External situational analysis

Along with internal situation, a company needs to have enough information related to external environment to make a marketing plan more realistic. In this thesis, the analysis of external factors is based on two widely used concepts called Porter’s five force factors – for external micro-environmental analysis; and PESTLE analysis – for external macro-environmental analysis.

Porter’s five force factors

Porter’s five force factors analysis are said to be vital for creating a successful marketing plan. It helps a company to analyze the attractiveness of an industry and understand business pressure it can face within that industry as well as finding out the business domain which can have either positively or negatively significant impact on its operation. (Cadle, Paul & Turner 2010, 7.)

FIGURE 1. Porter’s five force factors. Adapted from Whalley (2010, 21)

Based on figure 1, each of five force factor in Porter’s method is analyzed in more detailed way.

- Rivalry among existing competitors: The level of competition and competitors’

actions affect the operation and success of a company. The organization needs to determine their position within the market as well as which companies hold the strongest power among various number of rivalries (Cadle et al. 2010, 7).

- Threat of new entrants: A company needs to identify potential level of new entrants into the market to decide which marketing strategies should be launched. A market is considered to have high barrier to entry when it requires new firms to invest large amount of investment and know-how (Cadle et al. 2010, 7). The higher the market barrier is, the more difficult for start-up businesses to compete with existing ones.

- Threat of substitute products or services: Substitution is defined as an action of replacing products within a market by other products belonging to another market but provide similar functionality and values (The UK chemicals stakeholder forum 2010, 3). The threat of substitute products or service tends to be high when consumer switch cost is low; and these products have cheaper price than products in the industry while their quality and performance is similar or even better (Team FME 2013, 22).

- Bargaining power of buyers: The bargaining power of buyers can have crucial impact on the profitability of a business. The company will face many problems when customers can easily switch to other products due to a variety of choices with similar quality and price in the industry as well as low switch costs. The more desirable a brand is, the less power of customers have to influence on that brand (Cadle et al. 2010, 8).

- Bargaining power of suppliers: High bargaining power of suppliers might affect a company negatively. When suppliers have strong effect on the business, they would have the ability to raise the price of their material and products regardless the volume of sales. They also can reduce the quantity of products available in the market when their bargaining power is significant. (Team FME 2013, 23.)

PESTLE analysis

PESTLE is claimed to be a common tool to identify and analyze key external factors – important factors which create opportunities and threats for the company; and affect the success of marketing plan. There are some other external areas that are added into other variations of PESTEL analysis such as ecological, ethical and educational; however, this essay only focuses on six common factors mentioned below.

- Political factor: Analyses the stability of political environment and the possibility of changes in government’s political decisions such as tax policy, economic intervention, and trading agreements (Cadle et al. 2010, 3). A country’s health and the quality of infrastructure as well as the consideration on level of educating and training company workforce are influenced by political decisions (Oxford University Press 2007, 1).

- Economical factor: Includes variety of issues such as interest rate, level of inflation, exchange rate, GDP and taxation; which decides the level of economic growth and market confidence of an economy (Keung Ho 2014, 6480; Cadle et al. 2010, 4). To illustrate, the increase in interest rate might result in the reduction of company investment due to higher costs of loaning.

- Social factor: All factors related to the culture of the society where a business operates belong to social factor. There are various factors which affects the development of a firm; including language, demographic issues, consumer behaviour, living standard, gender, the population and level of education (Keung Ho 2014, 6480).

- Technological factor: Discusses the trend and development of technology and innovations. Technological trend and development are worth analyzing because if a business recognizes the potential benefits of a new technology later than its competitors, it could lose competitive advantages over its opponents.

- Legal factor: While political factors mainly discuss attitudes and approaches of political parties, legal factors are related to governmental law and regulations. There are different types of law including consumer laws, competition laws, employment laws, and health and safety laws (Oxford University Press 2007, 2). The analysis of political and legal factor is combined together in one single part in this thesis.

- Environmental factor: A list of problems related to natural environment is included in environmental factor such as the concern of global warming, pollution and the

packaging of products (Cadle et al 2010, 5). This factor has become more and more important because the number of people concerns about environment has substantially increased recently. A company can take into consideration the use of environmental friendly products or packages to satisfy customers’ environmental concern.