CHAPTER 3 : STRATEGIC ANALYSIS - INTERNAL ENVIRONMENT

Concept of Stakeholders: Who are they and how to identify them?

· Stakeholders : Any person/group of individuals whether internal or external, having an interest in or impact on
business or corporate strategy of organisation.

*They can influence the strategy or performance of an organisation *They generally include management,
employees, shareholders, suppliers, customers *It may also include other individuals/ groups, like governments,
labour unions etc *Stakeholders not only affect but also get affected by business strategy of organizations
*Expectations of key stakeholders can influence organization's strategy

Expectations or interests of stakeholders ->

*Shareholders invest capital in the business and expect a good return on investment *Employees rely on
employment and job security *Customers want quality and value in product or service * Suppliers sell goods and
services to companies rely for revenue from sale of those goods *Communities expect businesses projects not to
negatively impact health or safety *Government agencies would like company's economic activity to go well as they
get taxes from them.

Mendelow's matrix

*Different stakeholders may have different priorities, which leads to conflict.

*So, firms need to find a way to balance conflicting priorities of its stakeholders.

*For, this, Mendelow's Matrix is an important tool to analyse stakeholders and their attitudes.

*The Mendelow Stakeholder matrix is a simple framework to help to manage key stakeholders.

*It is also known as Stakeholder Analysis matrix and the Power-Interest matrix.

*According to Mendelow's matrix : one should analyse stakeholder groups based on:

Power (ability to influence organisation strategy or resources)

Interest (how interested they are in organisation success).

1. KEEP SATISFIED Stakeholders: High power, less interested

*Organisation must put enough efforts on these people *They must be satisfied & provided with intended
information on regular basis *They can cause hindrance to new ideas or strategic choice *For example, banks,
government, lenders, customers, etc.

2. KEY PLAYERS Stakeholders: High power, highly interested

*Organisation must fully engage with them *Greatest efforts to satisfy them, take their advice, build actions & keep
them informed on regular basis *They must be managed closely *For example, Shareholders, Investors, CEO,
Board of Directors, etc.

3. LOW PRIORITY Stakeholders: Low power, less interested

*Organisation must only monitor them with no actions to satisfy them *Strategically, minimal efforts to be spent on
them *An eye must be kept to check if their levels of interest or power change *For example, business magazines,
media houses, research institutes etc.

4. KEEP INFORMED Stakeholders: Low power, highly interested

*Organisation must adequately inform and communicate with them *They must be consulted for their expertise
*They can give real time feedbacks and areas of improvement for organisation *For example, employees, vendors,
suppliers, legal experts etc;

strategic drivers :-

1. Industry and markets :

It is important for any organization to understand its relative position in the industry and in the market in which it operates through analysis and understanding

of the industrial environment.

Meaning of Industry

. Industry refers to a group of similar firms.

. These are grouped on basis of primary product they make or sell.

Meaning of Market
. Market is sum total of buyers & sellers of a particular product/service.

. Forces of demand & supply determine value, cost and price of products

. Market may be physical / internet-based (or) local / global,

Is market same for all businesses?

As we know that, market refers to buyers and sellers of a particular product/service * So market is not the same for
all businesses *Each business has its own set of customers i.e. market *Also each product within a business has its
own markets *For example, FMCG companies like HUL, P&G, ITC sell different products like shampoos, detergents,
food & beverages *Each product line will have a separate market or group of customers to cater to *Hence, they
must formulate strategies specific to the market of concern.

Strategic group mapping :

strategic group -> Group of resembling firms

Resemblance: similar/same-

Price, Quality, Features, Services, Range,

Distribution channels, Geographic coverage

Similar market positions + strategies

Strategicgroup mapping -> Analytical tool to-

· Compare market positions + group similar positions

· Plot using pair of characteristics

· To identify closest rivals

Steps in Strategic Group Mapping :- IPAD

1. Identify competitive characteristics Like: *Price *Quality *Geography *Product-line *Distribution channels
*Services *Vertical Integration

2. Plot firms on two-variable graph : State two variables of axes on map & Plot firms on map

3. Allocate firms to same group : All firms falling in same strategic space are allocated to same strategic group

4. Draw circles around each strategic group : Circle size depends on share of strategic group in total industry sales
revenue

2. customers :

· Understanding customers is a first step in deciding which product/service to produce.

. Different customers have different requirements in terms of products, price, quality, channel etc.

