Environmental Analysis-External and Internal

Factors

Unit II
 Syllabus
External Analysis: Strategic Groups, Competitor Analysis:
Porter’s five force model, EFE(External factor Analysis)
Industry Life Cycle, PESTLED, CPM Matrix (Competitive Profile)
Matrix Internal Analysis: Value Chain Concept and Analysis, IFE
(Internal Factor Evaluation)Matrix, SWOT Analysis.
 Environment analysis
External environment: refers to the environment that has an indirect
influence on the business. The factor are uncontrollable by the business.
The two types of external environment are micro environment and macro
environment.
1.Micro environmental factors: these are external factor close to the
company that have a direct impact on the organization process.
• Shareholders
• Suppliers
• Distributors
• Customers
• Competitors
• Media
2. Macro environmental factors: consists of nonspecific aspects in the
organization’s surroundings that the potential to affect the
organization’s strategies.
• Political factors
• Economic factor
• Social factors
• Technological factors
 PESTEL FRAMEWORK

• The most used detailed analysis of the environment is the PESTEL

analysis
• This is bird’s eye view of the business conduct
• Managers and strategy builders use this analysis to find where their
market currently
• It also helps foresee where the organization will be in the future
• PESTEL analysis consists of various factors that affects the business
environment
• These factors can affect every industry directly or indirectly.
Political factors:
•The political factors take the country’s current political situation.
•It also reads the global political condition’s effect on the country and business.
•Some of the factors considered for analysis are:
• Government policies
• Taxes laws and tariff
• Stability of government
• Entry mode regulations
Economic factors:
•Economic factors involve all the determinants of the economy and its state.
•These are factors that can conclude the direction in which the economy might move. So, businesses
analyze this factor based on the environment. It helps to set up strategies in line with changes.
•Some of the determinants considered for analysis are:
• The inflation rate
• The interest rate
• Disposable income of buyers
• Credit accessibility
• Unemployment rates
• The monetary or fiscal policies
• The foreign exchange rate
Social factors:
•Countries vary from each other.
•Every country has a distinctive mindset.
•These attitudes have an impact on the business
•The social factors might ultimately affect the sales of product and service.
•Some of the social factors analyzed:
• The cultural implications
• The gender and connected demographics
• The social lifestyles
• The domestic structures
• Educational levels
• Distribution of Wealth
Technological factors:
•Technology is advancing continuously.
•The advancement is greatly influencing businesses
•Performing environmental analysis on these factors will help you stay up to
date with the changes.
•Technological factors will help you know how the consumers react to various
trends.
•Social media has become a vital part of any business now -a-days.
•Companies will have to perform this analysis for their benefit. It helps them:
• New discoveries
• Rate of technological obsolescence
• Rate of technological advances
• Innovative technological platforms
Environmental factors:
•The location influences business trades.
•Climate changes can affect the trade of businesses.
•The consumer reactions to particular offering can also be an issue.
•This most often affects agri-businesses.
•Some environmental factors to be noticed are:
• Geographical location
• The climate and weather
• Waste disposal laws
• Energy consumption regulation
• People’s attitude towards the environment
Legal factors:
•Legislative changes take place from time to time.
•Many of these changes affect the business environment.
•If a regulatory body sets up a regulation for industries, for example, that law would
impact industries and business in that economy. So, businesses should also analyze
the legal developments in respective environments.
•Some of the legal factors to be aware of:
• Product regulations
• Employment regulations
• Competitive regulations
• Patent infringements
• Health and safety regulations
 INDUSTRY ANALYSIS
• Industry analysis is a tool that facilitates a company's understanding
of its position relative to other companies that produce similar
products or services.
• Understanding the forces at work in the overall industry is an
important component of effective strategic planning.
• Industry analysis enables small business owners to identify the
threats and opportunities facing their businesses, and to focus their
resources on developing unique capabilities that could lead to a
competitive advantage
 PORTER’S FIVE FORCES MODEL
• “Porter’s five forces model is an analysis tool that uses five forces to determine
the profitability of an industry and shape a firm’s competitive strategy”
• “It is a framework that classifies and analyzes the most important forces
affecting the intensity of competition in an industry and its profitability level.”
• Originally developed by Harvard Business School's Michael E. Porter in 1979, the
five forces model looks at five specific factors that help determine whether or
not a business can be profitable, based on other businesses in the industry.
• Understanding the competitive forces, and their underlying causes, reveals the
roots of an industry's current profitability while providing a framework for
anticipating and influencing competition (and profitability) over time," Porter
wrote in a Harvard Business Review article.
• Competitive rivalry. This force examines how intense the competition
currently is in the marketplace, which is determined by the number of
existing competitors and what each is capable of doing.
• Rivalry competition is high when there are just a few businesses
equally selling a product or service, when the industry is growing and
when consumers can easily switch to a competitors offering for little
cost.
• When rivalry competition is high, advertising and price wars can
ensue, which can hurt a business's bottom line.
• Bargaining power of suppliers. This force analyzes how much power a
business's supplier has and how much control it has over the potential
to raise its prices, which, in turn, would lower a business's
profitability.
• The number of suppliers available: The fewer there are, the more
power they have. Businesses are in a better position when there are a
multitude of suppliers.
• Sources of supplier power also include the switching costs of firms in
the industry, the presence of available substitutes, and the purchase
cost relative to substitutes.
• Bargaining power of customers. This force looks at the power of the
consumer to affect pricing and quality.
• Consumers have power when there are more number of sellers, as
well as when it is easy to switch from one business's products or
services to another.
• Buying power is low when consumers purchase products in small
amounts and the seller's product is very different from any of its
competitors.
• Threat of new entrants. This force examines how easy or difficult it is
for competitors to join the marketplace in the industry being
examined.
• The easier it is for a competitor to join the marketplace, the greater
the risk of a business's market share being depleted.
• Barriers to entry include absolute cost advantages, access to inputs,
economies of scale and well-recognized brands.
• Threat of substitute products or services. The threat of substitutes
are informed by switching costs, both immediate and long-term, as
well as a buyer's inclination to change.
 Strategic groups
• A strategic group is a cluster of industry rivals that have similar
competitive approaches and market positions.
• Strategic groups are set of firms with in industry that share the same
or highly similar competitive attributes. These attributes include
pricing practice, level of technology investment and leadership,
product scope and scale capabilities, and product quality.
• Strategic groups are common in most industries. Companies, within
the same industry, that employ similar strategies with similar
resources or have comparable business models, belong to one
strategic group.
Strategic groups :
• Have similar characteristics
• Have similar market shares
• Respond to market trends or competition (threats and
opportunities) in similar ways
• Offer similar customer service
Strategic Group Analysis : is used to examine the competitive
environment and the rivalry among competitors within an industry.

