SWOT ANALYSIS

Organizational strategies are the means through which companies accomplish their missions and goals.

Successful strategies address four elements of the setting within which the company operates:

(1) the company's strengths,

(2) its weaknesses,

(3) the opportunities in its competitive environment, and

(4) the threats in its competitive environment.

This set of four elements when used by a firm to gain competitive advantage,

is often referred to as a SWOT analysis.

This organizational analysis helps in an assessment of strengths and weaknesses

that is, it is an audit of the company's internal workings,

however examining opportunities and threats is a part of environmental analysis

that is the company must look outside of the organization to determine opportunities

and threats, over which it has lesser control.

SWOT asks four basic questions about a company and its environment:

(1) What can we do?

(2) What do we want to do?

(3) What might we do? and

(4) What do others expect us to do?

The answers to these questions provide the input for an effective strategic management process

Strengths

Strengths, Determine an organization's strong points . Strengths arise from the resources and competencies available to the firm.

A strength is a "resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve.

Strengths are a company's capabilities and resources that allow it to engage in activities to generate economic value and competitive advantage.

A company's strengths may be in

its ability to create unique products,

to provide high-level customer service,

or to have a presence in multiple retail markets.

Strengths may also be the company's culture,

its staffing and training

the quality of its managers.

Note : a strength is not a strength unless it makes a genuine difference

to an organization's competitiveness.

Weaknesses

A company's weaknesses are a lack of resources or capabilities

that can prevent it from generating economic value or gaining a competitive advantage.

This should be not only from its own point of view, but also more importantly,

from those of the customers.

A weakness, is something that affects the organisation's cost or differentiation advantage

A weakness is a "limitation or deficiency in one or more resources or

competencies relative to competitors that impedes a firm's effective performance"

There are many examples of organizational weaknesses.

For example, a firm may have a large, bureaucratic structure that limits

its ability to compete with smaller, more dynamic companies.

a Firm has higher labor costs than a competitor who can have similar

productivity from a lower labor cost.

Old-fashioned equipment and authoritarian management styles,are only weaknesses

if they lead to increased costs, poor quality or bad customer service

The characteristics of an organization that can be strength,

can also be a weakness if the company does not do them well.

Opportunities

An opportunity is a major situation in a firm's environment Opportunities are everywhere,

Opportunities provide the organization with a chance to improve its performance and

its competitive advantage Some opportunities may be anticipated, others arise unexpectedly.

Opportunities may arise

When there are niches for new products or services, or

When these products and services can be offered at different times and in different locations

Government policy,

Changes in competitive or regulatory circumstances

Changes in social patterns,

Identification of a previously overlooked market segment,

Improved buyer or supplier relationships

Key trends are one source of opportunities.

The changes in technology and the increased use of the Internet

has provided numerous opportunities for companies to expand their product sales.

Threats

Every company faces threats in its environment. A threat is a major unfavourable situation in a firm's environment.

Threats are key impediments to the firm's current or desired position.

They are external factors that are out of our controlThreats can be an individual, group, or organization

outside the company that aims to reduce the level of the company's performance.

The entrance of new competitors,

A desire on the part of other companies to take some of that success for their own.

Slow market growth,

Increased bargaining power of key buyers or suppliers,

Technological changes, from new products or services

from other companies that aim to take away a company's competitive advantage.

New or revised government regulations

Threats may also come from consumer groups. Depending on the size or the degree of diversification of the company,

it may be necessary to conduct more than one SWOT analysis.

If the company has a wide variety of products and services, particularly if it operates in different markets,

A SWOT analysis for each market is needed to capture all of the relevant strengths, weaknesses, opportunities, and threats that exist across the span of the company's operations.

A strong company strategy that shows how to gain competitive advantage should address

all four elements of the SWOT analysis.

It should help the organization determine how to use its strengths to take advantage

of opportunities and neutralize threats.

Finally, a strong strategy should help an organization avoid or fix its weaknesses.

If a company can develop a strategy that makes use of

the information from SWOT analysis, it is more likely to have high levels of performance.

In order to write a good SWOT the following criteria must be taken into account:

Make your points long enough Include enough detail to make it plain

why a particular factor is important,

why it can be considered as a strength, weakness, opportunity or threat.

