Understanding your business (Situation Analysis) Introduction
Situation Analysis
In order to profitably satisfy customer needs, the firm first must understand its external and internal situation, including the customer, the market environment, and the firm's own capabilities. Furthermore, it needs to forecast trends in the dynamic environment in which it operates.
Situation analysis is basically done to analyze your:
1 Internal Environment (S.W.O.T.) 2 ‘Customer’ and ‘customer relation to product’ (5W H) 3 External Environment (P.E.S.T.) 4 Competitive Environment
Situation analysis gives you a much better understanding about these things. It is used to understand what kind of environment your company will be in, what are the factors that may affect its possibility to succeed, and what might make your business fail.
S.A’s offer both simplicity and flexibility in the structure of the activity. You can modify, move, add or delete information over any period of time as you discover information that you feel is relevant. A Situational Analysis is comprehensive and looks at all aspects of a business; drawing your focus to factors you may have otherwise overlooked. Its organized and easy to access; including relevant qualitative and quantitative information effecting business operations past, present & future. It allows you to easily collaborate with peers where the sharing of information can be a valuable tool in gaining opinions relevant to you decision to buy, sell or hold a position. Finally, any S.A. performed on a specific company is then easy to compare against peers in the same industry, sector or group of stocks to gain a sense of relative strength or weakness.
A useful framework for performing a situation analysis is the 5 C Analysis. The 5C analysis is an environmental scan on five key areas especially applicable to marketing decisions. It covers the internal, the micro-environmental, and the macro-environmental situation. The 5 C analysis is an extension of the 3 C analysis (company, customers, and competitors), to which some marketers added the 4th C of collaborators. The further addition of a macro- environmental analysis (climate) results in a 5 C analysis, some aspects of which are outlined below.
Internal Environment
The Internal Environment of a company involves all activities of the business from an inside point of view: what factors affect the daily operations of the company. A S.W.O.T. is simply a four part comparison of a company’s internal environment that consists of Strengths, Weaknesses, Opportunities (for future success) and Threats (to future success). It’s important to not include any information from outside factors; we’re examining a company from within only and all other aspects are examined in the Situational Analysis later on in other components.
Suitable Examples of each: Strength: streamlined supply chain management Weakness: poorly trained & executed sales force Opportunities: new strategic alliance with ABC Company Threat: rising material and overhead costs
Not Suitable Examples of each: Strength: get stuff to places fast Weakness: crappy products Opportunities: sell more stuff Threats: head office might collapse because it’s old Company
• Product line • Image in the market • Technology and experience • Culture • Goals
Collaborators
• Distributors • Suppliers • Alliances
Customer & his/her relation to the product
The Customer Environment of a company should be something you always pay attention to during this analysis. This section incorporates all the relevant answers to my 5W H format: Who, What, Where, When, Why & How. You want to examine everything you possibly can about a company’s product or service and how their customer/consumer base interacts with that. Examples may be: - Where do consumers get the product - When do customers purchase the product - What are customers buying - How often do customers buy the product - How does the company penetrate the market to get to its customers - Why do consumers buy the product - Who are their customers This section will provide insight back into the S.W.O.T. analysis so you can add or modify more specific information that may be involved. The importance here is to understand the target market, its habits, tendencies, likes & dislikes associated with a wide range of specific activities. Customers
• Market size and growth • Market segments • Benefits that consumer is seeking, tangible and intangible. • Motivation behind purchase; value drivers, benefits vs. costs • Decision maker or decision-making unit • Retail channel - where does the consumer actually purchase the product? • Consumer information sources - where does the customer obtain information about the product? • Buying process; e.g. impulse or careful comparison • Frequency of purchase, seasonal factors • Quantity purchased at a time • Trends - how consumer needs and preferences change over time
The External Environment
The External Environment is usually the most difficult because it can be the hardest to find relevant information for; but is equally as important as the first two. This section is organized into a P.E.S.T. for the company and looks at all external factors outside of the daily operations of a business: Political, Economical, Social & Technological. What you want to look for here are external factors that may: influence the company’s business operations, legal or regulatory hindrance, emerging cultural trends, economic environment concerns or the changing needs of technology.
