Understanding your business

(Situation Analysis)
Introduction
Situation Analysis

In order to profitably satisfy customer needs, the firm first must

understand 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 it
operates.

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 these

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

S.A’s offer both simplicity and flexibility in the structure of the activity.
You can modify, move, add or delete information over any period of
time as you discover information that you feel is relevant. A
Situational Analysis is comprehensive and looks at all aspects of a
business; drawing your focus to factors you may have otherwise
overlooked. Its organized and easy to access; including relevant
qualitative and quantitative information effecting business operations
past, present & future. It allows you to easily collaborate with peers
where the sharing of information can be a valuable tool in gaining
opinions relevant to you decision to buy, sell or hold a position.
Finally, any S.A. performed on a specific company is then easy to
compare against peers in the same industry, sector or group of
stocks to gain a sense of relative strength or weakness.

A useful framework for performing a situation analysis is the 5 C

Analysis. The 5C analysis is an environmental scan on five key
areas especially applicable to marketing decisions. It covers the
internal, the micro-environmental, and the macro-environmental
situation. The 5 C analysis is an extension of the 3 C analysis
(company, customers, and competitors), to which some marketers
added the 4th C of collaborators. The further addition of a macro-
environmental analysis (climate) results in a 5 C analysis, some
aspects of which are outlined below.

Internal Environment
The Internal Environment of a company involves all activities of the
business from an inside point of view: what factors affect the
daily operations of the company. A S.W.O.T. is simply a four part
comparison of a company’s internal environment that consists of
Strengths, Weaknesses, Opportunities (for future success) and
Threats (to future success). It’s important to not include any
information from outside factors; we’re examining a company
from within only and all other aspects are examined in the
Situational Analysis later on in other components.

Suitable Examples of each:

Strength: streamlined supply chain management
Weakness: poorly trained & executed sales force
Opportunities: new strategic alliance with ABC Company
Threat: rising material and overhead costs

Not Suitable Examples of each:

Strength: get stuff to places fast
Weakness: crappy products
Opportunities: sell more stuff
Threats: head office might collapse because it’s old
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 you
always 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 possibly
can about a company’s product or service and how their
customer/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 customers
This section will provide insight back into the S.W.O.T. analysis so
you can add or modify more specific information that may be
involved. The importance here is to understand the target market, its
habits, tendencies, likes & dislikes associated with a wide range of
specific activities.
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 over
time

The External Environment

The External Environment is usually the most difficult because it can

be 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. for
the company and looks at all external factors outside of the daily
operations of a business: Political, Economical, Social &
Technological. What you want to look for here are external factors
that may: influence the company’s business operations, legal or
regulatory hindrance, emerging cultural trends, economic
environment concerns or the changing needs of technology.

Suitable Examples of each:

Political: unionized workforce, government involvement & jurisdiction
Economical: tariffs, embargos and foreign tax rules
Social: cultural differences, community involvement
Technological: rapidly changing factors, patent infringement barriers

Not Suitable Examples of each:

Political: government is full of crooks
Economical: no one invests in this sector
Social: people want more red shirts
Technological: my phone dies when at my cottage

Climate (or context)

The climate or macro-environmental factors are:

• Political & regulatory environment - governmental policies and

regulations that affect the market
• Economic environment - business cycle, inflation rate, interest
rates, and other macroeconomic issues
• Social/Cultural environment - society's trends and fashions
• Technological environment - new knowledge that makes
possible new ways of satisfying needs; the impact of
technology on the demand for existing products.

The Competitive Environment

The Competitive Environment is the last component of a Situational

Analysis. This section examines any and all factors that competition
(whether direct or indirect) has or could have on the business you’re
researching. 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 could
provide
- 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
 • Strengths and weaknesses of competitors

The Relationships among Environments in a

Situation Analysis

Internal
Environmen
t

Obviously all the environments hold equal importance while

uncovering the factors of Situational Analysis. If we are asked to
choose the most important factor among all these above stated
factors, then in our opinion Customers are very crucial in SA.
Q: 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?

Understanding Consumers is Essential

Marketing is all about understanding consumers and creating the
products or services that will meet their needs in terms of design,
price and place. The understanding of their needs will be reflected in
the promotion of the offerings.

You’ve heard that the customer is always right. You may or may not
agree with that statement, but everyone ought to agree that
customers hold a very important place in our lives. After all, without
customers - people who buy our products and services - our
businesses close down and we all pack up to go home. The faster
you can adapt to accommodate customer needs, the stronger your
company’s reputation.

