CIM revision cards marketing environment by mike oldroyd

~ n Marketer must understand external environment n Recognize implications of changes n Must take into account changing tastes, preferences and spending power, as well as competitor offe

REVISION CARDS

Marketing Environment 04/05

PROFESSIONAL CERTIFICATE IN MARKETING

2004 –2005 SYLLABUS

Key concepts for revision

Helping you to pass your CIM exam

The CharteredInstitute of Marketing

CIM REVISION CARDS

Marketing Environment

Mike Oldroyd

Linacre House, Jordan Hill, Oxford OX2 8DP

30, Corporate Drive, Burlington, MA 01803

First published 2004

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TABLE OF CONTENTS

Preface iv

1 The nature of the organization 1

2 The microenvironment 18

3 Analysis of the competitive environment 30

4 The macroenvironment 44

5 The demographic social and cultural environment 55

6 The economic and international environment 68

7 The political and legislative environment 82

8 The technical and information environment 94

9 Environmental information systems 107

Welcome to the CIM Revision Cards from Elsevier/Butterworth–Heinemann We hope you will find these usefulwhen coming to revise for your CIM exam The cards are designed to be used in conjunction with the CIMCoursebooks from Elsevier/Butterworth–Heinemann, and have been written specifically with revision in mind.They also serve as invaluable reviews of the complete modules, perfect for those studying via the assignmentroute

n Learning outcomes at the start of each chapter identify the main points

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To get the most of your revision cards, try to look over them as frequently as you can when taking your CIMcourse When read alongside the Coursebook they serve as the ideal companion to the main text Good luck– we wish you every success with your CIM qualification!

THE NATURE OF THE

ORGANIZATION

L E A R N I N G O U T C O M E S

Appreciation of the marketing environment

Classification and comparison of organizations

Understanding mission statements and the

significance of objectives

Recognition of business as an open system

Identification of drivers for change

Syllabus reference: 1.1–1.9

š

Study past questions on each main area and plan

out brief key word answers

Marketing Environment (1.1)

CIM defines marketing as:

} The management process which identifies,

anticipates and supplies customer

requirements efficiently and profitably ~

n Marketer must understand external environment

n Recognize implications of changes

n Must take into account changing tastes,

preferences and spending power, as well as

competitor offerings

nš Identify impact of broader environment on markets

A main aim of the syllabus is: To explain the

nature of the marketing environment and its

relevance for organizations and marketing

practice

} The firm is a creature of its environment.

Its resources, its income, its problems, itsopportunities and its very survival aregenerated and conditioned by theenvironment ~ (Ansoff)

– Organizations operate in an environment ofconstraints, threats and opportunties– Need to monitor for and understand significantchanges

– Organizations must adapt to survive– The environment as the source of key inputs,revenues, pressures, competitors, allies:

relationships are critical– Organizations possess differing strengths/weaknesses

– Survival demands marketing strategy andplanning

THE NATURE OF THE ORGANIZATION 2

Types of Organization (1.2)

Public sector organizations

n State-provided goods or services

n Driven by government objectives

n Socially desirable goals, e.g equity

n Supply public goods to all, e.g defence

n Ensure supply of merit goods, e.g education/

n Shift from direct providers to service facilitators

n Public/private partnerships – marry strengths

of each

Private sector organizations

n Marketable output and exports

n Privately owned and controlled

n Businesses compete to satisfy consumer wants

n Profit drives effective and efficient use ofscarce resources

n Includes global multinationals

n Shareholder concerns may override socialconcerns

Voluntary sector organizations

• Normally non-profit-making

• Rely on voluntary contributions and dedicated staff

• Compete for funds/public attention for causes

– Hard work and longhours

– A lot of competition– Lack of managementskills

THE NATURE OF THE ORGANIZATION 4

Partnerships – characteristics

n Unincorporated

n Two or more partners

n By agreement/law

n Legal maximum, e.g 20

n Jointly liable for debt

– Vulnerable ifmalpractice

Registered Companies – characteristics

n Dominant form

n Public (plc) and private limited

n Incorporated by law

n Shareholders contribute capital

n Regulated by Memorandum (external scope)