Suitable Examples of each: Political: unionized workforce, government involvement & jurisdiction Economical: tariffs, embargos and foreign tax rules Social: cultural differences, community involvement Technological: rapidly changing factors, patent infringement barriers
Not Suitable Examples of each: Political: government is full of crooks Economical: no one invests in this sector Social: people want more red shirts Technological: my phone dies when at my cottage
Climate (or context)
The climate or macro-environmental factors are:
• Political & regulatory environment - governmental policies and regulations that affect the market • Economic environment - business cycle, inflation rate, interest rates, and other macroeconomic issues • Social/Cultural environment - society's trends and fashions • Technological environment - new knowledge that makes possible new ways of satisfying needs; the impact of technology on the demand for existing products.
The Competitive Environment
The Competitive Environment is the last component of a Situational Analysis. This section examines any and all factors that competition (whether direct or indirect) has or could have on the business you’re researching. You want to answer the questions: - Who are the competitors (direct & indirect) - What competitive pressures is the business exposed to - Limitations & Opportunities that competition currently or could provide - Vulnerability of the business in comparison to competition - What competitive advantage (if any) is the company up against
Competitors
• Actual or potential • Direct or indirect • Products • Positioning • Market shares • Strengths and weaknesses of competitors The Relationships among Environments in a Situation Analysis
Internal Environmen t
Obviously all the environments hold equal importance while uncovering the factors of Situational Analysis. If we are asked to choose the most important factor among all these above stated factors, then in our opinion Customers are very crucial in SA. Q: Of the three major environments in a situation analysis (internal, customer, external), which do you think is the most important in a general sense? Why?
Understanding Consumers is Essential
Marketing is all about understanding consumers and creating the products or services that will meet their needs in terms of design, price and place. The understanding of their needs will be reflected in the promotion of the offerings.
You’ve heard that the customer is always right. You may or may not agree with that statement, but everyone ought to agree that customers hold a very important place in our lives. After all, without customers - people who buy our products and services - our businesses close down and we all pack up to go home. The faster you can adapt to accommodate customer needs, the stronger your company’s reputation.
Just as parents of young children tend to their young breeds every need, businesses should concentrate on the needs of their customers. In today’s demanding business emporium, it is crucial that businesses consistently strive to focus on the needs of their customers. It makes no difference if your business offers a specified service, or multiple products.
The bottom line is that the quality of customer service can ultimately dictate whether a business will flourish or fail. Businesses are dependent on customers to survive. Customers are the foundation of any business, without them a business simply wouldn’t exist.
The importance of Customers
• Customers are the most important people for any organization. They are the resource upon which the success of the business depends. When thinking about the importance of customers it is useful to remember the following points:
1. Repeat business is the backbone of selling. It helps to provide revenue and certainty for the business.
2. Organizations are dependent upon their customers. If they do not develop customer loyalty and satisfaction, they could lose their customers.
3. Without customers the organization would not exist.
4. The purpose of the organization is to fulfill the needs of the customers.
5. The customer makes it possible to achieve business aims
6. Repeat purchases by the customers will directly improve the cash flow- the life blood of any organization
• Those days are gone when what so ever is produced by the company is sold out directly in the markets (Production Era). Now this is the Era of Customers/ Marketing Era. Markets have now become customer oriented. Priority is given to the customers not to the organizations.
Quality Products
Often companies claim that we are giving quality products. What Quality is? Quality is the relative term that expresses customer expectations level about a certain product or service. Companies are bound to make such products or render those services which are meeting or exceeding customer expectations (customer delight)
• There is a cut throat competition among different organizations. Customers are the judgmental bodies in deciding which product or organization is going to be the market leader. Many companies like KFC, Pizza Hut, and Shell etc are very seriously looking for the customer feedback. They have designed customer feedback surveys or cards in order to focus on how they can improve their products or services with the help of customers’ reviews. The key to making the most of customer feedback is looking for patterns and common challenges.
• The key component in marketing and business growth is to spend the majority of your time and effort nurturing customer relationships, so that you get business from existing clients and customers. This is a strategy that will move you forward in increasing your sales by 50% without increasing your budget.
[Developing a partnership with customers "Going beyond solving a customer's immediate problems, making documentation changes for the next release makes our product documentation stronger," says Jones*. ]
*Source: http://www.ceridian.com/myceridian/connection/content/1,4268,13675- 61286,00.html
• Often it happens that company perceives some factors as its strength but in the mean while the same factor is considered to be its weakness by its customers. Shezan Bakers Confectioners & Sweets is an old name and company regards it as it is one of its major strengths but having an old name or old existence in the market does not mean that company will get high sales, large number of customers etc or they do not require product innovation (Shezan juices). Like wise, Candia bottled milk is the living example of Haleeb foods’ failure to get customer attraction.
