MODULE NO.

1: BUSINESS ENVIRONMENT
MEANING
The aggregate of all the forces, factors and institutions which are external
to and beyond the control of an individual business enterprise but which exercise
a significant influence on the functioning and growth of individual enterprises
DEFINITIONS OF BUSINESS ENVIRONMENT
Business environment refers to “the total of all things external to
firms and industries which affect their organisation and operation.
– Bayord O. Wheeler
Business environment encompasses the climate or set of conditions,
economic, social, political, or institutional in which business operations are
conducted.
– Arthtur M. Weimer
NATURE OF BUSINESS ENVIRONMENT
The nature of business environment is as follows:
1. Complex: Business environment is compound in nature. Environment
consists of a number of factors, events, conditions and influences arising
from different sources, which affect business thus making the business
complex.
2. Interdependence: The environment of the business is made of social,
economic, legal, cultural, technological, and political factors. These factors
of the environment are interdependable. The economic status of a country
affects the development of technology. A rich country can make sufficient
expenditure on the research and development.
3. Dynamic: Business environment is constantly changing process. Business
environment is dynamic as it keeps on changing in terms of technological
improvement, shifts in consumer preferences or entry of new competition
in the market. The various forces in the environment keep on changing
from time to time thus making business dynamic and not static.
 4. Inter-relatedness: The different factors of business environment are co-
related. For example, let us suppose that there is a change in the import-
export policy with the coming of a new government. In this case, the
coming of new government to power and change in the import export
policy are political and economic changes respectively. Thus, a change in
one factor affects the other factor.
5. Impact: Business environment has both long term and short term impact.
Environment therefore has different effects on different firms in the same
industry, for example, drugs.
6. Uncertainty: Business environment is largely uncertain as it is very
difficult to predict future happenings, especially when environment
changes are taking place too frequently as in the case of information
technology or fashion industries.
7. Relativity: It is a relative concept since it differs from country to country
and region to region. Political conditions in the USA, for example differ
from those in China or Pakistan. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent in France.

ELEMENTS OF BUSINESS ENVIRONMENT AND HOW DOES IT

AFFECT BUSINESS DECISIONS
 Political Environment
 Economic Environment
 Social Environment
 Technological Environment
 Legal Environment
 Demographic Environment
 Natural Environment
 International Environment
1. POLITICAL ENVIRONMENT:
 The political environment can be one of the less predictable elements in a
business. Any business needs to monitor the changing political environment
because political change can profoundly affect an organization. Political stability
can be key for market stability. The political system prevailing in a country
decides, promotes, fosters, encourages, shelters, directs and controls the business
activity of that country. The most developed countries today, owed their success
to the prevailing political situation in their country.
Any political environment of a country can be either blessing for some
business or curse for other business. In other sense, it provides opportunity to
some business and threats to others. A businessman has to adjust his business to
the prevailing political environment as he is left with no choice.
Characteristics of Political Environment
 The first and foremost affecting environment to the business.
 The impact may be positive or negative.
 May be favourable to some business and unfavourable to other business.
 Close relationship with economic environment.
 Changing political environment always brings changes in the business.
Policies & Regulations that affect the Political Environment
 Tax policies (tax rates and incentives): Tax rates and incentives can affect
a business’s decision to invest in a country. A high tax rate may make a
country less attractive to businesses, while a low tax rate may make it more
attractive.
 Corporate governance policies: Corporate governance policies can affect
a business’s ability to operate in a country. For example, a country may have
laws that require companies to disclose their financial information.
 Data protection laws: If a business doesn’t adhere to a country’s data
protection laws, it could face difficulties operating in that nation. For
 example, a country may have laws that require companies to protect the
personal data of customers.
 Antitrust or competition rules: Depending on the country, antitrust or
competition rules might limit how a business can operate. For example, a
country may have laws that prevent companies from engaging in anti-
competitive practices.
 Trade policies: Businesses can be adversely or positively influenced by a
country’s trade policies. For example, a country may impose tariffs on
imported goods, which could make it more difficult for businesses to sell
their products in that nation.
 Subsidy policies: Subsidies can help businesses by providing financial
assistance. However, they can also create opportunities for corruption.
 Labor regulations: Labor regulations can prevent a business from being
able to operate in a country. For example, a country may have laws that
require companies to provide employee benefits, such as health insurance.
 Intellectual property laws: A business’s ability to operate in a country can
be affected by that nation’s intellectual property laws. For example, a
country may have laws that protect a company’s trade secrets.
 Environmental law: Environmental law can make it difficult for businesses
to operate in a country. For example, a country may have laws that require
companies to reduce their emissions of greenhouse gases.

