Understanding Your Business

8/14/2019 Understanding Your Business

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Understanding your business(Situation Analysis)

IntroductionSituation Analysis

In order to profitably satisfy customer needs, the firm first mustunderstand 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 itoperates.

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 thesethings. It is used to understand what kind of environment yourcompany will be in, what are the factors that may affect its possibilityto succeed, and what might make your business fail.

S.As offer both simplicity and flexibility in the structure of the activity.You can modify, move, add or delete information over any period oftime as you discover information that you feel is relevant. ASituational Analysis is comprehensive and looks at all aspects of abusiness; drawing your focus to factors you may have otherwiseoverlooked. Its organized and easy to access; including relevantqualitative and quantitative information effecting business operationspast, present & future. It allows you to easily collaborate with peerswhere the sharing of information can be a valuable tool in gainingopinions relevant to you decision to buy, sell or hold a position.Finally, any S.A. performed on a specific company is then easy to


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compare against peers in the same industry, sector or group ofstocks to gain a sense of relative strength or weakness.

A useful framework for performing a situation analysis is the 5 CAnalysis. The 5C analysis is an environmental scan on five keyareas especially applicable to marketing decisions. It covers theinternal, the micro-environmental, and the macro-environmentalsituation. The 5 C analysis is an extension of the 3 C analysis(company, customers, and competitors), to which some marketersadded the 4th C of collaborators. The further addition of a macro-environmental analysis (climate) results in a 5 C analysis, someaspects of which are outlined below.

Internal Environment

The Internal Environment of a company involves all activities of thebusiness from an inside point of view: what factors affect thedaily operations of the company. A S.W.O.T. is simply a four partcomparison of a companys internal environment that consists ofStrengths, Weaknesses, Opportunities (for future success) andThreats (to future success). Its important to not include any

information from outside factors; were examining a companyfrom within only and all other aspects are examined in theSituational Analysis later on in other components.

Suitable Examples of each:

Strength: streamlined supply chain managementWeakness: poorly trained & executed sales forceOpportunities: new strategic alliance with ABC CompanyThreat: rising material and overhead costs

Not Suitable Examples of each:Strength: get stuff to places fastWeakness: crappy productsOpportunities: sell more stuffThreats: head office might collapse because its old


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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 youalways 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 possiblycan about a companys product or service and how theircustomer/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 customersThis section will provide insight back into the S.W.O.T. analysis so

you can add or modify more specific information that may beinvolved. The importance here is to understand the target market, itshabits, tendencies, likes & dislikes associated with a wide range ofspecific activities.


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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 overtime

The External Environment

The External Environment is usually the most difficult because it canbe 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. forthe company and looks at all external factors outside of the dailyoperations of a business: Political, Economical, Social &Technological. What you want to look for here are external factorsthat may: influence the companys business operations, legal orregulatory hindrance, emerging cultural trends, economicenvironment concerns or the changing needs of technology.

Suitable Examples of each:Political: unionized workforce, government involvement & jurisdictionEconomical: tariffs, embargos and foreign tax rulesSocial: cultural differences, community involvementTechnological: rapidly changing factors, patent infringement barriers

Not Suitable Examples of each:Political: government is full of crooks


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Economical: no one invests in this sectorSocial: people want more red shirtsTechnological: my phone dies when at my cottage

Climate (or context)

The climate or macro-environmental factors are:

Political & regulatory environment - governmental policies andregulations that affect the market

Economic environment - business cycle, inflation rate, interestrates, and other macroeconomic issues

Social/Cultural environment - society's trends and fashions

Technological environment - new knowledge that makespossible new ways of satisfying needs; the impact oftechnology on the demand for existing products.