Steps in performing a strategic group analysis:

1.Identify Key Characteristics
• Product or Service Attributes
• Price
• Distribution Channels
• Customer Segments
• Geographic Coverage
• Innovation and Technological Advancements
2. Categorize
• The categories might be “low price,” “medium price,” and “high
price.” If the distribution is a key characteristic, the categories might
be “online,” “brick-and-mortar,” and “multichannel.”
3. Create a Strategic Group Map
4. Analyse Competitive Dynamics
 Benefits of Strategic group
1. It helps to identify who are the most direct competitors and on
what basis they compete.
2. Strategic group analysis also be used to identify opportunities
3. Strategic group analysis also help to identify strategic problems.
 Implications of strategic groups
• A company’s closest competitors are those in its strategic group, not
those in other strategic groups. A major threat to a company’s
profitability can come from within its own strategic group. For
instance Maruti Suzuki cars are in the automobile industry, it is not a
competitor of Mercedes-Benz or BMW.
• Porter’s five forces can all vary in intensity among different strategic
groups within the same industry.
• Individual strategic group members face similar threats and
opportunities in the competitive market. Furthermore, similar
resource configurations form protective barriers around the strategic
group
 External Factor Evaluation (EFE)

• External factor evaluation can be defined as the strategic tool to

evaluate external environment or macro environment of the firm
include economic, social, technological, government, political, legal and
competitive information.
• External factors are extracted after deep analysis of external
environment results in identifying opportunities and threats:
 Opportunities: refers to favourable external factors that could give
an organization a competitive advantage.
 Threat: refers to factors that have the potential to harm an
organization.
Steps in developing in EFE matrix:
•Identify a list of KEY external factors (critical success factors: Opportunities
and threats)
•Assign a weigh to each factor, ranging from 0 (not important) 1 ( very
important)
•Assign a 1-4 rating to each critical to indicate how effectively the firm’s
current strategies respond to the factor. (1=response is poor, 4=response is
extremely good)
•Multiply each factors weight by its rating to determine a weighted score
•Sum the weighted scores. Highest score can be 4 and the lowest1. A score
of 4 means the response of the company to opportunities and threats is
‘outstanding while 1 means “poor”
Coca Cola External Factor Evaluation Matrix
(EFE Matrix)
 External Strategic Factor Weight Rating Weighted Score
OPPORTUNITIES
Strong and diversified product 0.13 4 0.52
Packaging 0.08 4 0.32
he acceptance of the new projects in the company 0.03 4 0.12
New technology 0.14 4 0.56
Niche market could be focused. 0.05 3 0.15
Advertisement of unpopular products 0.03 2 0.06
Gap between competitors 0.04 2 0.08
Great number of successful brands 0.14 3 0.42
THREATS
Health conscious people 0.04 4 0.16
The factor of lawsuits 0.06 4 0.24
Falters showing the unhealthy side of the product 0.09 3 0.27

Competitors (Pepsi) 0.07 4 0.28

Economical changes 0.08 3 0.24
Increase in demand of substitutes. 0.02 3 0.06
Total Weighted Score 1 3.48
 Industry Life Cycle
• Definition: The normal stages that a industry goes through during the
course of its lifecycle in the market is termed as Industry Life Cycle.
• The industry life cycle refers to the life cycle portraying different
stages an industry experiences during its life..

Industry life cycle stages:

• Introduction
• Growth
• Maturity
• Decline
1. Introduction Stage
• The introduction stage signifies the infancy of an industry, where a
new product or service enters the market.
• A new industry emerges, often driven by innovation or technological
advancements. Companies in this phase are focused on product
development and establishing a market presence. There may be few
competitors, and growth is typically slow.
 Key Characteristics of Introduction Stage
• Low Market Awareness: Limited consumer awareness about the
new product or service.
• Innovation: Focus on product development and technological
advancements.
• High Uncertainty: Market conditions are uncertain, and companies
are gauging consumer response.
 Strategies for introduction stage :
• Invest in R&D: Allocate resources to research and development to
refine the product or service offering and stay ahead of competitors.
• Focus on Differentiation: Emphasize unique features or benefits of the
