LESSON 2: THE ENVIRONMENT AND IT’S OPPORTUNITIES

A. ANALYZING THE ENVIRONMENT

The internal environment refers to the business itself: what

are you selling, and how your organization is set up, what
your organization’s strengths and weaknesses are, what your
resources happen to be, what your company’s core values
and mission are and essentially anything about your
company that matters.

The competitive environment on the other hand, refers to the immediate industry in which your company is
doing business. If you are running a bank, for instance, then your competitive environment may consists of all
the competing bank branches in your territory and possibly even substitutes such as pawnshops and even
sketchy loans sharks who lend money to small entrepreneurs in your area.
Here is checklist of what to look out for in your competitive environment:
 Competitors. Who they are and what their respective strength and weaknesses may be.
 Competing products and services. What these are, what their target market is, and what their
respective strengths and weaknesses are.
 Substitutes. What alternative products or services your markets might be considering rather than your
core product.
It should be noted that while competitors tend to get the bulk of our attention. History shows that it is often the
substitutes that end up doing the most damage in an industry. Here are some examples:
 It was not competition that decimated the newspaper publishing business but the Internet which became
a preferred source for getting information.
 It was not competition that brought down the
demand for beer but rather the mass market’s
shift toward cheaper and hard liquors such as gin
and whisky.
 The local music publishing industry was ravaged
by the shift toward digital formats such as MP3s
and followed by music streaming services.
Michael Porter’s classic 5 Forces Model (Porter 1979) is
a popular used framework for understanding the
competitive structure of an industry.
The risk faced by a firm due to its competitors is the most
obvious form of operational risk. Competitors can spend
sums of money to steal market share from the firm or even alter
the market’s perceptions about the firm’s products.
The firm also faces risks from new entrants possibly joining the industry, especially if the industry offers
attractive growth prospects.
A firm also faces risks due to substitutes that threaten to steal the market share from its industry.
The firm’s own suppliers can pose a threat as well if the firm is too dependent on these suppliers and the
suppliers know it. The suppliers can decide to increase their prices or to even become potential entrants to the
industry as well.
If the firm is too dependent on its buyers, the buyers may sense this. They might band together and threaten the
firm through additional demands. Buyers may also become potential entrants into the industry if they feel that
entering the industry is a simple matter after all.
The internal and the competitive environment form what is often referred to as the micro environment of a
business but looming even larger would be the macro environment, which is composed of environmental
variables that are typically beyond the control of any organization.

B. MARKET RESEARCH METHODS

The Market Information System (MIS) is the people, equipment, and procedures used to gather, sort,
analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision-makers.
The components of a market information system are:
 Internal Records. This refers to documents in the company's Order to-Payments cycle, such as
invoices, shipping orders, etc. It also avails documents and resources that comprise the sales information
 system, such as sales forecasts, information from sales personnel, and information culled from
automated sales system.

Many businesses are sitting on gold mines of information without even knowing it. Client records, for
instance, may contain purchase histories that, if properly analyzed, can produce patterns which can be useful for
determining seasonality in buying behavior. In fact, a lot of customer insights can be generated by analyzing
customer records in bulk using computer programs to extract these patterns.
 Marketing Intelligence. The set of procedures and sources used by managers to obtain everyday
information about developments in the marketing environment. This includes newspapers,
intermediaries, social networks, trade conferences, suppliers, ad agencies, the reverse engineering of
competitor products, published reports, purchased information, etc.
In layman's terms, intelligence is gathered by simply "putting yourself out there. “Having a network of
people and sources of information in the right places, in general, is the easiest way to get potentially useful
knowledge. Being part of the right social network of friends or groups on Facebook, for instance, can lead to
getting a potential useful insider tips faster than your competitors can. Encouraging also your sales team to do
small talk with clients is often a quick way to gather insights about what their future needs are. More extreme
cases of intelligence involve going through a competitor's garbage to piece together a picture of what they are
working on (because once the garbage is outside their premises, it is no longer considered as private property)
or pirating employees from one's competitor in order to have a direct access to a first-hand knowledge of how
they work.
 Market Research. The systematic design, collection, analysis, and reporting of data and findings
relevant to a specific marketing situation facing the company. This includes taking surveys or
conducting exploratory studies of a market.