Learn About Your Customers (Savvy Customers)
Customers are no more innocent as they were in the past. The time has gone when what so ever the firms market was purchased by the customers. Now they question about lot of things even about the ingredients and codes listed. They have become more experienced, knowledgeable and more demanding. They are living in a dynamic environment where electronic and print media is updating them every time. Those companies with traditional strategies must forget about winning hearts of the customers. They need to update their systems and strategies in order to meet and excel customer expectations. This is possible only when they understand their customers.
• Marketing Mix
When talking about price, place, promotion & product, we are talking about Customers Environment. A company with latest technology and efficient use of resources can be highly cost effective but these products will become successful only when these goods will be sold to right customers at right place at right price with effective promotion.
Gourmet Bakers is one of the fastest growing local baker and confectioner stores in Pakistan. Being a local company, their approach towards business is both professional and highly aggressive.
I can't recall exactly in which year Gourmet started its operations in Pakistan, but now they have an outlet in every nook n corner of Lahore at least. Think of any suburb and you'll surely find a bright orange signage with a big bold Gourmet written in bright white. What started as a bakery and sweet shop, soon turned into a medium sized cash n carry retail outlet and has further expanded into launching a number of successful company owned products ranging from milk, ice creams, russ malai and many more.
The recent and probably the most impressive launch has been the Gourmet Cola, which actually motivated me to put up this buzz. I am thoroughly impressed. It has become a threat for many multinationals like Walls (competition area: ice creams), Pepsi & Coke (competition area: Gourmet cola).
Gourmet Cola is quite reasonably priced at PKR 35 for one and a half litre bottle, a much lucrative offer as compared to the PKR 45 price offer by the international competitors Coke & Pepsi. Another important information (not sure about the authenticity) that inspired me was that Gourmet has cancelled an year long contract of worth PKR 15 million with Coke and removed it from all company outlets to promote its own brand. (For those who are wondering what contract they had with coke, please note that its not easy to get shelf space in large retailers and on top of the product's retail margin, product manufacturing companies have to make an upfront payment to earn an entry into the shop and better placement. This upfront price varies for different products and retailers). GOURMET KNOWS ITS TARGET MARKET IS PRICE SENSITIVE
• At macro level, China is a huge example who has brought revolutionary changes in the world markets by understanding customer requirements and offering different levels of quality for different customers at varying prices.
The most prominent example of China products in Pakistan is Pakistani Shoe Market. Few years back whenever we wished to take new pair of shoes for us we only had two choices in color: black or brown and the prices were quite high even for kainchi chappal. But now China has capture almost 85% market share and providing cost effective wide range of products ranging from ladies sandals to chapels and gents kohati chapel to office, school shoes, joggers etc all are now made in china. (Local markets. Income level: medium and low income groups. Not talking about upper income groups).
Q: What are some situations that would make one environment more important than others?
Social boycott - Products of Israel Origin - Products of Denmark Origin Religious Matters - Jyllands-Posten Muhammad cartoons controversy – Telenor Pakistan - Cow as goddess in India - War between Israel and Palestine Spending Patterns - Recession Period - More and more layoffs , more and more saving from the customer end.
Political, Economic, Social, Technological, Competitive, Cultural and legal environments are not the same. These factors are unpredictable and uncontrollable. No one can forecast about these environments with 100% surety. Here are some examples.
Economic Issues: Right after 9/11 the NYSE collapsed and a drastic change in Pakistani economy was recorded at that moment of time.
Currently the US economy has suffered its worst annual performance in 25 years, plunging the country into deeper recession and sparking fresh falls in the stock market. The economy shrank by a 6.2 per cent annual rate at the end of 2008, considerably weaker than the 5.4 per cent decline economists had expected. Consumer spending, which accounts for two-thirds of US economic activity, dropped 4.3 per cent despite deeply discounted sales during the Christmas holiday season, following on from a fall of 3.8 per cent in the third quarter.
The US government's latest move to aid Citigroup marks the third bailout bid for the ailing bank in the past five months, and will dramatically dilute existing stockholders stakes to as low as 26 per cent as the government seeks to convert up to $25 billion in preferred shares for common stock.
Ford, General Motors, Chrysler... Do these companies need any introduction? Of course not, recently these three companies suffered great losses which were regarded as top 3 American companies. To meet their internal expenses, they had to cut down the number of employees to save amount of paychecks. Those who are fired from their positions are now unemployed. As the Americans are facing recession period in the economy, this means that all those unemployed people will be reluctant to spend in the markets which in turn will directly cut down the sales and automatically the profit of Products and/or service offering companies.