2. The Economic Environment

Next to the Political environment is the economic environment, which
affects business.
The economic environment refers to all those economic factors, which
have bearing on the functioning of a business unit. Business depends on the
economic environment to buy its input as well as to sell it.
 The Economic Environment affects the demand structure of any industry /
product. At the same time, Indian Economy is witnessing growth rate of 6% plus
on an average per annum. In order to assess the impact of these forces, it is
necessary for the business to examine the following factors in a detail.
1. Gross National Product
2. Per Capita Income
3. Balance of trade position
4. Industry life cycle and current phase through which industry is passing.
(Boom, Recession and depression)
5. The inflationary or deflationary trends.
6. Rate of Interest charged by commercial banks.

These factors can be threat or opportunity to a firm. The marketer needs to

understand the impact of these economic forces on his company’s products and
services.
The economic environment is the sum total of the economic conditions and the
nature of the economy in which the business has to operate and compete.
This will include the nature of the economy, the direction in which it is progressing,
the availability of resources (labour, capital, etc) and the conditions of the market
as well. All these factors in combination create the economic environment for a
firm.
The economic environment will dictate a lot of the decisions of the firm. The
size of the market will depend on the economic environment. The purchasing power
of a potential customer will also depend on factors of the economic environment
like income levels, savings, credit availability, etc.
Factors Affecting the Economic Environment
The firm has no control over the economic environment in which it must
operate. It is an external macro factor. While it cannot be controlled by the firm it
can be studied. So it is important to know the factors which affect the economic
environment and how they may impact the firms.
1] Economic Systems

Source: Wikipedia
The economic system under which the economy operates has a huge impact
on its economic environment. Let us take a look at the three economic systems
which usually prevail
Capitalist Economy: There are no restrictions in a capitalist economy. The market
forces operate freely, demand and supply will decide the prices in the market. There
is private ownership of factors of production and private companies.
Socialist Economy: This type of economy is characterized by government control
and central planning authority. So there is no private ownership, all means of
production are under state control. There are no market forces and the price is also
set by the state.
Mixed Economy: Here the best features of both capitalism and socialism combine
to give us this system. Market forces are very much in force to decide demand
supply and prices. But there is some government oversight to ensure that there are
no discriminatory practices.
2] Economic Conditions
The economic conditions of the country also have a huge impact on the firms
that exist within the economy. Furthermore, economic conditions are the sum total
of many factors that can greatly affect a business. Such factors include GDP of the
economy, per capita income, availability of capital, utilization of resources, state of
the capital market, interest rates, unemployment levels, etc.
3] Economic Policies
In any economy, the government has some control and/or oversight.
Moreover, governments with the help of their planning authorities frame and
implement many types of economic policies.
Industrial Policy: These are all rules, laws, notifications, policies, circulars, etc
through which the government controls and governs the industrial sector of the
economy. This helps them shape the industrial development of the country.
Fiscal Policy: This is the government policy with regard to public expenditure,
taxation, and public debt. This also greatly affects the businesses functioning in the
economy.
Monetary Policy: This policy will decide the supply of money to the market.
Consequently, will decide the levels of savings and investments. It will also control
the credit supply in the economy.
Foreign Investment Policy: This deals with keeping the foreign investments in-
check for all sectors. So, we can benefit from the new technologies in all sectors.
Import Export Policy: This is how the government controls the export and imports
of a country. Also, the import-export policies will lay out the duties, taxes,
subsidies, etc. These days there are not many barriers to import and export which
positively affects the economic environment.
3. The Social and Cultural Environment:
Culture represents Religion, Language, Upbringing and Education of any
human being. Social Class comprises of Income, Occupation, location of
residence etc.
In India, there are 7 major religious groups such as Hindu, Muslim, Sikhs,
Christians, Zoroastrians, Buddhists and Jain. There are 17 different languages
spoken in 28 different states of the country.
 In such an environment, it is crucial for businesses to fully understand the
cultural values of a society, especially where an organization is seeking to do
business in a country where social and cultural values keep changing in all areas
and they are given top priorities (Daily Soap operas work successfully in India).
Attitudes to specific products/services change through time and at any one time
between different groups. Key issues relating to the social and cultural
environment include the changing role of women; the importance of leisure time
and the role of the family.
4. Technological Environment
The pace of technological change is becoming increasingly rapid and
businessman need to understand how technological developments might affect
them in four related business areas:
 New technologies can allow new goods and services to be offered to
consumers
 New technology can allow existing products to be made more cheaply,
thereby widening their market
 Technological developments have allowed new methods of distributing
goods and services
 New opportunities for companies to communicate with their target
customers have emerged.

