PACE ACADEMY

G12 ABM – Principles of Marketing

Handouts 1.3
Lesson 3: Market Opportunity Analysis and Consumer Analysis

OBJECTIVES:
1. Explain the concept of strategic marketing and tactical marketing
2. Discuss the different environmental tools for macro and micro marketing environments.
3. Explain the concepts and processes of market research.
4. Discuss the consumer decision process, the influences and processes in the buying behavior.

STRATEGIC MARKETING AND TACTICAL MARKETING

Marketing strategy is commonly referred to as a core strategy. It is composed of market segmentation,
targeting, and brand positioning collectively known as STP. Marketing tactics, on the other hand, are more
popularly known as the 4Ps of marketing composed of product, place, price, and promotion. They are put
together to influence consumers to buy company’s brand.

Strategic marketing
Strategic planning is the process of developing and maintaining a strategic fit between the organization’s
goals and capabilities and its changing marketing opportunities. It is the base for the long-term planning of
the firm. At a corporate level, the firm starts defining the company’s mission. A mission statement is a
statement of the organization’s purpose. The mission leads to a hierarchy of goals. This process involves the
following:

1. Market segmentation: dividing a market into distinct groups of buyers who have different, needs,
characteristics or behavior and who might require separate products or marketing programs.
A market segment is a group of consumers who respond in a similar way to a given set of marketing
efforts.
2. Market targeting is the process of evaluating each market segment’s attractiveness and selecting
one or more segments to enter.
3. Market positioning is arranging for a product to occupy a clear, distinctive and desirable place
relative to competing products in the minds of consumers.

The marketing mix is the set of tactical marketing tools: product, price, place and promotion that the firm
blends to produce the response it wants in the target market. Product refers to the combination of goods
and service the firm offers. Price is the amount the customer pays to obtain the product. Place refers to the
availability of the product. Promotion relates to the activities that communicate the benefits of the
product.

Based on this, the management must plan the business portfolio: the collection of businesses and products
that make up the company. Portfolio analysis is the process by which management evaluates the
products and businesses that make up the company. The first step is identifying the strategic business units
(SBU) that are vital to the company. The well-known model of the Boston Consulting Group (BCG) sorts the
SBUs into a growth-share matrix.

The Boston Consulting Group Matrix (BCG model)

Boston Consulting Group (BCG) Matrix is a four-celled matrix developed by BCG, USA. It is the most
renowned corporate portfolio analysis tool. It provides a graphic representation for an organization to
examine different businesses in its portfolio on the basis of their related market share and industry growth

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rates. It is a two-dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it is
a comparative analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their industry growth rate
and relative market share.

Relative Market Share = SBU Sales this year/leading competitors sales this year x100.

Market Growth Rate = Industry sales this year - Industry Sales last year/ Industry Sales last year x 100.

The analysis requires that both measures be calculated for each SBU. The dimension of business strength,
relative market share, will measure comparative advantage indicated by market dominance. The key
theory underlying this is existence of an experience curve and that market share is achieved due to overall
cost leadership. BCG matrix has four cells, with the horizontal axis representing relative market share and
the vertical axis denoting market growth rate. The mid-point of relative market share is set at 1.0. if all the
SBU’s are in same industry, the average growth rate of the industry is used. While, if all the SBU’s are located
in different industries, then the mid-point is set at the growth rate for the economy.

Resources are allocated to the business units according to their situation on the grid. The four cells of this
matrix have been called as stars, cash cows, question marks and dogs. Each of these cells represents a
particular type of business.

Representations:
Stars represent business units having large market share in a fast-growing industry. They may generate cash
but because of fast growing market, stars require huge investments to maintain their lead. Net cash flow is
usually modest. SBU’s located in this cell are attractive as they are located in a robust industry and these

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business units are highly competitive in the industry. If successful, a star will become a cash cow when the
industry matures.
Cash Cows represent business units having a large market share in a mature, slow growing industry. Cash
cows require little investment and generate cash that can be utilized for investment in other business units.
These SBU’s are the corporation’s key source of cash, and are specifically the core business. They are the
bases of an organization. These businesses usually follow stability strategies. When cash cows lose their
appeal and move towards deterioration, then a retrenchment policy may be pursued.

