Understanding the role of the environment

1. Role of the Product
Manager in a
changing
environment
Purpose of the Strategy Plan
• To make decisions for the future
• To identify and evaluate future growth directions
• To identify and evaluate opportunities and
threats
• To identify and evaluate corporate strengths and
weaknesses
• To identify current core competencies and
additional competencies that should be
developed
1

2. Elements of the Strategy Plan
1.0 Introduction
1.1. Terms of reference
1.2. Methodology (if required)
1.2 Background and context
2.0 The Challenge
3.0 Situation Analysis
3.1. Environmental Analysis
3.2. Market Analysis Where are
3.2.1 Customer Analysis we now?
3.3. Competitor Analysis
3.4. Internal Analysis
3.5. SWOT Analysis
4.0 Critical Success Factors
5.0 Vision and Mission Where should we be?
6.0 Strategy
How are we going to
7.0 Marketing Mix Objectives get there?
Elements of the Strategy Plan
The Situation Analysis
• Is, without question, the single most important
section of the strategy plan
• Is the longest section of the plan
• Is the only section that requires research and
analysis
• All other sections of the plan draw on insights and
conclusions made in the situation analysis
2

3. The Situation Analysis answers three basic questions
Where are we now?
Where are we going? How are we
Environmental going to get
Analysis there?
Opportunities &
Threats
Market Analysis
Customer Analysis
Strategy
Competitor
Analysis
Strengths &
Weaknesses
Internal Analysis
The Situation Analysis
The purpose of the environmental analysis is to identify opportunities and threats
Environmental
Analysis
Opportunities &
Threats
Market Analysis
Strategy
Customer Analysis
Competitor
Analysis
Strengths &
Weaknesses
Internal Analysis
3

4. Note emphasis on change
Sample Page from Situation Analysis
Dairy Australia, Strategic Plan: 2004-2009
Opportunities and Threats
Opportunities: Any favourable situation in the organisation's
environment. It is usually a trend or change or an unmet market
need. (ie positive forces)
Threats: Any unfavourable situation in the organisation's
environment that is potentially damaging to its strategy.
Threats may be barriers, constraints or other external factors
that might cause problems, damage or injury(ie negative
forces)
Source: Rowe, Mason, Dickel, Mann, Mockler; Strategic Management: A
Methodological Approach, 4th Edn, 1994.
4

5. Types of Opportunities
There are two broad types of opportunity:
1. Market Opportunities: “unmet or unsatisfied needs in
the marketplace that the firm has an interest in.”
2. Environmental Opportunities: “evolve from social,
political, economic or technological changes.”
Source: Mc Coll- Kennedy, 1997
Opportunities- Things to Note
Market Opportunities: “unmet or unsatisfied needs in
the marketplace that the firm has an interest in.”
[emphasis added]
“That the firm has an interest in” refers to the degree
to which an identified opportunity fits with the
corporation’s core business or core competencies
5

6. Opportunity - Example
“According to research commissioned by Mc Donald’s, 43% of
Australians regularly skip breakfast.”
Source: Mc Donald’s Media Release, 30 November, 2003
Opportunity – Market demand for simple, cheap and convenient
breakfasts catering to time-poor Australians
Product Strategy- Expand Breakfast Menu
Concept – Quickstart Menu launched December, 2003
Strengths & Weaknesses
Strengths and weaknesses derive from the firm’s internal
competencies relative to the competition.
Strengths “Competitive advantages and distinctive
competencies that a firm may exert in the market-place.”
Weaknesses “ An organisational deficiency that prevents it
from moving in a given direction.”
Source: S.Jain, 1997
6

7. The Environment
Rationale for Environmental Analysis
“We are not fit to lead an army on the march unless we
are familiar with the face of the country – its
mountains and forests, its pitfalls and precipices, its
marshes and swamps.”
Sun Tzu, The Art of War
Components of Environment
Environmental
Analysis
Political
Economic
Social
Technological
7

8. The Environment Analysis
Object is to:
Identify broad changes that will give rise to
opportunities and threats
Identify drivers of change
Specifically:
New markets? New entrants? New products or
packaging? New ways of transacting business?
Changes to rules of competitive game? Emergence of
sunrise industries?
Political Environment
What to look for:
Proposed or planned changes to government policy that are likely
to impact on industry or corporation
Specifically
Statutes, Funding, Tariff and Trade Policies,
Why:
To identify new business opportunities, identify potential new
entrants and changes to the rules of competition
What Not to Do:
Do not write a list of Statutes that govern current operations
8

