BCG Matrix or BCG analysis

BCG analysis is mainly used for Multi Category / Multi Product companies. All categories
and products together are said to be a Business portfolio. Thus, the various entities of your business
portfolio may move forward by a different pace and with a different strategy. The BCG analysis actually
helps you in deciding which entities in your business portfolio are actually profitable, which are duds, which
you should concentrate on and which gives you a competitive advantage over others.
Once you know which businesses stand where in your business portfolio, you also come to know which
businesses need investments, which needs harvesting (making money), which needs divesting (reducing
investment) and which needs to be completely taken out of the business portfolio.
For a major organization like HUL, ITC etc which have multiple categories and within the categories, they
have multiple lines of products, the BCG analysis becomes very important. At a holistic level, they get to
make a decision on which product to continue and which product to be divested. Which product can give
new returns with good investment, and which products are reaching the apex of market share.

BCG Growth Share Matrix The BCG growth share matrix was developed by Henderson of the BCG
group in 1970s. The matrix classifies businesses / SBUs by
1) Relative Market Share The market share of the business / SBU / Product in the market as compared
to its competitors and overall product / category.
2) Market growth rate The growth rate of the industry as a whole is taken into consideration from which
the growth rate of the product is extrapolated. This growth rate is then pitched on the graph.
Thus by having 2 basic but at the same time very important factors on X axis and Y axis, the BCG matrix
makes sure that the classifications are concrete. Calculating the Market growth rate comprises of both
industry growth and product growth rate thereby giving a fair knowledge of where the product / SBU stands
in comparison to the Industry.
The market share on the other hand comprises of the competition and the product potential in the market.
Thus when we consider growth rate and market share together, it automatically gives us an overview of the
competition and the industry standards as well as an idea of what the future might bring for the product.
Once the businesses have been classified, they are placed into four different quadrants of the matrix. The
quadrants of the matrix are divided into
1) Cash Cows High market share but low growth rate (most profitable).
2) Stars High market share and High growth rate (high competition)
3) Question marks Low market share and high growth rate (uncertainty)
4) Dogs Low market share and low growth rate (less profitable or may even be negative profitability)
On the basis of this classification, strategies are decided for each SBU / Product. Lets discuss the
characteristics and strategies of each quadrant in detail.
1) Cash Cows in the BCG MATRIX
The cornerstone of any multi product business, cash cows are products which are having a high market
share in a low growing market. As the market is not growing, that cash cow gains the maximum advantage
by generating maximum revenue due to its high market share. Thus for any company, the cash cows are
the ones which require least investment but at the same time give higher returns. These higher returns
enhance the overall profitability of the firm because this excess revenue can be used in other businesses
which are Stars, Dogs or Question marks.
Strategies for cash cow The cash cows are the most stable for any business and hence the strategy
generally includes retention of the market share. As the market is not growing, acquisition is less
and customer retention is high. Thus customer satisfaction programs, loyalty programs and other such
promotional methods form the core of the marketing plan for a cash cow product / SBU.
2) Stars in the BCG Matrix
The best product which comes in mind when thinking of Stars is the telecom products. If you look at any
top 5 telecom company, the market share is good but the growth rate too is good. Thus because these two
factors are high, the telecom companies are always in competitive mode and they have to juggle between
investment and harvesting vis investing money and taking out money time to time. Unlike cash cows, Stars
cannot be complacent when they are top on because they can immediately be overtaken by another
company which capitalizes on the market growth rate. However, if the strategies are successful, a Star can
become a cash cow in the long run.
Strategies for Stars All types of marketing, sales promotion and advertising strategies are used for Stars.
This is because in cash cow, already these strategies have been used and they have resulted in the
formation of a cash cow. Similarly in Stars, because of the high competition and rising market share, the
concentration and investment needs to be high in marketing activities so as to increase and retain market
share.
3) Question Marks in the BCG Matrix
Several times, a company might come up with an innovative product which immediately gains good growth
rate. However the market share of such a product is unknown. The product might lose customer
interest and might not be bought anymore in which case it will not gain market share, the growth rate will
go down and it will ultimately become a Dog.
On the other hand, the product might increase customer interest and more and more people might buy the
product thus making the product a high market share product. From here the product can move on to be a
Cash Cow as it has lower competition and high market share. Thus Question marks are products which
may give high returns but at the same time may also flop and may have to be taken out of the market.
This uncertainty gives the quadrant the name Question Mark. The major problem associated with having
Question marks is the amount of investment which it might need and whether the investment will give
returns in the end or whether it will be completely wasted.
Strategies for Question marks As they are new entry products with high growth rate, the growth rate
needs to be capitalized in such a manner that question marks turn into high market share products.
New Customer acquisition strategies are the best strategies for converting Question marks to Stars or Cash
cows. Furthermore, time to time market research also helps in determining consumer psychology for the
product as well as the possible future of the product and a hard decision might have to be taken if the
product goes into negative profitability.
4) Dogs in the BCG matrix
Products are classified as dogs when they have low market share and low growth rate. Thus these products
neither generate high amount of cash nor require higher investments. However, they are considered as
negative profitability products mainly because the money already invested in the product can be used
somewhere else. Thus over here businesses have to take a decision whether they should divest these
products or they can revamp them and thereby make them saleable again which will subsequently increase
the market share of the product.
Strategies for Dogs Depending on the amount of cash which is already invested in this quadrant, the
company can either divest the product altogether or it can revamp the product through rebranding
/ innovation / adding features etc. However, moving a dog towards a star or a cash cow is very difficult. It
can be moved only to the question mark region where again the future of the product is unknown. Thus in
cases of Dog products, divestment strategy is used.
 Sequences in BCG Matrix

