“Digiserv” is seeking to expand its operations into the Irish satellite TV market. This task force has been created to examine the external environment using Macro and Micro analysis to determine how the factors and forces within the environment will affect the company’s aim of gaining 5% market share within 2 years.
We will consider the forces from the wider environment by creating a LoNGPEST analysis and discussing each factor that will impact the opportunity for this company to grow. We will further analyse the more immediate external environment by looking at the competition that exists within the market using the framework devised by Michael Porter that models the industry as being influenced by five forces. This will allow us to develop a greater understanding of the industry, highlight main forces and anticipate threats and opportunities, empowering the firm with the knowledge to devise a competitive business and marketing strategy.
After examining the external economic factors that may affect the company’s start up phase and potential growth, we will look at the role that marketing will play in the development of the company. In looking at this part of the company’s development, we will examine the theories of market segmentation, Target marketing and positioning. So as to show the advantages of these theories we will apply them to Digiserv’s situation and suggest strategies for gaining a market share.
1.1 (See Appendix 1)
The LoNGPEST analysis conducted, examines the main variable factors within the external environment.
The external political environment will affect expansion mainly on a national level. The global political environment is stable at present and within a two year time frame poses no threat of future instability. There are no trade agreements or alliances that would be effected by expansion.
On the other hand, there are several ways in which the national political environment will impact proposed supply. The broadcasting section of Com-Reg, is the main government body responsible for regulating the communications industry. Com-Reg develop and issue licences for TV distribution, monitor and enforce compliance with licence terms and conditions in line with the Broadcasting Act 2001 and the Wireless Telegraphy Act 1926.
A factor to be considered when applying for the license is our responsibility to complete the project within the specified time frame as set out by Com-Reg upon issuance of the licence.
We would also have to consider the necessity of long term consumer care obligations and the recurring licence fees, which are calculated at 3.5% of turnover. As turnover increases, our licence fee will increase proportionally. This will increase fixed costs as will the obligation of providing customer care.
The local authorities may determine the erection of broadcasting masts a public health and safety issue.
Application may be made to IDA for tax breaks and incentives. Upon review of this, they may provide grants or incentives where expansion could be located in a developing locality or an area where there is a high rate of unemployment.
With current GDP rates among the highest in Europe, the Irish market is a welcome place for expansion. Falling interest and inflation rates signify an increase in disposable income. Therefore, consumers have more money to spend and are more likely to purchase luxury items such as satellite TV. However, increased consumer buying power is matched by an increase in consumer awareness and cost is a major influencing factor in the consumer decision-making process. As the market is predominantly monopolised by SKY, there is definitely room for another service provider. Over half of all households in the country subscribe to Pay TV Services (56%) with 20% of those subscribing to Satellite TV. Viewers, who had previously subscribed to pay TV service listed cost, value for money and lack of necessity for no longer availing of the service. DigiServ would have to be in a position to provide products and services at a competitive price.
When examining the socio-cultural environment, many factors have to be taken into account. Population trends, location, sex, life style trends are all forces that are critical when analysing consumer decision-making.
TV viewing is a pastime heavily enjoyed by the Irish people. 75% of people spend 2 or more hours a day watching TV with almost half breaking the 3-hour mark. With the proposed smoking ban ready to come into force, the number of hours watched is almost guaranteed to rocket. People will want more choice of entertainment for their money to replace lost hours socialising in pubs.
42% of subscribers alone live in Dublin. 25% of people who no longer pay for satellite TV, do not because they moved house, stating that hassle and cost are their main reasons for not re-subscribing. DigiServ can use this to our advantage to reconnect that portion of the market to our satellite services.
There is an almost equal male to female ratio of subscribers but the 15-34 year old age group are the heaviest viewers. Sport accounts for 16% of the reasons for which they would change, one of the bigger.
If Digiserv were to attempt to gain the proposed 5% share of the market that this project hopes, all of these factors would have to be taken into consideration. Also, to reach that level of market share maintaining highly efficient customer care is a must. 50% of viewers listed breakdown, quality of picture and sound and billing issues as their main cause for complaint against their current provider. That is a potential 50% loss of business. If we were not able to meet those needs, it would pose a treat to our desired market position.
