MGMT 650 QUESTION WORK ASSIGNMENT 3Drawing on Section3.2, carry out a five forces analysis of the pharmaceutical industry* or SAB Miller’s position in the brewing industry (Megabrew*). What do you conclude about that industry’s attractiveness?
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MGMT 650 QUESTION WORK ASSIGNMENT 3 Drawing on Section 3.2, carry out a five forces analysis of the pharmaceutical industry* or SAB Miller’s position in the brewing industry (Megabrew*). What do you conclude about that industry’s attractiveness?
MGMT 650 QUESTION WORK ASSIGNMENT 3 Drawing on Section 3.2, carry out a five forces analysis of the pharmaceutical industry* or SAB Miller’s position in the brewing industry (Megabrew*). What do you conclude about that industry’s attractiveness? MGMT 650 CHAPTER 3 CASE ASSIGNMENT 3 Questions 1 Carry out a five forces analysis of the advertising industry in 2015. What is the strength of the five forces and what underlying factors drive them? What is the industry attractiveness? Global forces and the advertising industry Peter Cardwell This case is centered on the global advertising industry which faces significant strategic dilemmas driven by the rise of consumer spending in developing economies, technological convergence and pressures from major advertisers for results-based compensation. Strategy in this industry is further explored in MyStrategyExperience simulation (https://heuk.pearson.com/simulations/ mystrategyexperience.html ). In the second decade of the new millennium, advertising agencies faced a number of unanticipated challenges. Traditional markets and industry operating methods, developed largely in North America and Western Europe following the rise of consumer spending power in the twentieth century, were being radically reappraised. The industry was subject to game-changing forces from the so-called ‘digital revolution’ with the entry of search companies like Google, Bing and Yahoo as rivals for advertising budgets. Changing patterns in global consumer markets impacted on both industry dynamics and structure. Budgets being spent through traditional advertising agencies. Overview of the advertising industry Traditionally, the business objective of advertising agencies is to target a specific audience on behalf of clients with a message that encourages them to try a product or service and ultimately purchase it. This is done largely through the concept of a brand being communicated via media channels. Brands allow consumers to differentiate between products and services and it is the job of the advertising agency to position the brand so that it is associated with functions and attributes which are valued by target consumers. These brands may be consumer brands (e.g. Coca-Cola, Nike and Mercedes Benz) or business-to-business (B2B) brands (e.g. IBM, Airbus Industrie and KPMG). Some brands target both consumers and businesses (e.g. Microsoft and Apple). As well as private-sector brand companies, governments spend heavily to advertise public-sector services such as healthcare and education or to influence individual behaviour (such as ‘Don’t drink and drive’). For example, the UK government had an advertising budget of £289m (€347m, $433m) in 2014. Charities, political groups, religious groups and other not-for-profit organisations also use the advertising industry to attract funds into their organisation or to raise awareness of issues. Together these account for approximately three per cent of advertising spend. Advertisements are usually placed in selected media (TV, press, radio, internet, mobile, etc.) by an advertising agency acting on behalf of the client brand company: thus they are acting as ‘agents’. The client company employs the advertising agency to use its knowledge, skills, creativity and experience to create advertising and marketing to drive consumption of the client’s brands. Clients traditionally have been charged according to the time spent on creating the advertisements plus a commission based on the media and services bought on behalf of clients. However, in recent years, larger advertisers such as Coca-Cola, Procter & Gamble and Unilever have been moving away from this compensation model to a ‘value’ or results-based model based on a number of metrics, including growth in sales and market share. Growth in the advertising industry Money spent on advertising has increased dramatically over the past two decades and in 2015 was over $180 billion (€166bn, £126bn) in the USA and $569 billion worldwide. While there might be a decline in recessionary years, it is predicted that spending on advertising will exceed $719 billion globally by 2019. Over 2014–15, the Dow Jones stock price index for the American media agencies sector (of which the leading advertising agencies are the largest members) rose about 15 per cent ahead of the New York Stock Exchange average (sources: bigcharts. com and dowjones.com ). The industry is shifting its focus as emerging markets drive revenues from geographic sectors that would not have been significant 5 to 10 years ago, such as the BRICS countries and the Middle East and North Africa. This shift has seen the emergence of agencies specialising in Islamic marketing, characterised by a strong ethical responsibility to consumers. Future trends indicate the strong emergence of consumer brands in areas of the world where sophisticated consumers with brand awareness are currently in the minority (see Table 1). In terms of industry sectors, three of the top 10 global advertisers are car manufacturers. However, the two major fmcg (fast-moving consumer goods) producers, Procter & Gamble and Unilever, hold the two top spots for global advertising spend. Healthcare and beauty, consumer electronics, fast food, beverage and confectionery manufacturers are all featured in the top 20 global advertisers. The top 100 advertisers account for nearly 50 per cent of the measured global advertising economy. Competition