Just as parents of young children tend to their young breeds every

need, businesses should concentrate on the needs of their
customers. In today’s demanding business emporium, it is crucial that
businesses consistently strive to focus on the needs of their
customers. It makes no difference if your business offers a specified
service, or multiple products.

The bottom line is that the quality of customer service can ultimately
dictate whether a business will flourish or fail. Businesses are
dependent on customers to survive. Customers are the foundation of
any business, without them a business simply wouldn’t exist.

The importance of Customers

• Customers are the most important people for any organization.
They are the resource upon which the success of the business
depends. When thinking about the importance of customers it is
useful to remember the following points:

1. Repeat business is the backbone of selling. It helps to

provide revenue and certainty for the business.

2. Organizations are dependent upon their customers. If they

do not develop customer loyalty and satisfaction, they could
lose their customers.

3. Without customers the organization would not exist.

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

customers.

5. The customer makes it possible to achieve business aims

6. Repeat purchases by the customers will directly improve the

cash flow- the life blood of any organization

• Those days are gone when what so ever is produced by the

company is sold out directly in the markets (Production Era).
Now this is the Era of Customers/ Marketing Era. Markets have
now become customer oriented. Priority is given to the
customers not to the organizations.

Quality Products

Often companies claim that we are giving quality products. What

Quality is?
 Quality is the relative term that expresses customer expectations
level about a certain product or service. Companies are bound to
make such products or render those services which are meeting or
exceeding customer expectations (customer delight)

• There is a cut throat competition among different

organizations. Customers are the judgmental bodies in
deciding which product or organization is going to be the
market leader.
Many companies like KFC, Pizza Hut, and Shell etc are very
seriously looking for the customer feedback. They have
designed customer feedback surveys or cards in order to focus
on how they can improve their products or services with the
help of customers’ reviews. The key to making the most of
customer feedback is looking for patterns and common
challenges.

• The key component in marketing and business growth is to

spend the majority of your time and effort nurturing customer
relationships, so that you get business from existing clients
and customers. This is a strategy that will move you forward
in increasing your sales by 50% without increasing your
budget.
[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 considered
to be its weakness by its customers. Shezan Bakers
Confectioners & Sweets is an old name and company
regards it as it is one of its major strengths but having an old
name or old existence in the market does not mean that
company will get high sales, large number of customers etc
or they do not require product innovation (Shezan juices).
 Like wise, Candia bottled milk is the living example of
Haleeb foods’ failure to get customer attraction.

Learn About Your Customers (Savvy

Customers)
Customers are no more innocent as they were in the past. The time
has gone when what so ever the firms market was purchased by the
customers. Now they question about lot of things even about the
ingredients and codes listed. They have become more experienced,
knowledgeable and more demanding. They are living in a dynamic
environment where electronic and print media is updating them every
time.
Those companies with traditional strategies must forget about
winning hearts of the customers. They need to update their systems
and strategies in order to meet and excel customer expectations. This
is possible only when they understand their customers.

• Marketing Mix

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

Gourmet Bakers is one of the fastest growing local baker and

confectioner stores in Pakistan. Being a local company, their
approach towards business is both professional and highly
aggressive.

I can't recall exactly in which year Gourmet started its operations in

Pakistan, but now they have an outlet in every nook n corner of
Lahore at least. Think of any suburb and you'll surely find a bright
orange signage with a big bold Gourmet written in bright white.
What started as a bakery and sweet shop, soon turned into a medium
sized cash n carry retail outlet and has further expanded into
launching a number of successful company owned products ranging
from milk, ice creams, russ malai and many more.

The recent and probably the most impressive launch has been the
Gourmet Cola, which actually motivated me to put up this buzz. I am
thoroughly impressed. It has become a threat for many
multinationals 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 half
litre bottle, a much lucrative offer as compared to the PKR 45 price
offer by the international competitors Coke & Pepsi. Another
important information (not sure about the authenticity) that inspired
me was that Gourmet has cancelled an year long contract of worth
PKR 15 million with Coke and removed it from all company outlets to
promote its own brand. (For those who are wondering what contract
they had with coke, please note that its not easy to get shelf space in
large retailers and on top of the product's retail margin, product
manufacturing companies have to make an upfront payment to earn
an entry into the shop and better placement. This upfront price varies
for different products and retailers).
GOURMET KNOWS ITS TARGET MARKET IS PRICE SENSITIVE

• At macro level, China is a huge example who has brought

revolutionary changes in the world markets by understanding
customer requirements and offering different levels of quality
for different customers at varying prices.

