Porter's Five Force in Strategic Marketing - Coursework Example

1 Introduction Markets are heterogeneous and are created by reasons of different values, needs wants, constraints, beliefs and incentives. s differ in their values and perceptions and want to purchase things that have value for them. Value is not just the monetary part, but also the usefulness and emotions that will go with it. The need and want play a great role in determining this value. The price actually determines the location from which this purchase will be made. Service and reliability are other important determining factors. Marketing is therefore the overall scheme to sell a product to one or more groups of customers and calls for a comprehensive marketing strategy or plan. For success of any marketing strategy the product has to be competitive and this raises two problem questions. The first is to find out how and why a product is competitive and if not when and how it can be made competitive. 2 Force Five Analysis An important method of finding the competitiveness is by using the Five Force Analysis devised by Porter M.E. (1985), often called the Porter’s five force analysis. This will help the management to devise appropriate marketing strategy to take care of vital issues. Porter divides the competitive environment into five forces of ‘powers’, these are Power of buyers, Power of suppliers, Threat of new entrants, Threat of substitutes, Intensity of rivalry between existing firms. (Porter, M. E.1985)1 In fact the Five Force Analysis is the answer to the problem questions posed earlier and therefore can be stated to be a critical constituent of any purposeful marketing strategy. 3 Marketing Strategies A The Power of Buyers Four different reasons influence a buyers’ decision. They are also known as 4Ps as explained by McCarthy (1964)2. This needs careful study to understand customer behaviour. 1 Product. The buyer is greatly influence if the product or service is perceived as useful for him. Sometimes it may not be of immediate use but its uniqueness is the attraction. Future valuation is also a decision making factor. 2 Price. The price is not usually a stand-alone factor. It has to be comparable with other products or services but with weight given to factors like quality and after sale service. In case of tenders it has been seen that the highest and lowest bidders fail and the middle bidder is often successful. There is a play on the mind of the buyer that middle ground is best for him. He also considers price in context of the privileges attached to it. 3 Promotion. Image plays a very important role. Whether it is the image of the product which enhances value or status or the image of the buyer when he acquires a product or service, both factors are extremely important for the buyer in arriving at a purchase decision. 4 Place or Time of offer. It is of great value to the buyer if a product or service is offered to him at a place and time that suits him. The importance of this can be gauged from the fact that often a deal is concluded at the most awkward time and place just because of the whim and fancy of the customer. This is more applicable when individual customers are involved for either for high value items and services or for budget values. In recent years the 4P concept has come under criticism and as a result different marketing mixes have been put forward by Kotlet P,. (1986)3; Mindak and Fine (1981)4; and Nickels and Jonson (1976)5. But the one put forward by Booms and Bitner (1981)6 to include another 3Ps viz., Process, Physical Evidence and Participants has gained the most acceptability and popularity in marketing literature. 5 Process Marketing and Sales policies are important factors that attract a customer to a product. Warranties offered, after-sales service support and guarantees, quick response from employees are comfort levels that promote a product’s marketability. Some amount of mechanization and customer involvement such as try-outs and experimentation, feel of product or service is eases the point of sale. 6 Physical Evidence This is the defining of the environment where the marketing activity is to take place and is concerned with layout, Furnishings, Colour, and Facilities. It is argued that the general ambience makes for a good marketing strategy as the customer feels comfortable and is more inclined to conclude a deal in congenial atmosphere. 7 Participation Largely neglected earlier, but by far the most important aspect of marketing is the adequate training of the employees that are involved in the marketing process. Their knowledge and confidence builds up an image of robust product and enthuses the customer. The whole attitude and behaviour of involved personnel reflects the concern of the marketing organization in offering a quality product or service and the personal touch is perhaps the final point that concludes a deal successfully. A satisfied customer is the company’s best brand ambassador and word of mouth publicity is the most precious campaign that any company wish for and this 7th P is no doubt the most important of them all. It is thought that the 4Ps are relevant for introductory marketing purposes. However where depth is required the 7Ps have achieved greater respectability as it is considered more comprehensive and broad-based. B The Power of Suppliers When there a few suppliers of components or services, they offer better terms and service to the company but when they are few, they normally offer goods and services as per their own priorities. The external factor that affects quality of service depends largely on the cooperation and coordination of various suppliers. Their quality of service improves, or depreciates, the company’s own service to its customers. The power of the suppliers cannot be ignored. A good but firm relationship with suppliers with pre-determined quality parameters will ensure that down the line there will be no shortcomings and the customer will eventually get what has been promised. Supply chain management includes considering the suppliers as partners and therefore all requirements and deliveries are to be planned as if they were extensions of the company itself. A good supply chain management will ensure and engender customer loyalty which is the single biggest achievement the company can boast of. It will be prudent to have SCM software which will be shared by both the company and the suppliers so that both can keep track of each others’ requirements, deliveries, payments and quality checks to ensure that finally the customer gets the assured service, with the quality that was promised to him. ` C Threat of New Entrants The Evolutionary Cycle of Competitive Behaviour advocates that change takes place only when one of the competitors come out with an innovation and others follow it and improve upon it until it becomes an industry standard, at which time the cycle ends. The two ends of the cycle are Innovation and Efficiency. Then, with the introduction of another innovation, the cycle recommences. The performance of all players is evaluated vis-à-vis the efficiencies they are able to achieve. This theory evolved by Strebel (1966)3 suggests that evolution is a continuous process, no product can expect to be acceptable to customers in its present form and functionality to be for all time to come. This aspect must also be borne in mind when devising any marketing