in the advertising industry Advertising agencies come in all sizes and include everything from one- or two-person ‘boutique’ operations (which rely mostly on freelance outsourced talent to perform most functions), small to medium-sized agencies, large independents to multinational, multi-agency conglomerates employing over 190,000 people. The industry has gone through a period of increasing concentration through acquisitions, thereby creating multi-agency conglomerates such as those listed in Table 2. While these conglomerates are mainly headquartered in London, New York and Paris, they operate globally. Large multi-agency conglomerates compete on the basis of the quality of their creative output (as indicated by industry awards), the ability to buy media more costeffectively, market knowledge, global reach and range of services. Some agency groups have integrated vertically into higher-margin marketing services. Omnicom, through its Diversified Agency Services, has acquired printing services and telemarketing/customer care companies. Other agency groups have vertically integrated to lesser or greater degrees. Mid-sized and smaller boutique advertising agencies compete by delivering value-added services through in-depth knowledge of specific market sectors, specialised services such as digital and by building a reputation for innovative and ground-breaking creative advertising/ marketing campaigns. However, they might be more reliant on outsourced creative suppliers than larger agencies. Many small specialist agencies are founded by former employees of large agencies, such as the senior staff breakaway from Young & Rubicam to form the agency Adam + Eve. In turn, smaller specialist agencies are often acquired by the large multi-agency conglomerates in order to acquire specific capabilities to target new sectors or markets or provide additional services to existing clients, like WPP’s acquisition of a majority stake in the smaller ideas and innovation agency AKQA for $540m ‘to prepare for a more digital future’. Recent years have seen new competition in this industry as search companies such as Google, Yahoo and Microsoft Bing begin to exploit their ability to interact with and gain information about millions of potential consumers of branded products. Sir Martin Sorrell, CEO of WPP, the world’s largest advertising and marketing services group, has pointed out that Google will rival his agency’s relationships with the biggest traditional media corporations such as TV, newspaper and magazine, and possibly even become a rival for the relationships with WPP’s clients. WPP group spent more than $4bn with Google in 2015 and $1bn with Facebook. Sorrell calls Google a ‘frenemy’ – the combination of ‘friend’ and ‘enemy’. Google is a ‘friend’ where it allows WPP to place targeted advertising based on Google analytics and an ‘enemy’ where it does not share these analytics with the agency and becomes a potential competitor for the customer insight and advertising traditionally created by WPP. With the development of the internet and online search advertising, a new breed of interactive digital media agencies, of which AKQA is an example, established themselves in the digital space before traditional advertising agencies fully embraced the internet. These agencies differentiate themselves by offering a mix of web design/ development, search engine marketing, internet advertising/marketing, or e-business/e-commerce consulting. They are classified as ‘agencies’ because they create digital media campaigns and implement media purchases of ads on behalf of clients on social networking and community sites such as YouTube, Facebook, Flickr, Instagram and other digital media. Digital search and mobile advertising budgets are increasing faster than other traditional advertising media as search companies like Google and Facebook generate revenues from paid search as advertisers discover that targeted ads online are highly effective (see Table 3). By 2015, Google had a 55 per cent market share of the $81.6 bn spent on online search advertising globally, with Facebook also increasing its share. Mobile ad spending on sites such as YouTube, Pinterest and Twitter continues to increase at the expense of desktop, taking a bigger share of marketers’ budgets. The shift to mobile ad spending is being driven mainly by consumer demand and is predicted to be over 28 per cent of total media ad spending in the US by 2019 which is why Google has made acquisitions in this sector (see Table 4) The disruptive change in the advertising industry at the beginning of the twenty-first century started with the internet. Many industry experts believe that convergence of internet, TV, smartphones, tablets and laptop computers is inevitable, which in turn will have a further major impact on the advertising industry. Factors that have driven competitive advantage to date may not be relevant in the future. Traditionally this industry has embodied the idea of creativity as the vital differentiator between the best and the mediocre. Individuals have often been at the heart of this creativity. With the emergence of Google, Yahoo, Facebook and Bing, influencing and changing the media by which advertising messages are being delivered, a key question is whether creativity will be more or less important in the future, in relation to breadth of services and global reach. MGMT 650 QUESTION WORK ASSIGNMENT 4 Using Table 4.1 identify the resources and capabilities of an organization with which you are familiar, your university or school, for example. Alternatively, you can answer this in relation to H&M* or Formula One* if you wish MGMT 650 QUESTION CASE ASSIGNMENT 4 Based on the data from the case (and any other sources available), use the frameworks from the chapter and analyze the resources and capabilities of Rocket Internet: a What are its resources and capabilities? b What are its threshold, distinctive and dynamic resources and capabilities?