Political Issues: Assassination of Mohtarma Benazir Bhutto caused economic crisis and political turmoil in Pakistan. Right after the news of her death created the environment of instability in all the fields of economy. News of her death—and fears of a nuclear power possibly sliding into anarchy as a result—dragged down global stock markets and sparked a wave of buying of United States Treasury securities, a traditionally safe haven. In afternoon trading, the Dow Jones industrial average was down more than 150 points, or 1 percent. Crude oil futures rose above $97 a barrel, and gold prices also gained. (The attack took place after stock markets in Pakistan and elsewhere in Asia was closed.) Social Issues: war between Israel and Palestine is a hot issue running currently in the world. Many countries are against this act of brutality by Israel. Even CNN launched some website to get the votes of individuals for supporting Palestine or Israel and obviously Palestine’s scales are heavier. To show the support to Palestine, the Pakistani’s are trying to cut down the Israeli economy by boycotting those products that are owned by Israeli Companies (originating some where else) or have some link with Israel.
Religious Issues: On September 30 2005, The Jyllands- Posten Muhammad cartoons controversy began after twelve editorial cartoons, most of which depicted the Islamic prophet Muhammad.The headline was, "Muhammeds ansigt", means "The face of Muhammad". The Muslim world strongly protested this act of nuisance. Along with so many actions by Muslim world the one is :The Egyptian Minister of Foreign Affairs, Aboul Gheit, wrote several letters to the Prime Minister of Denmark and to the United Nations Secretary-General explaining that they did not want the Prime Minister to prosecute Jyllands-Posten; they only wanted "an official Danish statement underlining the need for and the obligation of respecting all religions and desisting from offending their devotees to prevent an escalation which would have serious and far-reaching consequences".
Burning head office of Telenor Pakistan was the reaction by Pakistani nationals on those cartoons. They linked Telenor as the company which is linked to Denmark some way or other so to their extreme anger they harmed its premises. Even they seriously harmed McDonalds and KFC, by burning their outlets etc
Sales of Telenor Pakistan dramatically fell at that moment of time. People showed their extreme hatred towards Telenor Pakistan.
Technological Issues: Technological advances can further economic growth because they contribute to the creation of new goods, new services, new jobs, and new capital. The application of technology can improve productivity and the quality of products. It can expand the range of services that can be offered as well as extend the geographic distribution of these services. The development and use of technology also plays a major role in determining patterns of international trade by affecting the comparative advantages of industrial sectors. Since technological progress is not necessarily determined by economic conditions — it also can be influenced by advances in science, the organization and management of firms, government activity, or serendipity — it can have effects on trade independent of shifts in macroeconomic factors. New technologies also can help compensate for possible disadvantages in the cost of capital and labor faced by firms.
Legal Issues: Lawsuits against the tobacco industry have lead to dramatic changes in the way cigarette companies market their product. Today, companies such as Phillip Morris are airing advertisements illustrating the negative effects of their products. In addition, a proposed settlement agreement between the industry and the attorney general of several states represent a threat that could result in a ban on some types of cigarette advertising and the regulation of nicotine by the FDA. As can be seen, it is important to identify political/legal threats and opportunities in order to keep an edge on the market (Austainer, 1999).
Changes in the Internal Organizational Environment
Various elements within an organizations internal environment can also have an impact on marketing activities. Changes in the structuring of departments, lines of authority, top management, or internal political climate can all create internal weaknesses that must be considered during the SWOT analysis as well as in the development of the marketing plan.
McDonalds has recently been feeling increased competitive pressure from Wendys and Burger King. In order to increase market share, McDonalds created new marketing campaigns and new sandwiches. However, McDonalds failed to get the cooperation of all its franchisees. When store sales began to fall, individual franchisees started to band together to gain power to protect their investments. The increased power of the franchisees forced McDonalds to pull several advertisement campaigns due to lack of support. Prior to this McDonalds was used to getting their way with franchisees. Now, the shift in power from McDonalds to its franchisees has created an internal weakness that the company must address as it develops and implements new marketing strategies. Again, it is necessary to emphasize the importance of evaluating specific opportunities and threats within your company (Marketing Strategy, 1998) CONCLUSION
Modern business environment is famous for various new trends. An environment where the businesses used to hire employees for the sake of monetary benefits only is now changed in multi dimensional and multi pronged environment. Now business are not run for the sake of money and short term financial benefits only but for a long time sustainable growth and development. Now the only focus of all business is CUSTOMER and Customer Satisfaction. This Customer Satisfaction (CS) cannot be achieved without proper involvement of internal customers i.e., employees. We must keep “in-house” customer happy to maintain productivity. For external customers, we must keep them happy or they find someone else to provide them a product or service.