5. Demographic Environment
Demography is the study of populations in terms of age and sex
composition. Among the topics of interest to demographers are the age structures
of a country, the geographic distribution of its population, the balance between
male and females, and the likely future size of the population and its
characteristics. Changes in the size and age structure of the population are critical
to many organizations. For any business in any country, it is very important to
understand the demographic environment as “People make up markets.”
6. Natural Environment
Geographical factors such as
 Weather, climatic conditions.
 Rainfall, minerals, soils, land forms,
These resources have enormous impact on the business of any industry.
Manufacturing activities also depend on the availability of / condition of natural
environment. Thus, business is very much affected by Natural Environment.
7. Legal Environment:
Legal Environment is the result of government intervention in the
economic and business spheres. A business has to operate within the framework
of regulations and legal provisions created by legal environment.
Thus, legal environment is the net result of various laws, rules procedures and
regulations made by the government in regard to the formation and operation of
business enterprises.
8. International Environment:
This comprises of International Elements such as
 International politics
 Economic environment at International Level
 Legal Environment at International Level
 And other environmental elements.

This environment affects businesses, which are dependent on international

environment. The exporter, importer, domestic marketer; all these gets affected
by international environment.

 War
 Political changes in important countries
 Changes in economic policies of important countries
 Development of MNCs
MEANING AND NEED OF ENVIRONMENTAL ANALYSIS
An environmental analysis, or environmental scanning, is a strategic tool
you can use to find all internal and external elements that may affect an
organization's performance. Internal components indicate the business's strengths
and weaknesses, while the external components indicate the opportunities and
threats outside the organization.
An environment analysis considers trends and high-level factors, such as
interest rates, and how they might change a company's business. These reviews
can help companies assess market attractiveness and create better strategies for
the future.
Characteristics
The characteristics of environmental scanning are as follows:
 Continuous Process- The analysis of the environment is a continuous
process rather than being sporadic. The rapidly changing environment has
to be captured continuously to be on track.
 Exploratory Process- Scanning is an exploratory process that keeps
monitoring the environment to bring out the possibilities and unknown
dimensions of the future. It stresses the fact that “What could happen” and
not ”What will happen”.
 Dynamic Process- Environmental scanning is not static. It is a dynamic
process and depends on changing situations.
 Holistic View- Environmental Scanning focuses on the complete view of
the environment rather than viewing it partially.
Purpose
Environmental analyses help businesses identify potential influences that may
provide either an opportunity or threat for them. This helps them prepare for
changes in their environment. Some benefits of using an environmental analysis
include:
  Forecasting the future
 Identifying threats and allowing them to develop a strategy for response
 Helping achieve business objectives
 Forming effective strategies and marketing programs for a business
 Improving organizational performance
Steps Involved in Environmental Analysis
1. Identifying: First of all, the factors which influence the business entity are
to be identified, to improve its position in the market. The identification is
performed at various levels, i.e. company level, market level, national level
and global level.
2. Scanning: Scanning implies the process of critically examining the factors
that highly influence the business, as all the factors identified in the
previous step effects the entity with the same intensity. Once the important
factors are identified, strategies can be made for its improvement.
3. Analysing: In this step, a careful analysis of all the environmental factors
is made to determine their effect on different business levels and on the
business as a whole. Different tools available for the analysis include
benchmarking, Delphi technique and scenario building.
4. Forecasting: After identification, examination and analysis, lastly the
impact of the variables is to be forecasted.

Process
The environmental analysis process consists of the following steps:
1. Identify environmental factors
To conduct an environmental analysis, start by selecting environmental
factors to evaluate. This depends on your type of industry. For instance, if you
work for a healthcare facility, you may want to consider legal factors, such as
health and safety regulations. When selecting factors, choose ones that have the
potential to impact how you do business.
2. Gather information
Once you decide which factors to evaluate, collect information related to
your selected environmental factors. There are two main types of information to
collect: verbal and written information.
Individuals obtain verbal information through hearing, such as listening to
a radio broadcast, whereas they obtain written information by reading sources,
such as a newspaper or magazine. Using the above example, this would involve
researching online and in medical magazines to see if there were any changes to
health and safety regulations that may impact your health facility.
3. Evaluate your competitors
To determine if there are any threats from your competitors, you may want
to collect information about them. You can do this using a technique called
spying, where you collect information in a non-traditional way. Using the same
scenario, you may spy on a nearby health facility to learn about their recent
activities, such as a new branch opening.
4. Forecast the impact
Forecasting allows you to predict how certain environmental factors may
impact your business. This allows you to anticipate potential threats or
opportunities. When forecasting, there are a variety of methods to use, such as
brainstorming and surveying. Continuing with the same example, the health
facility may forecast that the new branch opening at their competitor's facility
may take away some of their patients.
5. Assess your strategies
Finally, assess your current and potential strategies to determine how the
projected environmental changes may affect your organization. This helps you
resolve potential challenges that may have resulted from the factors. For instance,
the health facility may want to create a new strategy for how they plan to address
the decrease in clients due to their competitor's new branch.
TECHNIQUES OF ENVIRONMENTAL SCANNING
1. Environmental Threat and Opportunity Profile Analysis (ETOP)
ETOP is considered as a useful device that facilitates an assessment of
information related to the environment and also in determining the relative
significance of external environment threats and opportunities to systematically
evaluate environmental scanning. By dividing the environment into different
sections, the ETOP analysis helps in analyzing its impact on the organization.
The analysis is based on threats and opportunities in the environment.