. Hence, it is important to analyse customer needs and accordingly target areas for growth.
. Similarly, customers can be grouped under high value buyers, medium value buyers and low value

buyers based on the amount they are willing to spend on a product, thus helping the business to

understand their key customers and focus areas of improvement.

difference between customer and consumer :-

* customer -> who buys

consumer -> who uses

*customer -> who willingly spends money

consumer -> who may or may not accept the product

*customer -> more important in the perspective of pricing

consumer -> more important in the perspective of value creation

3. Products/Services :

. Products/services are closely linked and interrelated with markets to be served.

. Firms must identify key products/services and how well they are performing.

. Products are combination of "goods-and-services" offered to target market.

· Strategies are needed for managing existing product, adding new ones, dropping failed products

. Decisions about branding, packaging, warranty etc. also need to be taken.

. Products and markets are infinitely dynamic (keep on evolving and changing)

. Firms must develop policies and strategies to deal with these dynamics.

Customers must be convinced that firm's products are different.

This differentiation could be real or imaginary.

. Most times it is psychological rather than physical.

· Firms use different 'brand names' to establish differentiation.

. Example- Soaps- Dove, Lux, Lifeboy, Rexona, Pears, Liril, are all by

HUL. Biscuits- Tiger, Good Day, 50-50, Treat, Pure Magic, Milk Bikis,

Bourbon, Nice Time, are all produced by Britannia.

. Firm's image is built around brands through advertising & other

promotional strategies.

Products can be classified/differentiating on many basis:

· On basis of industrial or consumer, essentials or luxury, durables or perishable products.

. On basis of wide range of quality and workmanship

. On basis of long time span and short life spans.

· On basis of size, shape, color, packaging, brand names etc.

Three objectives while designing pricing strategy for a new product:

.Adopt customer-centric approach while making product

·Generate sufficient returns through reasonable margin over cost

·Increase market share

strategic marketing techniques

Social Marketing

/ It is a strategy to promote social causes amongst target audience.

/ It is a carefully planned, long- term approach to changing human behaviour for benefit of consumers or society as a whole.
*For example: *'EducateTheGirlChild' campaign by Nestle

*'Dark is Beautiful' campaign by Women of Worth in India

Augmented Marketing

/ Augmented marketing is adding value to a product by providing additional related services and benefits along with the main
product. /Sellers use it to provide their clients with additional value for
free. / Its aim is to satisfy customers by providing extra benefits and push sales.
/ These benefits can be in the form of free installation, free warranty, free maintenance, free delivery, free samples etc. *For
example : When you buy a broadband connection, the core benefit is to have access to the internet. Now, extra benefits might be
added to it like one- month free access to OTT Platform or priority customer support.

Direct Marketing

/It involves direct communication/distribution of products to consumers without any third party. / It is called direct as it
generally eliminates middleman, such as advertising media / It is a targeted form of marketing that presents
information of potential interest to a likely buyer. / The call to action is an essential part of direct marketing.
/ In this, recipient of message is urged to immediately respond by calling toll- free phone number, sending a reply card, or
clicking on a link. A response is a positive indicator of prospective purchaser. / Examples of forms of direct marketing: Broch ures,
catalogues, newsletters, postcards, coupons, emails, targeted online display ads, phone calls, TV shopping, push notifications,
social media marketing etc.

Relationship Marketing /It is a

strategy of creating, maintaining, and enhancing strong, value-laden relationships with customers and other stakeholders.
/ It aims at building customer loyalty by enhancing existing relationships. / It involves satisfying needs of
customers, getting their feedback and making product/service better. *For example:

. Starbucks quotes the name of the customer on its products to be more engaged with them

and also share quick videos and images of customers drinking their product on Instagram. Amazon makes things easy for their c ustomers, which
drives loyalty and repeat business. They make purchase, shipping process and returns easy and offer lightening fast, free delivery for prime
customers.

Sevices Marketing

/ Service marketing is the marketing and selling of intangible products / Purpose is to utilize an effective
method of communication to create demand for services among customers like advertisements
*For example tourism, telecommunication, education

Person Marketing
*It refers to efforts/activities for attracting attention and interest of target market towards a person.
*Firms use it for promoting their products through renowned personalities, players, politicians and film stars who promote themselves and
different products or services.