9. Economic Environment
What to look for:
Potential or planned changes to economic circumstances that are
likely to impact on industry or corporation
Specifically
Consumer confidence, Interest Rates and Exchange rates (for
exporters and importers),
Why?
To identify changes in cost structures with implications for price
setting and product substitution
What Not to Do:
Do not discuss general (un)employment and average wages
unless there are clear category implications.
Social Environment
What to Look for:
Broad changes to population, their purchasing habits and lifestyles that have
implications for industry or corporation.
Specifically
Demographic shifts, Consumption Trends, Fashions and Fads, Shopping
channels and times, Use of Communications technologies.
Why?
To identify new and emerging market segments, new ways of transacting
business, channel switching behaviour, new forms of product substitution.
What Not to Do:
Do not conduct a segmentation study, identify a target market or profile
current target market/ secondary market
9

10. Technological Environment
What to look for?
Changes in materials, ingredients, packaging, logistics that have
potential commercial applications
Specifically
Scientific discoveries, R & D breakthroughs, management theory
and practice
Why?
To identify new product concepts, new formulations of existing
products, new packaging concepts.
What Not to do:
Do not write a “Gee Whiz” account of the Internet and new
communications technologies.
Technological Environment
Five technological environments have been
identified:
• Energy
• Materials
• Transportation
• Communications and Information
• Genetic (agronomic and biomedical)
Shubhash Jain,
10

11. Context of the Environment
Analysis
The triple bottom line (TBL)
Today most responsible corporations identify three desirable
outcomes:
1. Financial Outcomes (Profits/ROI)
2. Social Outcomes
3. Environmental Outcomes
To this end, many corporations produce social and environmental audits
along with profit statements as part of their standard corporate
reporting.
Context of the Environmental Analysis
Take care that you do not confuse environmental and social audits
(outcomes) with the environment analysis conducted as part of the
strategic planning process
The concept of “environment” has several meanings:
Environment = habitat, ecology, “tree-hugging” greenies
Environment = external landscape
11

12. Overview
Environment Why do it? / What to look for
New business opportunities, new
Regulatory entrants, substitutes
New materials or ingredients, new
Technological product concepts, new
packaging, new modes of
communication, new delivery
modes
New markets, changing
Social preferences, tastes
Cost structures, demand patterns.
Economic Product substitution
Techniques Used in
Environment Analysis
12

13. Environment Analysis
Techniques
• Environmental scanning
• Trend Analysis
• Data Mining and Data Fusion
• Precursor Analysis or Evolutionary Analysis
• Forecasting
• Issue analysis
• Macro-environmental (STEEP) analysis
• Scenario analysis
• Stakeholder analysis
Environmental Scanning
• Environmental scanning is the most widely used research
method and analytical technique
• Environmental scanning involves the collection of data about
change factors from a wide variety of sources.
• It is a broad surface scan designed to identify patterns and
trends.
• General topics include: demographics, social, economic,
sustainability, scientific, technological, political.
• This data is used to identify points of discontinuity,
opportunities and threats.
13

14. Environmental Scanning - Phases
Primitive Ad Hoc Reactive Proactive
Face the Predict for a
Watch out for Protect the
environment desired future
likely impacts future
as it appears
Scan to Scan to Make
Scan without Illuminate Scan to
an Appropriate
an impetus a Specific Identify
Response SCA
(Immersion) Event
Source: Based on S. Jain, Marketing Planning &
Strategy, p. 127
Scanning: Suggested Approach
1. Scan Internally: (general knowledge) for macro-trends
and issues
2. Scan Externally: (e.g. trade Press, business press) to
identify set of core issues
3. Analyse: list of core issues (use frequency analysis to
identify core issues, organize and synthesize issues to
condense the list)
4. Detailed Scan: Use terms/ concepts generated from the
original scan to carry out more conventional research
5. Condense: Look for patterns, themes to reduce data into
meaningful sets
6. Weighting: Devote more time and space to more
important issues. Less time to trivial issues.
14