and Articles (internal administration) of

Association

n Submit independent audited accounts/

directors’ report

Issues

• Short-termism, take-over threat

• ‘Fat cat’ remuneration levels

– Operational inflexibility– Size may breedimpersonality– Ownership/

management divide

THE NATURE OF THE ORGANIZATION 6

The case for privatizing

This involves transferring ownership of 51% or more of

shares in a public sector organization to private hands

Political considerations

l Poor record of efficiency

l Susceptible to pressure groups like unions and

political interference

l Limited by government funding

l Privatization reduced state role

l Led to deregulation/cut red tape

l Encouraged wider share ownership – notably

customers and workforce

l Greater freedom to market services

l Sale cuts government borrowing

l Regulators appointed with powers to enforce

change, e.g Oftel

l Examples: water; gas; electricity; telecoms;

lotteries

Economic considerations

l Limited competitve pressure when nationalized

l Significant efficiency improvements

l Increased competition and consumer choice

l Pressure to become marketing orientated

l Improved industrial relations

l Freedom to exploit diverse opportunities

l Lower prices and steep rise in productivity

š

Questions set on organizations often call forcomparison of types or sectors

š

To focus on such questions use a grid for point

by point comparison/to earn format marks

Strengths of SMEs (1.3)

l Cater closely for local customers

l Sensitive to buying habits/tastes

l Able to focus on a niche market

l Owns business/attention to detail

– See disadvantages of sole traders and partnerships

– Reverse of large/global strengths*

Strengths of large/global firms

l Economies of scale, e.g discounts

l Risk spread across various markets

l Justify use of specialized skills, etc

l Secure cheaper finance

l Exploit best practice

l Transfer technology and ideas

l Vast bargaining power re suppliers

l Ability to centralize strategy

l Advantage from brand leadership

-Vision is the ability to imagine or foresee the future

prospects/potential for an organization

Mission is the statement of the organization’s

overall purpose that expresses what it stands for

and seeks to accomplish in the wider environment

– Vision is the responsibility of top management

– Anticipates how markets, tastes, technologies

evolve

– Critical importance in formulating marketing

strategy

– Triggers the mobilization of resources to achieve it

– Drives organizational behavior

– Key to securing a competitive edge

Example of vision: a PC with Windows software onevery desk (Microsoft)

Example of mission: To organize the world’sinformation (Google)

Mission statements (1.4)Meaning: Describes core activities

l Fundamental reason for organization’s existence

l Establishes what business it should be in

l Distinguishes uniqueness from other organizations

l Identifies competences, customers, relationships

Importance: Shapes corporate culture

l Enables sense of direction, unity, common purpose

l Provides a set of corporate values and priorities

l Clear statement for external stakeholders

l Provides a benchmark for assessing performance

Organizational Objectives (1.4)

Specific ends or achievements to be realized at a

future time to fulfil the mission of the organisation

NATURE

l Strategic objectives are long-term goals set by

senior management, e.g achieve market

leadership

l Tactical objectives are set by middle managers

and are more measurable, e.g open 10 new outlets

l Operational objectives are short-term and set by

first line managers, e.g cut customer complaints

by 5%

l Objectives should beSMART ¼ specific,

measurable, achievable, relevant and time-limited

l Objectives vary by sector:

– Charity: Alleviate suffering/raise contributions

– Public: Public service/equity/cost effectiveness– Private: Maximize profit/growth/maket share

SIGNIFICANCE

l Reason why organizations exist

l Drive organizational behavior

l Supply motivation/sense of purpose

l Time-limited targets provide control

l Survival/profit stimulate competition

l Profit maximizing (revenue – cost) ensures thatfirms supply what consumers are prepared topay for, using methods that minimize cost

l Rapid response to changing tastes/innovation ofmore efficient method

l Marketing may pursue market share/sales max

þ profit constraint

l Growth provides opportunities

THE NATURE OF THE ORGANIZATION 10

Internal influences on aims

l Memorandum of Association limits business scope

l Personal values/goals of directors/senior managers

l Aversion to risk and future expectations

l Resource limitations

l Inertia and past success may prevent review

External influences on aims

l Must match internal strengths/weaknesses with

external opportunites and threats

l Present/future expectations of shareholders

l Interests of connected and external stakeholders

l Competitive forces

l Changes in government policy and legislation

l Pressure groups

Drivers for Change (1.5)

Organizations must periodically review their aims:– renew objectives once achieved

– reality of a dynamic environment– control process shows variances– respond to forces pushing it off-course– anticipate change in wants

– meet emerging technical change– proactive to threats/opportunities– change in top management– as part of a formal corporate planning system