Include precise evidence, and cite figures, where possible.

Do not rely on a very general, categorical assessment of internal capabilities

Be as specific about the precise nature of a firm's strength and weakness.

Do not be content with general factors like economies of scale.

Avoid vague, general opportunities and threats that could be put

forward for just about any organisation under any circumstances.

Do not mistake the outcomes of a strength (such as profits and market share)

for strengths in their own right;

Improvement is not the same as strength - do not confuse the two

Instead of saying that the threat of a firm is in exchange rate fluctuations, the statements of:

"Appreciation of euro versus dollar likely to lead to reduced value of US profits (25% of total)"

or

"This is a specific threat that affects this firm because of its high proportion of US sales"

could be appropriate

a creative problem-solving tool such as brainstorming may thus be a useful

help in overcoming this difficulty.

Use The resource-based view

Similarly, value chain analysis identifies elements of a company's capabilities and

operations that are useful in conducting a SWOT analysis

Avoid contradicting yourself in the course of the analysis,

by having strengths and weaknesses that are essentially different aspects

of the same strategy of resource.

Come to a reasoned conclusion about whether the good points outweigh

the bad ones, or vice versa.

Where to Find Information for SWOT Analysis

for conducting SWOT analysis the essential information would be available

In company's business reports,

In annual reviews,

published performance data on financial resources,

marketing and operations,

current suppliers and key stakeholders groups.

It can also be helpful to search various journals on

marketing,

strategy and

human resources

to find out more published and referenced information

on the company's past experience, its current position and future objectives.

LIMITATIONS OF SWOT ANALYSIS

One major problem with the SWOT analysis is that while it emphasizes the importance of

the four elements associated with the organizational and environmental analysis

it does not address how the company can identify the elements for their own company.

The assessment of strengths and weaknesses may be unreliable,

being bound up with aspirations, biases and hopes.

Many organizational executives may not be able to determine

what these elements are, and the SWOT framework provides no guidance.

For example, what if a strength identified by the company is not truly a strength?

While a company might believe its customer service is strong,

they may be unaware of problems with employees or the capabilities of

other companies to provide a higher level of customer service

Weaknesses are often easier to determine, but typically after it is too late to create a new strategy to offset them.

A company may also have difficulty identifying opportunities.

Depending on the organization, what may seem like an opportunity to some,

may appear to be a threat to others.

Opportunities may be easy to overlook or may be identified long after they can be exploited.

Similarly, a company may have difficulty anticipating possible threats in order to effectively avoid them.

USING SWOT ANALYSIS TO DEVELOP ORGANIZATIONAL STRATEGY

SWOT analysis is just the first step in developing and implementing an effective organizational strategy.

In a SWOT analysis, the strengths and weaknesses of resources must be considered in relative

and not absolute terms.

It is important to consider whether they are being managed effectively as well as efficiently.

Resources, therefore, are not strong or weak purely because they exist or do not exist.

Rather, their value depends on how they are being managed, controlled and used.

Lists of strengths and weaknesses should not include factors that are common

to every firm in an industry.

For example, you could not count "well-known brand" as a strength for a firm

in the jeans or cosmetic industries such as L'Oreal, since many brands are equally famous.

Instead of writing that main opportunities of the company are overseas expansion

and brand extension,

it is crucial to replace it with a broader definition and explanation.

The example of a more successful explanation could be: "Eastern European markets,

with developing spending power and proven appetite for Western consumer brands,

represent opportunity.

25% of existing sales in airport outlets are to customers travelling to these countries".

Another example could involve:

"Competing firms have extended brands to cosmetics, spectacles, jeans and stationery.

Likely opportunity for this firm to follow suit”

Opportunities and threats normally arise from changes in the environment,

but sometimes have their origin inside the organisation

- for example, if key machinery or people, functioning very effectively at present,

- are likely to break down or retire in a few years' time, that is a threat.

It is essential to note that the internal factors, the things an organisation does particularly well,

(strengths) are within the control of organization, such as operations, finance, marketing.

The factors that in the future may give the organisation potential to grow and

increase its profits (opportunities) or may make its position weaker (threats).

- On the contrary, the external factors are out of the organisation's control,

- such as political and economic factors, technology, competition, and other areas.

