What is Macro Environment ? Macro environment is basically referred to the area of external business operations of a particular organization. The components of a macro environment have to be well analyzed before planning the course of marketing programmes as it affects the very performance of a product or an organization. All the factors affecting the performance of a firm in the macro environment are referred to as the components which could be.........Demographic Forces Demographic forces relate to people. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic ’ Cay the study of people is crucial for marketers,The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies. Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on.Economic Forces The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns.Natural Forces The natural environment consist of many amenities that attract tourists, such as conserve natural habitats, resources, endangered species, minimize environmental impact, recycling, energy efficient products and clean air. The natural environment involves natural resources needed as inputs by marketers or that are affected by marketing activities,Technological Forces The skills and knowledge applied to the production, and the technology and materials needed for production of products and services can also impact the smooth running of the business and must be considered. The marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market I CY opportunities.Political Forces Political factors are those factors that business has to be more careful and influence the business more than other factors. Political factors means how and in which manner and in what degree a government interfere in business. Political factors includes government regulation and legal issue and both formal and informal rules under which business has to operate its work. Some examples of political factors: * Stable political environment Tax and labor policy of government + Government's economic policy Involvement of government in different trading agreement Page 9Social / Cultural Forces Social factors are related with the society. How the society behaves and thinks about any things. Firm has to do its business than it must have to give more important or focus on social factors. Business cannot exist without society because it is a part of it. Social factors are very from country to country, it depends upon following region, thinking of people etc. Social factors includes * Lifestyle of people Demographics Fashion + Trends “> Religious factors * Population growth rate Page 10“What is PESTLE Analysis? v There are many companies in the world who conducts PESTLE analysis on their brands in order to ascertain strategies for the future or to understand the market before launching their products. Vv It is a fundamental tool used for market planning and strategizing that must be carried out to comprehend market trends and the Dp svsteratic risks involved in the market.>It is a macro environment which is used to understand the impact of the external factors on the organization. =. 5 Let te foeeeet w Be“PESTLE stands for: 1) Political 2) Economical 3) Social 4) Technological 5) Legal 6) Environmental “ Political: N 1) Political stability 2) Tax policy 3) Employment labor law 4) Environmental regulations 5) Trade restrictions 6) Tariffs etc.“Economical NN >It affects the decision making process of the organization. >A global player must examine the economic issues in the world and find opportunities with such conditions for business growth. OExample: 1) Economic growth 2) Interest rates » 2) Inflation rate“Social >It represents the culture of the society that an organization operates within. > It includes demographics, age distribution, population growth rates etc. OIExample: 1) Age distribution 2) Population growth rate 3) Emphasis on safety i. 4) Career attitudesTechnological q >It is related to new inventions and development. > Affect the cost and quality of the outputs. OExample: 1) Automation 2) Technology incentives 3) Rate of technological change 4) R&D activity“Legal >It consists.of both external and internal sides. There are certain laws that affect both sides of the business environment. OJExample: 1) Consumer law 2) Antitrust law 3) Employment law 4) Discrimination law 5) Health and safety law“+ Environmental: >It refers to ecological and environmental aspects such as climate, weather and climate change. > Mostly it is useful for the certain industries like tourism, farming, agriculture etc. NSCP APPROACH The Structure-Conduct-Performance model is used to trace the causes of industry performance first published by economists Edward Chamberlin and Joan Robinson in 1933, and developed by Joe S. Bain is a model in Industrial Organization Economics argues that market structure is a determinant of firm conduct, which in turn determines performance. ° Le;SCP APPROACH