15. Environmental Scanning
Rules of Environmental Scanning
1. Use 5-9 different types of sources of information to
identify trends (e.g. newspapers and trade press, government
reports, industry reports, commercial research)
2. Use independent sources to confirm trends (especially
important trends)
3. Specialist and fringe sources are preferred (collaborative
research centres)
4. Use sources that provide a 360O perspective (look for
strategic focus)
5. World Wide Web should be avoided
6. Corporate propaganda should be avoided
Environmental Scanning
Note that the approach does not involve going onto the web to
gather “content”
Instead, the approach requires two scans:
1. First scan- is broad, surface (general immersion) and is
designed to identify issues
2. Second scan – is a detailed analysis of important issues
• Desk research (marketing intelligence) is the principal
research method
• Diversity of sources is the key
• Ideas must be organised thematically throughout the analysis
15

16. Environmental Scanning
(Summary)
Purpose: To understand the forces that govern competitive and
market environments, to identify issues that are likely to impact
on corporate growth and marketing activities
Data Requirements: copious amounts of diverse data from at
least 5-9 different types of sources
Skills Required: critical thinking, ability to organise concepts
thematically, “detective” type skills in gathering data.
This method is not for quitters or minimalists
Trend Analysis/ Extrapolation
Trend extrapolation:
• is the simplest form of futures research
• is based on an assumption that patterns in the past
will continue into the future.
Trends may be:
• quantitative
• qualitative
16

17. Trend Analysis
Trend analysis begins with the systematic collection of
data documenting actual events; that is, measurable
changes in such indicators as the number of elderly
people, the standard of living, and global warming.
These measurements generally indicate a certain
direction or trend that can be used to make crude
forecasts by estimating the trend line into the future.
Trend Analysis
Trend analysis can be more powerful when the analysis identifies
and describes the underlying patterns.
Trend analysis uses time series data (requires a minimum of
seven data points, but more are preferred)
Statistics merely describe patterns economically and succinctly.
Without understanding the forces driving change, there is a
real danger obtaining false trends.
17

18. Trend Analysis
Quantitative Example
Market Share
15
10
Sales (%)
5
0
1 2 3 4 5 6 7 8 9
Year
This example is based on the launch of Stella
Artois Beer in the USA, reported in John Phillip
Jones, The Ultimate Secrets of Advertising, 2002
Trend Analysis
Commentary on preceding slide:
• Most analysts understand that the brand’s share is
increasing, albeit at a declining rate
• It is tempting to extrapolate this trend into the
future by suggesting small increases in share
• Actual data, however, yields a different picture as
seen in the next slide
18

19. Trend Analysis- Quantitative
National Launch
Market Share
18
16
14
12
10
Sales (%)
8
6
4
2
0
1
2
3
4
5
6
7
8
9
.
.
.
.
.
.
.
Year
The point is that more data points can uncover
unexpected trends.
Source: Stella Artois Case
Trend Analysis
Qualitative Example
Flexi-Time/
Answering Job Sharing Catalog
Machine
Shopping
Micro-Wave Personal
Oven Computer
1990s
Home Office/
1977 Telecommuting E-commerce
The Internet
Cell
Insta-Food Phones
Source: Euro RSCG, Strategic Marketing Research, 2002
19

20. What is the trend?
Notes on qualitative example
Although the previous slide appears to present a random set of
trends, skilled researchers identified a can identify “HIGH
PACE/ HIGH PEACE” dichotomy as the underlying trend.
• “Personalising” time and technology in an attempt to create
timestyles
• Need to gain control and a sense of “high peace” in a “high
pace” world
• Convergence of “private” and “public” worlds
• Drivers: increased stress, time-poor generation, technology,
adoption rates
Trend Analysis
Summary
Purpose: To analyse the probable long term status of an
observed trend
Data Requirements: longitudinal data for focal variable
(minimum of least 7 data points eg. 7 years, but more
data points are preferred)
Skills Required: analytical mind, basic level statistical
skills, willingness to draw conclusions and make
inferences
20

21. Product Evolutionary Cycle
Based on four key concepts about
change:
• cumulative effects
• motivated by generative, selective,
and mediative forces
• direction of change tends towards
increasing diversity, efficiency, and
complexity
• patterns or themes can be detected
Tellis and Crawford, 1981
Product Evolutionary Cycle
Can be used to suggest:
• Future trends for category growth
• Future trends in product proliferation
• New ideas for product development
21

