The Effects of External Conditions on the Product Segments

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Introduction

While there are factors and limitations set by inner resources, the conditions in the external environment bear the same, if not higher, significance on the market. The external environment consists of the general environment and the industry (competitor) environment. The manufacturing company in question creates sensors for various groups of customers. For it to thrive on the market, it is necessary to take a meticulous approach to the external conditions on the market.

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The customers of the sensor manufacturing company can be separated into five segments: traditional, low end, high end, performance- and size-oriented. Each segment possesses a different set of requirements for the product, with little similarities across the board. The customers from each segment have the following buying criteria: the price and age of the product, its reliability, and its size to performance ratio (Capsim Business Simulations, 2012). This essay will discuss how external environment conditions change the behavior of customers from different market segments.

External Environment Effects

The relationship between external conditions and the market segments is the most crucial part of the analysis for the marketing department. The general environment is a set of shared conditions among all the firms on the same market, and it possesses broader and less predictable conditions (Hitt et al., 2016). The general environment includes demographic, sociocultural, technological, sustainability-related, economic, and legal/political parameters of the environment in which the company operates (Hitt et al., 2016).

The effects of this environment affect all segments of the market significantly. However, technological and economic environments possess the highest potential for a sudden change. For example, technological advancements can cause a rapid drift of segments, especially for those who strive for product improvement. Continuous and thorough analysis of the general environment can provide a crucial insight into the market trends, allowing the company to obtain a competitive advantage at ease.

The industry environment is the set of forces posed by the firm’s competitors. To perform well in the industry environment, it is essential for the company to correctly identify the effects of the five forces that affect the market. To maximize its profitability and competitive potential, the company must analyze how its products perform in relation to these forces. However, despite the targeted market segment, the product must always have a distinguishable advantage over others. The company needs to make its product unique in a way so that its competitors will be unable to respond to its success on the market, creating a lasting positive effect (Islami et al., 2020).

The segments of the sensor market possess different standards, making these requirements vary. Each of the five forces has a different effect on each of the five segments of the sensor market. For example, the market for high-end sensors will have a high barrier to entry, low threat of substitute products, and a low number of competitors. Moreover, the bargaining power of the suppliers will be higher. At the same time, on the lower end of buying criteria, the product will be met with an intense rivalry, the threat for substitute products will rise significantly, and the buyers’ bargaining power will be higher.

The Impact of The Economic Segment

The impact of the economic segment of the general environment can play the most drastic role in market competition. As Hitt et al. (2016) state, “firms seek to compete in relatively stable economies with strong growth potential,” however, periods of economic uncertainty are inevitable even for the strongest economies (p. 48). As the market adapts to the shifts in the economic environment, customer segments will experience drastic changes as well. For example, as the forecast will present a potential issue similar to the 2008 crisis, the focus of the consumer companies will shift from expansion to preservation. In this environment, the customers who pursue performance-oriented and high-end products will show the most noticeable slowdown.

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The requirement for improvement will drop, while the customers’ needs will overlap significantly. The segment positions will offer the affinity towards the lower demands for size and performance while keeping their spots relative to each other. In the opposite case, when the economy will show high stability, the preferences of each segment will slowly drift apart, although segments with high improvement demands will experience a faster shift.

Conclusion

In conclusion, the effects of the external environmental conditions have a direct impact on the buying criteria of each customer segment. However, each group reacts in a unique way that represents its expectations from the product. The traditional segment is the most well-balanced among others in terms of the magnitude with which it is affected by the external factors. High-end, performance- and size-oriented customer segments are especially prone to the rapid shifts in demands due to their buying criteria. The low-end segment shows the highest stability under the changing conditions of the external environment. However, it is difficult for a company to obtain a significant advantage while focusing on this portion of the market due to the low standards of product evaluation.

References

Capsim Business Simulations. (2012). The Capstone team member guide.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2016). Strategic management: Concepts and cases: Competitiveness and globalization (12th ed.). Cengage Learning.

Islami, X., Mustafa, N., & Topuzovska Latkovikj, M. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1). Web.

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BusinessEssay. (2022, November 27). The Effects of External Conditions on the Product Segments. Retrieved from https://business-essay.com/the-effects-of-external-conditions-on-the-product-segments/

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BusinessEssay. (2022) 'The Effects of External Conditions on the Product Segments'. 27 November.

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BusinessEssay. 2022. "The Effects of External Conditions on the Product Segments." November 27, 2022. https://business-essay.com/the-effects-of-external-conditions-on-the-product-segments/.

1. BusinessEssay. "The Effects of External Conditions on the Product Segments." November 27, 2022. https://business-essay.com/the-effects-of-external-conditions-on-the-product-segments/.


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BusinessEssay. "The Effects of External Conditions on the Product Segments." November 27, 2022. https://business-essay.com/the-effects-of-external-conditions-on-the-product-segments/.