Principles of Marketing Fall 2013 Lecture Slides 3

1. Principles of Marketing Fall 2013 Lecture Slides 3 Instructor : RAZA ILLAHE Lahore Leads University

2. SWOT analysis is a planning method used to evaluate Strenghts and Weaknesses and an organisation as well as Opportunities and Threats that an organisation faces. To understand SWOT, We will perform SWOT analysis of a large pet food division of a multinational.

3. SWOT ANALYSIS • An analysis of the internal and external audits which draws attention to the critical organisational strengths and weaknesses and the opportunities and threats facing the company

4. SWOT of a PET FOOD COMPANY • Strengths • Market leader in the dry cat food market. • Have leading world position in food technology. • Market leader in luxury pet foods. • The group’s excellent worldwide distribution. • Pet food market leader in several big markets, including France, Italy, Spain and South America.

5. Weaknesses • Number three in the wet pet food market. • Too many of product range with several low-volume brands. • Most brand names are little known. • Relatively low advertising and promotions budget. • Product range needs many new manufacturing skills. • Poor store presence in several large markets: Germany, UK, USA and Canada. • Overall poor profit performance.

6. Managers need to identify the main threats and opportunities also that their company faces. The purpose of the analysis is to make the manager anticipate important developments that can have an impact on the firm.

7. Opportunities • Economic climate. Because of improved economic conditions, pet ownership is increasing in almost all segments of the population. • Demographic changes. (1) Increasing single parenthood, dual-income families and ageing will increase the trend towards convenient pet foods ; and (2) the aged population will grow and increasingly keep pets as company. • Market. The pet food market will follow the human market in the concern for healthy eating and pre-prepared luxury foods. • Technology. New forms of pet food that are low in fat and calories, yet highly nutritious and tasty, will soon emerge. These products will appeal strongly to many of today’s pet food buyers, whose health concerns extend to their pets.

8. Threats • Competitive activity. A large competitor has just announced that it will introduce a new premium pet food line, backed by a huge advertising and sales promotion blitz. • Channel pressure. Industry analysts predict that supermarket chains will face more than 10,000 new grocery product introductions next year. • Demographic changes. Increasing single parenthood and dual-income families will encourage the trends towards (1) pets that need less care ,and (2) smaller pets that eat less. • Politics. European Union legislation will force manufacturers to disclose the content of their pet food. This will adversely affect the attractiveness of some ingredients

9. Criticism of SWOT Having conducted the analysis, managers frequently then fail to come to terms with the strategic choices that the outcomes demand Thus a new tool has been developed. Based on same principles but provides a strategic choice.

10. A General TOWS Matrix

11. SO (Strengths-Opportunities) - Use internal strengths to take advantage of external opportunities. For example, If you are an NGO and you have a person or committee that is skilled at writing grant proposals and there is a lot of grant money available, then a strategy may be to devote more focus to this area. WO (Weaknesses-Opportunities) - Improve internal weaknesses by using external opportunities. Using the grant writing example again, suppose your agency hasn’t had success in this area. That’s a weakness, but are there opportunities to gain access to these grant money? You could hire an expert or consultant. You could outsource the whole project. Perhaps you decide to send a staff member to various training and seminars so he or she can become your own in-house expert.

12. ST (Strengths-Threats) - Use internal strengths to avoid external threats. Suppose there is a threat of funding decreasing dramatically in your service area. What are your organization’s strengths that can help? Do you have extra cash to simply weather the storm? Maybe you are more efficient than other agencies in your area.  For many nonprofits, utilizing a software like VolunteerHub can also serve as a strategic advantage to become more efficient and effective. WT (Weaknesses-Threats) - This is definitely the most defensive position on the matrix. The strategies created here will want to avoid threats and minimize weaknesses. It is most often used when an organization is in a bad position. For example, perhaps an agency isn’t as efficient as stakeholders expect, and there is the threat of losing funding. In this case it might make sense to merge some programs with another organization to leverage resources better and ultimately hang on to funding.

13. ST (Strengths-Threats) - Use internal strengths to avoid external threats. Suppose there is a threat of funding decreasing dramatically in your service area. What are your organization’s strengths that can help? Do you have extra cash to simply weather the storm? Maybe you are more efficient than other agencies in your area.  For many nonprofits, utilizing a software like VolunteerHub can also serve as a strategic advantage to become more efficient and effective. WT (Weaknesses-Threats) - This is definitely the most defensive position on the matrix. The strategies created here will want to avoid threats and minimize weaknesses. It is most often used when an organization is in a bad position. For example, perhaps an agency isn’t as efficient as stakeholders expect, and there is the threat of losing funding. In this case it might make sense to merge some programs with another organization to leverage resources better and ultimately hang on to funding.

14. A bit more detailed !

15. TOWS Analysis of Mercedes-Benz

17. Porter's Five Forces Five forces model was created by M. Porter to understand how five key competitive forces are affecting an industry. These forces determine an industry structure and the level of competition in that industry. If these forces are stronger then the industry is less profitable it is. An industry with low barriers to enter, having less buyers and suppliers but high substitute products and high number of competitors will be seen as very competitive and thus, not so attractive due to its low profitability. The tool is very useful in formulating firm’s strategy as it reveals how powerful each of the five key forces is in a particular industry.

18. PEST ANALYS

19. Five Forces Analysis • Threat of new entrants.This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable and there are less barriers to enter, then rivalry soon get trougher. When more organizations compete for the same market share, profits start to fall. . Threat of new entrants is high when: • Low amount of capital is required to enter a market; • Existing companies can do very little to strike back; • Existing firms do not possess patents, trademarks or do not have established brand reputation; • There is no government related regulation; • It doesn’t cost a lot of money for a firm to switch to other industries); • Products are similar; • Economies of scale / Low Production Cost can be easily achieved.

20. Bargaining power of suppliers. Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strong bargaining power when: • There are few suppliers but many buyers; • Suppliers are large and threaten to take over your organisation; • Few substitute raw materials exist; • Suppliers hold scarce resources; • Cost of switching raw materials is especially high.

21. Bargaining power of buyers.Buyers have the power to demand lower price or higher product quality from industry producers when their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality products usually raise production costs. Both scenarios result in lower profits for producers. Buyers exert strong bargaining power when: • Buying in large quantities • Control many access points to the final customer; • Only few buyers exist; • Switching costs to other supplier are low; • There are many substitutes; • Buyers are price sensitive.

22. Threat of substitutesThis force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.

23. Rivalry among existing competitors. • Competitive rivals are organisations with similar products and services aimed at the same customer group = direct competitors. In competitive industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry among competitors is intense when: • There are many competitors; • Exit barriers are high; • Industry of growth is slow ; • Products are not unique and can be easily substituted; • Competitors are of equal size; • There is high fixed cost