The Macro And Market Environment Flashcards
What are Porter’s six forces?
• Porter’s analysis can be used to assess the attractiveness (possibility of high profits) of a market
6 Forces
• Threat of new competitors
• Current competitors
• Threat of substitute products
• Power of suppliers
• Power of the buyer
• Complementary products
Discuss the threat of new entrants/competitors in the market.
An assessment of how easy or difficult it is for a new competitor to enter the current market based on the number of entry barriers (competitor has a larger market share, have more reliable suppliers, better location (parking, complimentary services etc)) must be made.
If there are many competitors, all competing for the same market share —> decline in profit.
• Not only current competitors steal customers - there may be a challenge from a new business that sees an opportunity to make money by
entering the market.
• Market may be profitable with a few barriers to entry (eg Solar Power Companies)
Leads to a high level of rivalry because other businesses see the opportunity for profits
• An existing business will see any potential new business as a threat to its market share and profits. Business tries to build barriers to prevent new businesses from entering successfully
Discuss the level of rivalry with current competitors in the market.
• Number of current competitors in the market e.g. PnP, Checkers, SPAR, Woolworths
Market is competitive- Business would have to compete aggressively to gain and maintain its market share, e.g ASAP!, sixty60, SPAR2U, Dash. Could potentially result in lower profit for the business.
Discuss the threat of substitute products in the market.
Business may feel threatened when a buyer is easily able to find a substitute product at a better price or quality.
Examples of sub products: Butter/mmargarine, fresh/long life milk, glasses/contact lenses
Note that a different trademark is NOT a substitute product - e.g, Simba Chips are not a substitute for willard chips.
What is the bargaining power of suppliers?
Fewer suppliers = more power over price and quality
High bargaining power of supplier:
- allows supplier to sell for higher prices
- offer lower quality to business
- have negative impact on the business (customers paying higher prices and deciding to switch to other competitors)
A business depends on a supplier to be successful. This supplier must deliver..?
- good quality product
- at the right time
- in the correct quantity
- at the right place
- at a reasonable price
Discuss the important of having good relationships with suppliers
If a supplier sells to competitors at a lower price, it could put the business in a weaker competitive position - therefore it is important to maintain good relationships with your supplier
What is the power of buyers
The power to demand
- a lower price
- higher quality
- longer trading hours
- delivery of products
- wider variety of goods
What is snob value
The image associated with the product
What are complimentary products
Creation of complementary products look at the potential within the market place to increase the demand for the original product.
Eg iTunes complement the iPod
Explain the P2E2STLE analysis and its benefits
It’s a tool used to help understand the macro environment. Gives the business an overview of the impact from different elements in the macro environment.
Made up of
Political
Physical
Economic
Environmental
Social
Technnological
Legal
And Ethical factors
Describe the political factors of the macro environment
Describes the local and international political situation of countries and how it effects the country that the business operates in.
Describe the economic factors of the macro environment
Relates to the economic growth and development rates of the country and how it effects the business.
Includes rates of inflation, interest, exchange and high unemployment
Describe the ethical factors of the macro environment
Ethics: the principles and/or values that will determine if decisions and actions are acceptable.
Made up of ethical vs legal practises, fair trade, CSR (Corporate Social responsibility), and employee’s privacy.
Describe the social/socio-economic factors of the macro environment
Relates to the impact that social trends have on the economy and the role players in the economy.