Organization Marketing
/It is used to influence customers about company's values. /Organization marketing is a strategy of
creating, maintaining, or altering public's attitude or opinion about an organization.
/It is followed by both profit and non-profit organizations. /It helps in enhancing relationship
with customers by providing them useful insights about the company and its procedures in order to maintain a clear image in the public eye.
/For example, Companies like TATA are often seen sponsoring social events or engaging in charitable activities.

place marketing

*Place marketing is a strategy to promote a particular place * It means communicating

and highlighting the attractions, resources and business opportunities available at a particular place
*For example: 'Incredible India', an international tourism campaign, Assam tourism's campaign 'Awesome
Assam' and Priyanka Chopra as its brand ambassador *Kerala Tourism with its 'God's own country' campaign, linked the state
with a concrete symbolic experience

Differential marketing

*It is a marketing strategy of targetting differnt market segments with different offers *The objective is to improve sales and
market share across all the segments that you are targeting. *For example: Maruti Suzuki offers different promotional offers for
budget-friendly cars such as WagonR or Alto. Also, it targets high-spending consumers with promotional messaging for cars like Ciaz, S-Cross, or
Baleno.

Concentrated Marketing /concentrated

marketing is a strategy of directing efforts and resources on serving one specific segment of target market.
/It aims at satisfying needs/wants of a smaller segment of a larger market. /It is often used by startups
companies with niche products, and small firms with limited budgets. /For example, a company might marke t a product specifically
for teenage girls, or a retailer might market his business to residents in a specific town.

Synchro-marketing
It is a marketing strategy in which seller tries to control the irregular demand by presenting various attractive offers to the customers.
/The offers can be in form of discounts, free instalments, or free gifts. /It aims at creating a demand for off-
seasonal goods. /For example: Pr oviding discounts to customers on expensive products during
festival seasons (Diwali, Eid, etc.)

Demarketing
/It is a strategy of discouraging or reducing demand for a product as manufacturers don't have enough supply or feel unprofitable to deliver
products to certain regions. / It is an attempt made to discourage consumers from buying a certain product
/It only aims at reducing consumption, not to destroy it. /Strategies like price increase,
decreased advertising, and product redesign are used by firms. For example :-
*TATA group discouraged its customers from purchasing Tata Nano because of the low supply *State and Central Governments
demarketing alcohol and cigarette for the entire population.

Enlightened Marketing
Enlightened marketing is a marketing technique in which marketing decisions must be made as per consumer's wants and long-term interests
of society.

The five principles are basis of enlightened marketing philosophy :

*Consumer-oriented marketing -Company should organize its marketing activities from the consumer's perspective to deliver superior value to
customers and build lasting and profitable relationships.
*Innovation marketing-Company should aim at constant improvement in products and innovation. *Societal marketing- Company should
consider the societal impact of a product on the environment.
*Value marketing-Company should produce products that deliver a real value over the long run *Sense of mission marketing- Company should
consider ethical principle as an equal contributor for long term success of the business.

4. channels - a strategic driver

* Refers to the distribution system through which products and services are provided to customers.
*They determine the path goods take from the manufacturer to the final consumer
*Robust & wide distribution system is must for attracting maximum customers and beating rivals. *They
also act as barrier to entry *Boat
Headphones are sold only online through e-commerce platforms like Flipkart and Amazon

Need/importance of channel analysis :-

*important when expansion into new markets

*important when leveraging existing channels

*important in choosing most suitable channel

for example :- A healthcare company wanting to reach out to elderly customers may use offline mode to
reach out physically to elderly people through agents

Three major channels used by companies :-

1.sales channel -> *the sales channel is a channel in which a product passes through all the intermediataries like
distributer, wholesaler, retailer and finally reaches to end customer

2.product channel -> *the product channel is a channel in which a series of intermediataries
physically handles product on its path from producer to end user

3.service channel -> *the service channel is the channel in which entities provide necessary services to support the
product as it pass throught the service channel and after the purchase by the end user for example
:- complex products which involves installation or customer assistance

Core Competence
/Core Competence is a unique strength of an organization which is not shared by others.
/It refers to those core capabilities that are important for business in order to achieve competitive advantage.
/It is combination/integration of skills, techniques & resources necessary
/It differentiates one business from other similar businesses. For example, HUL has core competence in Marketing and
Sales function.
According to C.K. Prahalad and Gary Hamel, Core competency is a collective learning in organization especially
coordinating diverse production skills and integrating multiple strems of technologies.

*Organization's combination of technological and managerial know-how,wisdom and experience are a set of
capabilties and resources that canlead to competitive advantage.

Core competencies thus, are a combination/integration of skills, techniques & resources. They cannot be built on one
capability or single technological know- how.

core competencies are identified in three areas-

/ Competitor differentiation:

*Company can consider having core competence if the competence is unique and it is difficult for competitors to
imitate.
*This can provide a company with an edge over competitors. *For example, it is not easy to imitate the patented
innovation of Tesla.