To develop our expansion, technology will require the biggest outlay of costs.
To achieve our desired results, we will have to be able to offer consumers high class, reliable technology.
SKY; have introduced the concept of SKY+, which allows viewers to create a channel tailored to their needs. To threaten their position in anyway, DigiServ would have to match this, or create a different product or service for consumers.
However, there is still a vast section of the population in the country not subscribing to such services. 60% of those are living in more rural regions where technology is not as readily available. Advanced technology is not something that these people are too concerned with and we could tailor our services to their need, decreasing the need for high spec technology.
The rapid development of the Internet age would have huge bearing on our approach to sales and development.
Call centred based customer service centres are a must, however the Internet could be a useful tool for assisting customers with technical issues.
Troubleshooting could be done online and would be a fast and cost effective way of resolving these. The helpdesk could also be contacted online. This would allow people to log problems after hours, flag in a representative’s inbox; the customer would receive a response in less than 24hours. A very simple, yet effective operation. Considering that 50% of people are unhappy with service issues, it would lessen the risk of losing those customers, while also meeting the terms of the broadcasting license as issued by Com-Reg
Continuing our analysis of the immediate external environment, we will determine the competitive rivalry that we are likely to face in the market place and thus industry attractiveness and long-run profitability. The most influential analytical model for assessing the nature of competition in an industry is Porter’s Five Forces Model, which is illustrated below:
As we are seeking to develop an edge over our market rival Sky, we can use this model to better understand the industry context in which our firm will operate.
Threat of New Entrants
It is not only the existing rival company (Sky) that poses a threat to our operation but the possibility that new firms may enter the industry also raises the level of competition. The threat of new entrants largely depends on the barriers to entry. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market.
Currently within the Satellite TV industry new entrants are a weak force as Sky dominates the market share. However if we achieve our aim of gaining 5% of the expanding market and thus increase profits, this will encourage other companies to enter the Irish market to emulate our achievement. New entrants will attempt to break into the industry with low prices, innovative products, or new features. It is easy for customers/buyers to switch from one source of supply to another; today this can be done easily via the Internet.
Despite this, there are some barriers to entry that we have had to face, which would also be applicable to any company entering the market. One of the most significant barriers to entry would be the capital requirement to set-up the necessary infrastructure; this would discourage entrance to the industry. Sky will aggressively defend their market position against competition by cutting prices; they also have their brand reputation, which a new company would have to establish. Overall, it is likely that DigiServ could face more competition in the future if we are successful in taking advantage of the expanding market in Ireland.
Threat of Substitutes
In Porter’s model, substitute products refer to products in other industries. Substitute products, a strong force, affect a product’s price elasticity, as more substitutes become available, the demand becomes more elastic since customers have more alternatives. The new technologies available and the changing structure of the entertainment media are contributing to competition among the substitute means of connecting the home to entertainment e.g. Internet, Movie Rentals etc. The threat of substitutes comes from other sources of entertainment outside of the home such as Cinema, Theatre, and live sporting events, concerts. Indirect substitution is also a factor, satellite TV would generally be considered as a luxury item. As the cost of living is constantly increasing, we are competing for a portion of consumer income.
Bargaining Power Of Suppliers
Supplier power has a moderate affect on the industry. There are currently 3 main suppliers in the market with SKY being the largest. For the consumer it means that there is less competition resulting in higher costs for goods and services. From our perspective, this is good. We will pose a threat to those firms by providing more competitive prices to the consumer. As mentioned in our PEST analysis, cost is one of the main reasons consumers tend to switch or discontinue with a service.
Determinants of Buyer Power
The larger the market, the more power that is held in the hands of consumers.
As suppliers dominate the Satellite TV market, consumers have little choice. However, by expanding into this market, we will be giving them another option to consider for this type of service. For DigiServ, this force is a strong determinant in our decision.
44% of the population do not subscribe to Satellite TV services. These consumers have made educated decisions as to why they do not.
High costs, lack of value for money and lack of necessity are the main reasons that they do not subscribe to these services. By meeting the needs of those consumers alone and gaining even 5% of that section of the market, we would be in a strong position to reach the targeted 5% of the overall market.