The wizardry of SWOT is the matching of specific internal and external factors,

which creates a strategic matrix and which makes sense.

There is no room for equivocation in a SWOT analysis –

a factor can be a strength or a weakness, but not both.

For example, a firm's IT system may provide good management reports

but poor production control information. It is pointless to put this down as both a strength and a weakness that partially cancel each other out, since managers have only two choices: either they upgrade the system or they do not

This means that you need to come to a definite answer to the question:

On balance, is the IT system a strength or a weakness?

Perhaps the lack of good production information is important, in which case the system needs to be upgraded. Perhaps it is vital to maintain the flow of management information, in which case the system should not be touched .

After a thorough SWOT analysis,

the next step is to rank the strengths, weaknesses, opportunities,

and threats and to document the criteria for ranking.

The company must then determine its strategic fit given

its internal capabilities and external environment in a two-by-two grid

This fit, as determined in the grid, will indicate what strategic changes need to be made.

The quadrants in this grid are as follows:

Quadrant 1 —internal strengths matched with external opportunities;

Quadrant 2 —internal weaknesses relative to external opportunities;

Quadrant 3 —internal strengths matched with external threats; and

Quadrant 4 —internal weaknesses relative to external threats.

Quadrant 1

lists the strategies associated with a match between the company's strengths and its perceived external opportunities.

It represents the best fit between the company's resources and the options available in the external market.

A strategy from this quadrant would be to protect the company's strengths by shoring up resources and extending competitive advantage.

an organisation should strive to maximise its strengths to capitalise on new opportunities.

If a strategy in this quadrant can additionally bolster weaknesses in other areas,

such as in Quadrant 2, this would be advantageous.

Quadrant 2

lists the strategies associated with a match between the company's weaknesses with external opportunities.

Strategies in this quadrant would address the choice of either improving upon weaknesses to turn them into strengths,

or allowing competitors to take advantage of opportunities in the marketplace. It is an exertion to conquer the organisation's weaknesses by making the most of any new opportunities

Quadrant 3

matches the company's strengths and external threats.

Strategies in this quadrant may aim to transform external threats into opportunities

by changing the company's competitive position through use of its resources or strengths.

Another strategic option in this quadrant is for the company to maintain a defensive strategy to focus on more promising opportunities in other quadrants.

an organisation should strive to use its strengths to parry or minimise threats

Quadrant 4

matches a company's weaknesses and the threats in the environment.

These are the worst possible scenarios for an organization. However, because of the competitive nature of the marketplace, any company is likely to have information in this quadrant.

Strategies in this quadrant may involve using resources in other quadrants to exploit opportunities to the point that other threats are minimized.

This is most definitely defensive strategy, to minimise an organisation's internal weaknesses and avoid external threats.

Additionally, some issues may be moved out of this quadrant by otherwise neutralizing the threat or by bolstering a perceived weakness.

Once a strategy is decided on in each quadrant for the issues facing the company, these strategies require frequent monitoring and periodic updates.

An organization is best served by proactively determining strategies to address issues

before they become crises

PORTER'S 5-FORCES MODEL Porter's five-forces model looks at the strength of five distinct competitive forces, which, when taken together, determine long-term profitability and competition.

The five forces are competitive factors which determine industry competition and include:

suppliers,

rivalry within an industry,

substitute products,

customers or buyers,

and new entrants

The strength of each force is a separate function of the industry structure, and is defined as "the underlying economic and technical characteristics of an industry."

Collectively, the five forces affect

prices,

necessary investment for competitiveness,

market share,

potential profits, profit margins,

and industry volume

Force 1: The Degree of Rivalry

• This force is located at the centre of the diagram;

• Is most likely to be high in those industries where there is a threat of substitute products;

and existing power of suppliers and buyers in the market.

The intensity of rivalry, which is the most obvious of the five forces in an industry,

helps determine the extent to which the value created by an industry

will be dissipated through head-to-head competition.

Porter's “five forces” framework suggests that rivalry,

while important, is only one of several forces that determine industry attractiveness.

Force 2: The Threat of Entry

Both potential and existing competitors influence average industry profitability.

The threat of new entrants is usually based on the market entry barriers.

