Introduction
As part of developing our marketing strategy, I need to be able to use market information to analyse the competitiveness of our product and to gain an understanding of the environment in which our company is operating. I have to research the external factors that may influence our success or otherwise for our product.
As part of developing this strategy I have to research the PESTEL model, Michael Porters Five Forces Analysis and the SWOT Analysis.
The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analysing Industries and Competitors"in 1980. Since that time it has become an important tool for analysing an organisations industry structure in strategic processes
Porter's model is based on the insight that a corporate strategy should meet the opportunities and threats in the organisations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change.
Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organisation.
The Five Competitive Forces are typically described as follows:
Influencing the Power of Five Forces
After the analysis of current and potential future state of the five competitive forces, managers can search for options to influence these forces in their organisation's interest. Although industry-specific business models will limit options, the own strategy can change the impact of competitive forces on the organisation. The objective is to reduce the power of competitive forces.
The following figure provides some examples. They are of general nature. Hence, they have to be adjusted to each organisation's specific situation. Not only has the external market environment determined the options of an organisation, but also by its own internal resources, competencies and objectives.
4.1 Reducing the Bargaining Power of Suppliers
4.2 Reducing the Bargaining Power of Customers
· Partnering
· Supply chain management
· Supply chain training
· Increase dependency
· Build knowledge of supplier costs and methods
· Take over a supplier
· Partnering
· ...
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The following figure provides some examples. They are of general nature. Hence, they have to be adjusted to each organisation's specific situation. Not only has the external market environment determined the options of an organisation, but also by its own internal resources, competencies and objectives.
4.1 Reducing the Bargaining Power of Suppliers
4.2 Reducing the Bargaining Power of Customers
· Partnering
· Supply chain management
· Supply chain training
· Increase dependency
· Build knowledge of supplier costs and methods
· Take over a supplier
· Partnering
· Supply chain management
· Increase loyalty
· Increase incentives and value added
· Move purchase decision away from price
· Cut put powerful intermediaries (go directly to customer)
4.3 Reducing the Treat of New Entrants
4.4 Reducing the Threat of Substitutes
· Increase minimum efficient scales of operations
· Create a marketing / brand image (loyalty as a barrier)
· Patents, protection of intellectual property
· Alliances with linked products / services
· Tie up with suppliers
· Tie up with distributors
· Retaliation tactics
· Legal actions
· Increase switching costs
· Alliances
· Customer surveys to learn about their preferences
· Enter substitute market and influence from within
· Accentuate differences (real or perceived)
4.5 Reducing the Competitive Rivalry between Existing Players
· Avoid price competition
· Differentiate your product
· Buy out competition
· Reduce industry over-capacity
· Focus on different segments
· Communicate with competitors
Competitive Advantage
When a firm sustains profits that exceed the average for its industry, the firm is said to possess a competitive advantage over its rivals. The goal of much of business strategy is to achieve a sustainable competitive advantage.
Michael Porter identified two basic types of competitive advantage:
* cost advantage
* differentiation advantage
A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.
Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.
Methods of Analysis
Once a business has identified an objective, the next stage in planning its strategy is to consider its current position. A thorough analysis of its circumstances will provide the business with a variety of information that can be used to develop suitable strategies. The methods that our business can use are the SWOT and PESTEL analysis. I have researched both below and have related this to our company at the ends of each method.
P.E.S.T.E.L Analysis
In order to review an organisation or individual services, it is important to understand the external factors that influence the organisation. An effective way to identify these external influences is to carry out a PESTEL analysis including these factors under 6 headings.
Political. Economic. Social. Technical. Environmental. Legal.
PESTEL: It means: Political factors, Economic factors, Social factors, Technological factors, Environmental factors, Legal factors. For each set of factors, you need to evaluate what are the situations and what developments are likely to take place in the next future.
An analysis of the external environment is an essential part of any business plan. Managers need to assess the significance to their organisation of changing political, economic, social, technological, legal and environmental (PESTLE) factors
Political factors are important in international trade. Economics factors such as growth or recession have an influence on a start up and notably the bank rate as we have seen in economics. Social factors as demographic changes could affect your business. Today, environment is going to be more and more important and "green products" get a competitive advantage, especially among the youth. Finally, the changes expected in legal factors such as taxes, and labour law must be also underlined.
It is important to be as objective as possible and to keep the customer point of view. Maybe, you are thinking that the weight of your funboad is a guarantee of duration, but it may be more important for the customer that the board should be light, especially if teenagers are supposed to use it.
The intention of this analysis was to assist the team, and subsequently the reader of this report, to understand the external factors affecting procurement, because without this understanding, a method of seeking improvement may prove difficult. The bullet points in this analysis are brief and only indicative of areas of consideration rather than being a detailed investigation.
S.W.O.T Analysis
To make a good positioning, you have to realise a SWOT analysis: It means strengths/weaknesses/opportunity/threats. In fact you have just to repeat the same analysis that you have already done above with your competitors. Once again, you rate your previous price, the quality you will offer, and your future organisation. You compare these notes with your competitors and then you can identify your strengths and your weaknesses. You can complete is with a PESTEL analysis.
SWOT Analysis
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Strengths
Weaknesses
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Opportunities
Threats
A more in-depth SWOT analysis can help you better understand your company's competitive situation. One way to improve upon the basic SWOT is to include more detailed competitor information in the analysis.
Note Internet-related activities such as trade organisation participation, search engine inclusion, and outside links to the sites. This will better help you spot opportunities for and threats to your company.
You can also take a closer look at the business environment. Often, opportunities arise as a result of a changing business environment.
Some examples are:
* A new trend develops for which demand outstrips the supply of quality options. For example, early on, the trend toward healthy eating coupled with an insistence on good-tasting food produced a shortage of acceptable natural food alternatives.
* A customer segment is becoming more predominant, but their specific needs are not being fully met by your competitors. The U.S. Hispanic population experienced this phenomenon in the late 1990s and early 2000s.
ALKESH PATEL
