Situation Analysis Chapter II
Situation Analysis
Chapter II
Purpose of Situation Analysis
Creates a shared understanding of the company and the environment in which it operates, including:1. Industry structure2. Basic facts about competitors3. Basic facts about customers4. Assess Company’s core capabilities5. Forces shaping the industry
FOUNDATION for STRATEGY DEVELOPMENTFOUNDATION for STRATEGY DEVELOPMENT
1. Industry structure
The fundamental unit of strategic analysis is the industry
Industry Structure
Relative Position Within the
Industry
STRATEGY
Company economic
performance
Company economic
performance
Industry Structure – Porter’s five forces
BARGAININGPOWER OFSUPPLIERS
BARGAININGPOWER OFSUPPLIERS
BARGAININGPOWER OF
CUSTOMERS
BARGAININGPOWER OF
CUSTOMERS
THREAT OFSUBSTITUTESTHREAT OF
SUBSTITUTES
THREAT OFNEW ENTRANTS
THREAT OFNEW ENTRANTS
RIVALRY AMONG
EXISTINGCOMPETITORS
RIVALRY AMONG
EXISTINGCOMPETITORS
Industry Structure – Porter’s Six Forces
BARGAININGPOWER OFSUPPLIERS
BARGAININGPOWER OFSUPPLIERS
BARGAININGPOWER OF
CUSTOMERS
BARGAININGPOWER OF
CUSTOMERS
THREAT OFSUBSTITUTESTHREAT OF
SUBSTITUTES
AVAILABILITY OFCOMPLEMENTS
AVAILABILITY OFCOMPLEMENTS
RIVALRY AMONG
EXISTINGCOMPETITORS
RIVALRY AMONG
EXISTINGCOMPETITORS
THREAT OFNEW
ENTRANTS
THREAT OFNEW
ENTRANTS
Rivalry Determinants Industry growth Fixed costs/value added Intermittent overcapacity
Product differences Brand identity Switching costs
Concentration and balance Informational complexity Diversity of competitors
Corporate stakes Exit barriers
RIVALRY AMONG
EXISTINGCOMPETITORS
RIVALRY AMONG
EXISTINGCOMPETITORS
Entry Barriers
Economies of scale Proprietary product differences Brand identity
Switching costs Capital requirement Access to distribution
Absolute cost advantages Government policy Expected retaliation
THREAT OFNEW ENTRANTS
THREAT OFNEW ENTRANTS
Determinants of Supplier Power Differentiation of inputs Switching costs of suppliers and firms in the
industry Presence of substitute inputs
Supplier concentration Importance of volume to supplier Cost relative to total purchases in the industry
Impact of inputs on cost or differentiation Threat of forward integration relative to threat
of backward integration by firms in the industryBARGAINING
POWER OFSUPPLIERS
BARGAININGPOWER OFSUPPLIERS
Suppli
es
Determinants of Substitution Threat Relative price performance of substitutes
Switching costs
Buyer propensity to substitute
THREAT OFSUBSTITUTESTHREAT OF
SUBSTITUTES
Determinants of Buyer Power
Bargaining Leverage Buyer concentration
vs. firm concentration Buyer volume Buyer switching costs
relative to firm switching costs
Buyer information Ability to backward
integrate Substitute products Pull-through
Price sensitivity Price/total purchases Product differences Brand identity Impact on
quality/performance Buyer profits Decision makers’
incentives
BARGAININGPOWER OF
CUSTOMERS
BARGAININGPOWER OF
CUSTOMERS
A Sixth Force - Complements
…Crucial for a successful strategy is to establish:– Who are your complementors– What is your strategy with respect to them
…pay more for your two
products together than for your product alone plus the other firm’s product
alone
…pay more for your two
products together than for your product alone plus the other firm’s product
alone
Your Complementor
Your Complementor
…accept less to serve both of you together than they would if supplying you alone plus the other firm alone
…accept less to serve both of you together than they would if supplying you alone plus the other firm alone
With respect to clients
With respect to clients
With respect to suppliers
With respect to suppliers
2. Basic facts about Competitors Develop the competitors profile including:
– Economic performance– Current market position – such as share– Core capabilities– Strengths and weaknesses– Aspirations– Strategies going forward
Determine the relative value proposition of the client’s and competitors’ products and services as perceived by the customer
Basic facts about Competitors - Example
TVR 1
PRO TV
Antena 1
Acasa TV
Prima TV
Realitatea TV
Overall share
InvestmentsAwaren
ess
Strength of relation-
ships
Coverage
20%
16%
14%
8%
5%
3.4%
Strong
Weak
Growth(CAGR 2005-
2003)
15%
9%
7%
6%
5%
3%
Profitability (ROIC)
20%
13%
11%
14%
10%
8%
Strengths Weakness
Defining Value Proposition
… clear, simple statement of the perceived benefits a product or service will provide to its target customers and the perceived price (cost) of those benefits
What Customer
s?
What Customer
s?
Which Needs?Which Needs?
What Relative
Price
What Relative
Price
•Which products?
•Which features?
•Which services?
•What end users?
•What channels?
