Chapter-3 The Market Environment

1. Chapter-3The Market Environment A systematic approach to environmental analysis and diagnosis involves understanding the following forces: 1. Socio-economic 2. Competition 3. Technology 4. Government Policies 5. Suppliers

2. Change Drivers Customer Competition Competition Substitutes Product/market Complementors Potential Competition ‘10X’ Force created by Technology

3. 1. Socio-economic forces • Sociological forces • Demographic changes • Age composition Age distribution 1st March—1992 1997 2007 0–14 12.8 11.7 10.0 5–14 22.9 22.1 19.5 15–59 57.7 59.1 62.3 60 & above 6.6 7.1 8.3 Source: Tata Services Ltd; Statistical Outline of India, 1995–96.

4. Sex structure of the population and role of women • The New Urban Family Source : Business Today, Feb 22, 1999.

5. Source : Business Today, Feb 22, 1999

6. Source : Business Today, Feb 22, 1999

7. Shift in Income Levels Source : NCAER, Indian demographics Reports 1998.

8. More than Rs.1Crore Number : 6515 More than Rs. 50Lakh but less than Rs. 1Crore; Number : 20863 More than Rs.20lakh but less than Rs.50lakhs; Number : 98,289 More than Rs.10lakh but less than 20 lakh; Number : 3,20,900 More than Rs.5lakh but less than 10lakh; Number : 10,58,961 The Affluency Ladder

9. Statewise depiction of different classes of Rich

13. Geographical Changes Geographical Shifts in Indian population Year 1901 1951 1961 1971 1981 1991 No. of Towns 1827 2843 2365 2590 3378 3768 Urban population ( mn) 25.9 62.4 78.9 109.1 159.5 217.6 Urban population as percentage of total population 10.8 17.3 18.0 19.9 23.3 25.7 Source: Tata Services Ltd., Dept. of Economics and Statistics: Statistical Outline of India, 1989–90. Population : (Including projected population of J & K) Persons 846,302,688 Male 439,230,458 Females 407,072,230 District with Highest Population Greater Bombay ( Maharashtra) 9,925,891 District with Lowest Population Yanam ( Pondichery) 20,297 Office of the Registrar General, India Source: , website: www.censusindia.net (Provisional figures as per census 2000)

14. Changes in Value System • Values are the beliefs which are held in the society. • There are : 1.Core values 2.Acquired values

15. Economic Factors (a)Gross national product. (b)Per capita income. (c)Balance of payments position. (d)Industry life cycle and current phase through which the industry is passing. The different phases of this life cycle could be classified as recovery, boom, recession and depression. (e)Trends in the prices of goods and services—specifically, whether the inflationary or deflationary trends are visible. (f)Fiscal policies and prime rate of interest charged by commercial banks.

16. 2. Competition • An analysis of the following, will provide a strategist an insight into competition of this valuable area: (a)Firms not in the industry but likely to overcome entry barriers, particularly at a low cost. (b)Firms who derive synergy from being in the industry. (c)Firms for whom competing in the industry is an obvious extension of the corporate strategy. (d)Customers or suppliers who may integrate backward or forward.

17. 3. Technology • Technological changes lead to shortening of the product life cycle and create new sets of customer expectations as well.

18. 4. Government Policies • A marketer needs to not only understand these policies but also the political philosophy and ideologies of major political groups and individuals.

19. 5. Suppliers • The bargaining power of the buyer firm increases in the following circumstances. • The buyer firm is a monopoly or inan oligopoly position and buys large volumes relative to seller's sales. • The products a buyer firm purchases represent a significant fraction of the buyer's cost or purchases. Here the buyer firm is likely to shop for the most favourable price. • The buyer firm can easily switch its vendors as it faces few switching costs. • The buyer firm earns low profits and hence has a pressure to lower its purchasing costs. • The buyer firm poses a real threat of backward integration. • The supplier's product/service is unimportant to the quality of the buyer's finished products/services. • The buyer firm has full information on the seller's industry. • These factors change over a period of time or as a result of company's strategic decisions thereby affecting the buyer's bargaining power. On the other hand, the bargaining power of the supplier gets maximized in the following situations: • The seller firm is a monopoly or an oligopoly firm. • The supplier is not obliged to contend with other substitute products for sale to the buyer group. • The buyer is not an important customer. • The supplier's product is an important input to the buyer's business and finished product. • The supplier's products are differentiated or it has built up switching costs. • The supplier poses a real threat of forward integration.

20. TECHNIQUES FOR ENVIRONMENTAL SCANNING 1. SPIRE Approach • Preliminary matrix relating environmental changes to Potential Strategic Action • FactorsStrategic Marketing, Govt. Policy, Export Import Policy, Bank rate of Interest, Technology, Customer Preference and Values, Intensity of Competition, Uncertain supply of Raw Material • Emphasis on major customers • Liberal credit for A+ category of customers • Licensing arrangements with financial institutions • Increasing dealer network • Increasing territory coverage • Intensifying advertising • New Product Launch • Important “impact linkage”

21. 2. Scenario Building • Stage 1: Analysis of the Decision (s) • Stage 2: Identification of Key Decision Factors. • Stage 3: Keying in Societal Factors • Stage 4: Analysis of Each of the Key Variables Separately • Stage 5: Selection of Scenario Logics • Stage 6: Elaborating Scenarios