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Discuss about the Global Forces and the Advertising Industry.
In the growing world of competitive businesses, strategic management is where the process of certain levels of management set their goals and strategies within a company. Strategic management equips a company with the overall direction of the functional areas of business company department like finance and accounting, production, and marketing that gives the management the opportunity to understand the concept of each level of operation in the entire company (Aaker, 2008). Managers should ensure that they bring out the best at each level of operation to achieve the best possible strengths and weaknesses in business environment. When applying this strategy, the management seeks to answer the question regarding why, how and what is taking place (Wheelen & Hunger, 2011).
With the current state of affairs, advertising will need to relook into their strategic management models in order to ensure that the strategies being applied are not only relevant but are capable of creating value for the industry and clients. Therefore, the industry’s players will need to operate more as integrated entities, bringing together operations of the different industry units to contribute to the entire organization’s success.
Environmental analysis is a strategic tool and a process that is used in the identification of all the internal and external aspects that can possibly influence the performance of a given industry (Kotler, 2009). The analysis involves the assessment of the levels of opportunities or threats. Through environmental analysis, organizations should be able to strategize growth and increase the market share either by increasing the share in the existent market or by expanding the range of services and products in order to beat competition, by geographical expansion or by targeting new industry sectors.
With regard to the case, the advertising industry is a quit challenging and some of the reasons as to why this is true because of the increase in consumer spending in developing economies, developments in technology, and compensations that are based on results (Johnson et al., 2014). There are several environment analysis tools that have been tested and used for the achievement of best results. Some the key tools in business environment analysis include: PESTEL, SWOT and the Porter’s Five Forces which analyses both the internal and external environments of the business (David & David, 2006; Wheelen & Hunger, 2011).
With regard to PESTEL analysis, the internal environment is analyzed by considering the strengths and weaknesses of organization. This paper considers the case presented in Johnson et al. (2014). The organisations under discussion have managed a range of highly specialized business units form public relations, direct marketing, branding, sports marketing, film production to digital /social media. These extensive ranges of services are offered in medium to large advertising groups.
Additionally, research and insight of these organisations continuously address the changes that are being received in their industry, making sure that the organisations never lag behind competitors (Kapferer, 2012). Generally, information is passed through the organization to the production team s in order to create effective ways of advertising to the targeted consumer. Production units can be very creative in adding value to advertisements thereby increasing efficiency and effectiveness. The discussion on innovation and creativity in the case would have been impossible without leadership. Creative professionals are found in every organization. Furthermore, each organization seems to be enjoying autonomy making their leaders a unique resource. These are considered to be dynamic sources of strength as they are constantly changing with the changes within their respective industries enabling the organization to recreate and renew the approaches to handle the new developments within a market.
Organizations with good track record of producing innovative and highly creative work for consumers usually have a highly capable business unit in charge of market research that thoroughly understands the market segments targeting final consumers of an advertisement. These are important aspects that many organizations value and can indicate the effectiveness of any advertising company (Cravens et al., 2009).. Clients of advertising companies typically want creativity and innovation in the various tools of marketing since it is only through differentiation that the customer organizations can outshine competition and advertising company (Freeman, 2010).
Using the VRINE framework (Dombrowski, 2007)
| Diagnosis | Organization strategic capacity |
| Mapping of activities | Analysis of value chain |
| Basis of achieving competitive advantage | Human resource, operations, customer care management |
The above figure shows that the value chain of an advertising company consists of a company resource made up of central office services through which oversight is taken from the HRM, and the finance. Additionally, market research offers insight into the units and helps in conducting consumer and market development. What follows is strategic interpretation and adoption into advertisement which for a fact adds value to the business by means of advertisement improvement.
Advertising corporations try to outdo each other. According to Lacar (2009) competition is usually highest among advertisement organizations. Have, a good organization will have units spread across the four corners of the compass. However, not all organizations are seen as having limited capabilities for effective functioning.
Lovelock (2001) indicates that it would be helpful if advertising organisations would share information across the offices to create synergies between the units to enhance the achievement of competitive advantage in terms of economies of scale and efficiency. From the case, much would be gained if a policy would be available to govern the flow of knowledge and information within the organization. Accordingly, greater efficiency would be achieved based on every business unit having access to information which would empower the offices to make informed decisions.
Making use of the PFF framework to determine competition behavior, the advertising companies may access requirements for competition handle from an eternal environment (Grant, 2016).
There are no legislative barriers to entry in the industry of advertising and marketing (Shaw, 2011). The rise in environmentally-friendly awareness for advertising organisations, has the abilities for better service delivery of environmentally friendly marketing and advertising through a well-endowed ability to be more creative in the provision of marketing and advertising services to consumers. This reduces the threat of entry as it increases loyalty of clients to an advertising organization.