The Competitive Environment

The Competitive Environment is the last component of a SituationalAnalysis. This section examines any and all factors that competition(whether direct or indirect) has or could have on the business youreresearching. 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 couldprovide- 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


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Strengths and weaknesses of competitors

The Relationships among Environments in aSituation Analysis

Obviously all the environments hold equal importance whileuncovering the factors of Situational Analysis. If we are asked tochoose the most important factor among all these above statedfactors, then in our opinion Customers are very crucial in SA.

InternalEnvironmen

t


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Q:Of the three major environments in a situationanalysis (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 theproducts or services that will meet their needs in terms of design,price and place. The understanding of their needs will be reflected inthe promotion of the offerings.

Youve heard that the customer is always right. You may or may not

agree with that statement, but everyone ought to agree thatcustomers hold a very important place in our lives. After all, withoutcustomers - people who buy our products and services - ourbusinesses close down and we all pack up to go home. The fasteryou can adapt to accommodate customer needs, the stronger yourcompanys reputation.

Just as parents of young children tend to their young breeds everyneed, businesses should concentrate on the needs of theircustomers. In todays demanding business emporium, it is crucial that

businesses consistently strive to focus on the needs of theircustomers. It makes no difference if your business offers a specifiedservice, or multiple products.

The bottom line is that the quality of customer service can ultimatelydictate whether a business will flourish or fail. Businesses are


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dependent on customers to survive. Customers are the foundation ofany business, without them a business simply wouldnt exist.

The importance of Customers Customers are the most important people for any organization.

They are the resource upon which the success of the businessdepends. When thinking about the importance of customers it isuseful to remember the following points:

1. Repeat business is the backbone of selling. It helps toprovide revenue and certainty for the business.

2. Organizations are dependent upon their customers. If theydo not develop customer loyalty and satisfaction, they couldlose their customers.

3. Without customers the organization would not exist.

4. The purpose of the organization is to fulfill the needs of thecustomers.

5. The customer makes it possible to achieve business aims

6. Repeat purchases by the customers will directly improve thecash flow- the life blood of any organization

Those days are gone when what so ever is produced by thecompany is sold out directly in the markets (Production Era).Now this is the Era of Customers/ Marketing Era. Markets havenow become customer oriented. Priority is given to thecustomers not to the organizations.

Quality Products

Often companies claim that we are giving quality products. WhatQuality is?
http://www.thetimes100.co.uk/glossary--organisation-1732.phphttp://www.thetimes100.co.uk/theory/theory--customers-their-expectations--280.phphttp://www.thetimes100.co.uk/glossary--revenue-2992.phphttp://www.thetimes100.co.uk/theory/theory--measuring-customer-satisfaction--413.phphttp://www.thetimes100.co.uk/glossary--aims-2846.phphttp://www.thetimes100.co.uk/glossary--organisation-1732.phphttp://www.thetimes100.co.uk/theory/theory--customers-their-expectations--280.phphttp://www.thetimes100.co.uk/glossary--revenue-2992.phphttp://www.thetimes100.co.uk/theory/theory--measuring-customer-satisfaction--413.phphttp://www.thetimes100.co.uk/glossary--aims-2846.php


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Quality is the relative term that expresses customer expectationslevel about a certain product or service. Companies are bound tomake such products or render those services which are meeting orexceeding customer expectations (customer delight)

There is a cut throat competition among differentorganizations. Customers are the judgmental bodies indeciding which product or organization is going to be themarket leader.

Many companies like KFC, Pizza Hut, and Shell etc are veryseriously looking for the customer feedback. They havedesigned customer feedback surveys or cards in order to focuson how they can improve their products or services with thehelp of customers reviews. The key to making the most of

customer feedback is looking for patterns and commonchallenges.

The key component in marketing and business growth is tospend the majority of your time and effort nurturing customerrelationships, so that you get business from existing clientsand customers. This is a strategy that will move you forwardin increasing your sales by 50% without increasing yourbudget.

[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 consideredto be its weakness by its customers. Shezan BakersConfectioners & Sweets is an old name and companyregards it as it is one of its major strengths but having an oldname or old existence in the market does not mean thatcompany will get high sales, large number of customers etcor they do not require product innovation (Shezan juices).


