Situation analysis is sometimes termed as marketing audit since it should bring the insight deep into the marketing of a company. „Since marketing is about making and selling what people want to buy, the most important first stage in marketing planning is understanding the marketing environment: the setting where marketing takes place. This has two levels: first, the macroenvironment of broad societal forces that influence a business; and second, the microenvironment of forces closer to he company that affects its ability to serve its customers,“21 says Kotler at the beginning of his famous Principles of Marketing. Through marketing audit we can find out much about a company's environment, objectives, strategies and activities to determine problem areas and opportunities. Its parts gradually examine markets, competitors, customers, products, prices, distribution channels, sales and promotion.22 Situational analysis should bring with it as much accurate description of all factors impacting the existence of a company in a timeperiod possibly nearest to the current moment as possible. Only this way can a company responsibly choose the best matching strategies among all those theoretically available23. Which confirm Kumar, Aaker and Day: „Effective marketing strategies are built on an in-depth understanding of the market environment of the business and on the specific characteristics of the market.“24 It therefore covers both macroenvironmental and microenvironmental conditions. Macro-analysis is more complex and usually common for most enterprises playing on the same industrial playground. In this work it will be represented by PEST analysis. We can talk of legal enviroment, government attitude to doing business, technological maturity, and ecological and social-cultural features).
market analysis, which includes market definition, market size, market segmentation, industry structure and strategic groupings, competition and market share, competitors´strenghts and weaknesses and market trends
consumer analysis, in order to reveal the nature of buying decisions, participants, demographics, psychographics, buyer motivation and expectations and loyalty segments
internal analysis covers three groups
Company resources – financial, human, time, skills,
Corporate culture - description of the basic business philosophy
There are many tools which help to define the present situation in a company, be it financial, competitive or customer-related. They will all be mentioned in the following chapter, but of course in lower measure than if we did a proposal of overall strategy of a company, not only the marketing one. For relevant information on financial status of a company typically balance sheet and profit and loss report are to be employed. For our purpose we will need this analysis because of information if the suggested strategy is feasible.
3.1.1 Marketing Analysis Tools
In order to work out a marketing analysis many tools can be used. Some of them are used only in order to specify the market position of a company and do not suggest strategies to be used, some of them, however, are closely interconnected with strategies and their authors provided them with solution possibilities. Those first mentioned will appear in this chapter, while the others will be included later in chapter 3.2.
As mentioned above through PEST analysis we will be able to discover external environment, the macro-environmnent. The reason why we need to research it is its impact onto companies and their well-being or even existence. The acronym PEST consists of initial letters of words Political, Economic, Social an Technological in the meaning of factors. The outcome of analysis should provide the basics for the SWOT analysis, mainly in its OT parts. The external environment represents namely both threats and opportunities and the task of PEST analysis is to collect the description of all possible influences from which the SWOT analysis could afterwards pick those ones which are the most important for the company.
In the analysis we usually concentrate on political features like trade regulations and other parts of legal framework, political stability or industrial safety regulations. The economic analysis is for us the most important in areas such as economic growth rate, business cycle stage, quality of infrastructure or inflation rate. Class structure, interests of inhabitants, demographics and attitudes are the most important in social analysis, while technological analysis encompasses recent technological development, impact of technology on cost structure or knowledgebase as the main barrier for entry to the industry. In our work we will therefore highlight above mentioned in order to be able to provide correct SWOT results.
Summary of Situation Analysis is usually done by SWOT analysis. This is the basic analysis helpful in any situation analysis for any projects or outcomes. Since 1957 when Selznick first used his basic idea of matching external with internal factors in order to get the overall and true view of the situation in his Leadership in Administration: A Sociological Interpretation it has been globally introduced, also thanks to Learned, Christiansen, Andrews and Guth who made the idea an acknowledged method. All genial things are simple, so is an evaluation of Strengths, Weaknesses, Opportunities and Threats.
Resource: compiled according to Kotler, P. Marketing Management, p. 91 - 93 Putting this chart together does not mean the end of analysis – the most important are namely answers to following questions:
How to use each Strength?
How to stop each Weakness?
How to exploit each Opportunity?
How to defend against each Threat?
However, attention must also be paid to problematic issues connected with SWOT analysis. This list of positive and negative features may lead a company far away from current issues because it represents a very broad view. It also does not allow any prioritising and fails in attributing weight to each point. Therefore an increase in cost might occur if a company paid too much attention to stamping out weaknesses or defending against threats while, when balanced correctly, Pareto optimal status would occur if the company invested its money in supporting strengths or exploiting opportunities.