They can take diverse forms and are used to prevent an influx of firms

into an industry whenever profits, adjusted for the cost of capital,

rise above zero.

In contrast, entry barriers exist whenever it is difficult or not economically feasible

for an outsider to replicate the incumbents’ position.

The most common forms of entry barriers, except intrinsic physical or legal obstacles,

are as follows:

• Economies of scale: for example, benefits associated with bulk purchasing;

• Cost of entry: for example, investment into technology;

• Distribution channels: for example, ease of access for competitors;

• Cost advantages not related to the size of the company: for example, contacts and expertise;

• Government legislations: for example, introduction of new laws might

weaken company’s competitive position;

• Differentiation: for example, certain brand that cannot be copied (The Champagne)

Force 3: The Threat of Substitutes

The threat that substitute products pose to an industry's profitability depends on

the relative price-to-performance ratios of the different types of products or services

to which customers can turn to satisfy the same basic need.

The threat of substitution is also affected by switching costs – that is,

the costs in areas such as retraining, retooling and redesigning that are incurred

when a customer switches to a different type of product or service.

It also involves:

• Product-for-product substitution (email for mail, fax); is based on the substitution of need;

• Generic substitution (Video suppliers compete with travel companies);

• Substitution that relates to something that people can do without (cigarettes, alcohol).

Force 4: Buyer Power

Buyer power is one of the two horizontal forces that influence

the appropriation of the value created by an industry

The most important determinants of buyer power is the size and the concentration of customers.

Other factors are the extent to which the buyers are informed and the concentration or

differentiation of the competitors.

It is often useful to distinguish potential buyer power from the buyer's willingness or

incentive to use that power,

willingness that derives mainly from the “risk of failure” associated with a product's use.

• This force is relatively high where there a few, large players in the market,

as it is the case with retailers an grocery stores;

• Present where there is a large number of undifferentiated, small suppliers,

such as small farming businesses supplying large grocery companies;

• Low cost of switching between suppliers, such as from one fleet supplier of trucks to another.

Force 5: Supplier Power

Supplier power is a mirror image of the buyer power.

As a result, the analysis of supplier power typically focuses

first on the relative size and concentration of suppliers relative to industry participants and

second on the degree of differentiation in the inputs supplied.

The ability to charge customers different prices in line with differences

in the value created for each of those buyers usually indicates that

the market is characterized by high supplier power and at the same time by low buyer power

Bargaining power of suppliers exists in the following situations:

• Where the switching costs are high (switching from one Internet provider to another);

• High power of brands (McDonalds, British Airways, Tesco);

• Possibility of forward integration of suppliers (Brewers buying bars);

• Fragmentation of customers (not in clusters) with a limited bargaining power

(Gas/Petrol stations in remote places).

The nature of competition in an industry is strongly affected by suggested five forces.

The stronger the power of buyers and suppliers,

and the stronger the threats of entry and substitution,

the more intense competition is likely to be within the industry

Porter's Generic Strategies

Porter's generic business strategies provide a set of methods that can be used singly or

in combination to create a defendable business strategy.

They also allow firms that use them successfully to gain a competitive advantage

over other firms in the industry.

Firms either strive to obtain lower costs than their competitors or

to create a perceived difference between their product and the products of competitors.

Firms can pursue their strategy on a national level or on a more focused, regional basis.

The framework suggests that a company can maximize performance by

striving to be the cost leader in an industry,

by differentiating its products or services from those of other companies,

and by focusing on a narrow target in the market

companies can set themselves apart in at least two ways:

operational effectiveness (doing the same activities as competitors but doing them better)

and strategic positioning (doing things differently and delivering unique value for customers)

According to Porter, there are three generic strategies that

a company can undertake to attain competitive advantage:

cost leadership,

differentiation, and

focus.

Cost leadershipThe companies that attempt to become the lowest-cost producers in an industry

can be referred to as those following a cost leadership strategy.

The company with the lowest costs would earn the highest profits

in the event when the competing products are essentially undifferentiated,

and selling at a standard market price.

Companies following this strategy place emphasis on cost reduction

in every activity in the value chain.

It is important to note that a company might be a cost leader

but that does not necessarily imply that the company's products would have a low price.