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Like wise, Candia bottled milk is the living example ofHaleeb foods failure to get customer attraction.

Learn About Your Customers (SavvyCustomers)

Customers are no more innocent as they were in the past. The timehas gone when what so ever the firms market was purchased by thecustomers. Now they question about lot of things even about theingredients and codes listed. They have become more experienced,knowledgeable and more demanding. They are living in a dynamicenvironment where electronic and print media is updating them every

time.Those companies with traditional strategies must forget aboutwinning hearts of the customers. They need to update their systemsand strategies in order to meet and excel customer expectations. Thisis possible only when they understand their customers.

Marketing Mix

When talking about price, place, promotion & product, we are talkingabout Customers Environment. A company with latest technology andefficient use of resources can be highly cost effective but theseproducts will become successful only when these goods will be soldto right customers at right place at right price with effective promotion.

Gourmet Bakers is one of the fastest growing local baker andconfectioner stores in Pakistan. Being a local company, theirapproach towards business is both professional and highlyaggressive.

I can't recall exactly in which year Gourmet started its operations inPakistan, but now they have an outlet in every nook n corner ofLahore at least. Think of any suburb and you'll surely find a brightorange signage with a big bold Gourmet written in bright white.


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What started as a bakery and sweet shop, soon turned into a mediumsized cash n carry retail outlet and has further expanded intolaunching a number of successful company owned products rangingfrom milk, ice creams, russ malai and many more.

The recent and probably the most impressive launch has been theGourmet Cola, which actually motivated me to put up this buzz. I amthoroughly impressed. It has become a threat for manymultinationals 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 halflitre bottle, a much lucrative offer as compared to the PKR 45 priceoffer by the international competitors Coke & Pepsi. Another

important information (not sure about the authenticity) that inspiredme was that Gourmet has cancelled an year long contract of worthPKR 15 million with Coke and removed it from all company outlets topromote its own brand. (For those who are wondering what contractthey had with coke, please note that its not easy to get shelf space inlarge retailers and on top of the product's retail margin, productmanufacturing companies have to make an upfront payment to earnan entry into the shop and better placement. This upfront price variesfor different products and retailers).

GOURMET KNOWS ITS TARGET MARKET IS PRICE SENSITIVE

At macro level, China is a huge example who has broughtrevolutionary changes in the world markets by understandingcustomer requirements and offering different levels of qualityfor different customers at varying prices.

The most prominent example of China products in Pakistan isPakistani 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 kainchichappal. But now China has capture almost 85% market shareand providing cost effective wide range of products rangingfrom ladies sandals to chapels and gents kohati chapel tooffice, school shoes, joggers etc all are now made in china.


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(Local markets. Income level: medium and low income groups.Not talking about upper income groups).

Q:What are some situations that would makeone 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, Culturaland legal environments are not the same. These factors areunpredictable and uncontrollable. No one can forecast about theseenvironments 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 performancein 25 years, plunging the country into deeper recession and sparkingfresh falls in the stock market.


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The economy shrank by a 6.2 per cent annual rate at the end of2008, considerably weaker than the 5.4 per cent decline economistshad expected. Consumer spending, which accounts for two-thirds ofUS economic activity, dropped 4.3 per cent despite deeplydiscounted sales during the Christmas holiday season, following onfrom a fall of 3.8 per cent in the third quarter.

The US government's latest move to aid Citigroup marks the thirdbailout bid for the ailing bank in the past five months, and willdramatically dilute existing stockholders stakes to as low as 26 percent as the government seeks to convert up to $25 billion in preferredshares for common stock.