By offering a more varied choice of products to consumers, we would be in a stronger position to threaten market rivals, as we would pass more choice to the consumer.
‘A marketing strategy is the marketing logic by which the company hope to achieve its marketing objectives’ (Armstrong & Kotler 5th edition)
In order to successfully implement our suggested business plan, it is imperative that we have a marketing strategy in place. Our product has the potential to be very successfully and it order to support this potential we will have to use the processes of segmentation, targeting and positioning so we can clearly define what the consumers want from us, who our target market is and the type of image which we want to portray to our customers. It is our aim to gain 5% market share so we must first try depict what type of market our potential 5% market share belong to. In using the processes of segmentation, targeting and positioning we have suggested some strategies, which will help us, achieve our goal.
Segmenting the market
“Market segmentation is the process of grouping customers in markets with some heterogeneity into smaller, more similar or homogenous segments” (Dibb,Simkin,Pride,Ferrell Marketing third edition: 2002)
So as to obtain a breakdown of the different areas that DigiServ should target
when marketing its product(s), segmenting the market into the various groups is essential.
By dividing markets it allows us to develop plans that give special consideration to the particular needs and requirements of customers in different segments.
So as to maximise the benefit from this segmentation, there are three specific areas that the market for DigiServ should be examined:
2. Geographically and
Demographic segmentation divides the market into groups based on variables like age, sex, and family. These factors are very important for the target marketing process. The demographic aspect of the market can be divided up into the following areas:
a) The average age of families, i.e. those families with children living at home under the age of 18 may have a greater desire for multi-channel Digital TV.
b) Families living in Urban vs. Rural areas, i.e. families whose parents would commute from city centres, thus having to occupy children until they return home from work,
c) Males vs. Female dominated regions, i.e. males may have a higher desire for Digital TV with the availability of sports channels
d) The average size of families, i.e. larger families would desire the greater selection of channels that digital TV offers.
By understanding these factors it will help DigiServ target their efforts more effectively. In addition to this marketing campaigns and strategies can be devised by using such information, and can subsequently increase DigiServ’s value for funds spent in this area.
The needs that consumers may have in different geographic regions and locations will have substantially influenced by their local climate, terrain, natural resources and population density.
The Census and the Central Statistics Office will provide an invaluable source of information for DigiServ in assessing and targeting various regions of the country.
An example of the way that geographical information can affect the demand in various parts of the country can be seen from the survey carried out by MRBI for Comreg. In this report it was identified that on average, households in Dublin had 2.1 television sets in contrast to only 1.9 in the rest of Leinster. This would lead us to believe that the demand for digital TV would be larger in Dublin than in the rest of Leinster. Another statistic that can be seen from this report is that 42% of the respondents to the survey that subscribe to Pay TV services are located in Dublin.
As mentioned earlier, DigiServ’s aim would be to target the less developed regions of the country, however, at the same time to try and capture up to 5% of the Digital TV market in Ireland.
Groups under this segment are based on variables such as income, occupation, education and social class. This segment will greatly influence the markets that DigiServ will wish to target. One of the basic principles of economics is that income strongly influences peoples product needs and tastes. It also affects their ability to consume and their aspirations for a certain style of living.
Referring again to the MRBI survey, we can see that as they went down the Socio-Economic ladder, the number of subscribers to digital TV fell. One concrete fact that DigiServ can draw from these figures is that price will effect consumption, and as such, the marketing campaign should reflect this fact.
“Targeting is the decision about which segment a business decides to prioritise for its sales and marketing efforts”
(Dibb,Simkin,Pride,Ferrell Marketing third edition: 2002)
[Put in diagram on page 227 of Book]
So as to achieve Digiserv’s goals of capturing 5% of the Irish market for digital TV, it must create a marketing mix that will satisfy the customers in the target market place. The composition of the marketing mix is dependent on what are know as the “4 Ps”, product, price, promotion and place. I will explain the three P’s that we believe are of most importance.
Product: DigiServ will be offering the consumer a viable alternative to the SKY Digital TV package. The product will be targeted at those who are seeking a reasonable alternative to SKY and also those who, due to logistical, geographical and socio-economic reasons do not wish to subscribe to SKY.