strategy and the company must be ready, willing and able to innovate whenever the situation demands a change for survival. D Threat of Substitutes At any point in time there is always a possibility that, inspired by the popularity and acceptability of a product, a substitute is offered that will replace it due to its better features or innovative idea (J. Schumpeter 1934)4. There is a delicate difference between innovation and invention although one leads to the other. Innovation is the first happening or germination of an idea for a new product or a process while the first attempt to make it or practice it is what invention is all about. Innovation is therefore creation of a new value and invention is the creation of a new product or service that offers this value to the customer. Sometimes additions to existing products are also called innovations as they enhance the value or are value creators and generate revenues. But a better way of describing an innovation is the discontinuation of an old value and replacing it with new value. As a consequence discontinuation becomes a source of an innovation. This can be explained best by the Sony Walkman that replaced the Tape Recorder (Sony)5 or lately the iPod that changed the way people listen to and store music. E Intensity of Rivalry Finally the competition never gives up and is always finding newer and better ways and mean to make inroads into the market share of an existing product. This is an ongoing struggle and has to be met head on with innovative practices. A few of the marketing strategies in this direction are Product Strategies, Brand Management, Publicity and Promotional Strategies. i) Product Strategies A product of service should be placed in a way that conveys value for money offers. It is extremely important for a company to place the product or service differently to different segment that it wants to cater. Each segment should be satisfied with what is in offer to them. The offers should also march or better those offered by competition in an equal playing field. There must also be flexibility to change strategies or to take advantage of prevailing circumstances to convince the customer of the genuineness of the offer. ii) Brand Management The brand is about customer recall. Products or services must be remembered to enable the customer to make a decisive choice in their favour when he is inclined to accept or use them. This is created by adequately projecting the benefits and values attached to them through promotions, campaigns, advertisements, special offers and above all through after sales service. Sometimes it is important to use celebrities as brand ambassadors as this association recalls the brand of the product or service whenever the celebrity is involved in any public activity. There is a close relationship between developing brand values, building customer relationships, and satisfying corporate goals. (Aaker, 1991, 1992) iii) Publicity Strategy Media advertising and other communications strategy by a company can change the perceptions of the customers. Exaggerated promises and absence of correct information effect the customers’ perception about the quality of service. It is important that the company and its staff are conscious of what they are telling the customer as any mismatch will boomerang with vehemence and will negate the expense and effort of such communications. Although there is a fine line of distinction between the two, publicity conveys the company image rather than image of the product or service iv) Promotional Strategy a) Integrated Marketing Communications With focus on the customer it needs to be figured out how integrate the company’s marketing communication effort. It is important to define and prioritize objectives. A hard look at business strategies and customer-relationship goals and realignment of customer knowledge management is required here. b) Advertising, Sales Promotions, Public Relations Advertising is not publicity. It conveys the inherent qualities and benefits of the product and service. It also conveys the usefulness and attempts to either fuel the desire of the customer or to fulfil it. It must force or induce the customer or even excite him to buy or use the product or service. Sales Promotion on the other hand deal with offers like discounts or specials deals and are usually used in lean seasons or times when sales are sluggish. Public relations are company releases that are given through the print or electronic media about the company’s objectives or achievements. They serve as reminders to the customers of the company’s wish to serve them better or reports performances to enhance the company image. This is a different approach and is more subtle and carries depth and shows a company’s command over other resources. It has been suggested by Hoffman and Novak (1966) that the Web provides an alternative and inexpensive advertising and marketing opportunity to the smaller firms. Verity and Hof (1994) confirm that this could be as little as 25% of the cost of normal media advertisements. 4 Conclusions Marketing is an art and requires delicate and subtle handling. The thorough understanding of the Five Forces is essential to produce results. Today competitiveness is at its best and products do not defer very much in appearance and performance. Technology does leave its mark but sooner or later competition comes up with an innovation and choices grow by leaps and bounds. Yet we see some products and brands carry an image and acceptability for a very long time. It is the marketing policies, mindful of the forces described above that determine their acceptance and popularity despite competition. The companies that follow these principles vigorously and adopt the above basics are the stories of success and it will indeed be perilous to ignore these facts. References: 1 Porter, M.E. (1985) "Competitive Advantage", The Free Press, New York, 1985. 2 McCarthy, E.J. (1964), Basic Marketing, Richard D. Irwin Homewood, IL. 3 Kotler, P., Armstrong, G,. Principles of Marketing, Prentice Hall & Pearson Education. 4 Mindak, W.A. and Fine, S. (1981), “A fifth ‘P’: public relations”, in Donnely, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL,pp. 71-3. 5 Nickels, W.G. and Jolson M.A. (1976), “Packaging – the fifth P in the marketing mix, Advanced Management Journal, Winter,pp. 13-21. 6 Booms, B.H. and Bitner, M.J. (1981), “Marketing strategies and organization structures for service firms”, in Donnelly, J.H. and George, W.R. (Eds), Marketing of Services, American Marketing Association, Chicago, IL, pp. 47-51 7 Strebel, P. (1996). Breakpoint; How to Stay in the Game. Mastering Management, Part 17, London; Financial Times. 8 Schumpeter, J. (1934), The Theory of Economic Development, Harvard University Press, Cambridge, Massachusetts. 9 Sony Global available at: http://www.sony.net/Fun/SH/1-18/h1.html 10 Aaker, D.A. (1991), Managing Brand Equity, The Free Press, New York, NY. 11 Aaker, D.A. (1992), “Managing the most important asset: brand equity”, Planning Review, Vol. 20. No. 5, pp. 56-8. 12 Hoffman, D.L. and Novak, T.P. (1996), “Marketing in hypermedia computer-mediatedenvironments: conceptual foundations”, Journal of Marketing, Vol. 60 No. 3, July, pp.50-68. 13 Verity, J.W. and Hof, R.D. (1994), “The Internet: how it will change the way you do business”,Business Week, November 14, pp. 80-88. Read More