Organizations as Systems (1.6)

l View organizations as part of a wider system

l Inputs are drawn from environment and

converted into outputs

l Positive (goods, services) and negative (wastes)

outputs are returned

l Organizations made up of subsystems

(e.g marketing, production)

l Boundary between systems represents

THE NATURE OF THE ORGANIZATION 12

Dynamic Environment (1.8)

Marketing environments are in constant change

Many environments are turbulent and subject to

unpredictable and often uncontrollable forces:

n Increasingly competitive markets are in flux,

e.g stock, currency, ICT and energy markets

n Technological forces, political discontent, variable

prosperity, fundamentalism also disturb stability

n Even the natural environment appears unstable

with freak weather conditions

Dynamic conditions suggest powerful forces are

driving change, e.g IT developments or a catalyst,

e.g new entrant or deregulation

Importance to marketing

l Creates ambiguity over future patterns

l Can create opportunities if managed well

l The environment must be monitored and analysed

to identify threats and potential impacts

l Prioritize on most significant developments

l A proactive response is demanded

l Reduce resistance in favor of a ‘culture of change’

l Requires flexible, decentralized, organic structures

l Associated costs may be transferred to customers(higher price); workers (redundancy); competitors(lower sales); government (subsidies), etc

l Complex markets involve many interdependentcausual factors producing non-routine problems

THE NATURE OF THE ORGANIZATION 14

Managing the Environment (1.8)

A contingency approach:

Appropriate marketing action depends on the

particular circumstances of the situation rather

than predetermined rules or policies

Marketers must recognize there are no certainties in

a global economy-tailor response to an evolving

situation

Even McDonalds must modify its universal formula

to match competitive/cultural realities – India’s

sacred cow

Logical development of the systems perspective to

determine appropriate responses in the face of

multi-faceted change

Organizations of the future

l Flexible dynamic structures

l Organic and fluid

l Focused but adaptable

l Lateral networked relationships

l Task, skill and relationship focused

l Flexitime for effective task completion

l Customer orientated

l Employee involvement/participation

l Shared benefits

l Wider share ownership

l Marketing secures collaboration and integration ofkey functions

Emerging Challenges (1.9)

E-commerce

Implies radical restructuring/culture shifts for

organi-zations and will demand a systems-driven response

Globalization

Rise of multinationals treating the world as an

integrated market place for resources and products

and developing relatively standardized products to

meet customer needs

Increasing competition

Product of improved access to information;

deregulation; more discerning customers

Digitalization

Allows seamless integration of IT (text/sound/vision)

into all aspects of life, e.g mobiles and broadband TV

Significance for marketing

n Rising on-line sales challenge traditional retailers

n Source of competitive advantage for supply chain

n Large reduction in transactions cost

n Need to monitor the global market-place

n Threat of competition in domestic market

n Small firms must exploit niches

n Price must be comparable even whendifferentiating

n Action on monopoly abuse – MicrosoftE497m fine

n Broadband allows tailored promotion andinteraction

n Mobiles becoming a critical marketing resource

THE NATURE OF THE ORGANIZATION 16

Hints and Tips

l Read through Unit 1 of theMarketing

Environment Coursebook

l Seldom the main focus of a mini case or even case

questions

l Normally at least one full optional question per

paper but may overlap with other sections

l Many optional questions are set in a specific

organizational context

l Focus to ensure you answer the question

l Breakdown different components of the questions

to ensure you address all of the issues

l Make outline plans of all the exam questions

š

Your revision provides an example of an opensystem – you draw knowledge from lectures/readings; convert it into understanding to yieldoutput as coursework and get feedback

THE MICROENVIRONMENT

L E A R N I N G O U T C O M E S

Appreciation of interconnected environments

Importance of stakeholders and their

interaction

Significance and impact of pressure groups

Role of marketing in managing these groups

Syllabus reference: 2.1, 2.2, 2.5

K E Y R E V I S I O N P O I N T S

Complex nature of the environment

Internal, connected and external stakeholdergroups – their importance to the organization

Pressure groups and their influence ondecision-making

Management of stakeholders and pressuregroups

Unit 2

Microenvironment Context (2.1)