Question marks represent business units having low relative market share and located in a high growth
industry. They require huge amount of cash to maintain or gain market share. They require attention to
determine if the venture can be viable. Question marks are generally new goods and services, which have
a good commercial prospective. There is no specific strategy, which can be adopted. If the firm thinks it
has dominant market share, then it can adopt expansion strategy, else retrenchment strategy can be
adopted. Most businesses start as question marks as the company tries to enter a high growth market in
which there is already a market-share. If ignored, then question marks may become dogs, while if huge
investment is made, then they have potential of becoming stars.

Dogs represent businesses having weak market shares in low-growth markets. They neither generate cash
nor require huge amount of cash. Due to low market share, these business units face cost disadvantages.
Generally, retrenchment strategies are adopted because these firms can gain market share only at the
expense of competitor’s/rival firms. These business firms have weak market share because of high costs,
poor quality, ineffective marketing, etc. Unless a dog has some other strategic aim, it should be liquidated if
there are fewer prospects for it to gain market share. Number of dogs should be avoided and minimized in
an organization.

Limitations of BCG Matrix

The BCG Matrix produces a framework for allocating resources among different business units and makes it
possible to compare many business units at a glance. But BCG Matrix is not free from limitations, such as:
1) BCG matrix classifies businesses as low and high, but generally businesses can be medium also. Thus,
the true nature of business may not be reflected.
2) Market is not clearly defined in this model.
3) High market share does not always leads to high profits. There are high costs also involved with high
market share.
4) Growth rate and relative market share are not the only indicators of profitability. This model ignores
and overlooks other indicators of profitability.
5) At times, dogs may help other businesses in gaining competitive advantage. They can earn even
more than cash cows sometimes.
6) This four-celled approach is considered as to be too simplistic.

After the units are classified, the company should determine in which units to build share, hold share,
harvest the profits or divest the SBU.

Designing the business portfolio also means looking at future businesses. The product/market expansion
grid is a portfolio-planning tool for identifying company growth opportunities through:

a. Market penetration: company growth by increasing sales of current products to current market
segments without changing the product.
b. Market development: company growth by identifying and developing new market segments for
current company products.

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 c. Product development: company growth by offering modified or new products to current market
segments.
d. Diversification: company growth through starting up or acquiring businesses outside the company’s
current products and markets.

Companies also need strategies for downsizing, which means reducing the business portfolio by eliminating
products or business units that are not profitable or that no longer fit the company’s overall strategy.

The Marketing Environment

The marketing environment consists of the actors and forces outside marketing that affect marketing
management’s ability to build and maintain successful relationships with target customers. It consists both
of the micro and macro environments.

Macro-environment analysis tool 1:PESTEL Trends

PESTEL Analysis

A PESTEL analysis or PESTLE analysis (formerly known as PEST analysis) is a framework or tool used to analyze
and monitor the macro-environmental factors that may have a profound impact on an organization’s
performance. This tool is especially useful when starting a new business or entering a foreign market. It is
often used in collaboration with other analytical business tools such as the SWOT analysis and Porter’s Five
Forces to give a clear understanding of a situation and related internal and external factors. PESTEL is an
acronym that stands for Political, Economic, Social, Technological, Environmental and Legal factors.

Political Factors:
These factors are all about how and to what degree a government intervenes in the economy or a certain
industry. Basically, all the influences that a government has on your business could be classified here. This
can include government policy, political stability or instability, corruption, foreign trade policy, tax policy,
labor law, environmental law and trade restrictions. Furthermore, the government may have a profound
impact on a nation’s education system, infrastructure and health regulations.