22. Precursor Analysis
(Summary)
Purpose: To suggest possible future category development
by comprehensively mapping its evolutionary path
Data Requirements: longitudinal data, from product
inception to current times
Skills Required: graphical representation (middle
secondary arithmetic) plus the ability to visualise
evolutionary branches in the family tree
Problems With Marketing
Intelligence
Desk research methods tend to give rise to a
number of problems, including:
1. Available data not at required level of
aggregation
2. Information Gaps
3. Conflicting and contradictory information
22

23. Problems with Desk Research
• Not only are these problems frequent in marketing
intelligence, but it is also a major headache for military
intelligence
• However, there are many ways that you can legitimately
cope with these issues
• This section presents some general principles plus a
series of applied examples to illustrate various
techniques.
General Techniques for
Handling Intelligence
Several techniques that can be used to cope with
inadequacies include:
1. Analogy Methods
2. Extrapolation Methods
3. Data Fusion and Data Mining
4. Assumptions/ Proxy Variables
5. Critical Analysis
23

24. Techniques for Handling
Information Gaps
Before you employ any of these methods, first ensure that your
information search has been comprehensive
Important Distinction
Comprehensive = made reasonable attempt to access all relevant
information in the subject area
Exhaustive = confident that all publications in the field have
been consulted
NB: You cannot claim comprehensive research if you have only
used the web.
Coping with Gaps in
Marketing Intelligence
24

25. Techniques for Handling
Information Gaps
Analogy Methods
– International analogy – use data from comparable
foreign country
– Historical analogy – use data from former time period
– Product Category analogy – use data from comparable
product category
– Market Segment analogy – use data from comparable
market segment
Analogy methods use implied assumptions
about comparability.
Techniques for Handling
Information Gaps
Extrapolation Methods
Out of Date Data –Can data that is 5 or 10 years
old be extrapolated to the current period?
Data Fusion/ Data Mining – Can two or more data
sources be fused or synthesised to illuminate the
problem? (Examples have already been discussed
in this presentation)
25

26. Demographic Analysis of Wine
Consumption
To illustrate some of these techniques, I have done a
comprehensive search of the wine literature and have
encountered real difficulty locating Australian data on
three areas:
1. Wine Consumption By Demographic (age and gender)
2. Wine Price Segment By Demographic
3. Comparative Usage rates (light, heavy drinkers)
Wine Consumption By
Demographic
• Marketers constantly search for this type of market
analysis
• Yet it can be surprisingly difficult to locate
• The most obvious solution is to purchase commercial
data from Nielsen or Roy Morgan. Let’s assume that
my budgetary constraints rule out.
26

27. Comprehensive Research : Australian Data
Is wine the main alcoholic beverage you drink?
Yes
100% 87%
79%
80% 69%
60% 45%
40%
20%
0% n=636
20-24 25-32 33-39 40+
Source: Roz Howard, “Wine Marketing to Generation
X”, Presentation to Australian Wine Marketing
Conference, 2001
Coping with Incomplete Information
• The preceding examples are designed to illustrate different
ways of managing data
• None of the solutions is “perfect”
• But we should note that survey findings are equally
“imperfect”
• In some situations your best estimate, is a far sight better
than no estimate at all!
27

28. Inconsistencies
• Secondary sources tend to give rise to estimates
that vary enormously – even contradict other
available evidence
• When using inconsistent facts and figures in
your reports, you will need to do one of two
things:
1. Explain the inconsistency
2. Reconcile the apparent contradictions
Causes of Inconsistencies
In order to cope with inconsistencies, we must first
understand their causes, which might include:
– Different collection methods
– Different time periods
– Different levels of aggregation
– Selective perception
– Vocal minority viewpoints
28

29. Coping with Inconsistencies
• The main technique for coping
with inconsistencies is:
Critical Analysis
Issues in the Australian
Environment
The slides in this section have been included for
student’s benefit. They are designed to suggest some
of the more important issues affecting the Australian
environment. Students are encouraged to study this
section to gain ideas for the type and level of analysis
expected and to examine a variety of ways of
presenting data.
29