Ford, General Motors, Chrysler... Do these companies need any

introduction? Of course not, recently these three companies sufferedgreat losses which were regarded as top 3 American companies. Tomeet their internal expenses, they had to cut down the number ofemployees to save amount of paychecks. Those who are fired fromtheir positions are now unemployed. As the Americans are facingrecession period in the economy, this means that all thoseunemployed people will be reluctant to spend in the markets which inturn will directly cut down the sales and automatically the profit ofProducts and/or service offering companies.

Political Issues:Assassination of Mohtarma Benazir Bhuttocaused economic crisis and political turmoil in Pakistan. Right afterthe news of her death created the environment of instability in all thefields of economy. News of her deathand fears of a nuclear powerpossibly sliding into anarchy as a resultdragged down global stockmarkets and sparked a wave of buying of United States Treasurysecurities, a traditionally safe haven. In afternoon trading, the Dow

Jones industrial average was down more than 150 points, or 1percent. Crude oil futures rose above $97 a barrel, and gold pricesalso gained. (The attack took place after stock markets in Pakistanand elsewhere in Asia was closed.)


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technology can improve productivity and the quality of products. Itcan expand the range of services that can be offered as well asextend the geographic distribution of these services. Thedevelopment and use of technology also plays a major role indetermining patterns of international trade by affecting thecomparative advantages of industrial sectors. Since technologicalprogress is not necessarily determined by economic conditions italso can be influenced by advances in science, the organization andmanagement of firms, government activity, or serendipity it canhave effects on trade independent of shifts in macroeconomic factors.New technologies also can help compensate for possibledisadvantages in the cost of capital and labor faced by firms.

Legal Issues: Lawsuits against the tobacco industry have lead todramatic changes in the way cigarette companies market theirproduct. Today, companies such as Phillip Morris are airingadvertisements illustrating the negative effects of their products. Inaddition, a proposed settlement agreement between the industry andthe attorney general of several states represent a threat that couldresult in a ban on some types of cigarette advertising and theregulation of nicotine by the FDA. As can be seen, it is important to

identify political/legal threats and opportunities in order to keep anedge on the market (Austainer, 1999).

Changes in the Internal Organizational Environment

Various elements within an organizations internal environment canalso have an impact on marketing activities. Changes in thestructuring of departments, lines of authority, top management, or

internal political climate can all create internal weaknesses that mustbe considered during the SWOT analysis as well as in thedevelopment of the marketing plan.

McDonalds has recently been feeling increased competitive pressurefrom Wendys and Burger King. In order to increase market share,McDonalds created new marketing campaigns and new sandwiches.


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However, McDonalds failed to get the cooperation of all itsfranchisees. When store sales began to fall, individual franchiseesstarted to band together to gain power to protect their investments.The increased power of the franchisees forced McDonalds to pullseveral advertisement campaigns due to lack of support. Prior to thisMcDonalds was used to getting their way with franchisees. Now, theshift in power from McDonalds to its franchisees has created aninternal weakness that the company must address as it develops andimplements new marketing strategies. Again, it is necessary toemphasize the importance of evaluating specific opportunities andthreats within your company (Marketing Strategy, 1998)


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CONCLUSION

Modern business environment is famous for various newtrends. An environment where the businesses used to hireemployees for the sake of monetary benefits only is nowchanged in multi dimensional and multi prongedenvironment. Now business are not run for the sake ofmoney and short term financial benefits only but for a longtime sustainable growth and development. Now the onlyfocus of all business is CUSTOMER and Customer

Satisfaction. This Customer Satisfaction (CS) cannot beachieved without proper involvement of internal customersi.e., employees. We must keep in-house customer happy tomaintain productivity. For external customers, we must keepthem happy or they find someone else to provide them aproduct or service.

Companies start their business philosophy from their main

goals or objectives and make clear statements showing theirmission and values. All lateral developments are performedon the basis of these predetermined values. Modernbusinesses focus only on customer satisfaction and this isthe core concept of business as well.