Economic Factors:
Economic factors are determinants of a certain economy’s performance. Factors include economic
growth, exchange rates, inflation rates, interest rates, disposable income of consumers and unemployment
rates. These factors may have a direct or indirect long-term impact on a company, since it affects the

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purchasing power of consumers and could possibly change demand/supply models in the economy.
Consequently, it also affects the way companies’ price their products and services.

Social Factors:
This dimension of the general environment represents the demographic characteristics, norms, customs
and values of the population within which the organization operates. This includes population trends such
as the population growth rate, age distribution, income distribution, career attitudes, safety emphasis,
health consciousness, lifestyle attitudes and cultural barriers. These factors are especially important for
marketers when targeting certain customers. In addition, it also says something about the local workforce
and its willingness to work under certain conditions.

Technological Factors:
These factors pertain to innovations in technology that may affect the operations of the industry and the
market favorably or unfavorably. This refers to technology incentives, the level of innovation, automation,
research and development (R&D) activity, technological change and the amount of technological
awareness that a market possesses. These factors may influence decisions to enter or not enter certain
industries, to launch or not launch certain products or to outsource production activities abroad.

Environmental Factors:
They have become important due to the increasing scarcity of raw materials, pollution targets and carbon
footprint targets set by governments. These factors include ecological and environmental aspects such as
weather, climate, environmental offsets and climate change which may especially affect industries such as
tourism, farming, agriculture and insurance. Furthermore, growing awareness of the potential impacts of
climate change is affecting how companies operate and the products they offer. This has led to many
companies getting more and more involved in practices such as corporate social responsibility (CSR) and
sustainability.

Legal Factors:
Although these factors may have some overlap with the political factors, they include more specific laws
such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and
patent laws, and health and safety laws. It is clear that companies need to know what is and what is not
legal in order to trade successfully and ethically. If an organization trades globally this becomes especially
tricky since each country has its own set of rules and regulations.

Macro-environment analysis tool 2: Industry Analysis

Porter’s Five Forces of Competitive Position Analysis

Porter's Five Forces of Competitive Position Analysis was developed in 1979 by Michael E. Porter of Harvard
Business School as a simple framework for assessing and evaluating the competitive strength and position
of a business organization. This theory is based on the concept that there are five forces that determine the
competitive intensity and attractiveness of a market. Porter’s five forces help to identify where power lies in
a business situation. This is useful both in understanding the strength of an organization’s current
competitive position, and the strength of a position that an organization may look to move into.

Strategic analysts often use Porter’s five forces to understand whether new products or services are
potentially profitable. By understanding where power lies, the theory can also be used to identify areas of
strength, to improve weaknesses and to avoid mistakes.

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The five forces are:
1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the:
number of suppliers of each essential input; uniqueness of their product or service; relative size and
strength of the supplier; and cost of switching from one supplier to another.
2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the:
number of buyers in the market; importance of each individual buyer to the organization; and cost to
the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they
are often able to dictate terms.
3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many
competitors, offering undifferentiated products and services, will reduce market attractiveness.
4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of
customers switching to alternatives in response to price increases. This reduces both the power of
suppliers and the attractiveness of the market.
5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless
incumbents have strong and durable barriers to entry, for example, patents, economies of scale,
capital requirements or government policies, then profitability will decline to a competitive rate.
Arguably, regulation, taxation and trade policies make government a sixth force for many industries.

Macro-environment analysis tool 3: Key Factors for Success and SWOT

SWOT Analysis

Strategic Inputs
So, what are the inputs into strategizing? At the most basic level, you will need to gather information and
conduct analysis about the internal characteristics of the organization and the external market conditions.
This means an internal appraisal and an external appraisal. On the internal side, you will want to gain a
sense of the organization’s strengths and weaknesses; on the external side, you will want to develop some

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sense of the organization’s opportunities and threats. Together, these four inputs into strategizing are often
called SWOT analysis, which stands for strengths, weaknesses, opportunities, and threats.