2. Quick Environmental Scanning Technique Analysis (QUEST)

QUEST is an environmental scanning technique that is designed to assist with
organizational strategies by keeping adheres to change and its
implications. Different steps involved in this technique are as follows:
 The process of environmental scanning starts with the observation of the
organization’s events and trends by strategists.
 After observation, important issues that may impact the organization are
considered using environment appraisal.
 A report is created by making a summary of these issues and their impact.
 In the final step, planners who are responsible for deciding the feasibility of
the proposed strategy, review reports.
3. SWOT Analysis
SWOT analysis stands for strengths, weaknesses, opportunities and threats
analysis of a business environment. Strengths and weaknesses are an
organization’s internal factor while threats and opportunities are considered as
external factors. So, the process of SWOT analysis includes the systematic
analysis of these factors to determine an effective marketing strategy. It is a tool
that is used by the organization for auditing purposes to find its different key
problems and issues.

These are identified through internal and external environmental analysis.

Internal environment analysis/ scanning
Different factors are considered while analyzing the internal environment
of an organization like the structure of the organization, physical location, the
operational capacity and efficiency of the organization, market share, financial
resources, skills and expertise of employees, etc.
Strengths: The strength of any organization is related to its core competencies
i.e. efficient resources or technology or skills or advantages over its
competitors. For example, the marketing expertise of a firm can be its strength.
Apart from this, an organization’s strength can be:
 Strong customer relations
 Market leader in its product or services
 Sound market image and reputation
 Smooth cash-flows
Weaknesses: A weakness or limitation of an organization is related to the
scarcity of its resources or skill-set of staff or capabilities that creates an adverse
effect on its performance. For example, limited cash-flow and high cost are
considered as a financial weakness of the organization. Similarly, other
weaknesses can be:
 Poor product quality
 Low productivity
 Unrecognized brand name or poor brand image
External environment analysis/scanning
Different factors that are considered while scanning the external
environment of the organization like Competitors, customers, suppliers,
technology, social and economic factors, political and legal issues, market trends,
etc.
Opportunities: An opportunity of the organization’s environment is considered
as its most favorable situation. These are the circumstances that are external to
the business and can become an advantage to the organization. For
example, different opportunities for a firm can be:
 Social media marketing
 Mergers & acquisitions
 Tapping new markets
 Expansion in International market
 New product development
Threats: Threats of an organization are current or future unfavorable situations
that may occur in its external environment. For example, below are a few major
threats for a firm:
 A new competitor in the market
 The slow growth of the market
 Changing customer preferences
 Increase in the bargaining power of consumers
 Change in regulations or major technical changes
4. PEST Analysis
PEST technique for a firm’s environmental scanning includes analysis of
political, economic, social, and technical factors of the environment.

a) Political/ Legal factors: Different factors like changes in tax policy,

availability of raw material, etc. creates a direct effect on a business. So
organizations are required to constantly monitor tax-related policy changes as an
increase in tax may increase the heavy financial burden on them. Similarly,
different laws like “Consumer protection act” also play an important role in an
organization’s operation activities as it is important to abide by the act.
More examples can be foreign trade policy, political changes, regulations in
competition, trade restrictions, etc. also considered as different political/ legal
factors that exist in the external business environment.
b) Economic factors: Different economical Factors like the unemployment rate,
inflation, cost of labor, economic trends, disposable income of consumers,
monetary policies, etc. play an important role in environmental scanning.
For example, in the case of high unemployment, a company may decrease the
prices of its products or services and in opposite situation i.e. when the
unemployment rate is low then prices can be high. This happens because if more
customers are unemployed then by lowering the prices, an organization can
attract them.
c) Social / Cultural factors: Attitude, trends, and behavioral aspects of society
also create an impact on the functioning of the organization. Studying and
understanding the lifestyle of consumers is very much required to target the right
audience and to offer the right product or services based on their preferences.
For example, Issues and policies related to the environment like pollution control
are also being considered by organizations to ensure that it operates in an
environment-friendly atmosphere. Taking care of the cultural aspect of different
countries while doing business at the international level, is also an important
factor.
d) Technological Factors: Technological factors affect the way firms produce
products and services as well as market them. Like, “processes based on new
technologies” is one of the important factors of a technological environment. To
maximize profits, production should be handled most cost-effectively and this,
technology has an important contribution.
For example, an increase in computer and internet-based technology is playing
a major role in the way organizations are distributing and marketing their
products and services. Also, different advancements in technologies like
automation of the manual process and use of machinery based on more advanced
and latest technologies, more investment in research & development by
organizations have increased their efficiency by increasing production in less
time, cost-reduction and better investment in the long run.