product to differentiate it from competitors and attract early adopters.
• Build Partnerships: Form strategic partnerships with suppliers,
distributors, or complementary businesses to enhance market reach
and credibility.
• Educate Consumers: Invest in marketing and educational campaigns to
create awareness and educate consumers about the new product or
technology.
2. Growth Stage
• Dynamic changes and significant developments characterize the growth
stage of the industry life cycle.
 Characteristics of the Growth Stage
• Rapid Market Expansion: During this phase, the market experiences
substantial growth as more consumers adopt the product or service. At
this time, companies witness a surge in sales and market share.
• Increased Competition: The expanding market attracts new players,
which further intensifies competition. Companies strive to differentiate
themselves and gain a competitive edge to capture a larger market
share.
• Rising Consumer Demand: There is a noticeable increase in consumer
demand for the product or service. This surge in demand encourages
companies to meet evolving consumer preferences and expectations.
 Strategies for growth stage:
• Expand Market Reach: Invest in expanding distribution channels
and entering new geographic markets to capitalize on growing
demand.
• Increase Production Capacity: Scale up production to meet
increasing demand and achieve economies of scale to lower
production costs.
• Strengthen Brand: Invest in branding and marketing efforts to
solidify the brand's position in the market and attract a broader
customer base.
• Innovate Continuously: Continue to innovate and enhance the
product or service offering to maintain competitiveness and
capture new market segments.
3. Maturity Stage:
• The maturity stage is characterized by stable growth and intense
competition. Market saturation occurs as most potential customers
already use the product or service. Companies focus on
differentiating their offerings and improving efficiency to maintain
market share. Profit margins may start to decline as competition
increases.
Strategies for maturity stage:
• Optimize Operations: Streamline operations and improve
efficiency to reduce costs and maintain profitability in a
competitive market.
• Focus on Customer Retention: Implement customer loyalty
programs and provide excellent customer service to retain existing
customers and prevent them from switching to competitors.
• Diversify Product Portfolio: Expand the product line or introduce
variations to cater to changing customer preferences and expand
market share.
• Explore New Markets: Look for opportunities to enter new market
segments or geographic regions to offset stagnating growth in
existing markets.
4. Decline Stage
• The decline phase signals a downturn in the industry life cycle.
There comes a diminishing market demand, outdated
technologies, and a decrease in overall industry activity. This stage
follows the maturity phase and indicates a waning interest from
consumers.
Strategies for Decline stage:
• Manage Cash Flow: Focus on cash flow management and cost
reduction to sustain operations during the declining phase.
• Harvest or Divest: Consider harvesting profits from the declining
business or divesting assets to minimize losses and redirect
resources to more promising ventures.
• Explore Adjacent Markets: Identify adjacent markets or niche
segments where the company's capabilities or resources can be
leveraged to generate new revenue streams.
• Exit Strategy: Develop an exit strategy, which could involve selling
the business, restructuring, or liquidation, depending on the
circumstances and opportunities available.
• For companies, life cycle stages are important because they can drive
strategies and actions related to sales, research, expenses,
competition, and more. For investors, understanding life cycles and
the stage that an industry or business is in can help them decide
whether to get in or out of an investment.
 Industry life cycle analysis
• It is the process of evaluating the position of a company in the life
cycle to understand its growth.
• The management and other stakeholders usually make decisions
based on the company’s financial reports.
• At the same time, this analysis helps management to make the right
strategic decisions based on the current stages where the company is
in by understanding the industry.
 Competitive Profile Matrix (CPM)
Definition
•The Competitive Profile Matrix (CPM) is a tool that compares the firm
and its rivals and reveals their relative strengths and weaknesses.
 What is the Competitive Profile Matrix