Price: DigiServ will aim to provide a competitive, yet affordable package that will allow consumers to avail of all of the benefits that would befall them should they have subscribed to the SKY service. One other idea that DigiServ may follow is the campaign used by BT to win back customers previously lost. BT offered subscribers to other networks to reconnect to their network for a much reduced rate in addition to offering them better service and lower call rates. DigiServ might be able to convince SKY subscribers to switch to DigiServ by offering either reduced or free connections and affordable, quality packages.
Place: As DigiServ will be a new entrant into the market in Ireland, advertising and communication of ideas will be difficult. The media through which the company will need to advertise will need to be carefully selected so as to fir in with the various target segments. An example of this would be to advertise on youth radio stations such as SPIN103.8 so as to target a younger audience, or to advertise in The Irish Sun or Star to target the middle socio-economic tiers.
‘Arranging for a product to occupy a clear, distinctive and desirable place relative to competing products in the minds of target customers’ (Armstrong & Kotler)
A product can be positioned in the market using a number of strategies.
* Product Attributes-E.g.: Dunnes Stores,Better Value, Everyday
* Product Benefits-Eg. Pantene, For Shinier, healthier looking hair
* Usage Occasions-E.g.: Cadbury cream eggs at Easter
* Users-E.g.: Johnson’s baby shampoo
* Against the competitor- Make direct comparisons to competitors
* Away from competitors-Products which are not positioned against direct competitors
* Product Classes-Use a combination of strategies
I think in the case of DigiServ that positioning the product against the competitors (i.e. SKY) is the best option considering that we aim to try and convert some of the SKY users to DigiServ. This way we can prove to consumers that our service is as good as Sky’s, if not better, but at a lower cost. ‘Better Service, Lower cost’
By means of segmenting the market we have already discovered why certain consumers do not have digital TV and more importantly, we have discovered why they have opted not to have SKY. Therefore we should promote the positive differences between DigiServ and SKY that are of benefit to our target market.
Our plan to set up a customer service centre along with an internet based trouble shooter can be used as our U.S.P (Unique Selling Point), considering that 50% of customers are unsatisfied with service issues, this is a convenient way for our consumers to deal with problems such as technical difficulties etc in a more efficient way compared to SKY. By using this as our U.S.P we can aim to position DigiServ as a company that values its customers.
In order to build on our position of better quality and service, we must communicate and deliver our promises to our to our target audience.
Our messages must be clear and consistent.
We basically want to communicate to our potential customers that we offer:
* Value for money
* Improved Service
* More choice
Another factor that we can promote is the fact that DigiServ is an Irish owned company, as it will create employment.
The four Ps of marketing will also have to come into play if we are to stay true to our chosen position. We are offering a reliable, value for money, improved service with more choice and that is what we must deliver. Therefore, our price must be competitive yet cheap, we must advertise through channels that will reach our target market, we must promote the product using a teaser campaign such as free connection if they up with in the 1st month etc. The hardest part of a positioning strategy in implementing it and sticking to the plan and also allow it to evolve with the ever changing market. Our goal is to create a desirable image of our product in the consumer’s head.
DigiServ have excellent potential to break into the Irish market and gain 5% market share. Considering various economical factors such as falling interest rates, which usually results in an increase in luxury items, such as Digital TV.
We have only one main competitor, which is SKY. The fact that we have only one large competitor actually stands to us because we have the option to deliver the services and products that SKY are not offering but which the customer wants. The introduction of the smoking ban will also aid us into breaking into the market. Also the fact that consumers have become more aware of what they are getting in return for their money will possibly turn consumers who are unhappy with what SKY have to offer towards DigiServ.
Considering that out of the population 44% of people do not subscribe to satellite TV services and if we follow our initial business and marketing strategies as a foundation, there will be a strong possibility that we will meet our 5% market share goal which will then leave us in an excellent position to widen our choice for our consumers at competitive prices and may even exceed our 5% market share expectations!
* Kotler, Phillip ; Armstrong, Gary. Principles of Marketing. 5th Edition. USA. Prentice Hall Inc.
* Claire Capon, Understanding Organisational Context. Prentice Hall
* An Introduction for Irish Students, Donal Rogan (2000) 1st Edition
* www.cso.ie (Television Services Consumer Survey)