The Structure-Conduct-Performance model is used to trace the causes of industry performance first published by economists Edward Chamberlin and Joan Robinson in 1933, and developed by Joe S. Bain is a model in Industrial Organization Economics argues that market structure is a determinant of firm conduct, which in turn determines performance. ° Le; w Performance of an Industry depends on = Conduct of its firms m Which depends on Market StructureSCP Component Market Structure Conduct Competitive Structure e@ No. and Size of firms e R&D © Barriers to entry and exit e M&A e Type of firms © Pricing Strategy Cost Structure © Innovation © Product differentiation e Economies of scale e FCvs VC Demand Structure © Power and Size of Customer e SalesMarket Structure Competitive Structure @ No. and Size of firms ¢ Barriers to entry and exit © Type of firms Cost Structure © Economies of scale « FCyvs VC Demand Structure e Power and Size of Customer e Sales Conduct Performance R&D M&A Pricing Strategy Innovation Product differentiation Profitability ROE Value Creation Growth Total Shareholders Return**What is PESTLE Analysis? ¥ There are many companies in the world who conducts PESTLE analysis on their brands in order to ascertain strategies for the future or to understand the market before launching their products. ¥ It is a fundamental tool used for market planning and strategizing that must be carried out to comprehend market trends and the Dp systematic risks involved in the market.>It is a macro environment which is used to understand the impact of the external factors on the organization. ¥ =)“PESTLE stands for: + Political: ~“ 1) Political 1) Political stability 2) Economical 2) Tax policy 3) Social 3) Employment labor law 4) Technological 4) Environmental 5) Legal regulations 6) Environmental 5) Trade restrictions 6) Tariffs etc.**Economical >It affects the decision making process of the organization. >A global player must examine the economic issues in the world and find opportunities with such conditions for business growth. OExample: 1) Economic growth 2) Interest rates > 3) Inflation rate“Social >It represents the culture of the society that an organization operates within. > It includes demographics, age distribution, population growth rates etc. QIExample: 1) Age distribution 2) Population growth rate 3) Emphasis on safety b 4) Career attitudes“Social >It represents the culture of the society that an organization operates within. > It includes demographics, age distribution, population growth rates etc. QExample: 1) Age distribution 2) Population growth rate 3) Emphasis on safety ) 4) Career attitudes“Technological N ¥ It is related to new inventions and development. > Affect the cost and quality of the outputs. OExample: 1) Automation 2) Technology incentives 3) Rate of technological change » 4) R&D activity“Legal >It consists of both external and internal sides. There are certain laws that affect both sides of the business environment. OExample: 1) Consumer law 2) Antitrust law 3) Employment law 4) Discrimination law 5) Health and safety law* Environmental: >It refers to ecological and environmental aspects such as climate, weather and climate change. > Mostly it is useful for the certain industries like tourism, farming, agriculture ete.PORTER’S FIVE FORCES MODEL WWW.EPOWERPOINT.COMPORTER’S FIVE FORCES MODEL ‘+ THE FIVE FORCES MODEL HELPS BUSINESS PEOPLE UNDERSTAND THE RELATIVE ATTRACTIVENESS OF AN INDUSTRY AND THE INDUSTRY'S COMPETITIVE PRESSURES, IN TERMS OF 1. BUYER POWER ‘SUPPLIER POWER THREAT OF SUBSTITUTE PRODUCTS OR SERVICES, THREAT OF NEW ENTRANTS. eon RIVALRY AMONG EXISTING COMPETITORS.ee... —/ A PORTER’S FIVE FORCES MODEL Rivalry among Existing Competitors ah Cea Ger of BuyersBUYER POWER BUYER POWER — HIGH WHEN BUYERS HAVE MANY CHOICES AND LOW WHEN THEIR CHOICES ARE FEW COMPETITIVE ADVANTAGES ARE CREATED TO GET BUYERS TO STAY WITH A GIVEN COMPANY ‘+ NETFLIX SET UP AND MAINTAIN YOUR MOVIE LIST + UNITED AIRLINES ~ FREQUENT FLYER PROGRAM. + APPLE ITUNES BUY/MANAGE YOUR MUSIC + DELL— CUSTOMIZE A COMPUTER PURCHASEBUYER POWER wy COMPETITIVE ADVANTAGE — PROVIDING A PRODUCT OR SERVICE IN A WAY THAT CUSTOMERS VALUE MORE THAN WHAT THE COMPETITION IS ABLE TO DO FIRST-MOVER ADVANTAGE ~ SIGNIFICANT IMPACT ON GAINING MARKET SHARE BY BEING THE FIRST TO MARKET WITH A. COMPETITIVE ADVANTAGE ALL COMPETITIVE ADVANTAGES ARE FLEETING E.G,, ALL AIRLINES NOW HAVE FREQUENT FLYER PROGRAMS CcNY Oo SUPPLIER POWER + SUPPLIER POWER — HIGH WHEN BUYERS HAVE FEW CHOICES AND LOW WHEN CHOICES ARE MANY + THE OPPOSITE OF BUYER POWER ‘You want supplier power to be low here. ‘You want buyer power tobe high here. 10 be low here.ae Ww THREAT OF SUBSTITUTE PRODUCTS AND SERVICES THREAT OF SUBSTITUTE PRODUCTS AND SERVICES — HIGH WHEN THERE ARE MANY ALTERNATIVES FOR BUYERS AND LOW WHEN THERE ARE FEW ALTERNATIVES * SWITCHING COSTS CAN REDUCE THIS THREAT * SWITCHING