Companies start their business philosophy from their main goals or objectives and make clear statements showing their mission and values. All lateral developments are performed on the basis of these predetermined values. Modern businesses focus only on customer satisfaction and this is the core concept of business as well.
Now question is the responsibility of achieving customer satisfaction without any failure. Many plans are made for wining customer satisfaction, but all would be failure if company is not sure about the persons, method and tactics of achieving customer satisfaction. Whole management and its team are responsible for achieving business results so is the customer satisfaction. Modern management has no doubt in it that customer satisfaction can only be achieved if all employees regardless their departments work hard to satisfy customers.
What to Do
First things first: We need to discover our customer’s opinions of our products and/or service. This occurs by asking. Using today’s technology, this can happen by using something as simple as a feedback card, or by using an online service. Plenty of options exist.
Second, after gathering information, analyze it. Ask the tough questions and arrive at the tough answers. Be as objective as you can.
Third, act. Change what is necessary to improve your customer service rating. The more you can meet customer needs, the better your chance for long-term success in our fast-paced, ever-changing world.
There’s a book by Jason Jennings and Laurence Haughton that explains it all: It’s Not The Big That Eats The Small, It’s The Fast That Eats The Slow. In other words, we need to respond to customer needs in a timely manner if we’re going to survive.
Bottom line: If you don’t know how you’re being perceived by your customers, you don’t know if you’re truly hitting the mark you set out for yourself. Ask. Seek answers. Then make informed decisions about how you can improve to meet your customer’s needs. Of the three major environments in a situation analysis (internal, customer, external), which do you think is the most important in a general sense? Why? What are some situations that would make one environment more important than others? Appendices:
1. (Source: www.netmba.com/marketing)
2. (Source: Principles of Marketing by: Philip Kotler and Gary Armstrong 10th Edition)
3. (Source: E-Myth Mastery by: Michael Gerber)
4. Source: http://www.ceridian.com/myceridian/connection/content/1,4268, 13675-61286,00.html
5. Gourmet bakers launched new cola http://www.buzzvines.com/gourmet-launched-new-colas
6. Situational Analysis. http://www.nurseb911.com/2007/07/situational-analysis.html
7. Importance of customer opinions. http://www.management- issues.com/2006/5/25/opinion/the-importance-of-customer- opinion.asp
8. why customers are important http://www.thetimes100.co.uk/theory/theory--why-customers- are-important--283.php
9. Principles of Marketing by Cateora 6th edition
10. http://english.aljazeera.net/news/americas/2009/02/200922715 2814720247.html
11. http://www.portfolio.com/news-markets/top-5/2007/12/27/What- Bhuttos-Death-Changess 12. Edwin Mansfield, “Social Returns From R&D: Findings, Methods, and Limitations,” Research/Technology Management, November-December 1991, 24. Jones and John C. Williams, “Measuring the Social Return to R&D,” Quarterly Journal of Economics, November 1998, 1119 and Richard R. Nelson and Paul M. Romer, “Science,
Economic Growth, and Public Policy,” in Bruce R. Smith and Claude E. Barfield, eds. Technology, R&D, and the Economy, (Washington, The Brookings Institution and the American Enterprise Institute, Washington, 1996), 57.
13 Ferrell, O., Hartline, M., Lucas, G., Luck, D. 1998. Marketing Strategy. Orlando, FL: Dryden Press.
14 "Developing Your Strategic SWOT Analysis." Austrainer. 1999. http://www.austrainer.com/archives/1397.htm. (5 Dec. 1999). MARKETING STRATEGIES
Of the three major environments in a situation analysis (internal, customer, external), which do you think is the most important in a general sense? Why? What are some situations that would make one environment more important than others?
SUBMITTED BY
SHAHBAZ CHAUDHRY BBA 8th NAZISH SOHAIL BBA 8th M USMAN AKRAM MBA KHURRAM SALEEM MBA
SUBMITTED TO
SIR KAMRAN SAEED
HAJVERY UNIVERSITY LAHORE