MODULE -1 MARKETING MANAGEMENT Porter's five forces analysis Threat of new entrants Profitable industries that yield high returns will attract new firms. New entrants eventually will decrease profitability for other firms in the industry. Unless the entry of new firms can be made more difficult by incumbents, abnormal profitability will fall towards zero (perfect competition), which is the minimum level of profitability required to keep an industry in business. The following factors can have an effect on how much of a threat new entrants may pose: • • • • • • • • • • The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. Government policy Capital requirements Absolute cost Cost disadvantages independent of size Economies of scale Product differentiation Brand equity Switching costs Customer loyalty Threat of substitutes A substitute product uses a different technology to try to solve the same economic need. Examples of substitutes are meat, poultry, and fish; landlines and cellular telephones; airlines, automobiles and ships; beer and wine; and so on. Potential factors: • • • • • • • Buyer propensity to substitute Relative price performance of substitute Buyer's switching costs Perceived level of product differentiation Number of substitute products available in the market Ease of substitution Availability of close substitute
Bargaining power of customers The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. Buyers' power is high if buyers have many alternatives. It is low if they have few choices. Potential factors: • • • • • • • • Buyer concentration to firm concentration ratio Degree of dependency upon existing channels of distribution Bargaining leverage, particularly in industries with high fixed costs Buyer switching costs Buyer information availability Availability of existing substitute products Buyer price sensitivity Differential advantage (uniqueness) of industry . Bargaining power of suppliers The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Potential factors are: • • • • • • • • Supplier switching costs relative to firm switching costs Degree of differentiation of inputs Impact of inputs on cost and differentiation Presence of substitute inputs Strength of distribution channel Supplier concentration to firm concentration ratio Employee solidarity (e.g. labor unions) Supplier competition: the ability to forward vertically integrate and cut out the buyer. Industry rivalry For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry. Having an understanding of industry rivals is vital to successfully market a product. A business must be aware of its competitors marketing strategy and pricing and also be reactive to any changes made. Potential factors: • • • • Sustainable competitive advantage through innovation Competition between online and offline companies Level of advertising expense Powerful competitive strategy
• • Firm concentration ratio Degree of transparency Marketing plan A marketing plan is a comprehensive document or blueprint that outlines a business advertising and marketing efforts for the coming year. It describes business activities involved in accomplishing specific marketing objectives within a set time frame. A marketing plan also includes a description of the current marketing position of a business, a discussion of the target market and a description of the marketing mix that a business will use to achieve their marketing goals. Consumer behaviour Consumer behavior refers to the selection, acquisition and consumption of goods and services to meet their needs. There are different processes involved in consumer behavior. Initially, the consumer tries to find what products you would like to consume, then select only those products that promise greater utility. After selecting the products, the consumer makes an estimate of available funds that can happen. Finally, the consumer looks at the current prices of commodities and makes the decision about which products to consume. FACTORS AFFECTING CONSUMER BEHAVIOR 1. Cultural factors Culture plays a very vital role in the determining consumer behaviour it is sub divided in • Culture Culture is a very complex belief of human behaviour it includes the human society, the roles that the society plays, the behaviour of the society, its values customs and traditions. Culture needs to be examined as it is a very important factor that influences consumer behaviour.
• Sub-Culture Sub-culture is the group of people who share the same values, customs and traditions. You can define them as the nation, the religion, racial groups and also groups of people sharing the same geographic location • Social Class Society possesses social class; in fact every society possesses one. It is important to know what social class is being targeted as normally the buying behaviour of a social class is quite similar. Remember not just the income but even other factors describe social class of a group of consumers. 2. Social Factors Social factors are also subdivided into the following • Reference groups Under social factors reference groups have a great potential of influencing consumer behaviour. Of course its impact varies across products and brands. This group often includes an opinion leader. • Family The behaviour of a consumer is not only influenced by their motivations and personalities but also their families and family members who can two or more people living together either because of blood relationship or marriage. • Role and status People who belong to different organizations, groups or club members, families play roles and have a status to maintain. These roles and