MEANING AND FEATURES OF COMPETITIVE STRUCTURE

ANALYSIS
A competitive analysis framework is a model or tool marketing
professionals can use to compare their business plan or marketing strategy with
their competitors'. This model can create a visual structure for a marketing
competitive analysis. A competitive analysis describes a company's competitors
and provides detailed information about their sales, business strategies and
marketing efforts. A framework gathers the information from the analysis in an
organized way.
Features
• Examine competitors' features
• market share
• Pricing
• Marketing
• Differentiators
• Strengths and weaknesses
• Geography
• Culture and
• Customer reviews
Benefits of using a competitive analysis framework
There are many potential benefits to using a competitive analysis framework.
Conducting a competitive analysis and gathering the research into a framework
can help a marketing or financial professional in the following ways:
 Identify market gaps within an industry: Analyzing your competitors
can help you find gaps within your target industry. This can help you create
a business plan for a new idea or marketable product.
 Find market trends and patterns: When creating a market strategy or
business plan, it's important to learn more about the market trends and
patterns. A framework can reveal customers' demands or interests. This can
help you design an effective growth strategy for your target audience.
 Analyze effective marketing strategies: Analyzing successful campaigns
from your competitors can help you see what works well in your market.
You can use this information to create or refine your own plan.
 Identify measurable goals: A competitive analysis framework can help
companies create specific goals. Marketing teams can use the data from
their competitors to set specific, measurable performance goals for their
next quarter or year.
 Organize analysis data: A framework keeps research and competitor data
neat. This can make it easier to notice trends or find gaps.
 Make data more visually appealing: Frameworks can include graphics
or charts. Displaying information in a visually appealing way could help
you discuss the analysis with a marketing team, investors or business
leaders.
 Focus on a specific marketing area: A framework can focus on one or
two marketing areas, which can help a marketing team research and discuss
specific goals and strategies.
LEVELS OF COMPETITION
 Pure competition – No barriers to competition and large number of
suppliers. There are large number of sellers, and customers have a wide
variety of brands to select from. Mostly the prices are set basis the economy
of target market or markets. The customers buy the product basis the
availability. They will prefer buying the product from a nearest location.
Organisations have limited control over price. A change in price will
enable customers to switch to a competitor product. The price is
determined by supply and demand factors. For example, agricultural
products, cigarettes.
 Monopolistic competition – It is similar to pure competition (no barriers
to competition and large number of suppliers) except the sellers try to
differentiate the offerings basis the quality, packaging, style, convenience,
and location. For example, soaps, shampoo, gasoline, greeting cards,
barbers, restaurants, etc. The sellers advertise their products as better in
various aspects to justify the higher price.
 Oligopoly – High barrier to enter the market and limited sellers. Limited
number of organisations in the market compete to get maximum customers.
For example, car manufacturers. The manufacturing set up usually requires
high investments which becomes a barrier for many companies to enter the
market. The supply in the market is usually high by a manufacturer as less
competitors are present. Because of this the manufacturer has control over
the price. But the organisations are forced to give competitive prices to
increase market share. For Example, banking, insurance, mobile service
providers, airline fares, etc.
 Monopoly – High barriers to entry and the market is dominated by one
large company. The organisation has a say on setting the price. It can be
because of exclusive rights to raw-materials, patent, government policy.
For example, railways and electricity supply in India, many drug
 manufacturers have patent on their medicines, Microsoft windows
operating system.