Market research is scientific in nature, utilizing the scientific method in order to gain insights on how to
solve real world problems. In this case, problems usually involve resolving questions about how to best provide
value to customers or about understanding how consumers behave
Research Process
The processes involved in conducting market research can be outlined as follow:
 Define the Problem and Research Objectives. The problem should not be denned too broadly nor too
narrowly. In fact, great care should be taken when defining the problem as this will determine the very
nature and direction of the research.

o Data Sources. Secondary data involves the gathering of prior and related research works
since it is possible that other parties have already developed useful findings on the matter
being studied. Primary data involves actually undertaking the research itself in order to
get first-hand knowledge on the matter.
o Research Approaches. Research can be conducted through observation, focus groups,
survey research, behavioral data, and experimental research.
o Research Instruments. These include questionnaires or mechanical instruments such as
video recorders.
o Sampling Plan. This addresses (1) sampling unit (Who is to be surveyed?), (2) sampling
size (How many people should be Surveyed?), and (3) sampling procedure (How should
they be chosen?).
o Contact Methods. Contact with the survey sample could be done via personal or
impersonal means. Methods include the use of mail of questionnaires, telephone surveys,
personal interviews, or the internet

 Collect the information. This involves the actual gathering of the data. For surveys, for instance, this
would involve mobilizing a suitable number of field workers who will then find respondents according
to the sampling plan. For a research that involves the conduct of interviews, field workers will have to
be trained first in order to be responsive enough to properly interact with respondents.
 Analyze the data. Once all the data has come in (whether in the form of surveys, interviews, group
discussions, or through electronic means such as online ballots), the next step involves the actual
processing of the data. Quantitative data can be processed through software such as statistical packages,
while qualitative data (such as interviews) can be processed through data reduction or summarization
techniques.
 Present the findings. Once processed, the data can now become useful information. However, its
usefulness will still be a function of how well it is presented. Quantitative information, for instance, may
best be digested in the form of graphs and charts so that trends can be more easily seen. Qualitative data,
on the other hand, may best be presented in the form of clear examples and case studies.
Research Methods
 Observation is best to use when trying to answer questions involving how a market behaves.
Thus, observation works for situations such as the following:
 identifying which section of a supermarket a shopper typically visits first;
 finding out how much toothpaste a consumer applies to his toothbrush per use; and
 determining how long a type of customer typically stays in a quick-service food outlet.
When questions are pertaining to how consumers actually behave, direct observation can offer deeper
insights about finer behavioral details that the consumers themselves may not be aware of or may not be able to
properly elucidate if they were being subjected to more popular research methods such as in-depth interviews or
surveys.
 Survey research is best to use when trying to determine a market's opinions, perceptions, and
basic demographic data. Surveys are best for situations such as the following:
 identifying discrete factual data such as the person's age, gender, level of education, place of residence,
occupation, hobbies, etc.;
 knowing a person's opinions about a particular product; and
 determining a person's likes and dislikes.
Note that while it is also possible to use a survey to ask questions such as "Which section of a supermarket
do you visit first?"; "How much toothpaste do you apply per use?"; or "How long do you typically stay in a fast
food outlet?" consumers themselves may not really know the actual answers to these questions and may Simply
resort to guessing. Therefore, the proof is in their actual behavior. In other words, observation is still best for
these types of issues.
 Focus groups are useful for gathering strong opinions and beliefs from a given target market.
Focus groups are actually a subset of survey research except that, unlike surveys which tend to
be composed of individual opinions, focus groups are composed of a set of people (belonging to
the same target market) who are placed together in a closed, controlled environment to discuss a
product or issue with a moderator. The idea here is that by getting the group to discuss and
critique their own opinions, the resulting answers to questions would more reliably reflect their
reality as compared to answers obtained via surveys or interviews.
The downside, however, is that focus groups tend to reinforce any commonalities in the group's opinions,
leading to "sensationalized" findings. Moderators of focus groups should therefore be skilled in analyzing the
entire process in order to weed out questionable findings and extract information properly. To this extent, a key
critique about focus group studies is that its output and quality is too dependent on the skills of the moderator.
 Experimental research is a means of answering a hypothesis through the use of an experiment.
While the bulk of Philippine market research efforts typically gravitates toward the use of
surveys and field interviews, experiments are an under-appreciated method for validating issues
of causality.