The most prominent example of China products in Pakistan is

Pakistani 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 kainchi
chappal. But now China has capture almost 85% market share
and providing cost effective wide range of products ranging
from ladies sandals to chapels and gents kohati chapel to
office, school shoes, joggers etc all are now made in china.
 (Local markets. Income level: medium and low income groups.
Not talking about upper income groups).

Q: What are some situations that would make

one 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, Cultural

and legal environments are not the same. These factors are
unpredictable and uncontrollable. No one can forecast about these
environments 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 performance

in 25 years, plunging the country into deeper recession and sparking
fresh falls in the stock market.
The economy shrank by a 6.2 per cent annual rate at the end of
2008, considerably weaker than the 5.4 per cent decline economists
had expected. Consumer spending, which accounts for two-thirds of
US economic activity, dropped 4.3 per cent despite deeply
discounted sales during the Christmas holiday season, following on
from a fall of 3.8 per cent in the third quarter.

The US government's latest move to aid Citigroup marks the third

bailout bid for the ailing bank in the past five months, and will
dramatically dilute existing stockholders stakes to as low as 26 per
cent as the government seeks to convert up to $25 billion in preferred
shares for common stock.

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

introduction? Of course not, recently these three companies suffered
great losses which were regarded as top 3 American companies. To
meet their internal expenses, they had to cut down the number of
employees to save amount of paychecks. Those who are fired from
their positions are now unemployed. As the Americans are facing
recession period in the economy, this means that all those
unemployed people will be reluctant to spend in the markets which in
turn will directly cut down the sales and automatically the profit of
Products and/or service offering companies.

Political Issues: Assassination of Mohtarma Benazir Bhutto

caused economic crisis and political turmoil in Pakistan. Right after
the news of her death created the environment of instability in all the
fields of economy. News of her death—and fears of a nuclear power
possibly sliding into anarchy as a result—dragged down global stock
markets and sparked a wave of buying of United States Treasury
securities, a traditionally safe haven. In afternoon trading, the Dow
Jones industrial average was down more than 150 points, or 1
percent. Crude oil futures rose above $97 a barrel, and gold prices
also gained. (The attack took place after stock markets in Pakistan
and elsewhere in Asia was closed.)
Social Issues: war between Israel and Palestine is a hot issue
running currently in the world. Many countries are against this act of
brutality by Israel. Even CNN launched some website to get the votes
of individuals for supporting Palestine or Israel and obviously
Palestine’s scales are heavier. To show the support to Palestine, the
Pakistani’s are trying to cut down the Israeli economy by boycotting
those products that are owned by Israeli Companies (originating
some where else) or have some link with Israel.

Religious Issues: On September 30 2005, The Jyllands-

Posten Muhammad cartoons controversy began after twelve
editorial cartoons, most of which depicted the Islamic prophet
Muhammad.The headline was, "Muhammeds ansigt", means "The
face of Muhammad". The Muslim world strongly protested this act of
nuisance. Along with so many actions by Muslim world the one is
:The Egyptian Minister of Foreign Affairs, Aboul Gheit, wrote several
letters to the Prime Minister of Denmark and to the United Nations
Secretary-General explaining that they did not want the Prime
Minister to prosecute Jyllands-Posten; they only wanted "an official
Danish statement underlining the need for and the obligation of
respecting all religions and desisting from offending their devotees to
prevent an escalation which would have serious and far-reaching
consequences".

Burning head office of Telenor Pakistan was the reaction by

Pakistani nationals on those cartoons. They linked Telenor as the
company which is linked to Denmark some way or other so to their
extreme anger they harmed its premises. Even they seriously
harmed McDonalds and KFC, by burning their outlets etc

Sales of Telenor Pakistan dramatically fell at that moment of time.

People showed their extreme hatred towards Telenor Pakistan.

Technological Issues: Technological advances can further

economic growth because they contribute to the creation of new
goods, new services, new jobs, and new capital. The application of
technology can improve productivity and the quality of products. It
can expand the range of services that can be offered as well as
extend the geographic distribution of these services. The
development and use of technology also plays a major role in
determining patterns of international trade by affecting the
comparative advantages of industrial sectors. Since technological
progress is not necessarily determined by economic conditions — it
also can be influenced by advances in science, the organization and
management of firms, government activity, or serendipity — it can
have effects on trade independent of shifts in macroeconomic factors.
New technologies also can help compensate for possible
disadvantages in the cost of capital and labor faced by firms.