COST ~ A COST THAT MAKES BUYERS RELUCTANT TO SWITCH TO ANOTHER PRODUCT/SERVICE + LONG-TERM CONTRACT WITH FINANCIAL PENALTY + GREAT SERVICE ‘+ PERSONALIZED PRODUCTS BASED ON PURCHASE HISTORYTHREAT OF NEW ENTRANTS THREAT OF NEW ENTRANTS— HIGH WHEN IT IS EASY FOR COMPETITORS TO ENTER THE MARKET AND LOW WHEN ENTRY BARRIERS ARE SIGNIFICANT ENTRY BARRIER — PRODUCT OR SERVICE FEATURE THAT CUSTOMERS HAVE COME TO EXPECT AND THAT MUST BE OFFERED BY AN ENTERING ORGANIZATION BANKING ~ ATMS, ONLINE BILL PAY, ETCTZ we RIVALRY AMONG EXISTING COMPETITORS + RIVALRY AMONG EXISTING COMPETITORS — HIGH WHEN COMPETITION IS FIERCE AND LOW WHEN COMPETITIONIS MORE COMPLACENT * GENERAL TREND IS TOWARD MORE COMPETITION IN ALMOST ALL INDUSTRIES + ITHAS CERTAINLY INTENSIFIED COMPETITION IN ALL SECTORS OF BUSINESSMICRO FACTORS Micro environment refers to those individuals, groups and agencies with which the organizations come into direct and frequent contact in the course of its functioning. These have a direct influence on the performance of the Company. o Customers © Competitors © Suppliers © Marketing Intermediaries © Financiers © The PublicCUSTOMERS © One of the most fundamental factors we learn in economics is that satisfying customer demand is a must for every business survival. © Besides to be the leading company entrepreneurs should not only identify but also tailor to their customer's interest.eT | COMPETITORS © The competitive environment consists of certain basic things which every firm has to take note of. © No company, howsoever large it may be, enjoys monopoly. o In the original business world a company encounters various forms of competition. © The most common competition which a company's product now faces is from differentiated products of other companies.SUPPLIERS o Suppliers are either individuals or business houses. © They combined together provide resources that are needed by the company and suppliers who offer best mix of quality, delivery reliability, credit, warranties and obviously low cost must be chosen.MARKETING INTERMEDIARIES © Market intermediaries are either individuals or business houses who come to the aid of the company in promoting, selling and distributing the goods to the ultimate consumers. © They are Middlemen (wholesalers, retailers and agents), distributing agencies, market service agencies and financial institutions. © Most of the companies find, it is too difficult to reach the consumers. © In such a cases the agents and distribution firms help to reach the product to the consumer.FINANCIERS o Shareholders, financial institutions, debenture holders and banks provide finance to a Company. o Financial capacity, policies and attitudes of financiers etc. are important factors of the Company. 0 If the investors are not interested in risk taking, the Company cannot raise funds through shares.PUBLIC © Literally word ‘public’ refers to people in general. According to Philip Kotler, “A public is any group that has an actual or potential interest in or impact on a company’s ability to achieve its objectives.” The environmentalists, consumer protection groups, media persons and local people are some of the well-known examples of public.The resource-based view (RBV) is a model that sees resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage!) What is a resource-based view? RBV is an approach to achieving competitive advantage that emerged in the 1980s and 1990s after the major works published by Wernerfelt, B. (“The Resource-Based View of the Firm’), Prahalad and Hamel (“The Core Competence of The Corporation’), Barney, J. (‘Firm resources and sustained competitive advantage”) and others. The supporters of this view argue that organizations should look inside the company to find the sources of competitive advantage instead of looking at the competitive environment for it.w that must be SS ee and have VRIO attributes to become According to RBV proponents, it is much more feasible to exploit external opportunities using existing resources in a new way rather than trying to acquire new skills for each different opportunity. In the RBV model, resources are given the major role in helping companies to achieve higher organizational performance.There are two types of resources: tangible and intangible.Tangible assets are physical things. Land, buildings, machinery, equipment and capital - all these assets are tangible. Physical resources can easily be bought in the market, so they confer little advantage to the companies in the long run because rivals can soon acquire identical assets. Intangible assets are everything else that has no physical presence but can still be owned by the company. Brand reputation, trademarks and intellectual property are all intangible assets. Unlike physical resources, brand reputation is built over a long time and is something that other companies cannot buy from the market. Intangible resources usually