3. Basic facts about CustomersA. Understand customer behavior
– Focus Groups– Industry quantitative studies (e.g. SNA for
Media)
B. Segment the customer Base– Is important especially for your business
clients (advertisers)
C. Assess attractiveness of different segments
A. Understand Customer behavior
Personal spending on press in the last
month(000 persons)
% of total urban population
More than RON 50
324 3.6
20.1-50 RON 1164 12.9
10.1-20 RON 1912 21.1
6.1-10 RON 1974 21.8
2.1-6 RON 1560 17.3
0.1-2 RON 678 7.5
0 RON 1292 14.3
B. Segment the Customer Base
Segmentation
approaches
Segmentation
approaches
ConstraintsConstraints
PerceptionsPerceptions
NeedsNeeds
BehaviorsBehaviors
RelationshipRelationship
OccasionsOccasions FirmographicsFirmographics
ProfitabilityProfitabilityAttitudesAttitudes
How is the customer's organization characterized?
What does the customer do in the marketplace?
Which key aspects have defined the customer'slifecycle?
How financially sound is the relationship with the customer?
How does the customer respond to different situations?
Which limitations are impacting the customer's actions?
What does the customer believe about the marketplace?
What underlying beliefs are shaping the customer's mindset?
What value does the customer require or want?
Segmentation Techniques (1)Approach
Firmographics
Behaviors
Relationship
Profitability
•As a “first cut” to understand relative penetration across business categories
•During sales process
•As a first-level segmentation in business-to-business markets
•As a “quick proxy” to test range of customer needs
•As a test of marketing effectiveness
•To identify likely cross-selling targets
•As a broad tool for classifying opportunities with customers
•To anticipate needs across life-cycle
•To pinpoint retention problems across tenure groups
•As a key tool to target a more profitable mix of customers
•To upgrade the profitability of customer accounts
•To quantify the impact of marketing programs over time
When to use Key insights
•Data easy to obtain•Companies with similar
firmographics can have very different needs and relationship profitability
•One of the best methods for segmentation in business-to-business
•Do not place too much emphasis on internal client behavioral information
•Accurate data can be hard to find
•Key drivers of customer profitability are loyalty and retention
•Account relationship segmentation can yield quick insights that can boost sales force productivity
•Back-of-the-envelope profitability can be wrong or misleading
•Building solid customer economics takes time
•Data can be hard to find
Data source
•Third party databases
•Industry trade assoc.
•Customer information files
•Customer information files
•Custom market research
•Customer information files
•Custom market research
•Customer information files
•Custom market research
Segmentation Techniques (2)Approach
Needs
Attitudes
Perceptions
Constraints
Occasions
•As a primary input into the development of the value required or wanted
•As a supplement to needs-based segmentation
•As a means to uncover latent needs that the customer cannot articulate
•To identify customers who are at different satisfaction levels
•To generate key insights into brand strategy
•In combination with behavioral and needs-based segmentation approaches to fully understand factors which may be limiting a customer’s market actions
•When customers are likely to behave differently in different situations
•When the marketer is interested in creating multi-mode marketing programs
Key insights
•Must consider needs of multiple decision-makers and influencers
•Most useful when high emotional components are present (consulting)
•A customer’s perception is their reality
•Can provide useful insights into market opportunities, but should not provide the basis of segmentation
•Some constraints are more evident than others – defining constraints is a powerful tool for business expansion
•Popular in consumer marketing•Can surface insights for product
development/marketing communications
•Custom market research
•Custom market research
•Custom market research
•Custom market research
•Team brainstorming•Account rep
interviews
•Historical account data
•Custom market research
Data sourceWhen to use
C. Assess attractiveness of different segments
–Relative price points–ROICs per segment–Cost to serve
–Size of addressable customer base
–Volume usage–Price
–Customer demographics–Unit volume growth–Price trends
Segment attractiveness
Segment attractiveness
How large are the
segments?
How large are the
segments?
What are the growth
expectations?
What are the growth
expectations?
How profitable are
the segments?
How profitable are
the segments?
4. Assess Company’s Core Capabilities
Operational skills
Privileged assets
Growth-enabling skills
Special relationships
CORE CAPABILITI
ES
Operational Skills
STEP 1STEP 1Generate an initial list of specific skills and knowledge needed to drive the business system
STEP 2STEP 2
Validate each item against three measures:
• Drives value
• Superiority
• Sustainability
Privileged Assets - Examples Example
Distribution network
Brands and reputations
Customer information
Conferred advantage
•Increase sales of existing products and services
•Reduce the cost of new product launches
•Extend brand to launch products without threatening credibility of current business
•Maximize sales
Growth-enabling Skills
Example
Acquisition and post-merger management
Financing and risk management
Capital management
Peopledevelopment
Conferred advantage
•Save costs•Accelerate growth
•Advance along promising growth paths that are too costly or risky for competitors to follow
•Enables managers to make a commercial success of projects that other companies might reject because of poor returns
•Consistently develop managers who build new businesses
Special Relationships
Right to bid
Access
Right to match
Right to win
Efficiency
Influence/ power
Source of privilege
Deg
ree o
f p
rivi
leg
e
Stronger
advanta
ge
Stronger
advanta
ge
5. Forces Shaping the Industry
INDUSTRYINDUSTRY
DEM
AN
D
REGULATION
TEC
HN
OLO
GY
Demand
Demand
Latent demand
Existing demand
Future demand
TimeToday
Regulation
…be aware of your industry governmental regulation
State commissions set rates, approve investments, and affect number and size of competitors
Government licenses delivery channel and regulates content
Technology
…technological change implies INNOVATIONCosts
Total costs
Variable costs
Total costs
Variable costs
Time
New technologyOld technologyAbandonme
nt of old technology
Abandonment of old
technology
Likely time of
introduction
Likely time of
introduction
“Blitzkrieg” with new technology
“Blitzkrieg” with new technology
Earliest time of
introduction
Earliest time of
introduction