 Bias- An important issue to address in market research is the matter of bias. Bias is the tendency
of data to skew toward a particular direction. It is normal for any research to have a certain
amount of bias, but it is the job of researchers to minimize bias to the best of their abilities.
Bias is normal for researches because, by definition, a sample is a small portion of a population that tries to
explain the entire population but this sample may not perfectly represent the population. Aside from this, the
process of research itself can introduce biases as well.
Example
A survey is conducted and the question is "Do you actually think that Brand X is better than Brand Y?" In such
a question, the word actually becomes a "loaded" word that may bias or influence respondents toward saying
"No" due to its subtle intimidation.
 Phone or online interviews. Respondents may not take these interviews too seriously because of the lack
of actual contact.
 Mail or email surveys. Only a particular kind of respondent may be motivated to actually mail the
surveys back.
Questions regarding income. Respondents may either not actually know what their incomes are or post a
different figure due to fear or divulging such a personal bit of information

C. DEMAND FORECASTING

The Market

The market for a product can be categorized as follows:

 Potential market. These are those who express some level of interest in a product. For example, this
can be determined from a survey where, for instance, 30 percent of respondents say they are interested
 in your product. Extrapolating forward, you may conclude that 30 percent of the population is a potential
market.
 Available market. Just because someone is interested does not mean that the person will actually buy or
can even afford to. So the available market is the subset of the potential market that has interest, income,
and access to the product.
 Qualified available market. This is a further refinement of the available market since it may be
possible that those who have interest, income, and access, nevertheless cannot get the product due to
technical issues such as laws (e.g., minimum age requirements for liquor) or distribution constraints
(e.g., remoteness of their location).
 Served market. Also known as the serviceable available market. This is the market that the company
can actually service with its current state of logistics.
 Penetrated market. This is the subset of the market that is already actively using the product.

The market demand for a product or service, on the other hand, is the total volume of the sales that is
generated by a defined customer group in a defined geographical area, time period, and marketing environment
under a defined marketing program. It is a factual number, meaning that market demand by definition is
something that has already happened.
Forecasting Demand for an Existing Product
If the firm already has an existing product in the market, then estimating what the future demand for the product
would be will be a matter of assessing the following:
 Listening to what people say. This includes sales force opinions, expert opinion, and buyers' opinions.
 Assessing what people have done. This generally involves the statistical analysis of past-sales data or
related data.

 Sales force opinion generally involves getting a composite of what each sales person, sales team, or
sales unit estimates to be its possible sales volume the upcoming period based on past history. For this to
work, the company sales force should be relatively attuned to their respective clients' needs. If not, then
opinions will be driven more by blind guesswork than by educated indicators
 Expert opinions regarding the potential market size and the acceptability of the proposed product can
be taken from industry watchers or people with experience in the industry. This can include technical
resource people from the Department of Trade and Industry, industry veterans, observers, and insiders

Time series analysis uses data from previous periods to forecast the following period's sales. The simplest
example of this is the use of a status quo assumption: if sales last year were 1,000 units, then expected sales this
year could also be 1,000. More likely, however, some form of trending analysis would be factored in: if data
shows an average growth rate of 5 percent per annum over the past three years, then the forecast would be last
year's sales multiplied by a factor of 1.05. More statistically-based analyses can be performed using statistical
software packages.
Regression analysis is a more sophisticated statistical method for predicting an outcome based on multiple
possible factors. A regression model works by using statistical models to determine the correlation between a
hypothetical cause and the effect (in this case, level of sales), again based on historical data. If factor is deemed
to have a strong correlation with the effect, then a regression model-a formula can be constructed that hopes to
determine sales based on highly correlated factors. Factors could include economic indicators such as gross
domestic product, the performance of related industries, and leading indicators (economic indicators that tend to
precede or affect performance in the target industry).