Includes the groups and organizations close to the

business that affect its ability to satisfy customers

They have a two-way operational relationship with

the business and may be influenced by it to some

degree

n Refer back to systems theory

n All organizations aim to make resources

productive

n Resources are scarce and diverse

n They must be attracted from the environment

n Inputs are transformed in time, place or form to

create utility, value and satisfaction for the

customer

n Ineffectiveness or inefficiency threatens survival

n Resource providers are stakeholders

Classifying the environment

n Organizations face a confusion of environmentfactors

n They need to sort and classify these factors

n They may or may not represent threats/opportunities for marketers

n Represent jigsaw pieces for grasping thebigger picture

n Include all factors/forces with significantimpact on organization

The Microenvironment

Stakeholders defined

Any group or individual, other than

shareholders, who can affect or are affected by

the achievement of organizational goals

Primary stakeholders make a direct and often

continuous contribution to core activities

The impact on or by secondary stakeholders

is more intermittent and normally of less

significance

n Organizations are coalitions of stakeholders

n Management needs a workable balance between

the claims and interests of these groups

n Shareholders are owners of the business

n Relationships affect supply chain effectiveness

n Dependence on 1 or 2 suppliers carries risks

n Preferred suppliers may provide total quality,just-in-time delivery and R/D support

n Potential threat to survival and profitability

n Must monitor actions and reactions of rivals

n Price wars may erupt from time to time

n Marketing mix may be deployed to influence them

n May have common interest in collaboration

Customers

l Often sole source of revenue

l Free to withdraw/transfer custom

l Dissatisfied customers tell others

l Preferences may change quickly

l Influence through marketing mix

l Retaining customers more cost effective due to

potential lifetime revenue flow

Intermediaries/distributors

l Critical role/channel effectiveness

l Partnership offers advantages: transport, stockmanagement, merchandising, after-sales, etc

l High leverage, e.g own brands

l E-commerce disintermediation?

l Tying in outlets may provide competitive edge

Employees

n Retention of skilled preferred to new recruitment

n Critical factor in productivity and customer interface

n Central to coordination and achievement of goals

n Potentially costly, e.g salaries/disruption/poormorale

n Evolution of flexible working patterns/virtual orgs

l Organization can’t operate in isolation

l Must satisfy legitimate expectations ofstakeholders if these are to contribute value inreturn

l Contributions may be withdrawn, e.g shopelsewhere

l Stakeholders can change organizational goalsunless effectively managed

l Conflicts of interest possible, i.e higher wages¼lower profits or higher prices

Stakeholder Typology

Stakeholder pressure and expectations

Pressure via absenteeism, low morale and work rate

Expect fair wage, skill development, job satisfaction

Suppliers

Pressure via low priority service, supplying rivals

Expect prompt payment, clear supply schedules

Distributors

Pressure via stocking rival/own brands, delay payment

Expect just-in-time supplies, promotional support, etc

Managing Stakeholders (2.2)

l Recognize the behavior of organizations hasbecome everybody’s business

l Know who the critical stakeholders are

l Map stakeholders by level of interest in theorganization and their power to influence outcomes

l Use internal and external marketing to resolve orbalance stakeholder conflicts

l Keep key stakeholders well informed and on-side

Pressure Groups (2.4)

Are sub-sections of society organized on the basis

of specific common interests, goals or attitudes

Distinguish

l Sectional or interest groups who exert pressure

on people, organizations and government for their

own special purposes, e.g unions

l Cause or promotional groups with common

values and a specific ‘issue’, e.g Friends of the

Earth, World Wildlife Fund, CND

l Both seek influence over government decisions

l Both may promote or resist particular decisions

l Means for like-minded to make themselves heard

l Increasing to influence all business/society aspects

Means of achieving their aims

Complain, e.g to the media/regulatorsInform and persuade affected partiesDebate at local meetings

Lobby elected representatives/officialsCanvass and opinion form re stakeholdersBoycott company products or servicesMarch and demonstrate outside businessLegal action and test cases

Demand negotiations for concessions

Example: Consumerists

Those groups and organizations who exert legal,

moral and economic pressure on business to

account for the interests of consumers over profit

Impact on marketing

3 Customers no longer suffer in silence

3 Encouraged proactive businesses to adopt

a customer orientation

3 Consumer rights enshrined in fair trading laws

Right of Safety Issues: tobacco, GM foods, additives

Right to be informed: Fraud, small print, misleading

promotion, unsolicited junk mail

Right to choice: deregulation, reduce entry barriers

Right to a hearing: Poor service/substandard

products

Example: Environmentalists

Groups and organizations who seek to applypolitical, economic and moral pressures onbusiness to adopt sustainable operations