/ customer value

*When purchasing a product or service, it has to deliver a fundamental benefit to the end customer to be a core competence.
*The service/product has to have a real impact on the customer to give them a reason to choose to purchase them. If they choose
company without this impact, then it is not a core competence. *For Example, Amazon is constantly innovating with new customer
solutions including one-day shipping, easy returns

/ Application of competencies to other markets:

Core competence must be applicable to whole organization;

*It will not be considered as a core competence if it is not fundamental from whole organization's point of view. It cannot b e only one
particular skill or specified area of expertise.

need for core competencies :-

*distinguish firm from its rivals

*emerge over time through experience

*compete in competetive environment

*grab opportunities before rivals

Four Specific Criteria to gain Sustainable Competitive Advantage ?

Four Specific Criteria to build Core Competency ? VRCN

Four Specific Tools to identify capabilities that are Core Competency ?

a) valuable -> / capabilities that helps firm in *tapping opportunities or preventing threats *increasing customer value

b) rare -> / capabilities which are *possessed by only one or few firms *hard to find

c) costly to imitate -> / capabilities that are *costly to duplicate/copy or even difficut to copy at all

d) non-substitutable -> / capabilities which have no strategic equivalent resource that provides same value or benefit to the customer *for eg : tata

culture

COMEPETETIVE
-> ADVANTAGE
GAINING EDGE OVER RIVALS

->FACTORS THAT ALLOW FIRMS TO PRODUCE BETTER PRODUCTS/SERVICES

->FORMULATE VALUE CREATION STRATEGY

->TENDS TO GREATER PROFITABILITY

SUSTAINABLE COMPETETIVE ADVANTAGE

set of charactericstics or capabilities following firm to meet customer needs

depends upon 4 key characteristics :- .durability .transferability .imitability .appropriability

a) durability -> *period over which competetive advantage can be susutained *depends on rate of deterioration of resources *rate of
deterioration increases with increae in innovation

b) transferability -> *ability of rivals to attack your competetive advantages by gaining access to resources/capabilities

c) imitability -> *ability of rivals to copy/imitate/build the resouces or capabilities easily & quickly

d) appropriability -> *ability of owners to get appropriate returns on its resource base

Value Creation

Value consumer wants to pay, over and above price

*Activity of creating value
*By- Increasing worth of products, services, processes, whole system.
*In terms of- better features, quality, durability, performance etc.
*Excess amount is value creation
*Helps in- sustaining competitive advantage & increasing profitability
*Depends on 3 factors:
/ Costs of creating products
/ Price charged for products;
/ Value customers give to products;

SWOT ANALYSIS :-
1. acronym : strength weakness opprtunities & threats

2. meaning : structured planning tool to evaluate firm's internal and external environment

3. aim : identify key factors important to achieve objectives

4. hepls in : gaining competetive advantage + profitability + survival

5. categories : internal factors and external factors

6. internal factors : strengths and weaknesses

7. external factors : opportunities and threats

strengths -> inherent capability that gives strategic advantage

weakness -> inherent limitation that gives strtagic dis-advantage

opportunities -> favorable condition that strengthens the firms positions

threats -> unfavorable condition that damages the firm's position

significance of SWOT analysis

*provides logical and systematic framework for analysis

*provides structured information about internal and external environment and comparison

*helps/guides strategists in identifying suitable strategies

Examples of Possible Strengths, weaknesses, Opportunities and Threats

Potential strengths

* Powerful strategy *Strong financial condition; *Strong brand name/image/reputation. *Economies of scale/experience
curve effects. *Superior technological skills/ SCM. *Cost advantages. *Product innovation skills. *Better product quality.
*Wide geographic coverage *Alliances/joint ventures

Potential weaknesses

*No clear strategy *Obsolete facilities. *Weak balance sheet *Higher overall unit costs.
*Lack of key skills/competencies *Internal operating problems. *Narrow product line
*Weak brand image/reputation. *Lack of financial resources. *Underutilized plant capacity.

Potential opportunities

*Additional customer groups *New markets/ product segments. *Expanding product line *Utilizing existing company skills
*Using internet and e-commerce technologies *Integrating forward or backward. *Falling trade barriers.*Openings to take
market *Acquisition of rival firms *Alliances or joint ventures

Potential threats

*Likely entry of potent new competitors. *Loss of sales to substitute products. *Competition from new e-commerce firms
*Competition among industry rivals *Technological changes/product innovations *Slowdowns
in market growth. *Changes in exchange rates/ trade policies *Costly new regulatory requirements.*Bargaining power of
customers or suppliers. *Shift in buyer needs and tastes