A BRIEF DISCUSSION OF THE FIVE COMPETITIVE ANALYSIS

FRAMEWORKS
SWOC ANALYSIS
SWOC analysis is a strategic planning method used to research external
and internal factors which affect company success and growth. Firms use SWOC
analysis to determine the strengths, weaknesses, opportunities, and challenges of
their firm, products, and competition.
SWOC analysis is relevant to SWOT analysis. SWOT examines strengths,
weaknesses, and opportunities. But it focuses on threats rather than challenges.
The two are similar but they do have their differences, which is why firms may
choose to use SWOC or SWOT.
Strengths
Strengths are features which benefit the company, such as product sales.
For example, sales of Product X is growing 3% each month. But Product Z is
seeing a 3% monthly decline. In this case, Product X, which brings in more
revenue, is where the firm should focus their efforts to continue profit growth.
Strengths can also be more abstract. If you have decided to build a product
because you know you can offer it cheaper than your competitor, this is an overall
strength of the company. On the other hand, if you have records of better customer
service via positive reviews online, you can use this strength to your advantage.
Strengths can be documented through statistics, customer service reviews, and
surveys.
Weaknesses
The next step is noticing weaknesses. Weaknesses cause a company to
struggle. For example, if you’ve decided to target a younger audience but your
packaging is still dedicated to senior citizens, the new consumer base will struggle
to connect to the product. This will show in reports, and cause an internal struggle
within the company.
Weaknesses need to be documented and acknowledged to handle them
promptly before it spreads and leads to overall destruction.
Opportunities
Opportunities are often external. They provide ways for firms to grow
successfully. For example, a digital marketing agency helps a client develop an
effective email marketing strategy. The agency has been thinking of doing
graphic design so they offer a reduced fee to re-do the existing client’s logo. This
is an opportunity for the agency to develop a new section of their business without
having to devise a marketing plan because they can reach out to existing clients.
Being open to opportunities, knowing when to look for them, and how to
act on them can boost a firm’s success. Documenting past opportunities can
help create a plan on how to capitalize future opportunities.
Challenges
The final step in SWOC analysis is acknowledging challenges. This is how
SWOC and SWOT analysis differ because SWOT analysis focuses on threats.
Challenges are similar to threats but have the chance of being overcome.
Threats have the potential to damage a firm, but challenges often already exist
and need to be handled appropriately.
This step is crucial. If you’ve already examined the strengths, weaknesses, and
opportunities but skip assessing challenges, you may be on the path to failure.
Challenges can greatly undermine any progress you’ve made, so by ignoring this
step, you’ve opened yourself up to potential failure.
When to use SWOC analysis
Use SWOC analysis whenever you have a business idea. Whether it’s
starting a brand new business, a product, or a product upgrade. You can do SWOC
analysis annually, quarterly, or monthly; it depends on what product or idea
you’re using SWOC analysis for.
PORTER’S FIVE FORCES
Porter's Five Forces is a model that identifies and analyzes five
competitive forces that shape every industry and helps determine an industry's
weaknesses and strengths. Five Forces analysis is frequently used to identify an
industry's structure to determine corporate strategy.
Porter's model can be applied to any segment of the economy to
understand the level of competition within the industry and enhance a company's
long-term profitability. The Five Forces model is named after Harvard Business
School professor, Michael E. Porter.
Porter's 5 forces are:
1. Competition in the industry
2. Potential of new entrants into the industry
3. Power of suppliers
4. Power of customers
5. Threat of substitute products
Porter's Five Forces is a business analysis model that helps to explain why
various industries are able to sustain different levels of profitability. The model
was published in Michael E. Porter's book, Competitive Strategy: Techniques for
Analyzing Industries and Competitors in 1979.
The Five Forces model is widely used to analyze the industry structure of a
company as well as its corporate strategy. Porter identified five undeniable forces
that play a part in shaping every market and industry in the world, with some
caveats. The Five Forces are frequently used to measure competition intensity,
attractiveness, and profitability of an industry or market.
1. Competition in the Industry
The first of the Five Forces refers to the number of competitors and their
ability to undercut a company. The larger the number of competitors, along with
the number of equivalent products and services they offer, the lesser the power
of a company.
Suppliers and buyers seek out a company's competition if they are able to
offer a better deal or lower prices. Conversely, when competitive rivalry is low,
a company has greater power to charge higher prices and set the terms of deals
to achieve higher sales and profits.
2. Potential of New Entrants Into an Industry
A company's power is also affected by the force of new entrants into its
market. The less time and money it costs for a competitor to enter a company's
market and be an effective competitor, the more an established company's
position could be significantly weakened.
An industry with strong barriers to entry is ideal for existing companies
within that industry since the company would be able to charge higher prices and
negotiate better terms.
3. Power of Suppliers
The next factor in the Porter model addresses how easily suppliers can drive
up the cost of inputs. It is affected by the number of suppliers of key inputs of a
good or service, how unique these inputs are, and how much it would cost a
company to switch to another supplier. The fewer suppliers to an industry, the
more a company would depend on a supplier.
As a result, the supplier has more power and can drive up input costs and push
for other advantages in trade. On the other hand, when there are many suppliers
or low switching costs between rival suppliers, a company can keep its input