It does not matter if you start this appraisal process internally or externally, but you will quickly see that the
two need to mesh eventually. At the very least, the strategy should leverage strengths to take advantage
of opportunities and mitigate threats, while the downside consequences of weaknesses are minimized or
managed.

Ken Andrews developed SWOT in the early 1970s. An assessment of strengths and weaknesses occurs as a
part of organizational analysis; that is, it is an audit of the company’s internal workings, which are relatively
easier to control than outside factors. Conversely, examining opportunities and threats is a part of
environmental analysis—the company must look outside of the organization to determine opportunities
and threats, over which it has lesser control.

Strengths and Weaknesses

A good starting point for strategizing is an assessment of what an organization does well and what it does
less well. In general, good strategies take advantage of strengths and minimize the disadvantages posed
by any weaknesses. Michael Jordan, for instance, is an excellent all-around athlete; he excels in baseball
and golf, but his athletic skills show best in basketball. As with Jordan, when you can identify certain
strengths that set an organization well apart from actual and potential competitors, that strength is
considered a source of competitive advantage. The hardest thing for an organization to do is to develop
its competitive advantage into a sustainable competitive advantage where the organization’s strengths
cannot be easily duplicated or imitated by other firms, nor made redundant or less valuable by changes in
the external environment.

Opportunities and Threats

On the basis of what you just learned about competitive advantage and sustainable competitive
advantage, you can see why some understanding of the external environment is a critical input into
strategy. Opportunities assess the external attractive factors that represent the reason for a business to exist
and prosper. These are external to the business. What opportunities exist in its market, or in the environment,
from which managers might hope the organization will benefit.Threats include factors beyond your control
that could place the strategy, or the business, at risk. These are also external, managers typically have no
control over them, but may benefit by having contingency plans to address them if they should occur.

Microenvironment analysis
The microenvironment consists of the actors close to the company that affect its ability to serve its
customers, such as: the companyitself and its subdivisions and suppliers that provide the resources the firm
needs to produce its products.Other factors are competitors that operate in the same markets as the firm

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and the public: any group that has an actual or potential interest in or impact on an organization’s ability
to achieve its objectives. These can be financial publics, media publics, government publics, local publics,
general public and internal publics.Finally, customers are the most important actors.
Consumers markets consist of individuals that buy goods for personal consumption. Business markets buy
goods for usage in production processes, while reseller markets buy to resell at a
profit. Government markets consist of buyers who use the product for public service,
and international markets consist of all these types of markets across the border.

The strategic 3 C’s of Marketing is a strategic triangle when integrated; a sustainable competitive
advantage can be achieved. Customers have different wants and needs. The company finds out these
wants and offer products and services. To fulfill customer wants and needs, the company offers low cost
and differentiated products from its competitors. Similarly, competitors also try to offer a differentiated
product to have a competitive advantage.

The idea is that at the intersection of a company’s strengths, a customer group’s needs and the
competitors’ offerings lay the opportunity.

Think of this example:

§ If your company is fantastic at building custom software for insurance brokers, and there is a large
group of insurance brokers who need software to help them be more successful, and there are no
other companies building software for insurance brokers, then, you have a great strategy.

Customer Insights
Marketing relies on good customer information. Customer insights are fresh understanding of customers and
the marketplace derived from marketing information that become the basis for creating customer value
and relationships. To gain this information, companies must design marketing information systems (MIS),
which are people and procedures for assessing information needs, developing the needed information
and helping decision makers to use the information to generate and validate actionable customer and
market insights. An MIS helps to assess information needs, develop needed information and analyze the
right information to form customer insights.

Internal databases are electronic collections of consumer and market information obtained from data
sources within the company network. Internal data can be a strong base for a competitive advantage,
because of the potential of this information. Competitive marketing intelligence is the systematic collection
and analysis of publicly available information about consumers, competitors and developments in the

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marketing environment. Good marketing intelligence helps gain insights in how consumers think of and
connect with the brand.