Significance for marketer

Wide-ranging causes: conservation, recycling,emissions, animal rights and endangered speciesRising concerns imply extra costs and higher prices:

l Corporate image damaged

l Customers may opt for less harmful alternatives

l Shareholders may switch funds to ethically sound

l Recruitment of high calibre staff affected

l May prompt over-strict legislation if fail to act

l Loss of community/local government support

l Cost penalties – legal claims, product recalls

Formal channels for pressure

Pressure via government

l Government departments consult widely

l Sound out recognized/responsible pressure groups

l Able to influence new legislation and policies

Pressure via legislature

l Pressure group lobby support from legislators

l Susceptible to issues affecting their constituencies

Pressure via public campaign

l Influence opinions through educational campaigns

l In short term, mobilize public/stakeholder support

through meetings, demonstrations, internet

petitions

Managing Pressure Groups (2.5)

3 Prioritize resources that are scarce

3 Clarify corporate values/goals

3 Listen to their views

3 Communicate with them

3 Consult with them

3 Monitor their pressure on govt

3 Liaise with them over developments/use theirexpertise

3 Respond positively to their ideas

3 Work with them for mutual benefit

3 Build trust

3 Support them to work with you

3 Oppose if necessary

Hints and Tips

n Read through Unit 2 of theMarketing

Environment Coursebook

n Some mini case topics, e.g McDonalds (D03) and

Cruise market (J03), but less frequent than macro

n Key case terms are highlighted in bold

n Questions normally in context of a selected

industry

n Normally 2 or 3 part questions

n Normally at least one full optional question

per paper but may overlap with others

n Make outline plans of all the exam questions

18 minutes per part (including reading)

š

You can relate this syllabus area directly to yourown experience as customer, employee andmarketer

š

Generate more examples as you work throughthis passbook to use in your exam answers

ANALYSIS OF THE

COMPETITIVE ENVIRONMENT

L E A R N I N G O U T C O M E S

Importance of monitoring competitors

Explanation of strategic implications

Understand impact of competition policies

Awareness of internal/external information

Review of competition law and practice

Key sources of information on themicroenvironment

Unit 3

Monitoring Competitors (2.6)

Competitive behavior involves actions and

reactions of businesses to improve their

profitability and market position at the expense

of rivals

Importance

l Competition impacts directly and continuously

l Forms a two-way interaction

l Marketers must understand the dynamics of

different markets and the realities of competition

l Marketing strategy, tactics and responses must be

set in the context of a changing market

environment

Intense competition: Characteristics

Large number of small buyers/sellersHigh degree of market knowledgeRational consumers and businesses with highdegree of market knowledge

Ease of market entry or exitPrice takers – set by market forcesExamples: materials/foodstuffs; ‘commodities’ inmaturity (PLC); e-commerce creates pricetransparency

Industry types: Fragmented industries

Large number of small competitors

Rational to monitor closest rivals

Easy entry to and exit from the market

Adaptability to market diversity yields competitive

advantage via innovation or successful

differentiation

Firms stress USPs but high profits are soon

reduced by imitation/new entry

Supply of me-too goods¼ low margins

Marketing implications

Strategic actions

3 Monitor close rivals and new entrants

3 Invest in relationship marketing

3 Build long-term mutual benefit

3 Create barriers to protect the market

3 Niche marketing of a habitual good

3 Buy out competitors

3 Cut costs to offer keen prices

3 Innovate continuously ¼ a moving target

3 Product differentiation and branding

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 32

Concentrated industries

Small number of very large firms

Economies of scale

High barriers to entry and exit

Interdependence – large market shares

Outcomes depend on rival reactions

Dominant market leaders may emerge

Multiple competitive options

3 New product development and differentiation used

3 Tendency for occasional price wars, e.g airlines

3 Collusion raises profits but is illegal

3 Price leadership overcomes kink if rivals follow

Porter Five Force Analysis

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 34

Strategic and marketing implications

n Long run profitability rest on five forces that

govern distribution of value added created by the

firm

n The analysis exposes what is driving competition

n A competitive strategy is required to achieve

goals, identify a defendable market position and

secure a competitive advantage

The intensity of inter-rivalry

n Ranges from zero (powerful monopoly) to

cut-throat rivalry

n Intense rivalry expands growth markets, e.g

mobiles, but may undermine a mature market

n Degree depends on switching/exit costs,

overheads, objectives, growth rate, product

n Intense future rivalry if substitute price/performance ratio is high

n Switching costs are very low

n Buyers are informed and willing to search