• Firms often use CPM to better understand the external environment

and the competition in a particular industry. The matrix identifies a
firm’s key competitors and compares them using industry’s critical
success factors.
• The analysis also reveals company’s relative strengths and
weaknesses against its competitors, so a company would know,
which areas it should improve and, which areas to protect.
Critical Success Factors:
Critical success factors (CSF) are the key areas that must be performed
at the highest possible level of excellence if organizations want succeed
in a particular industry. They vary between different industries or even
strategic groups and include both internal and external factors.
Sr.No Critical Success Factors
1 Price
2 Advertising
3 Market share
4 Research and Development
5 Financial Position
6 Product Quality
7 Product Range
8 Brand Collaborations
Competitive Performance Matrix: Key Components
There are 4 key components to a CPM:
1. Critical Success Factors
2. Weight
3. Rating
4. Score & Total Score
• Weight Assign a weight ranging from 0.0 (low importance) to 1.0 (high
importance) to each critical success factor. The weight indicates the
importance of that factor in the company’s success.
• Rating: refer to how well companies are doing in each area. They
range from 4 to 1, where 4 means a major strength, 3 – minor
strength, 2 – minor weakness and 1 – major weakness.
• Score & Total Score: The score is the result of weight multiplied by the
rating. Each company receives a score on each factor. The total score
is simply the sum of all individual scores for the company.
• The firm that receives the highest total score is relatively stronger
than its competitors.
 CPM of Nykaa/Purpell/Sugar

The firm that receives the highest total score is relatively stronger than its
competitors.
Benefits of the CPM:
•The same factors are used to compare the firms. This makes the
comparison more accurate.
•The analysis displays the information on a matrix, which makes it easy
to compare the companies visually.
•The results of the matrix facilitate decision-making. Companies can
easily decide which areas they should strengthen and protect or what
strategies they should pursue.
 Internal analysis
• Internal analysis is the systematic evaluation of the key internal
features of an organization.
• Internal analysis is analysis of strengths and weakness of company’s
resource and capabilities.
Four broad areas need to be considered for internal analysis:
The organization’s resources, capabilities
The way in which the organization configures and co-ordinates its
key value-adding activities
The structure of the organization and the characteristics of its
culture
The performance of the organization as measured by the strength of
its products.
 Internal Factor Evaluation (IFE)
• The process of looking at the internal factors so as to assess the
critical strengths and weaknesses that are likely to determine if the
firm will be strong enough to take advantage of opportunities while
avoiding threats.
Steps to develop IFE Matrix:
•1. List key internal factors as identified in the internal audit process. Use a total of from
ten to twenty internal factors, including both strengths and weaknesses.
•2. Assign a weight that ranges from 0.0 (not important) to 1.0 (all important) to each
factor. The weight assigned to a given factor indicates the relative importance of the
factor to being successful in the firm’s industry. Regardless of whether a key factor is an
internal strength or weakness, factors considered to have the greatest effect on
organizational performance should be assigned the highest weights. The sum of all
weights must equal 1.0.
•3. Assign a I to 4 rating to each factor to indicate whether that factor represents a major
weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a
major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and
weaknesses must receive a 1 or 2 rating. Ratings are thus company based.
•4. Multiply each factor’s weight by its rating to determine a weighted score for each
variable.
•5. Sum the weighted scores for each variable to determine the total weighted score for
the organization.
Coca Cola Internal Factor Evaluation Matrix
(IFE)
 Strengths Weight Rating Weighted Score
Strong brand 0.09 4 0.36
Strong marketing and advertising of products around 0.07 4 0.28
globe
Products are globally available 0.10 4 0.40
Healthy financial position 0.08 3 0.24
Brand equity 0.07 4 0.28
Competent workforce 0.05 3 0.15
Wide variety of products 0.05 3 0.15