Description of all possible factors influencing a company in terms of being helpful or harmful, external or internal, is sometimes very individual even when striving to be impartial, e.g. through setting up a team of representants of different departments (accounting, executive, technical, business, marketing). There must be therefore also other tools restituting absence of objectivity through measurements ans data analysis.
Porter´s Analysis of Five Forces
This analysis can give a marketer a better overview of a particular industry. Under the expression „five forces“ we understand environmental forces that impact a company´s ability to compete in a given market. Through this analysis the main competitive factors are described as for their strenght and importance.
Suppliers´product is an important input to buyers´ product
Suppliers´ products are differentiated
Suppliers´ products have high switching costs
Supplier posses credible threat of forward integration
Buyers are concentrated
Purchases are relatively large to seller’s sales
Purchases account for a significant fraction of supplier’s sales
Products are undifferentiated, Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of backward integration
Product unimportant to quality
Buyer has full information
No or only small difference between competing products
Jockeying for strategic position
Using price competition
Staging advertising battles
Increasing consumer warranties or service
Making new product introductions
Slow growth industry
Lack of differentiation or switching costs
High entry barriers
Resource: Porter, M.E. Competitive strategy: techniques for analysing industries and competitors with a new introduction, p. 10 ff In the following FIG. 5 there are all above in the table mentioned factors influencing the company. Talking of forces driving industry competition four main cathegories impact whole industry (in the figure as coming from four different worldsides: potential entrants, buyers, substitutes and suppliers with the arrow displaying the impact) and one is inside the industry, i.e. competitors. Not knowing potential threats from any of the fields means not being able to prevent them.
FIG. 5 Forces Driving Industry Competition
Resource: Porter, M.E. Competitive strategy: techniques for analysing industries and competitors with a new introduction, p. 4
Kaplan and Norton designed this tool in 1992 which is the most comprehensive in terms of key performance indicators and long-term orientation of all. Its four fields (financial, customers, business processes and learning and growth) describe a company´s potential for success amongst market competition. In order to get clear idea of what the strategy and vision of a company is, we must analyse the four fields in points as objectives, targets, measures and initiatives. For the purpose of this work we will focus on the financial and customer fields, but internal processes and growth are also of high interest to us. The proposed marketing strategy must namely comply with all four areas.
This tool is one of the following four which are rather of modest use in the case of this work and are placed in it more or less for the complexity of marketing tools description.
FIG. 6 The Balanced Scorecard
Resource: Marketing Teacher – Definitions, The Balanced Scorecard Nowadays business practice almost could not exist and flourish without being supported by IT tools and means. The use of Balance Scorecard is also widely made this way easier. We would like to point out the importance of CRM software which enables BS
analysis, mainly in the customer and financial fields, but contributes also to learning how internal business processes work. However this analysis is much more complex than this works requires to be discussed and CRM concept will be handled in the next chapter.
BCG (Boston Consulting Group) Matrix
This tool is not of much use to our purpose since its problematic characteristics outweigh its advantages. First, it is either applied to single products (the cost on classification of each individual item are higher than possible profits) or to business units which is not applicable in the case of a small organisation. Second, it oversimplifies the complex of decisions to be made.
The consulting company McKinsey & Co. developed this tool with the aim of evaluating business in a two dimensional matrix. The evaluated fields were: industry attractiveness and industry strength. The GE Matrix represents an improvement of the BCG Matrix as for the number of fields (there are 9 instead of 4) but also as for areas observed. Instead of market growth rate it uses market attractiveness and instead of relative market share the competitive position in terms of company´s strength.
TAB. 6 The GE Matrix
Invest to Build
Selectivity/Manage for Earnings
Limited Expansion or Harvest
Manage for Earnings
Resource: adapted from Zanthus web pages, Business Strategy However both fields can be further subdivided according to the following criteria. Market attractiveness is to be evaluated as for: size of market, growth rate of market, nature of competition and its diversity, demand variability, global opportunities, profit margin, impact of technology, law and environment. Each factor is assigned a weighting that is appropriate for the industry. These features: market share, management profile, quality (of both products and services), place and distribution, promotion and cost reduction will have certain influence on the outcome of competitive position/or business unit strenght. But still this Matrix fails to reliably answer all possibly posed questions. Not only because scoring is personal and subjective and there is no rule on how to set the weigh for single factors, but also because it does not take the interconnectivity of business processes into account. Last but not least it does not say how to best use and implement the received results.
Shell Directional Policy Matrix
The last attempt to rewrite BCG Matrix was done through Shell Directional Policy Matrix. It suggests using a company´s competitive capability and prospects for sector profitability. As it can be seen in TAB. 7 below, we receive following fields:
Leader - major resources should be moved here.