Legal Issues: Lawsuits against the tobacco industry have lead to

dramatic changes in the way cigarette companies market their
product. Today, companies such as Phillip Morris are airing
advertisements illustrating the negative effects of their products. In
addition, a proposed settlement agreement between the industry and
the attorney general of several states represent a threat that could
result in a ban on some types of cigarette advertising and the
regulation of nicotine by the FDA. As can be seen, it is important to
identify political/legal threats and opportunities in order to keep an
edge on the market (Austainer, 1999).

Changes in the Internal Organizational Environment

Various elements within an organizations internal environment can
also have an impact on marketing activities. Changes in the
structuring of departments, lines of authority, top management, or
internal political climate can all create internal weaknesses that must
be considered during the SWOT analysis as well as in the
development of the marketing plan.

McDonalds has recently been feeling increased competitive pressure

from Wendys and Burger King. In order to increase market share,
McDonalds created new marketing campaigns and new sandwiches.
However, McDonalds failed to get the cooperation of all its
franchisees. When store sales began to fall, individual franchisees
started to band together to gain power to protect their investments.
The increased power of the franchisees forced McDonalds to pull
several advertisement campaigns due to lack of support. Prior to this
McDonalds was used to getting their way with franchisees. Now, the
shift in power from McDonalds to its franchisees has created an
internal weakness that the company must address as it develops and
implements new marketing strategies. Again, it is necessary to
emphasize the importance of evaluating specific opportunities and
threats within your company (Marketing Strategy, 1998)
CONCLUSION

Modern business environment is famous for various new

trends. An environment where the businesses used to hire
employees for the sake of monetary benefits only is now
changed in multi dimensional and multi pronged
environment. Now business are not run for the sake of
money and short term financial benefits only but for a long
time sustainable growth and development. Now the only
focus of all business is CUSTOMER and Customer
Satisfaction. This Customer Satisfaction (CS) cannot be
achieved without proper involvement of internal customers
i.e., employees. We must keep “in-house” customer happy to
maintain productivity. For external customers, we must keep
them happy or they find someone else to provide them a
product or service.

Companies start their business philosophy from their main

goals or objectives and make clear statements showing their
mission and values. All lateral developments are performed
on the basis of these predetermined values. Modern
businesses focus only on customer satisfaction and this is
the core concept of business as well.

Now question is the responsibility of achieving customer

satisfaction without any failure. Many plans are made for
wining customer satisfaction, but all would be failure if
company is not sure about the persons, method and tactics
of achieving customer satisfaction. Whole management and
its team are responsible for achieving business results so is
the customer satisfaction. Modern management has no
doubt in it that customer satisfaction can only be achieved if
all employees regardless their departments work hard to
satisfy customers.
What to Do

First things first: We need to discover our customer’s

opinions of our products and/or service. This occurs by
asking. Using today’s technology, this can happen by using
something as simple as a feedback card, or by using an
online service. Plenty of options exist.

Second, after gathering information, analyze it. Ask the

tough questions and arrive at the tough answers. Be as
objective as you can.

Third, act. Change what is necessary to improve your

customer service rating. The more you can meet customer
needs, the better your chance for long-term success in our
fast-paced, ever-changing world.

There’s a book by Jason Jennings and Laurence Haughton

that explains it all: It’s Not The Big That Eats The Small, It’s
The Fast That Eats The Slow. In other words, we need to
respond to customer needs in a timely manner if we’re going
to survive.

Bottom line: If you don’t know how you’re being perceived

by your customers, you don’t know if you’re truly hitting the
mark you set out for yourself. Ask. Seek answers. Then
make informed decisions about how you can improve to
meet your customer’s needs.
 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?
Appendices:

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

2. (Source: Principles of Marketing by: Philip Kotler and Gary

Armstrong 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 cola

http://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 important

http://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/2009/02/200922715
2814720247.html

11. http://www.portfolio.com/news-markets/top-5/2007/12/27/What-
Bhuttos-Death-Changess
 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 Richard
R. Nelson and Paul M. Romer, “Science,

Economic Growth, and Public Policy,” in Bruce R. Smith and Claude

E. Barfield, eds.
Technology, R&D, and the Economy, (Washington, The Brookings
Institution 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).
 MARKETING STRATEGIES

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?

SUBMITTED BY

SHAHBAZ CHAUDHRY BBA 8th

NAZISH SOHAIL BBA 8th
M USMAN AKRAM MBA
KHURRAM SALEEM MBA

SUBMITTED TO

SIR KAMRAN SAEED

HAJVERY UNIVERSITY LAHORE