Weaknesses
High debts 0.10 2 0.20
Health Issues 0.10 1 0.10
Some products have low sales 0.09 2 0.18

Weak image in India 0.06 2 0.12

Negative publicity 0.10 1 0.10
Taste differentiation 0.05 1 0.05
Total Weighted Score 1.0 2.65
The total weighted score value is 2.65 which means company internal position is
better.
 Value chain concept and analysis
• A value chain is a chin of activities that a firm operating in a specific
industry performs in order to deliver a valuable product or service for
the market.
• Value chain analysis is process where a firm identifies its primary and
supportive activities that add value to its final product and then
analyze these activities to reduce costs or increase differentiation.
• Value chain represents the internal activities a firm engages in when
transforming inputs into outputs.
 Value chain concept and analysis
• Value Chain analysis was first suggested by Michael Porter (1995)
• Value chain analysis is a framework that helps businesses understand the
activities involved in creating value for their customers.
• Shows how a product moves from the raw-material stage to the final
customer.
• Highlights cost advantages and distinctive capabilities the value processes.
• Focuses on how a business creates customer value by examining
contributions of different internal activities to that value.
•
• Divides a business into a set of activities within the business
• Starts with inputs a firm receives
• Finishes with firm’s products or services and after-sales service to
customers
• Allows for better identification of a firm’s strengths and weaknesses
since the business is viewed as a process
• Identifies value processes and areas for cost improvement
• Allows the firm to understand the parts of its operations that create
value and those that do not
ACTIVITIES IN VALUE CHAIN: Porter identified two type of activities
Primary activities: These are directly involved in the production and
delivery of the product or service. They include activities such as inbound
logistics (procurement of raw materials), operations (manufacturing or
service delivery), outbound logistics (distribution), marketing and sales,
and customer service.
Support activities: These are not directly involved in production but
provide essential support to the primary activities. They include activities
such as procurement (sourcing raw materials), technology development
(research and development), human resource management, and
infrastructure (administrative functions, facilities management).
The goal of these activities is to offer the customer a level of value that
exceeds the cost of the activities, there by resulting in a profit margin
Value chain model
 Primary activities:
•Inbound logistics: Activities related to receiving, warehousing, and
inventory management of source materials and components. (Raw
materials are brought in from the outside.
ervice, including promotion, advertising, a
•Operations Activities related to turning raw materials and components
into a finished product
•Outbound logistics: Activities related to distribution, including packaging,
sorting, and shipping. (The finished product is shipped from the inside out)
•Marketing and sales: Activities related to the marketing and sale of a
product or service, including promotion, advertising, and pricing strategy.
uding installation, training, quality assuran
•After-sales services Activities that take place after a sale has been
finalized, including installation, training, quality assurance, repair, and
customer service
Support activities
•Procurement: Activities related to the sourcing of raw materials,
components, equipment, and services
•Technological development: Activities related to research and development,
including product design, market research, and process development.
•Human resources management: Activities related to the recruitment, hiring,
training, development, retention, and compensation of employees.
•Infrastructure (related to management activities ） :Activities related to the
company’s overhead and management, including financing and planning
THE IMPORTANCE OF CHAIN ANALYSIS
•The purpose of the enterprise value chain analysis is to analyze which link
in the operation of the company can improve customer value or
reduce production cost. For any value-adding behavior, the key question is:
1.Whether the cost can be reduced while maintaining the same
value(revenue)
2.Whether the value can be increased while the cost remains unchanged
3.Whether the process input can be reduced while keeping the cost income
unchanged.
Uses of value chain analysis:
•The sources of the competitive advantage of a firm can be seen from
its discrete activities and how they interact with one another.
•The value chin is a tool for systematically examining the activities of a
firm and how they interact with one another and affect each other’s
cost and performance.
•A firm gains a competitive advantage by performing these activities
better or at lower cost than competitors.
•Helps you to stay out of the “No Profit Zone” Presents opportunities
for integration
•Aligns spending with value processes
 SWOT ANALYSIS

