Market Strategy Flashcards
Which framework can be used to analyze the boad forces of the macro markting environment and what is it composed of?
The PEST(EL) framework.
Political forces
Economic and competitive forces
Social forces
Technological forces
Legal and regulatory forces
What can be considered in PEST(EL): Political, legal and regulation forces?
- Strong interrelation between the three
- Deregulation: simplifying environment for business
- Taxation
- Consumer / patient protection legislation
–> medical drugs and devices
–> safety of consumer products
–> liability of the companies - Competition law: influencing M&A deals
What can be considered in PEST(EL): Economic forces?
- The general economic output level: Influences buting power, willingness to pay, expenditure levels, public procurement and infrastructure investments, income equality
- Capital market environment (incl. interest rates - what are the financing opportunities?)
- Business cycle (depending on:)
–> Prosperity and expansion: low unemployment, rising incomes, expansion of overall economic activity levels
–> Recession: rising umemployment, stagnating salary levels, decreasing willingness to pay and buyer purchasing power
–> Depression: confidence in economy is challenged, low buying power, high levels of unemployment
What can be considered in PEST(EL): Technological forces?
- New technological opportunities that exercise large influence on markets and businesses
- Often lead to obsolence of existing technological capabilities, but also generate new opportunities and reduce entry barriers
- Technology may impact society and way of living (e.g. smartphone)
- New “general purpose technologies” (GTP): make it into many different application areas (e.g. semiconductors)
- Information and communication technology (AI)
- Biotech discoveries (CRISPR)
What can be considered in PEST(EL): Social and Environmental forces?
- Important demographic trends: ageing population, increasing demand for medical drugs and healthcare products
- Trends for food (organic, vegan), or alternative medicine
- Global health shocks: Covid
- increasing conscious of waste reduction, Co2 emissions etc.
What framework can be used to describe the external micro environment - the industry strutcture, and what is it composed of?
Porters five forces
Describes five forces that capture the industry environment and the form and strenght of competition.
Highlight relative power of various players in an industry and allows for interferences on market attractiveness and industry profitability.
Rivalry among existing competitors: Threat of new entrants
bargaining power of buyers
threat of substitute products or services, bargaining power of suppliers
What are the considerations for threat of new entrants (Porters five forces)
- Capital requirements: if very expensive to set up business –> start companies and small entries is unlikely
- Intellectual property - if competitor firms own relevant patents –> block
- Supply side economies of scale - If a company is already in the market and has large manufacturer - it is difficult to enter bc it will be difficult for the company entering to match / compete with the existing company and their manufacturing.
- Network effects: a given customer benefits from other people using the same product –> can be an advantage for companies that offer a service that already has a lot of customers. e.g. whats app - other social networks, or food home delivery services.
- Customer switching costs
- Unequal access to resources and distribution channels
What are the considerations for rivalry among existing competitors? (Porters five forces)
- competitors in the market
- market concentration and market power distribution - is it monopolistic or do we have perfect competition?
- Space for product differentiations or competition solely based on prices?
- slow industry growht and high exit barriers (due to specialized investments) - if difficult to exit, then not attractive
- Relevance of brand equity
- Role of fixed costs, ability to expand production
What are the considerations for buyer power (Porters five forces)
- Buyer concentration: only a few buyers on the market
- high purchasing volume
- undifferntiated vs. differentiated products
- low switching costs of buyers
- threat of backward integration
- price sensitivity of buyers
- availability of substitute products / inputs
What are the considerations for supplier power? (Porters five forces)
- Supplier concentration - a few that dominate?
- Do suppliers control scarce inputs ie. lack of substitutes?
- Differentiated prodcuts (inputs for downstream firms)
- Customer switching cost (supplier switching costs)
- Importance of volume to supplier / serving other industries?
What are the considerations for threat of substitutes (Porters five forces)
- Do substitutes offer attractive price-performance ratio?
- Do they have specific advantages?
- Low buyer switching costs to substitute
What is the key assumption behind segmentation?
That it is unlikely that a new solution that addresses a need will meet the requirements of all customers
What is segmentation?
The division of customers into distinct groups that share similar perceptions about needs and can be reach using uniform approaches.
An iterative process.
What is the curve of segmentation levels?
Has impact on y axis and amount of segmentation on x axis with too little segmentation on the left and too much segmentation on the right.
The curve follows a normal distribution, indicating that the highest level of impact is created with a balanced amount of segmentation “Lagom”
What is the STP process?
The process of segmentation, targeting and positioning.