In certain instances, the company can for instance charge an average price

while following the low cost leadership strategy and

reinvest the extra profits into the business

Examples of companies following a cost leadership strategy include

Jetlite and GoAir, in airlines, and More and Big Bazar, in superstores.

The risk of following the cost leadership strategy is that the company's

focus on reducing costs, even sometimes at the expense of other vital factors,

may become so dominant that the company loses vision of why

it embarked on one such strategy in the first place

Overall cost leadership requires firms to develop policies aimed at becoming and

remaining the lowest-cost producer and/or distributor in the industry.

Company strategies aimed at controlling costs include construction of efficient-scale facilities,

tight control of costs and overhead, avoidance of marginal customer accounts,

minimization of operating expenses, reduction of input costs, tight control of labor costs,

and lower distribution costs.

The low-cost leader gains competitive advantage by getting its costs of production or distribution lower than those of the other firms in its market.

The strategy is especially important for firms selling unbranded commodities such as Vegetables or Grain.

Differentiation When a company differentiates its products, it is often able to charge a premium price for its products or services in the market.

Some general examples of differentiation include better service levels to customers, better product performance etc. in comparison with the existing competitors.

Porter has argued that for a company employing a differentiation strategy,

there would be extra costs that the company would have to incur.

Such extra costs may include high advertising spending to promote

a differentiated brand image for the product, This can be considered as a cost and an investment.

McDonalds , for example, is differentiated by its very brand name and images of Big Mac and Ronald McDonald.

Differentiation has many advantages for the firm which makes use of the strategy.

Some problematic areas include the difficulty on part of the firm to estimate if the extra costs entailed in differentiation can actually be recovered from the customer through premium pricing.to create something about its product or service that is perceived as unique throughout the industry. Whether the features are real or just in the mind of the customer, customers must perceive the product as having desirable features not commonly found in competing products.

Moreover, successful differentiation strategy of a firm may attract competitors to enter the company's market segment and copy the differentiated product The customers also must be relatively price-insensitive.

Adding product features means that the production or distribution costs of a differentiated product may be somewhat higher than the price of a generic, non-differentiated product.

Customers must be willing to pay more than the marginal cost of adding the differentiating feature if a differentiation strategy is to succeed.

Differentiation may be attained through many features that make the product or service appear unique.

Possible strategies for achieving differentiation may include:

warranties (e.g., Godrej white goods) brand image (e.g., Coach handbags, Tommy Hilfiger sportswear)

technology (e.g. Hewlett-Packard laser printers) features (e.g. Whirlpool appliances)

service (e.g. Makita hand tools) quality/value (e.g., Walt Disney Company) dealer network (e.g., Caterpillar construction equipment)

Differentiation does not allow a firm to ignore costs;

it makes a firm's products less susceptible to cost pressures from competitors

because customers see the product as unique and are willing to pay

extra to have the product with the desirable features.

Differentiation can be achieved through real product features or

through advertising that causes the customer to perceive that the product is uniqueDifferentiation may lead to customer brand loyalty and result in reduced price elasticity.

Differentiation may also lead to higher profit margins and reduce the need to be a low-cost producer.

Since customers see the product as different from competing products and they like the product features,

customers are willing to pay a premium for these features.

As long as the firm can increase the selling price by more than the marginal cost of adding the features, the profit margin is increased.

Firms must be able to charge more for their differentiated product than it costs them to make it distinct, or else they may be better off making generic, undifferentiated products.

Firms must remain sensitive to cost differences. They must carefully monitor the incremental costs of differentiating their product and make certain the difference is reflected in the price.

Focus

The generic strategies of cost leadership and differentiation are oriented toward industry-wide recognition.

The final generic strategy, focusing (also called niche or segmentation strategy),

involves concentrating on a particular customer, product line, geographical area, channel of distribution,

stage in the production process, or market niche.

The underlying premise of the focus strategy is that a firm is better able to serve a limited segment more efficiently

than competitors can serve a broader range of customers.

Firms using a focus strategy simply apply a cost leader or differentiation strategy

to a segment of the larger market.

Firms may thus be able to differentiate themselves based on meeting customer needs,

or they may be able to achieve lower costs within limited markets.

Focus strategies are most effective when customers have distinctive preferences

or specialized needs. A firm following the focus strategy concentrates on meeting the specialized needs

of its customers. Products and services can be designed to meet the needs of buyers.