• SWOT analysis: an analysis of an organization’s strengths and

weaknesses alongside the opportunities and treats present in the
external environment
• SWOT analysis: involves the collection and portrayal of information
about internal and external factors which have, or may have, an
impact on business.
• Strengths: factors that give an edge for the company over its
competitors. Examples of strengths include:
 Patents
 Strong brand names
 Good reputation among customers
 Cost advantages from proprietary know how
 Exclusive access to high grade natural resources
 Favorable access to distribution network
• Weaknesses: factors that can be harmful if used against the firm by
its competitors. Examples of weaknesses include:
 Lack of patent protection
 A weak brand name
 Poor reputation among customers
 High cost structure
 Lack of access to the best natural resources
 Lack of access to key distribution channels
• Opportunities: favorable situations which can bring a competitive
advantage. Examples of such opportunities includes:
 An unfulfilled customer need
 Arrival of new technologies
 Liberalized regulations
 Removal of international trade barriers
• Threats: unfavorable situations which can negatively affect the
business. Some examples of such threats includes:
 Shifts in consumer tastes away from the firms products
 Emergence of substitute products
 New regulations
 Increased trade barriers
The SWOT Matrix
• S-O strategies: pursue opportunities that are a good fit to the
company’s strengths.
• W-O strategies: overcome weaknesses to pursue opportunities
• S-T strategies: identify ways that the firm can use its strengths to
reduce its vulnerability to external threats
• W-T strategies: establish a defensive plan to prevent the firm’s
weakness from making it highly susceptible to external threats.
Importance of SWOT analysis:
• SWOT analysis brings to light whether the business is healthy or
sick
• An undertaking comes to know of both internal as well as external
factors affecting its success or failure.
• It helps in the formation of a strategy so as to make preparations
for the possible threats from the competitors.
• SWOT analysis evaluates the business environment in a detailed
manner so as to take strategic decision for the future course of
action.
 SWOT Analysis of Flipkart
Strengths of Flipkart: continuous dominance in online retail and is
attributable to numerous internal factors.
Exceptional Brand Recall
• Flipkart enjoys an extensive degree of brand recall through online branding,
social media and its quirky TV advertisements.
• Be it those kids acting like adults in those TV ads or the frenzy around ‘Big
Billion Day’.
• Over the years, Flipkart managed to rope in icons like Alia Bhatt, Ranbir
Kapoor, Virat Kohli etc to connect with its user segments.
• Tag lines like ‘Ab Har Wish Hogi Poori’ and “India ka Fashion Capital’ are
trending amongst Indian consumers.
Experienced Foundation
• The online retail industry in India was taking its baby steps back in 2007-08.
•And at that time, Flipkart’s founders (Bansal brothers) who had just
worked at Amazon were leading the firm. Their technical expertise in
online retail industry eased Flipkart’s growth and prominence.

Strategic Acquisitions & Partnerships

• Flipkart has consistently been able to establish tie-ups with likes of Myntra,
Jabong, Walmart because it wanted to solidify its position.
• Having a separate brand pertaining to fashion and one for digital payments
(PhonePe) contributes greatly to brand equity.
• Further, Flipkart has entered many strategic partnerships like Ekart,
Chakpak, Letsbuy, Walmart etc. This enables Flipkart to bolster their
logistics, payment gateways and digital content creation.
High Volume & Range of Products
• Flipkart has a plethora of quality product options to choose from in every
category they sell.
• Exclusive tie-ups with popular brands like Lifestyle, Apple, Motorola, and
Xiaomi in the past as well as encouraging in-house brands like Citron, Digiflip
& MarQ etc have helped with their large catalogue of products.
Weaknesses of Flipkart: The online retail giant, Flipkart also faces some
internal weaknesses. Let us have a look at some of them.
Excessive Advertisement Expenses
• Flipkart spends as much as 30% of its annual revenues on marketing and advertising,
much higher than HUL. Now, that’s a steep benchmark!

