product development in these brands should be constant and continuous as well as continuously updated. For example, in case of Louis Vuitton bags are sold in every season and they need to be constantly updated as well as trendy all the time. The retail giant of United States, Wal-Mart also creates new products in the clothing and grocery sector so that the rising demands of general customers are met. However, implementation of the strategy without proper research and understanding of the market might research in huge losses. For example, when Marks & Spencer opted for product development, they started filling their stores with products without proper research or the area as well as consumers. However, these products did not appeal to the consumers and the brand suffered from a huge loss. With recent trends in globalization, various organizations have started targeting new markets with their successful and already established current products (Grant, 2002). It can be regarded as one of the hardest strategies after diversification in the matrix as the organization is not sure about the reception they will get for their services or products. Automobile business can be a good example for market development strategy. Toyota is a Japanese car brand and usefully captured the local market till 1950s. From there, the company started venturing into new markets such as United States and other Asian countries. At present, Toyota is one of the top most automobile manufacturers with its services all over the globe (Hunger and Wheelen, 1996). However, the risk of market development increases when the consumer base highly differs from the products or services offered by the company. For example, Toyota was unable to establish its products in the German market because of consumer preferences and perceptions, and was closed down in 2006. Thus, with the help of proper market and consumer research as well as environment analysis, market development can be considered as medium risk strategy. For those companies who are willing to take high business risks and are looking for huge gains, diversification strategy can be used. Diversification can be related or unrelated. Related diversification occurs when an organization develops new services and products in new markets but similar industry (Ansoff, 1968). For example, Toyota developing luxury car brands for upscale market. In case of unrelated diversification both industry and product penetration is new. For example, Virgin Group entered new market with new products such as Virgin Megastores, Virgin Cola, Virgin Telecommunication and Virgin Airlines. Ansoff’s matrix has hugely contributed in the marketing strategy of different companies. Organizations such as McDonald’s have used more than one strategy from the matrix for various developmental activities. Synergy and Differences Looking at the volatility of the business environment, it can be said that using just one or two competitive market strategies will not be enough for companies to strive and survive. Porter’s model has been criticised as it focuses business performance only in terms of growth, market share and profitability (Hill and Jones, 1989). There is no valuation of an organisation’s capabilities and resources which is an influential profitability determinant (Rivard, 2006; Zeinab, 1997). Thus organisation cannot rely on Porter’s theory only, especially while devising strategies for market and product development. Porter’s approach can be described as a competitive strategy used during differentiation, cost advantage and specialization. Ansoff’s matrix on the other hand is a growth matrix used during product development, market penetration, diversification and market development. While Porter’s model helps in the analysis of industry environment, Ansoff’s analysis is majorly based on a company’s internal resources and capabilities. Organizations such as McDonald’s have used more than one strategy from the matrix for various developmental activities. Thus, a synergy is required between various strategic initiatives. When planning organisational objectives, organisation should look into the strengths of the strategies as well as try to minimise the shortcomings. While formulating any strategy external threats and opportunities can be analysed by Porter’s model. This in turn will help in developing the right resources to overcome them. While designing products and services, understanding of the industry standards and established competitors is necessary. Distribution channels of the business can also be enhanced through industry suppliers and buyers analysis. Thus, it can be said that an integrated marketing approach is required where pros and cons of all activities on all market segments will be analyzed, research and then only put to implementation. Reference List Ansoff, H. I., 1968. Corporate strategy. New York: Penguin Books. Ansoff, H. I., 1969. Business strategy. New York: Penguin Books. Ansoff, H.I., 1957. Strategies for diversification. Harvard Business Review, 9, pp. 113-124. Bain, J.E., 2001. Barriers to new competition. Cambridge: Harvard University Press, Berry, M. V., 1983. Semi classical mechanics of regular and irregular motion. Les Houches Lecture Series, 36, pp. 171. Frank, T. R., 2008. Technological innovation: Generating economic results. Emerald Group Publishing Limited, 18, pp. 201-225. Grant, R. B., 2002. Contemporary strategy analysis: Concepts, techniques, applications. New Jersey: Blackwell. Grant, R. B., 2011. Contemporary strategic management: An Australasian perspective. New Jersey: John Wiley and Sons. Grundy, T., 2006. Rethinking and reinventing Michael Porter’s five forces model. Strategic Change, 15(5), pp. 213-229. Hill, C. W. L. and Jones, G. R., 1989. Strategic Management, an integrated approach. Boston: Houghton Mifflin. Hubbard, G. and Beamish, P., 2011. Strategic management: Thinking, analysis, action. London: Pearson Education. Hunger, D. J. and Wheelen, T. L., 1996. Strategic Management. Reading: Addion-Wesley. Johnson, G., K., 2008. Exploring corporate strategy. New Jersey: Prentice Hall. Koch, R., 2000. The financial guide to strategy – How to create and deliver a useful strategy. New Jersey: Prentice-Hall. Kotler, P., 2004. Marketing management. London: Pearson. Mason, J., 1986. Developing strategic thinking. Long Range Planning, 19(6), pp. 72-80. Morris, S., 2003. Competition, regulation and strategy: The information technology industry. Economic and Political Weekly, 38(33), pp. 3494-3499. Moszkowics, K. and Moszkowics, M., 1989. Company policies in a non-market economy. International Journal of Technology Management, 4(2), pp. 205-213. Porter, M. E., 1980. How competitive forces shape strategy. McKinsey Quarterly, 2, pp. 34-50. Porter, M. E., 2004. Competitive strategy, Harvard Business Review, New York. Porter, M. E., 2008. The five competitive forces that shape strategy. Harvard Business Review, 86(1), pp. 78-93. Rivard, S., L., 2006. Resource-based view and competitive strategy: An integrated model of the contribution of information technology to firm performance. Journal of Strategic Information Systems, 15(1), pp. 29-50. Varadarajan, P.R., 1986. Marketing strategies in action. Business, 36(1), pp. 11-23. White, C., 2004. Strategic management. New York: Palgrave, McMillan. Zeinab, A. K., 1997. Managing information resources and environmental turbulence. 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