Based on the scale, advertising companies have the bargaining power on media buying and planning, since they possess a well-established infrastructure and are equipped with polls of talent to tap into idea creativity in advertising. According to Chaffey (2007) Advertising organisations in international markets like China need to be more equipped with the most current technology. With growth in social media, marketing/advertising organisations need to advance as well in order to develop with the changing times. A medium scale organization in the industry may have to purchase and develop technology in order to continuously serve its network of global clients, while retaining a good reputation with regard to creativity and experience.
More recently, advertising companies suppliers like Google and Facebook have been providing a wide range of services such as marketing, strategy, technology design services via their channels to potential customers. Such online agencies are tapping on the growing use of internet to bypass the traditional advertising agencies and sell services directly to potential clients.
If changes in the economy are on downward trend, then it is expected that the industry will retaliate (Keller et al., 2011). Medium to large advertising organizations have the potential to start a price war in order to attract and retain clients, over new entrants who are already disadvantaged on the basis of experience.
These include: rise of technology as the next advertisement media, the continuous rise of awareness on environmental-friendly advertising, and the national rates of interest and growth. Threats of substitutes are not there as the marketing and advertising industry has no known major competitor. Digital agencies like Facebook are not considered as competitors as they provide a range of competing services (Porter & Heppelmann, 2014). They play a suppliers role as advertising organisations make purchase of their platform to advertise their products.
With the advancement in technology as a channel of advertisement, rates of national growth and advertisement, and awareness in environmentally friendly adverts; buyer concentration in the industry is expected to depend largely on the rate of growth of the economy. With the expected downturn of the global economy, the advertising industry is expected to well potential clients in the many medium to large companies. These potential clients require their commodities differentiated through the services of the marketing and advertising industry (Dobbs, 2014).
The advertising industry generally exhibits a high buyers’ switching cost. They have agreements with customers and usually have minimal competition among themselves. The high cost of switching can be attributed to the poor economy in the macro environment as industry service providers are highly differentiated during bad economic times; and customers will tend to hire reputable advertising organizations rather than invest in random advertising firms to help them succeed.
The increase in internet popularity indicates a buyer competition threat to the advertising industry. Clients may have difficulty in hiring ‘boutique’ advertising companies and retaining them as their marketing and advertising partners supporting their marketing and advertising activities in digital platforms. Alternatively, advertising organizations will possibly minimize cost making advertisements on their firm’s websites.
With reference to the advancement in technology as a medium of advertisement, rates of national growth and advertisement, and awareness in environmentally friendly adverts; the following is evident. The industry shows a small number producing environmental friendly advertisement, such as the biodegradable posters. The situation has the potential to weaken the advertising industry’s power to negotiate when it comes to making purchase of environmentally friendly resources for advertisement (Magretta, 2013).
The high cost of switching is not a major factor of consideration in the advertising industry’s strategy as their services are based on projects, and required resources for the delivery of services which is often based on self-sufficiency of fixed resources like the software. Since advertising services are customized services, purchases for ad-hoc projects are made in a flexible manner in case external resources are required.
With the increase in internet popularity, the presence of supplier threat is increasingly present when suppliers in the digital media take clients from conventional advertising organizations. (Details of this discussion are similar to those outlined in the access to supplier and channels of distribution).
With the advancement in technology as a medium of advertisement, rates of national growth and advertisement, and awareness in environmentally friendly adverts; the following aspects, as discussed below, with regard to competitive rivalry are evident.
Advertising agencies are specializing diversely in their segments of the market (Jiang, 2007). Additionally, with the industry advertisement and increased manufacturing and economic growth rate, customer overload is expected for advertisers to exploit and exercise dominance within the industry. This trend and support allows the advertising industry to have a brighter outlook to growth with intimidation on the competitor factor balance.
Factors such as high barrier to exit and high fixed cost can be ignored because the effect of the threat of the unpromising rate of economic growth has got the advertising industry not thirsty for clients. Advertising is a highly differentiated service; however, low differentiation is not a factor of concern for the industry.
From the current situation of the advertising industry, autonomy grants the independence of medium to high organizations the opportunity to contribute to creative and innovative consumer-focused strategies. According to Rothaermel (2016) the practice of organizations not keeping top staff causes some organizations to lose talents and weaken their capabilities to remain creative and innovative.
The advertising industry is known to be quite creative producing award-winning works with unit organizations experience business helm. This has the potential of serving as a motivational factor to different players in the industry to share internally, including competitors and suppliers, giving a competitive edge. Industry workers can also be motivated to do much contribute to the desire.
The conventional advertising industry’s reputation has bulked up from other industries making it act as a symbol for competitors and other stakeholders to infer in its capabilities, both financially and non-financially.
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