One approach to focusing is to service either industrial buyers or consumers, but not both.

Firms utilizing a focus strategy may also be better able to tailor advertising and

promotional efforts to a particular market niche Firms may be able to design products specifically for a customer. Customization may range from individually designing a product for a customer

to allowing customer input into the finished product.

Tailor-made clothing and custom-built houses include the customer in all aspects of production,

from product design to final acceptance. Key decisions are made with customer input.

PEST Analysis

PEST analysis looks at the external business environment.

It is an appropriate strategic tool for understanding the "big picture" of the environment in which business operates, enabling the company to take advantage of the opportunities and minimize the threats faced by their business activities.

When strategic planning is done correctly, it provides a solid plan for a company to grow into the future.

With a PEST analysis, the company can see a longer horizon of time, and be able to clarify strategic opportunities and threats that the organisation faces.

By looking to the outside environment to see the potential forces of change looming on the horizon,

Companies can take the strategic planning process out of the arena of today and into the horizon of tomorrow.

A PEST analysis is merely a framework that categorizes environmental influences as political,

economic, social and technological forces. Sometimes two additional factors,

environmental and legal, will be added

The analysis examines the impact of each of these factors (and their interplay with each other) on the business.

The results can then be used to take advantage of opportunities and to make contingency plans for threats when preparing business and strategic plans

PEST analysis is a useful strategic tool for understanding market growth or decline, business position,

potential and direction for operations.

PEST also ensures that company’s performance is aligned positively with the powerful forces of change that are affecting business environment

PEST analysis incorporates four perspectives, which give a logical structure,

providing clear presentation for further discussions and proactive decision-makings.

In writing a good PEST,

subject should be a clear definition of the market being addressed, which might include the following issues of:

a company looking at its market

a product looking at its market

a brand in relation to its market

a local business unit

a strategic option, such as entering a new market or launching a new product

a potential acquisition

a potential partnership

an investment opportunity

It is crucial to describe the subject for the PEST analysis clearly so that people, contributing to the analysis, and those interpreting the results from PEST analysis, could understand the purpose of the PEST assessment and its implications

Before producing a good PEST analysis, it is of primary importance to, firstly, brainstorm the relevant factors that apply to the company or to its business environment.

Second requirement is to identify the information that applies to these factors;

and thirdly, to draw conclusions from this information. It is, however, necessary not only to describe factors, but to think through what they mean and how they impact the business.

PEST analysis is only a strategic starting point, and has its own limitations,

emphasizing the need to test the conclusions and findings against the reality.In conducting PEST analysis, it is required to consider each PEST factor as they all play a part in determining the overall business environment.

Some examples of topics include the following

Political: (includes legal and regulatory):

elections, employment law, consumer protection, environmental regulations, industry-specific egulations, competitive regulations, inter-country relationships/attitudes, war, terrorism, political trends, governmental leadership,Taxes and government structures.

Economic:

economic growth trends (various countries), taxation, government spending levels, disposable income, job growth/unemployment, exchange rates, tariffs, inflation, consumer confidence index, import/export ratios, and production levels.

Social:

demographics (age, gender, race, family size, lifestyle changes, population shifts, education, trends, fads, diversity, immigration/emigration, health, living standards, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity.

Technological:

inventions, new discoveries, research, energy uses/sources/fuels, communications, rates of bsolescence,

health (pharmaceutical, equipment, etc.), manufacturing advances, information technology, internet,

transportation, bio-tech, genetics, agri-tech, waste removal/recycling, and so on.

Finding Information for PEST Analysis

Newspapers, periodicals, current books ,Trade organizations Government agencies Industry analysts

Financial analysts

One of the potential disadvantages collecting from the secondary sources is derived from issues of validity, reliability and relevance. The problem could arise based on the past data and past events being collected within past environmental conditions. Therefore, the data has to be checked and applied to the current business conditions.

After the key trends have been identified, the next step is to analyze the potential each trend has to disrupt the way the company does business. The company is able to determine the changes needed to exploit the opportunities, and blunt the threats

The strategic triangle of 3C's

3C‘s framework of Kenichi Ohmae

The 3C's model (three C's framework) of Kenichi Ohmae, a famous Japanese strategy guru,

stresses that a strategist should focus on three key factors for success.