Now question is the responsibility of achieving customersatisfaction without any failure. Many plans are made for

wining customer satisfaction, but all would be failure ifcompany is not sure about the persons, method and tacticsof achieving customer satisfaction. Whole management andits team are responsible for achieving business results so isthe customer satisfaction. Modern management has nodoubt in it that customer satisfaction can only be achieved if


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all employees regardless their departments work hard tosatisfy customers.

What to Do

First things first: We need to discover our customersopinions of our products and/or service. This occurs byasking. Using todays technology, this can happen by usingsomething as simple as a feedback card, or by using anonline service. Plenty of options exist.

Second, after gathering information, analyze it. Ask thetough questions and arrive at the tough answers. Be as

objective as you can.

Third, act. Change what is necessary to improve yourcustomer service rating. The more you can meet customerneeds, the better your chance for long-term success in ourfast-paced, ever-changing world.

Theres a book by Jason Jennings and Laurence Haughtonthat explains it all: Its Not The Big That Eats The Small, Its

The Fast That Eats The Slow. In other words, we need torespond to customer needs in a timely manner if were goingto survive.

Bottom line: If you dont know how youre being perceivedby your customers, you dont know if youre truly hitting themark you set out for yourself. Ask. Seek answers. Thenmake informed decisions about how you can improve to

meet your customers needs.


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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?


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Appendices:

1. (Source: www.netmba.com/marketing)

2. (Source: Principles of Marketing by: Philip Kotler and GaryArmstrong 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 colahttp://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 importanthttp://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/2009/02/2009227152814720247.html

11. http://www.portfolio.com/news-markets/top-5/2007/12/27/What-Bhuttos-Death-Changess
http://www.netmba.com/marketinghttp://www.buzzvines.com/gourmet-launched-new-colashttp://www.nurseb911.com/2007/07/situational-analysis.htmlhttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.thetimes100.co.uk/theory/theory--why-customers-are-important--283.phphttp://www.thetimes100.co.uk/theory/theory--why-customers-are-important--283.phphttp://english.aljazeera.net/news/americas/2009/02/2009227152814720247.htmlhttp://english.aljazeera.net/news/americas/2009/02/2009227152814720247.htmlhttp://www.portfolio.com/news-markets/top-5/2007/12/27/What-Bhuttos-Death-Changesshttp://www.portfolio.com/news-markets/top-5/2007/12/27/What-Bhuttos-Death-Changesshttp://www.netmba.com/marketinghttp://www.buzzvines.com/gourmet-launched-new-colashttp://www.nurseb911.com/2007/07/situational-analysis.htmlhttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.management-issues.com/2006/5/25/opinion/the-importance-of-customer-opinion.asphttp://www.thetimes100.co.uk/theory/theory--why-customers-are-important--283.phphttp://www.thetimes100.co.uk/theory/theory--why-customers-are-important--283.phphttp://english.aljazeera.net/news/americas/2009/02/2009227152814720247.htmlhttp://english.aljazeera.net/news/americas/2009/02/2009227152814720247.htmlhttp://www.portfolio.com/news-markets/top-5/2007/12/27/What-Bhuttos-Death-Changesshttp://www.portfolio.com/news-markets/top-5/2007/12/27/What-Bhuttos-Death-Changess


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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 RichardR. Nelson and Paul M. Romer, Science,

Economic Growth, and Public Policy, in Bruce R. Smith and ClaudeE. Barfield, eds.Technology, R&D, and the Economy, (Washington, The BrookingsInstitution 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).


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MARKETING STRATEGIES

Of the three major environments in a situationanalysis (internal, customer, external), which do youthink is the most important in a general sense? Why?

What are some situations that would make oneenvironment more important than others?

SUBMITTED BY

SHAHBAZ CHAUDHRY BBA 8thNAZISH SOHAIL BBA 8th

M USMAN AKRAM MBAKHURRAM SALEEM MBA

SUBMITTED TO

SIR KAMRAN SAEED

HAJVERY UNIVERSITY LAHORE

Documents

Understanding Your Business