Marketing Research
Marketing research is the systematic design, collection, analysis and reporting of data relevant to a specific
marketing situation facing an organization. The process of marketing research has four steps:

1. Defining the problem and research objectives. The objective of exploratory research is to
gather preliminary information that will help define problems and suggest hypotheses.
The objective of descriptive research is to better describe marketing problems, situations
or markets. Causal research aims to test hypotheses about cause-and-effect
relationships.
2. Developing the research plan on how the information will be gathered.

Primary data is information collected for the specific purpose at hand. It can be collected
via observational research, which gathers primary data by observing relevant people, actions and
situations. Ethnographic research is a form of observational research that involves sending trained observers
to watch and interact with consumers in their “natural environments”. Primary data can also be collected
via survey research, which gathers information by asking people questions about their knowledge,
attitudes, preferences and buying behavior. Experimental research gathers primary data by selecting
matched groups of subjects, giving them different treatments, controlling related factors and checking for
differences in-group responses.

Secondary data is information that already exists somewhere, having been collected for another purpose.
Using commercial online databases, which are collections of information available from online commercial
sources or accessible via the Internet, can access secondary data. Internet search engines can be used to
locate secondary data, but the research must verify that the found information is relevant, accurate,
current and impartial.

Information can be collected via mail, telephone, and personal interviews or online. Mail questionnaires
can be quite massive, while telephone information is also quickly gathered. Personal interviewing can be
individual or group interviews. Online marketing research collects primary data online through Internet
surveys, online focus groups, web-based experiments or tracking consumer’s behavior online. Online focus
groups gather a small group of people online with a trained moderator to chat about a product, service or
organization and gain qualitative insights about consumer attitudes and behavior.

It is often impossible to collect information from the entire population, so marketers often base conclusions
on samples. A sample is a segment of the population selected for marketing research to represent the
population as a whole. Three decisions regarding the sample need to be made: the sampling unit (who),
sampling size (how many) and sampling procedure (how should they be chosen). There are probability
samples, in which each member of the population has an equal chance of being included, such as simple
random samples, stratified random samples and cluster samples. But there are also non-probability
samples, such as convenience samples, judgment samples and quota sample categories.

When collecting primary data, there are two research instruments: the questionnaire and mechanical
devices. The questionnaire can be via email, phone or online and are flexible. Mechanical instruments can
help monitor consumer behavior.

3. Implementing the research plan means putting it into action. This means collecting,
processing and analyzing the information.

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 4. Interpreting and reporting the findings. The interpretation should not only be done by the
researchers, but also by the marketing managers who know about the problem and the
decisions that need to be made.

Consumer Buyer Behavior

Consumer buyer behavior is the buying behavior of final consumers: individuals and households that buy
goods and services for personal consumption. All these consumers add up to the consumer market: all the
households and individual that buy or acquire goods and services for personal consumption. Consumers
make buying decisions every day, but it can be difficult to determine why they make certain decisions.
Consumer purchases are influenced by different characteristics.

Cultural factors
Cultural factors have an influence on consumer behavior. Culture is the set of basic values, perceptions,
wants and behaviors learned by a member of society from family and other important institutions.
A subculture is a group of people with shared value systems based on common life experiences and
situations. They are distinct, but not necessarily mutually exclusive. Social classes are relatively permanent
and ordered divisions in a society whose members share similar values, interests and behaviors.

Social factors
Another influence is social factors. Groups are two or more people who interact to accomplish individual or
mutual goals. Many small groups influence a person’s behavior. Membership groups are groups in which a
person belongs, while reference groups serve as direct points of comparison.

Word-of-mouth influence of friends and other consumers can have a strong influence on buying behavior.
An opinion leader is a person within a reference group who, because of skills, knowledge, personality or
other characteristics, exerts social influence on others. Marketers try to identify the opinion leader and aim
their marketing efforts towards this person. Buzz marketing involves creating opinion leaders to serve as
brand ambassadors. Online social networks are online communities, such as blogs, social networking sites
or even virtual worlds, where people socialize or exchange information and opinions.