stay within a company and are the main source of sustainable competitive advantage. The two critical assumptions of RBV are that resources must also be heterogeneous and immobile.Heterogeneous. The first assumption is that skills, capabilities and other resources that organizations possess differ from one company to another. If organizations had the same amount and mix of resources, they could not employ different strategies to outcompete each other.What one company would do, the other could simply follow and no competitive advantage could be achieved. This is the scenario of perfect competition, yet real-world markets are far from perfectly competitive and some companies, which are exposed to the same external and competitive forces (same external conditions), are able to implement different strategies and outperform each other. Therefore, RBV assumes that companies achieve competitive advantage by using their different bundles of resources. The competition between Apple Inc. and Samsung Electronics is a good example of how two companies that operate in the same industry and, thus, are exposed to the same external forces can achieve different organizational performance due to the difference in resources.Apple competes with Samsung in tablets and smartphone markets, where Apple sells its products at much higher prices and, as a result, reaps higher profit margins. Why does Samsung not follow the same strategy? Simply because Samsung does not have the same brand reputation or is capable of designing user-friendly products like Apple does. (heterogeneous resources) Immobile. The second assumption of RBV is that resources are not mobile and do not move from company to company, at least in the short-run. Due to this immobility, companies cannot replicate rivals’ resources and implement the same strategies. Intangible resources, such as brand equity, processes, knowledge or intellectual property, are usually immobile.Is the Resource or Capability...Question of Value. Resources are valuable if they help organizations to increase the value offered to the customers. This is done by increasing differentiation or/and decreasing the costs of production. The resources that cannot meet this condition lead to competitive disadvantage. Question of Rarity. Resources that can only be acquired by one or a few companies are considered rare. When more than a few companies have the same resource or capability, it results in competitive parity.Question of Imitability. A company that has valuable and rare resources can achieve at least temporary competitive advantage. However, the resource must also be costly to imitate or to substitute for a rival if a company wants to achieve sustained competitive advantage. Question of Organization. The resources itself do not confer any advantage for a company if it’s not organized to capture the value from them. Only the firm that is capable to exploit the valuable, rare and imitable resources can achieve sustained competitive advantage.Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its final product and then analyzes these activities to reduce costs or increase differentiation. Value chain represents the internal activities a firm engages in when transforming inputs into outputs. Understanding the tool Value chain analysis is a strategy tool used to analyze internal firm activities. Its goal is to recognize which activities are the most valuable (i.e., are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage.In other words, by looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through differentiation advantage will try to perform its activities better than competitors would do.If it competes through cost advantage, it will try to perform internal activities at lower costs than competitors would do. When a company is capable of producing goods at lower costs than the market price or to provide superior products, it earns profits. M. Porter introduced the generic value chain model in 1985. Value chain represents all the internal activities a firm engages in to produce goods and services. VC is formed of primary activities that add value to the final product directly and support activities that add value indirectly. Porter's Value Chain Model Primary Activities Support Activities P i te) F 1 ztWwW Although primary activities add value directly to the production process, they are not necessarily more important than support activities. Nowadays, competitive advantage mainly derives from technological improvements or innovations in business models or processes. Therefore, such support activities as ‘information systems’, ‘R&D’ or ‘general management’ are usually the most important source of differentiation advantage. On the other hand, primary activities are usually the source of cost advantage, where costs can be easily identified for each activity and properly managed. A firm’s VC is a part of a larger