2. Environmental Scanning Flashcards
Define “Environmental Scanning”? (Quote)
The management process internal to an organisation designed to identify external issues, situations and threats that may impinge on an organisations future and its strategic decision making (Baines et al. 2011)
Give a less formal definition of “Environmental Scanning”?
The collection and evaluation of information from the wider marketing environment that might affect an organisation and its strategic marketing activities
What two elements is the environment comprised of? Elaborate on each.
Macro-environment:
External forces that an organisation cannot control
Organisations must react to it
Micro-environment:
Contains factors that affect the firms immediate environment
The firm can interact with changes (e.g.switch supplier)
What does P.E.S.T stand for?
Political/regulatory
Economic/Competitive
Sociocultural
Technological
What is a PEST analysis?
Analysis of the macro-environment i.e. changes in the external environment that a firm must react to
Give 4 examples of Political/regulatory factors (in PEST)?
Wage legislation, war risk, laws/regulations, political stability
Giver 4 examples of Economic/competitive factors (in PEST)?
Infrastructure quality, growth, unemployment, interest rates
Give 4 examples of Sociocultural factors (in PEST)?
Demographic trends, beliefs, education, language
Give 4 examples of Technological factors (in PEST)?
Anything that may affect efficiency,
anything that may affect barriers to entry,
R&D breakthroughs, rate of technological change
What does S.W.O.T stand for?
Strengths
Weaknesses
Opportunities
Threats
What is a SWOT analysis?
A tool used to determine an overall view of an organisations strategic position in a market
What do “Strengths & Weaknesses” entail in SWOT?
Looks at the past and the present
Considers anything that aids/detriments the competitive advantage of an organisation
The absence of a strength may be considered to be a weakness
What do “Opportunities & Weaknesses” entail in SWOT?
Looks at the present and the future
Emerge out of the external environment
An opportunity can be a threat if it is pursued by competitors
Which analysis is carried out first?
P.E.S.T first, then S.W.O.T
Give 5 market power situations?
Monopoly Monopsony Oligopoly Monopolistic Competition Perfect Competition
Give 2 features and an example of a monopoly?
Often occurs in the early stages of a product life cycle
One company holds all of the market power
e.g. The Post Office
What is a monopsony? Give an example
Where there is one buyer and lots of sellers
e.g. the Dairy market - supermarkets have the market power
Give 2 features of an oligopoly?
Where a few firms dominate
Often occurs as a product reaches the maturity stage of the product life cycle - competitors start to copy
Give 3 features of monopolistic competition? Give examples
Many competitors have an equal share of market power
Often firms adopt slightly different strategies
Not the same as oligopoly because there are many firms
e.g. KFC and Burger King
What is perfect competition? Give examples
Many sellers, many buyers
An individual seller has no market power
e.g. unbranded goods and commodities
Define “market power”?
The ability of a firm to profitably raise the price of its product above the marginal cost
How can “competitive advantage” be gained?
Can be gained by a company by satisfying consumer needs better than other companies
Companies who do things differently to others can gain competitive advantage
Give a definition for “competitor analysis”?
A systematic approach to competition by understanding competitors’ strategies in order to find a way to gain an advantage over them
Name “Porters 5 Forces”?
- Bargaining power of suppliers
- Bargaining power of customers
- Threat of new entrants
- Threat of subsistent products
- Rivalry amongst competitors
What is the purpose of Porters 5 Forces (3 points)?
It is a framework that analyses the level of competition within an industry.
Helps to determine the attractiveness of an industry
Concerns the micro-environment
Explain what affects the bargaining power of suppliers (Porters 5 Forces)?
The bargaining power of suppliers is high if there are few substitutes that consumers can switch
When will the bargaining power of customers be high (Porters 5 Forces)?
High if there are many firms in the industry - easy to substitute
Explain what is meant threat of new entrants in an industry (Porters 5 Forces)?
Profitable markets attract new firms
Threats can come from within the industry (e.g. new plane company) or from outside (bic started making razors)
Explain what is meant by the threat of substitute products (Porters 5 Forces)?
Once the market (/product) has reached maturity companies will start developing substitute products which can alter the market and threaten the firm
Explain the concept of rivalry amongst competitors (Porters 5 Forces)?
The other 4 of Porters Forces all contribute to competitor rivalry
The intensity of rivalry is a major determinant of competitiveness in the industry as a whole
In Porters 5 forces, 4 of the forces contribute to one other. Which are the contributors and which is the last one?
Contributors: Bargaining power of customers Bargaining power of suppliers Threat of new entrants Threat of substitute products
All contribute to:
Rivalry amongst competitors
What are a company’s “indirect” competitors?
Companies that don’t sell the same product but sell one that satisfies a similar consumer need
What are a company’s “direct” competitors?
Companies that sell a similar product that satisfies a similar customer need
What is the risk of ignoring indirect competitors?
Managers risk having an overly myopic view about threats in the market, which can lead to decline of the product/industry
Explain what is meant by managers having a “myopic view”? What is the danger?
When managers do not consider indirect competitors, or believe that there is no substitute for their product, or believe that growth is assured by a growing population etc.
Would should managers do once competitors have been identified?
Determine the objectives of their competitors in order to form a strategy that maintains the company’s comparative advantage
What should managers do after they have determined competitor objectives?
Select which competitors to attack / avoid
What 3 steps should managers carry out in order to maintain comparative advantage?
- Identify competitors
- Determine competitor objectives
- Select which to attack / avoid
What are “strategic groups”?
Groups of companies within an industry that have similar business models / combinations of strategies
What are Porters Generic Competitive Strategies?
What is their purpose?
Cost leadership
Differentiation
Focus
Following one can help a company to gain competitive advantage
Outline the “Cost Leadership” strategy (Porters Generic Competitive Strategies)?
Minimising costs to the organisation of delivering the product/serv.
Outline the “Differentiation” strategy (Porters Generic Competitive Strategies)?
Making the product/serv different and more attractive than those of competitors
Outline the “Focus” strategy (Porters Generic Competitive Strategies)?
Focusing on a niche market to product very specific products to fulfil unique customer needs
The company should have extremely good knowledge of the market to ensure that competitors aren’t attracted to the segment
The “Focus” strategy is not often enough on its own
What are the 4 competitive positions in a market (in order of market share)?
Market leader
Market challenger
Market follower
Market nicher
What growth strategies may be adopted by a market leader?
They can try to win more market share from smaller rivals
They can try to expand the total size of the market e.g. expand the target market
What growth strategies may be adopted by a market challenger?
Attack the market leader (above)
Attack the market followers (below) by out competing or taking them over
What are the characteristics of a market follower?
Leave the expensive research / risky moves to the leaders
Pick off left over segments
What are the characteristics of a market nicher?
Look to lead in a small segment of the market
Look to meet very specific needs
Few, expensive products with high profit margin
Who wrote on the dangers of “myopia”?
Levett (2004)
