environment.
it is to briefly describe each of the components and show how exter-
nal factors affect marketing strategy.
Suprises
Carol Wolfe and Jane Barnes have been friends for six years, sharing carpool responsibilities,
a common love
sewing, and a belief that being self-employed would be a dream come true.
After two years of tinkering,
produced a child carrier
they felt would appeal to devoted
moms who wanted their baby to be physically attached to the parent in a secure and comfort-
able manner. They knew they would need lots of help getting this business off the ground, but
never realized how difficult and complicated it would be to obtain such assistance.
They contacted the chairman of the marketing department at a local college and were
told they could be considered as a student
for the capstone marketing course. One
month later, they
given a preliminary report. The report began by listing the various
agencies and intermediaries they would need to contact in order to start their business. The
list included the following: personal attorney, patent attorney, accountant, commercial banker,
raw materials providers (e.g. , denim, thread, staples), distributors (wholesalers and retail-
ers), advertising agency, marketing research firm, and fulfillment house. Further, they would
have to understand the capabilities, options, and costs associated with each agency/intermediary.
Since they lived in a relatively small city (population 185,000), many of these agen-
cieslintermediaries were
readily available. A local attorney put them in touch with a
patent attorney and a marketing research company in a nearby large city. The estimated cost
of doing the patent search was
while the cost of preliminary research was $9,300.
Their combined savings totalled $18,000. Clearly, they were
A quick call to
the local bank produced another list of requirements they would have to meet in order to
qualify for a business loa n, including a business plan, a pro forma statement, and so forth.
The initial business plan developed by the student group indicated that there were
several competitors selling a product very similar to Carol and Jane 's baby carrier. Also,
the sources for denim were limited and required a minimum purchase of 500 bolts of fab-
ric. Finally, because most retailers selling similar products were already committed to other
manufacturers , it was unJikely that they
find retail distri butors. The expected cost of
manufacturing and marketing 30,000 units the first year was $1.4
with a maximum
possible profit of $146,000. Carol and Jane gave up on their idea.
While this scenario is quite depressing, it is not that unusual. It is critical that a busi-
ness identify and evaluate the various agencies and intermediaries that it must deal with.
Throughout this book, we will constantly identify these external agencies and attempt to
assess their influence on a marketing organization.
Competitors
As with other external forces , management must also prioritize the importance of the fac-
tors that affect competition. The reiationships between these elements and competition must
be understood if the organization is
be able to develop and sustain a competitive advantage.
Competitive analysis focuses on opportunities and threats that may occur because of actual or potential competitive changes in strategy. It starts with identifying current and potential competitors. For example, who are General Motors
If you named companies like To-
yota, Ford,
and Honda, you are right, but you've just begun. Table 5.1 outlines some
of General Motors' competitors and Table 5.2 does the same with Nintendo's competitors.
It is essential that the marketer begin this assessment by answering the following ques-
tion: "What criteria can be used to identify a salient set of competitors?"
EXTERNAL FACTORS THAT AFFECT PLANNING
105
TABLE 5.1
Analysis of General Motors' Competitors
After-Market
Autos
Other
Repairs
Parts
Toyota
Schwinn
Auto dealers
Pep-Boys
Ford
Delta Airlines
Sears
NAPA
Chrysler
American Airlines
K-Mart
Honda
Honda motorcycles
Local repair shops
Audi
transit
TABLE 5.2
Analysis of Nintendo's Competitors
Video Games
Game Suppliers
Game Providers
In-Home
Out-of-Home
Hobbies
Sega
TheTilt
Family time
PI itt Theaters
Hunting, fishing,
Atari
Video game parlor
Parker Brothers
The New York Mets
golf, Little League,
Genesis
Mazzio's
Blockbuster Video
Six Flags
baseball, Girl Scouts
It is clear fram these two examples
an accurate accounting of competitors is much
broader than the obvious. If we define our competitors too narrowly, we risk the chance
that an unidentified competitor will take market share away from us without
knowl-
edge. For example, General Motors obviously competes against Ford, Chrysler, Toyota, and
other auto manufacturers. But they also compete against Sears in the repair market, the sub-
way in large cities, the airlines, and
among people for whom bicycle riding is
popular. Nintendo competes against Sega in the video game market. But they also compete
against Blockbuster Video, the local gym, board games, the theater, and rock concerts. Com-
petition focuses on the wants and needs being satisfied, not the product being produced.
General Motors, then, is competing to satisfy your need for transportation. Nintendo is com-
peting to satisfy your need for entertainment.
In addition to identifying a competitor from the perspective of the customer,
criteria might be the geographic location of competitors, relative size, history, channels of
distribution, and common tactics .
A second question to consider
the following: "What criteria do we need
use to
make sure
competitors are 'colTectly' identified?" One way of answering this ques-
tion is to track the customer's perceptions of product groupings and substitution. Do they
change over time? Likewise, tracking expected competitors over time may prove insightful.
Once competitors are cOlTectly identified, it is helpful to assess them relative to fac-
tors that drive competition: entry, barg2ining power of buyers and suppliers, existing rival-
ries, and substitution possibilities. These factors relale to a firm's marketing mix decisions
and may be used to create a barrier to entry, increase brand awareness, or intensify a fight
for market share.
Barriers to entry represent business practices or conditions that make it difficult for new or existing firms to enter the market. Cur entrepreneurs Carol and Jane
several
barriers to entry. Typically, barriers to entry can be in
form of capital requirements,
advertising expenditures, product identity, distribution access, or switching costs. Japan has
been accused of having unofficial cultural-based
to the Japanese market.
106