industry's VC. The more activities a company undertakes compared to industry's VC, the more vertically integrated it is. Below you can find an industry's value chain and its relation to a firm-level VC.w Industry’s Value Chain Raw Materials Intermediate Goods | Mantacing | negate | & seo | After-sales service Company's Value Chain in Manufacturing iE EsUsing the tool There are two different approaches on how to perform the analysis, which depend on what type of competitive advantage a company wants to create (cost or differentiation advantage). The table below lists all the steps needed to achieve cost or differentiation advantage using VCA.Cost advantage Differentiation advantage This approach is used when organizations try to compete on costs and want to understand the sources of their cost advantage or disadvantage and what factors drive those costs. (good examples: Amazon.com, Walmart, McDonald's, Ford, Toyota) The firms that strive to create superior products or services use a differentiation advantage approach. (good examples: Apple, Google, Samsung Electronics, Starbucks)Step 1. Identify the firm's primary and support activities. Step 2. Establish the relative importance of each activity in the total cost of the product. Step 3. Identify cost drivers for each activity. Step 4. Identify links between activities. Step 5. Identify opportunities for reducing costs. Step 1. Identify the customers’ value-creating activities. Step 2. Evaluate the differentiation strategies for improving customer value. Step 3. Identify the best sustainable differentiation.Cost advantage To gain a cost advantage, a firm has to go through 5 analysis steps: Step 1. Identify the firm's primary and support activities. All the activities (from receiving and storing materials to marketing, selling and after-sales support) that are undertaken to produce goods or services have to be clearly identified and separated from each other. This requires an adequate knowledge of the company’s operations because value chain activities are not organized in the same way as the company itself. The managers who identify value chain activities have to look into how work is done to deliver customer value.Step 2. Establish the relative importance of each activity in the total cost of the product. The total costs of producing a product or service must be broken down and assigned to each activity. Activity-based costing is used to calculate costs for each process. Activities that are the major sources of cost or done inefficiently (when benchmarked against competitors) must be addressed first. Step 3. Identify cost drivers for each activity. Only by understanding what factors drive the costs can managers focus on improving them. Costs for labor-intensive activities will be driven by work hours, work speed, wage rate, etc. Different activities will have different cost drivers.Step 4. Identify links between activities. Reduction of costs in one activity may lead to further cost reductions in subsequent activities. For example, fewer components in the product design may lead to fewer faulty parts and lower service costs. Therefore identifying the links between activities will lead to a better understanding of how cost improvements would affect the whole value chain. Sometimes, cost reductions in one activity lead to higher costs for other activities. Step 5. Identify opportunities for reducing costs. When the company knows its inefficient activities and cost drivers, it can plan on how to improve them. Too high wage rates can be dealt with by increasing production speed, outsourcing jobs to low- wage countries or installing more automated processes.Differentiation advantage VCA is done differently when a firm competes on differentiation rather than costs. This is because the source of differentiation advantage comes from creating superior products, adding more features and satisfying varying customer needs, which results in higher cost structure. Step 1. Identify the customers’ value-creating activities. After identifying all value chain activities, managers have to focus on those activities that contribute the most to creating customer value. For example, Apple products’ success mainly comes not from great product features (other companies have high-quality offerings, too) but from successful marketing activities. Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the following strategies to increase product differentiation and customer value:Step 2. Evaluate the differentiation strategies for improving customer value. Managers can use the following strategies to increase product differentiation and customer value:Step 3. Identify the best sustainable differentiation. Usually, superior differentiation and customer value will be the result of many interrelated activities and strategies used. The best combination of them should be used to pursue sustainable differentiation advantage.