30. Regulatory/ Political Environment
Key Issues for Australia:
• De-regulation (global trend)
• Shift towards industry self-regulation
• Diminishing Government role in
enforcement
• Relaxed statutory controls
• Relatively stable environment
Political/ Regulatory Environment
In web site development,
marketing communications,
“.. The basic test of
copyright infringement
requires that copyright owner
approval is required for the whole
of a work or a substantial part.”
Source: AMI, Marketing Update (Newsletter of the
Australian Marketing Institute -Victorian Division),
April, 2004
30

31. Political Environment
The impact of the introduction of smoking bans on
gambling is demonstrated graphically here.
Other data suggests not only a reduction in the number of
gamblers, but also a reduction in time spent at venues.
Source: RMR, RMR Update (electronic newsletter), June, 2003,
www.roymorgan.com.au
Top Economic Trends
• Privatisation (and provision of
uneconomic services)
• Rising discretionary incomes in some
segments
• Widening gap between `haves’ and
`have-nots’
• The “working-poor” as an underclass
• Organised consumerism (green lobby
as a political force)
• Global market-places
31

32. Economic Environment
Source: Roy Morgan Research, RMR Update
(electronic newsletter), October, 2003
www.roymorgan.com.au
Economic Environment -
Examples
“The richest 20% of
Australian
Households own
63% of all net wealth.”
Source: The Age, 16 April, 2004
32

33. Economic Environment -
Example
Not all segments exhibit the same responses to
environmental stimuli, nor are their responses constant
over time. High price sensitivity segments nominate cheap
prices as an important attribute. During the economic
boom of the late 90s, price sensitivity dropped.
Source: Forseechange, “Evaluating Advertising Return on Investment,” Discussion Paper,
c.2002
Societal Trends
A literature review reveals the following top social
trends identified by market research companies
with strategic specialisations:
– Global shift to a civil society
– Population Dynamics
– Household Structure and Family Type
– Generational Differences
– Age in Motion
– The Gender Agenda
– The Working Woman
33

34. Top Societal Trends (cont’d)
– The Time Equation
– Rise of religious fundamentalism
– Environmentalism
– Consumerism (Second Wave)
– Mediated Relationships (e.g virtual reality)
– Spiritualism and Alternative Lifestyles
Social Trends - Example
“When Maxim – one of America’s
best selling lad’s magazines-
starts giving away
samples of Nair For Men,
there’s no denying that we’re
in the midst of a seismic
cultural shift.”
David Smiedt, journalist
The Age Good Living, 11 September, 2003
34

35. Social Trends - Example
Neos (the luxury spending segment)
.. Have shaken the very foundation
of marketing in the 21st Century
[In Australia, they account for]
..24 percent of the
population who know more,
read more, eat out more,
drink more wine, expect to pay
more for an experience
Source: The Australian, 15 April, 2004
Social Trends- Example
“People over 55 control 23.9%
of total spending … and 50%
of national wealth.”
Source: AMI, Marketing Update (Newsletter of the Australian
Marketing Institute -Victorian Division), April, 2004
35

36. Social Trends- Example
Consumerism is exerting pressure in a
diverse range of demands – including
improved product labelling
Top Technological Trends
• The Wired World - Speed of electronic
communications
• Technology and rise of `virtual’ communities
• Emerging new media (SMS, Digital TV, Digital
radio)
• The Internet’s failure to attract advertising dollars
• The search for new business models
• The Internet’s shift towards user pays
36

37. The Environmental Audit
• Covers sweeping range of issues
• Requires breadth and skill in research
• Requires a great deal of analysis and interpretation
• Requires the ability to spot macro-trends
• Arguably, one of the most sections difficult to research and
write
• Arguably, one of the most important sections of the report
• Generally one of the most poorly handled sections in terms
of its research, conceptualisation, analysis and direction
A Final Note About Sources
In strategic planning, we need to be creative about sources.
• Use traditional desk research
• Use non-traditional sources ( e.g. observation, mystery
shoppers )
• Try to use longitudinal data, wherever possible
• Think laterally
• Look for any source of information that could provide a
competitive edge
• Do NOT rely on the Internet for all information needs
• In your reports, not more than 10% of sources should be e-
resources
• Always interrogate sources for reliability and credibility (ie
critical analysis)
37