Strategic marketing Analysis

 

Strategic analysis refers to the process of conducting research on a company and its operating environment to formulate a strategy. … Defining the internal and external environments to be analyzed. Using several analytic methods such as Porter’s five forces analysis, SWOT analysis

Undertaking a strategic analysis is the foundation upon which strategic decisions are constructed. In this text strategic analysis is broken down into three constituent elements: external analysis, customer analysis and internal analysis. The aim of the process is to develop a detailed and all embracing view of the company and its external environment so as to permit the organisation to formulate informed strategic decisions.

 

• External analysis

An analysis of the external environment is undertaken in order to discover the opportunities and threats that are evolving and that need to be addressed by the organisation.

An analysis of the external environment can be broken down into three key steps each becoming more specific to the organisation. The first step is an analysis of the macro-environmental (PESTEL) influences that the organisation faces. This is followed by an examination of the competitive (micro) environment the organisation operates within. Finally a specific competitive analysis is undertaken.

• Macro-environmental analysis

The macro-environment audit examines the broad range of environmental issues that may affect the organisation. This will include the political/legal issues, economic factors, social/cultural issues and technological developments. This is normally referred to as a PEST (Political, Economic, Social and Technological) analysis, although some writers use the alternative acronym of STEP analysis.The aim of this analysis is to identify the critical issues in the external environment that may affect the organization, before judging the impact they may have on the organisation.

Political/legal issues

• Environmental protection measures
• Taxation policy
• Employment law
• Monopoly controls
• Environmental legislation
• Foreign trade agreements
• Stability of the governmental system

 

Economic factors

• Interest rates
• Money supply
• Inflation rates
• Business cycles
• Unemployment
• GNP trends

Social/cultural issues

• Age profiles
• Social mobility
• Changes in lifestyles
• Family structures
• Levels of education
• Work behaviour
• Leisure activities
• Distribution of income
• Patterns of ownership
• Attitudes and values

Technological factors

• Focus of government research
• Rate of technology transfer
• Materials
• Developing technological processes

 

• Industry analysis

An organisation has to understand the nature of the relationship within its industry, in order to allow the enterprise to develop strategies to gain advantage of the current relationships. A useful framework, that can be utilised when undertaking this analysis, is Porter’s ‘five forces’ model of establishing industry attractiveness for a business. This analysis should be conducted at the level of the individual strategic business unit (SBU).

 

• Competitor analysis

The ‘five forces’ analysis has examined the overall industry and is a starting point in assessing a company’s competitive position. This is likely to be a broad definition of an industry and contains a number of companies that would not be direct competitors. Companies that are direct competitors in terms of products and customer profiles are seen as being in a strategic group.

Strategic groups are made up of organisations within the same industry that are pursuing equivalent strategies targeting groups of customers that have similar profiles.

There is a range of attributes that can be used to identify strategic groups. Some examples are as follows:

• Size of the company
• Assets and skills
• Scope of the operation
• Breadth of the product range
• Choice of distribution channel
• Relative product quality
• Brand image

For many companies analyzing every competitor in its generic industry, would be a difficult task in terms of management time and company resources. Defining an organisation’s strategic group allows a company to concentrate its analysis on its direct competitors and to examine them in more detail.

Tools used to analyse the internal environment, such as the value chain, can also be used to analyse competitors. For each competitor in their strategic group an organisation needs, as far as possible, to establish the following:

• Competitors objectives: Competitors objectives can be identified by analysing three important factors. They are as follows:

1 Whether the competitor’s current performance is likely to be fulfilling their objectives. If not the competitor may initiate a change of strategy.

2 How likely the competitor is to commit further investment to the business. Financial objectives may indicate this.

3 The likely future direction of the competitor’s strategy. The organisation may have non-financial objectives, such as gaining technology leadership.

• Competitor’s current and past strategies: There are three areas that should be explored in order to establish a competitor’s current activities. They are as follows:

1 Identification of the current markets, or market segments, within which the competitor currently operates. This will indicate the scope of the business.

2 Identification of the way the competitor has chosen to compete in those markets. Is it based on quality of service, brand image or on price? This may be an indication of whether a low cost or differentiation strategy is being pursued.

3 Comparison between the current strategy and past strategies can be instructive. Firstly it can illustrate the direction the competitor is moving, in terms of product and market development, over time. It can also highlight strategies that the organisation has tried in the past and have failed.

• Competitor’s capabilities: An analysis of a competitor’s assets and competencies allow a judgement to be made about how well equipped they are to address the market, given the dynamics in the industry and the trends in the external environment. In order to evaluate a competitor’s potential challenge to an organisation a number of areas need to be examined:

–  Management capabilities: The level of centralisation or de-centralisation of management decisions will also affect decision making. Recruitment and promotion policies, along with the remuneration and rewards scheme, all give an indication as to the culture and style of the management team.

– Marketing capabilities: An analysis of the competitor’s actions, with the marketing mix, uncovers the areas where their marketing skills are high and also areas of vulnerability. There are a number of questions that can be asked: How good is the competitor’s product line? Do they have a strong brand image? Is their advertising effective? How good are their distribution channels? How strong is their relationship with customers?

– Innovation capabilities: Evaluating a competitor’s ability to innovate allows an organisation to judge how likely the rival is to introduce new products and services or even new technology. Assessing the quality of a competitor’s technical staff, its technical facilities and their level of investment in research and development will all help indicate their likely potential in this area.

– Production capabilities: The configuration of a competitor’s production infrastructure can highlight areas that may place them at an advantage or conversely point out areas that are problematic to a competitor. Such factors could be geographic spread of plant, level of vertical integration or level of capacity utilisation.

– Financial capabilities: The ability to finance developments is a critical area. Competitors that have strong cash flows, or are a division of a major group, may have the ability to finance investment not available to other competitors.

• Competitors future strategies and reactions: One of the aims of the competitor analysis so far has been to gather information on rivals to establish their likely future strategy. Equally important is to evaluate competitor’s likely reactions to any strategic moves the organisation might instigate.

 

The competitive analysis has allowed the organisation to establish its relative position versus its competitors on a range of important criteria. However the organisation has to judge itself and its competitors against the market it is operating within.

 

The market analysis

Amarket analysis would normally include the following areas:

• Actual and potential market size: Estimating the total sales in the market allows the organisation to evaluate the realism of particular market share objectives. Identifying the key sub-markets of this market, and potential areas of growth, as it is crucial to developing a marketing strategy, as is establishing if any areas are in decline.
• Trends: Analysing general trends in the market identifies the changes that have actually taken place. This can help to uncover the reasons for these changes and expose the critical drivers underlying a market.
• Customers: The analysis needs to identify who the customer is and what criteria they use to judge a product offering. Information on where, when and how customers purchase the product, or service, allows an organisation to begin to understand the needs of the. Identifying changing trends in consumer behaviour may begin to signal potential market developments and opportunities.
• Customer segments: Identifying current market segments and establishing the benefits each group requires allows an organisation to detect if it has the capability to serve particular consumer’s needs.
• Distribution channels: Identifying the changes of importance between channels of distribution, based on growth, cost or effectiveness, permits a company to evaluate its current arrangements. Establishing the key decision makers in a channel of distribution also helps to inform strategic decisions.