Try harder – be aware of future as this moment seems to be allright, but can change.
Double or quit - gamble on potential of this field.
Growth – employ as many resources as to grow the market sufficiently.
Custodial – harvest without applying any more resources.
Cash Generator – should be milked as much as possible.
Phased withdrawal – call back on cash in this field to move it to a field with greater potential.
Divest - cancel or move these assets on as fast as you can.
TAB. 7 Shell Directional Policy Matrix
Prospects for Sector Profitability
Company´s Compatitive Ability
Double or Quit
Resource: adapted from Lancaster, G., Massingham, L. and Ashford, R. Essentials of Marketing, p.528-9
Higher in this chapter some commonly used approaches to analysing environment of a company and company´s position in the market were outlined. According to a study carried out in the UK there are many companies using decision-making methods in order to put together a marketing strategy. The most important ones in terms of usability and utilization are to be found in TAB. 8 below.
TAB. 8 Decision-making Methods USed to Draw Up a Strategic Marketing Plan
Resource: Alsbury, A., Jay, R. Quick Answers to Marketing Questions, p. 11 This sub-chapter was intented to offer a wide choice of methods used for determining a set of basic characteristics necessary in market segmentation decisions and marketing strategy planning. Some of these methods may overlap in results and application of each of them, or all of them together, depends mainly on how deeply a company wants to verify the outcomes of another and how much the companty is willing and able to invest in the process. We provided theoretical basis for definition of both external and internal impacts on a company within a certain industry and will use them in the practical part.
3.1.2 Market Segmentation
This chapter on market segmentation should summarize ways of achieving a clear picture of company´s current customers. Market segmentation is a proces, where all potential and existing customers are being examined. As suggested above, basic market segmentation should follow the B2C or B2B criteria.26 Some of them are to be found in TAB. 9 below.
TAB. 9 Criteria on Market Segmentation
Type of factor
Charakteristics of customers/organisations
Age, sex, race
Amount of purchase
Importance of the purchase
Importance of the purchase
User´s needs and preferences of product characteristics
Resource: Johnson, G., Scholes, K. Cesty k úspěšnému podniku, p. 116
What we miss in this chapter is the description of relationship from a company towards customer. Since among characteristics describing an organisation or a customer should according to our opinion also figure parts describing retention, recruitment, satisfaction and loyalty of customers (expressed by cost or another financial measure, time and/or number of complaints).
Except for the above mentioned standardized way of segmenting market into groups, a methodology based on CRM software can also be found whose main task is to keep information and assess and segment customers (often based on customer value). TAB. 10 shows, segmentation process can be both data based and intuitive, which is generally meant as based upon experience and opinion.
TAB. 10 Intuitive and Data-based Segmentation Processes
Brainstorm segmentation variables
Age, gender, lifestyle
Standard Industrial Classification (SIC), size location
Compute sizes of segments
Assess company/segment fit
Make targeting decision
Obtain customer data
Internal and external
Analyse customer data
Identify high/medium/low-value customer segments
Profile customers withing segments
Age, gender, lifestyle
Standard Industrial Classification (SIC), size location
Assess company/segment fit
Make targeting decision
Resource: Buttle, F. Customer Relationship Management, p.101 As Buttle suggests, „market segmentation process can be broken down into a number of steps“ and continues by naming them as follows:
Identify the business you are in
Identify relevant segmentation variables
Analyse the market using these variables
Asses the value of the market segments
Select targe market(s) to serve27
Even though Kumar, Aaker and Day say, “marketing research is a critical part of a marketing intelligence system; it helps to improve management decisions making by providing accurate, relevant and timely information.“28, we still believe together with Kotler, who claims that managers of small businesses and non-profit organisations are able to obtain good marketing information simply by observing things around them (Kotler, p.31), which could be complemented with a sample research on reduced number of addressees. Extensive marketing research is for smaller companies rather inefficient since the benefits do not justify the financial outlay required to implement the research.
Also to be cautious and use common sense when applying the results of marketing research pays off since results without correct application could do harm rather than good which is also confirmed by Ogilvy´s quotation, „I notice increasing reluctance on the part of marketing executives to use judgment; they are coming to rely too much on research, and they use it as a drunkard uses a lamp post, for support, rather than for illumination.“29 In Situation analysis, chapter 3.1, we highlighted the most commonly used methods for primary analysis of external and internal environment. Based upon outcomes of one or more analysis a company must be able to become aware of its economic situation in order to pose exact, specific and achievable goals. We would suggest using primarily those first three mentioned marketing analysis methods (all being supported by CRM as much as possible) for general research and segment the market according to criteria outlined above with the help of CRM software.