costs lower and enhance its profits.
4. Power of Customers
The ability that customers have to drive prices lower or their level of power
is one of the Five Forces. It is affected by how many buyers or customers a
company has, how significant each customer is, and how much it would cost a
company to find new customers or markets for its output.
 A smaller and more powerful client base means that each customer has more
power to negotiate for lower prices and better deals. A company that has many,
smaller, independent customers will have an easier time charging higher prices
to increase profitability.
5. Threat of Substitutes
The last of the Five Forces focuses on substitutes. Substitute goods or
services that can be used in place of a company's products or services pose a
threat. Companies that produce goods or services for which there are no close
substitutes will have more power to increase prices and lock in favorable terms.
When close substitutes are available, customers will have the option to forgo
buying a company's product, and a company's power can be weakened.
Understanding Porter's Five Forces and how they apply to an industry, can
enable a company to adjust its business strategy to better use its resources to
generate higher earnings for its investors.
What Are Porter's Five Forces Used for?
Porter's Five Forces Model helps managers, analysts understand the
competitive landscape that a company faces, and to understand how a company
is positioned within it.
STRATEGIC GROUP ANALYSIS
A strategic group analysis is a market research tool that compares the
attributes of competing companies.
According to Michael Porter, "A strategic group is the group of firms in
an industry following the same or a similar strategy along the strategic
dimensions".
Characteristics of Strategic Group
The notion of strategic group provides a distinct approach to analyse the
competitive structure of an industry. Some of the characteristics of a strategic
group are as follows :
 1. The member firms of a strategic groups own similar type of competencies
and assets such as brand image, distribution capacity, global market share,
research and development, etc.
2. Various factors create mobility barriers for the strategic groups such as
geographical, financial, operational, organisational, etc. The outcome of
this mobility barrier is the evolution of intra industry competition.
3. The differences among strategic groups result in a greater ability to sustain
competition compared to firms outside the group.
4. All the competitive forces existing in the industry impact all the firms of a
strategic group in a similar way.
5. Strategic group emphasizes on the level of competition, within that
particular group, instead of competition outside the group. Hence, it does
not focus on the inter-group competition.
6. The firms of a strategic group follow a similar strategy under similar
business model.
Types of Strategic Groups
Strategic groups can be classified on the basis of strategic orientation,
which are as follows:
1) Defenders:
Defenders are those firms that have limited resources and few product
lines. These firms try to expand their business and operations. Due to limited
availability of resources, they are less capable of innovating new products. They
spend most of their time in defending their businesses against the competitors,
society, and government, instead of developing a competitive edge.
2) Prospectors:
Prospectors are those firms that try to identify the weakness in the
competitors’ business strategy and attack aggressively by adopting an offensive
business strategy. Such types of organisations generally devote most of their
resources in innovating new products and capturing potential market
opportunities.
3) Analysers:
Such types of organisations generally have operations in two different
areas out of which, one is stable and the other is dynamic, Hence, they focus more
on efficiency in the stable market to derive maximum profitability, They further
focus on innovation in dynamic market in order to attain or maintain top market
position by way of introducing latest products/ services.
Strategic group analysis example: Wipro in stable software market and
dynamic CFL lighting industry.
4) Reactors:
Such types of organisations do not have a uniform and stable strategy;
instead, they follow a strategy of guerrilla warfare as because of having limited
resources they are not capable of matching or outdoing the giant competitors.
This can be useful for small companies with limited resources and those that are
not capable of emulating the giants in the field.
Strategic Groups as an Analytical Tool
Strategic group serves the following purposes as an analytical tool:
1) Points-out Mobility Barriers:
Forming a group allows the strategists to outline those barriers that protect
the strategic groups from the aggressive moves taken by the competitive firms
outside the group. These hurdles are called as "mobility barriers". These barriers
prohibit the movement of firms from one strategic group to another.
2) Identifying Groups with Low Competitive Advantage:
Analysing strategic groups helps the market researchers to identify the
groups whose competitive positioning is average to below average. Strategic
group analysis helps in identifying the firms in the group that are likely to exit
from the industry or move to some other strategic group.
 3) Represents Future Direction:
The strategic grouping of firms allows the organisations to decide their
future directions. The actions and strategies followed in the strategic groups show
the direction in which they wish to move in the future. By analyzing the strategic
direction of the groups, possible future competition levels can also be anticipated
as moving in the similar direction represents that there is intense competition
between the firms.
4) Analysing Industry Trends :
Analysis of a strategic group helps in studying the past trends of an industry
for a particular group. Many questions can be answered regarding a strategic
group, such as :
 What is the trend direction- upward or downward?
 If the strategic group has downward trend, then what are the reasons behind this
downfall?
 Are the entry barriers to the strategic group strong or weak?
 Is the trend decreasing the probability of group's sustainability?
 Is the trend blocking the firms' mobility?
Analysing these details would provide the strategist with an in-depth
understanding about the industry and the way it works.