"In the construction of any business strategy, three main players must be taken into account:

the corporation itself,

the customer, and

the competition".

Only by integrating the three C's (Customer, Competitor, and Company) in a strategic triangle, sustained competitive advantage can exist.

These key factors are also referred to as the three C's or the strategic triangle.

Customer-based

Customer-based strategies are the basis of all strategy. A corporation's foremost concern ought to be

the interest of its customers rather than that of its stockholders and other parties.

the corporation that is genuinely interested in its customers is the one that will be interesting to investors".

Segmenting by objectives:

Here, the differentiation is done in terms of the different ways different customers use the same product. Take coffee, for example. Some people drink it to wakeup or keep alert, while others view coffee as a way to relax or socialize (coffee breaks).

Segmenting by customer coverage:

This type of strategic segmentation normally emerges from a trade-off study of marketing costs versus market coverage. There appears always to be a point of diminishing returns in the

cost-versus-coverage relationship. The corporation's task, therefore

is to optimize its range of market coverage,

be it geographical or channel,

so that its cost of marketing will be advantageous relative to the competition.

Re-segmenting the market:

In a fiercely competitive market, the corporation and its head-on competitors are

likely to be dissecting the market in similar ways. Over an extended period of time the effectiveness of a given initial strategic segmentation will tend to decline.

In such a situation it often pays to pick a small group of key customers and reexamine what it is that they are really looking for.

Changes in customer mix:

Such a market segment change occurs where the forces at work are altering the distribution of the user-mix by influencing demography, distribution channels, customer size, etc.

This kind of change calls for shifting the allocation of corporate resources and/or changing the absolute level of resources committed in the business, failing which severe losses in the market share can occur.

Corporate-based strategies.

They aim to maximize the corporation's strengths relative to the competition in the functional areas that are critical to success in the industry.

Selectivity and sequencing:

In order to win, the corporation must have a clear lead in one or more function from sourcing to functioning. If it can gain a decisive edge in one key function, it will eventually be able to pull ahead of the competition in other functions that may now be no better than mediocre.

A case of make or buy:

In case of rapidly rising wage costs, it becomes a critical decision for a company to subcontract a major share of its assembly operations. Competitors may not be able to shift production so rapidly to subcontractors and vendors, the resulting difference in cost structure and/or in the company's ability to cope with demand fluctuations could have have significant strategic implications.

Improving cost-effectiveness:

This can be done in three basic methods. The first

Reducing basic costs much more effectively than the competition. The second

To Simply exercise greater selectivity in terms of orders accepted, product offered, or functions to be performed which means cherry-picking the high-impact operations so that as others are

eliminated, functional costs will drop faster than sales revenues.

The third To share a certain key function among the corporation's other businesses

or even with other companies. Experience indicates that there are many situations in which sharing resources in one or more basic sub-functions of marketing can be advantageous.

Competitor-based strategies

These can be constructed by looking at possible sources of differentiation in functions ranging from purchasing, design, and engineering to sales and servicing.

The power of an image:

Both Sony and Honda outsell their competitors as they invested more heavily in public relations and promotion and managed these functions more carefully than did their competitors.

When product performance and mode of distribution are very difficult to differentiate, image may be the only source of positive differentiation. But as the case of the Swiss watch industry reminds us,

a strategy built on image can be risky and must be monitored constantlyCapitalizing on profit- and cost-structure differences:

Firstly, the difference in source of profit might be exploited,

e.g. profit from new product sales, profit from services etc.

Secondly, a difference in the ratio of fixed cost to variable cost

might also be exploited strategically

e.g. a company with a lower fixed cost ratio can lower prices in a sluggish market

and win market share. This hurts the company with a higher fixed cost ratio

as the market price is too low to justify its high-fixed-cost-low-volume operation.

Tactics for flyweights:

A company chooses to compete in mass-media advertising or massive R&D efforts,the additional fixed costs will absorb such a large portion of its revenuehat its giant competitors will inevitably win.

It could though calculate its incentives on a graduated percentage basis rather than on absolute volume, thus making the incentives variable by guaranteeing the dealer a larger percentage of each extra unit sold.