Flipkart relies on heavy discounts, spending crores to attract and retain

customers because it wants higher visibility across mediums.

And, Flipkart reported a loss of Rs 1950 crores in FY2020 even though revenue grew
by 32%.
• Therefore, ‘Big Billion Day’ has become a trademark yearly sale event for online
shoppers. But excessive spends on ads is not sustainable in the long run.
Lack of Technological Innovation
• Flipkart distribution channels and outreach are limited and nowhere
comparable to its top competitors.
• The supply chain and logistics for the products delivered to users needs
massive upliftment.
• The Just-in-Time inventory philosophy needs to be followed as shipping times
and lead times to completing order is too high for Flipkart.
• Further, Flipkart has lacked on the R&D aspect of technology - routing users
from various mediums to their website exactly what Alexa does for Amazon.
Rapid Acquisition Spree
• Flipkart has been lately looking to up the game by focusing on improving user
experience.
• It has acquired a host of start-ups like Mech Mocha(social gaming) and AR
start-up Scapic.
• Given that the company is reportedly posting losses, and competition is
heating up, so siphoning funds on improving user engagement on their
platform isn’t exactly first priority.
This rapid acquisition spree might turn out to be damaging for the finances.
Opportunities of Flipkart: While there are many obstacles on the way,
there are situations where Flipkart can benefit and leverage from. Let’s
take a look at the Opportunities:
Post-Pandemic Sentiments
• Just like COVID has wreaked havoc globally, it also provides great impetus for
embracing ‘digital’. As more and more consumers are being aware and
switching to online consumption of services.
• You might be ordering your daily essentials though these E-commerce
websites.
• It Is a golden opportunity for Flipkart to grab on. They should extend its
range of offerings focusing on consumer sentiments and insights.
Market Development
• Owing to the thrust towards digital economy and retail, Flipkart should indulge in new market
development and extend its services.

• Flipkart has to be move across borders of India and serve customers from neighbouring geographies like
South-East Asian countries. Because these countries have a high demand for online retail.
• Entering into joint ventures with local players, Flipkart can look to diversify its revenue from alternate
markets.
Delivery Excellence
• Order returns, refunds, cancelations, redressal of delivery issues, and fake product deliveries etc are
issues Flipkart should enhance in their ranks.
• Flipkart should try to reduce the delivery times and increase its operational efficiency for tier 2 & 3 cities
because rural dwellers are now surging to online shopping.
Secure and Streamline Payments
• Better online secure payments can instill more confidence in people to shop
online. India has one of the highest no of smartphone users in the world.
• Flipkart can look to streamline payments for their orders through an in-house
payment service like AmazonPay to include new product lines.
And Flipkart can also look to ride on the wave of ‘Vocal for Local’ sentiments
in India allowing more MSMEs to sell on their platforms.
• Threats of Flipkart: In this era of intense competition for survival,
there are some threats of Flipkart that it must be vary of. Let’s take a
look at them
Threat of Intense Rivalry
• There is no dearth of competitors in the online retail space. Be it international
players like Amazon, eBay, and Alibaba or local ones like Shopclues, Snapdeal,
and Paytm etc.
• Presence of so many rivals selling similar products immensely reduces
revenues.
Two top firms in Amazon & Flipkart are locked in a battle of burning cash,
offering festive sales, and ambitious money infusions from investors. Because
they both want to conquer the Indian online retail market and oust the other.
Buyer Power & Switching
• The online retail market is saturated with Snapdeal, Paytm, Ebay, Myntra
Reliance Digital, and Nyka etc.
• Customers visibly have lower switching costs; they instantly switch from
one online shopping website to another.

The products are mostly the same apart from a few brands. Hence, ‘standing
out’ is tough to say the least.
Stringent Government Regulations
• It is hard to sustain losses and keep doing business if the government
regulations keep hindering the business.
• In fact, Flipkart was recently investigated related to violations of competition
laws in 2020 by CCI(Competition Commission of India).

Indian government also exercises strict control and monitoring of FDI and
funds from foreign investors into Indian firms. This led to many legal issues
and operational problems for Flipkart (now owned by US-based Walmart).

Also, in wake of Indo-China tensions, proliferation of fake goods on online

retail sites has been met with stringent measures.