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BUSINESS PURPOSE
LESSON 8
THE BUSINESS
ENVIRONMENT
INDUSTRY ANALYSIS
- market strategy tool used in determining the
stage of the industry where the business falls
- allow the entrepreneur to know whether there is
a demand for the industry in the long run
- help in identifying the stability of the demand in
the industry
To help the entrepreneurs to assess the
attractiveness of the industry, they can use
Industry Trends and Five Forces Models.
INDUSTRY TRENDS
Trend refers to the direction or a course that
follows a tendency or a style. These could be
related to business, fashion, lifestyles, languages
and education.
The importance of studying industry trends:
1. It helps the entrepreneur in analyzing the
sudden shift (increase or decrease) of the
products or services sold by the firm.
2. It guides the entrepreneurs in making positive
assessment of the future of the industry where
A. COMPETITIVE RIVALRY
There are 4 factors that determine the nature and
intensity of the rivalry among existing firms in the industry:
1. Number of competitors- competitive rivalry is higher
when there are more potential competitors in the
industry.
2. Product differentiation- how the product differs from one
producer to another affects the rivalry.
3. Growth rate and market size- the rivalry is more intense
during periods of low market growth.
4. Level of fixed cost- when fixed cost is relatively high
relative to the variable costs, large business would
require greater sales volume to cover up the cost.
C. THREAT OF SUBSTITUTION
Like the threat of new entrants, the industry
is more likely attractive when the threat of
substitutes is low. The extent of the threat
would depend on whether it can match the
product in the industry and the customer is
willing to switch products.
D. BUYER POWER
Several factors determine the bargaining power of
buyers:
A. Number of customers- if there are fewer buyers that
sellers, there is a greater bargaining power for the
customer.
B. Buyers cost- if the item has great importance to the
buyer, he is more sensitive in the price of the product.
C. Number of firms supplying the product- when there is a
large number of customers and has low number of
suppliers, the advantage of the purchasing power is more
favorable for the suppliers.
D. Threat of backward integration- the power of the
E. SUPPLIER POWER
Suppliers are powerful when they have established a dominant
position in the market. These include the following:
A. Supplier concentration- when there is large number of buyers and
only few suppliers can provide a critical product, the supplier has
the power over the buyers.
B. Switching costs- if the supplier provides the key ingredient for
customer that is not easy to find or buy somewhere else, the
bargaining power of the supplier is high.
C. Attractiveness of substitute- if there are no substitutes for the
product or service, it is more likely that the power of the supplier
is enhanced.
D. Threat of forward integration- the bargaining power of the
CUSTOMER ANALYSIS
It plays an important role in planning the
business. It is conducted to identify and distinguish
the customers characteristics to better understand
their needs and their purchasing behavior. These
data are usually gathered through feedback, focus
group, transactions and product testing.
UNDERSTANDING CUSTOMERS
Customers are the ones who pays and purchase
the products/services. There are five main roles
that exist in the purchasing situations of the
customers:
Roles
Functions
Initiator
These are individuals who initiate the search for a solution to the
problem of the customer.
Influencer
Decider
Purchaser
User
These individuals are the end-user and the ones who consume the
product.
RESEARCH METHODS
A. Questionnaires and surveys- used to obtain general
information which is inexpensive and easy to analyze. The
feedback may not be accurate and somehow impersonal.
B. Interviews- used to probe answers which help in getting
fuller range of information. This method is difficult in
analyzing the gathered information and the analysis would
usually takes some time.
C. Observation- done by documenting the behavior of the
buyers. It can easily get the information. The problem is the
difficulty in interpreting findings and somewhat expensive.
D. Documentation review- involves in studying the factual
history of the transactions of the clients. However, this is
time consuming and the data is limited based on the
COMPETITOR ANALYSIS
An essential marketing strategy to measure the
companys strategies against competitors. The
purpose is to determine the strengths and
weaknesses of the competitors that will provide the
firm the competitive advantage.
MC3A