Family can have a strong influence on buying behavior as well. Buying role patterns in families change with
evolving consumer lifestyles. A person belongs to many groups beside the family, also clubs, organization
and online communities. The position of a person in a group is defined in terms of role and status.
A role consists of the expected actions of a person. People usually choose products appropriate to their
role and status.

Personal factors
Personal characteristics also have an influence on consumer buyer behavior. These characteristics can be
the person’s age and life cycle stage, the person’s occupation and economic situation, but also lifestyle
and personality. Lifestyle is a person’s pattern of living as expressed in his or her activities, interests and
opinions. Personality is the unique psychological characteristics that distinguish a person or group.

It can be said that brands also have personalities. A brand personality is the mix of human traits that may
be used to describe the brand. There are five general brand personality traits: sincerity, excitement,
competence, sophistication and ruggedness.

Psychological factors
Buying behavior is influenced by four major psychological factors: motivation, perception, learning and
beliefs and attitudes. Motive (drive) is a need that is sufficiently pressing to direct the person to seek
satisfaction of the need. Motivation research refers to qualitative research designed to find consumer’s

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hidden motivations. Maslow’s hierarchy of needs categorizes needs into a pyramid, consisting of
psychological needs, safety needs, social needs, esteem needs and self-actualization needs.

Perception is the process by which people select, organize and interpret information to form a meaningful
picture of the world. People form different perceptions of the same stimulus because of three perceptual
processes: selective attention, selective distortion and selective retention. Learning describes changes in
an individual’s behavior arising from experience. A drive is a strong stimulus that calls for action. Cues are
minor stimuli that determine how a person responds.

A belief is a descriptive thought that a person holds about something. An attitude is a person’s consistently
favorable or unfavorable evaluations, feelings and tendencies toward an object or idea. Attitudes can be
difficult to change, because they are usually part of bigger pattern.

There are different types of buying decision behavior.

1. Complex buying behavior is characterized by high consumer involvement in a purchase and significant
perceived differences among brands. The buyer will pass through a learning process, developing
beliefs and attitudes and then a purchase choice will follow.
2. Dissonance-reducing buying behavior is consumer-buyingbehaviorcharacterized by high involvement,
but few perceived differences among brands.
3. Habitual buying behavior is consumer-buyingbehavior characterized by low consumer involvement
and few significantly perceived differences. Repetition of advertisements can create brand familiarity
(but not conviction), which can lead to habitual purchases.
4. Variety-seeking buying behavior is consumer-buyingbehaviorcharacterized by low consumer
involvement, but significant perceived brand differences.

The buyer decision process has five stages.

a. Need recognition is the first stage, in which the consumer recognizes a problem or need.
b. Information search is the stage in which the consumer is aroused to search for more information, the
consumer may simply have heightened attention or may go into active information search. Information
can be obtained from personal sources, commercial sources, public sources and experiential sources.
c. Evaluation of alternatives. Alternative evaluation is the process in which the consumer uses information
to evaluate alternative brands in the choice set.
d. Purchase decision is the buyer’s decision about which brand to purchase. Both the attitude of others
and unexpected situational factors can influence the ultimate decision.
e. Post-purchase behavior is the stage of the buyer decision process in which consumers take further
action after purchase based on their satisfaction or dissatisfaction with a purchase. Cognitive
dissonance is buyer discomfort caused by post-purchase conflict.

The buyer decision process can be different for new products. A new product is a good, service or idea
that is perceived by some potential customers as new. The consumer must decide to adopt them or not.
The adoption process is the mental process through which an individual passes from first hearing about an
innovation to final adoption. There are five stages in the adoption process: awareness, interest, evaluation,
trial and adoption.

References:
•Principles of Marketing by Philip Kotler (Academia download;
•Marketing Principles and Strategies PPT (Slideshare)
•Excerpts from Principles and Practices in Marketing by Josiah Go and ChiquiEscareal-Go

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