GROWTH SHARE MATRIX

The Boston Consulting Group (BCG) growth-share matrix is a planning
tool that uses graphical representations of a company’s products and services in
an effort to help the company decide what it should keep, sell, or invest more in.
The matrix plots a company’s offerings in a four-square matrix, with the y-axis
representing the rate of market growth and the x-axis representing market share.
It was introduced by the Boston Consulting Group in 1970.
 The BCG growth-share matrix breaks down products into four categories,
known heuristically as "dogs," "cash cows," "stars," and “question marks.” Each
category quadrant has its own set of unique characteristics.
Dogs (or Pets)
If a company’s product has a low market share and is at a low rate of
growth, it is considered a “dog” and should be sold, liquidated, or
repositioned. Dogs, found in the lower right quadrant of the grid, don't generate
much cash for the company since they have low market share and little to no
growth. Because of this, dogs can turn out to be cash traps, tying up company
funds for long periods of time. For this reason, they are prime candidates
for divestiture.
Cash Cows
Products that are in low-growth areas but for which the company has a
relatively large market share are considered “cash cows,” and the company
should thus milk the cash cow for as long as it can. Cash cows, seen in the lower
left quadrant, are typically leading products in markets that are mature.
Generally, these products generate returns that are higher than the market's
growth rate and sustain itself from a cash flow perspective. These products
should be taken advantage of for as long as possible. The value of cash cows can
be easily calculated since their cash flow patterns are highly predictable. In
effect, low-growth, high-share cash cows should be milked for cash to reinvest
in high-growth, high-share “stars” with high future potential.
Stars
Products that are in high growth markets and that make up a sizable
portion of that market are considered “stars” and should be invested in more. In
the upper left quadrant are stars, which generate high income but also consume
large amounts of company cash. If a star can remain a market leader, it eventually
becomes a cash cow when the market's overall growth rate declines.
Question Marks
Questionable opportunities are those in high growth rate markets but in
which the company does not maintain a large market share. Question marks are
in the upper right portion of the grid. They typically grow fast but consume large
amounts of company resources. Products in this quadrant should be analyzed
frequently and closely to see if they are worth maintaining.
What Are the 4 Quadrants of the BCG Matrix?
The BCG Growth-Share Matrix uses a 2x2 grid with growth on one axis and
market share on the other. Each of the four quadrants represents a specific
combination of relative market share, and growth:
1. Low Growth, High Share. Companies should milk these “cash cows” for
cash to reinvest elsewhere.
2. High Growth, High Share. Companies should significantly invest in
these “stars” as they have high future potential.
3. High Growth, Low Share. Companies should invest in or discard these
“question marks,” depending on their chances of becoming stars.
4. Low Share, Low Growth. Companies should liquidate, divest, or
reposition these “pets.”
How Does the BCG Matrix Work?
The BCG Growth-Share Matrix considers a company's growth prospects
and available market share via a 2x2 grid. By assigning each business to one of
these four categories, executives can then decide where to focus their resources
and capital to generate the most value, as well as where to cut their losses
PERCEPTUAL MAPPING
Perceptual mapping or market mapping is a diagrammatic technique used
by asset marketers that attempts to visually display the perceptions of customers
or potential customers.
How to Create Perceptual Maps
Step 1: Select Attributes
Selecting attributes is the first and probably the most integral step for any
perceptual map. Attributes that matter to your target audience gives these maps a
real meaning. The target audience and customers use these attributes to compare
your products with the competitors.
Their perceptions might not be highly logical, but remember, this is a
perceptual map, not positioning, so their thinking matters the most. Depending
on the purpose of your map, these attributes change, and it’s always good to use
those that are important from an average customer’s point of view, as it covers a
wide range of your target market.
For example, if you want to develop a perceptual map for a camera, the
lens quality, zoom, ease of use, or total memory could be the prime attributes.
Similarly, for shoes, it could be comfort, design, or durability, out of which you
could select any two.
Step 2: Set Dimensions
`After attributes, this is the most crucial step to perform. Setting
dimensions for your map allows the customer’s perceptions to reflect clearly.
This process involves giving numerical values on each axis. More numerical
values will cause better mapping.
So, if you’re mapping the axis in twos, the result will be more precise
compared to when you map it in fives. Setting the correct dimensions, thus, is
crucial for perceptual maps to reveal more accurate information.
Step 3: Decide Products/Brands To Map
If you want to build a perceptual map for shoes, different shoes from
different brands or varying styles need to be selected. These brands can be your
competitors or a part of your product umbrella.
This step is crucial to increase the efficiency of your map, as when you
choose the right products, customer perceptions from the map can lead to needed
changes. That’s the end goal, right? To continuously improve and grow?
Step 4: Conduct A Survey
Perceptual maps thrive on data, and conducting surveys are the best way to
do that.
Perceptual Map Advantages
Perceptual maps have many different advantages, and as we’ve previously
seen, they’re applicable to a ton of different scenarios. These are the biggest
advantages of building a perceptual map.

 Gain accurate insights into the opinions of your customer base.

 Understand the reasons customers choose the options they do related to
your determinant attributes.
 Track the perception of the competition and understand how people view
them.
 Gain an accurate understanding of how your brand is perceived in the
ecosystem.
 Visually identify market share and possible gaps to capitalize on.
 Create new marketing strategies based on the relative success of other
campaigns.
 Track ecosystem evolution as time moves forward and different brands
reposition themselves.