Success Sequence in BCG Matrix The Success sequence of BCG matrix happens when a question
mark becomes a Star and finally it becomes a cash cow. This is the best sequence which really give
a boost to the companies profits and growth. The success sequence unlike the disaster sequence is entirely
dependent on the right decision making.
Disaster sequence in BCG Matrix Disaster sequence of BCG matrix happens when a product which is
a cash cow, due to competitive pressure might be moved to a star. It fails out from the competition and it is
moved to a question mark and finally it may have to be divested because of its low market share and low
growth rate. Thus the disaster sequence might happen because of wrong decision making. This sequence
affects the company as a lot of investments are lost to the divested product. Along with this the money
coming in from the cash cow which is used for other products too is lost.
Strategies based on the BCG Matrix.
There are four strategies possible for any product / SBU and these are the strategies which are used after
the BCG analysis. These strategies are
1) Build By increasing investment, the product is given an impetus such that the product increases its
market share. Example Pushing a Question mark into a Star and finally a cash cow (Success sequence)
2) Hold The company cannot invest or it has other investment commitments due to which it holds the
product in the same quadrant. Example Holding a star there itself as higher investment to move a star
into cash cow is currently not possible.
3) Harvest Best observed in the Cash cow scenario, wherein the company reduces the amount of
investment and tries to take out maximum cash flow from the said product which increases the overall
profitability.
4) Divest Best observed in case of Dog quadrant products which are generally divested to release the
amount of money already stuck in the business.
Thus the BCG matrix is the best way for a business portfolio analysis. The strategies recommended after
BCG analysis help the firm decide on the right line of action and help them implement the same.

Ansoff Matrix The growth share Matrix of Ansoff

By Hitesh Bhasin December 3, 2016
For any decision to be taken at corporate level, you need the right strategic tools. Ansoff matrix is one of
them. Ansoff matrix helps a firm decide their market growth as well as product growth strategies. The 2
questions which the Ansoff Matrix can answer is How can we grow in the existing markets and What
amends can be made in the product portfolio to have better growth.
From the above two questions, it is clear that Ansoff matrix deals with the companies external market
scenario as well as the product portfolio which the firm has. The matrix is divided in two quadrants The
product quadrant and the market quadrant. The Product quadrant on the X axisis further divided into
Existing products and New products. The market scenario on the Y axis is divided into existing markets and
new markets. Thus the Ansoff matrix divides a firm on the basis of the products it has existing products
or new products, as well as the markets it is in existing markets or new markets.
ANSOFF MATRIX
Depending on the characteristic of each, the marketing strategy is decided. These marketing strategy are
as follows.
1) Market Penetration in Ansoff Matrix In the Ansoff matrix, market penetration is adopted as a strategy
when the firm has an existing product and needs a growth strategy for an existing market. The best example
of such a scenario is the telecom industry. Most telecom products are existing in the market and they have
the same market to cater to. Thus in such cases the competition is higher and you might have to go out of
the way to cater to your market or to increase your firms market share.
Several things have to be considered when adopting the Market penetration strategy. By using market
penetration, you are ensuring that only the existing resources of the firm are used and no extra costs need
to be incurred in setting up a new unit for . At the same time, your current group of employees are the
best people to notice any growth opportunities in the existing market. Thus they need to be used optimally
by providing them the right information at the right time. There needs to be a combination of marketing and
sales promotions if you have to grow in an existing market with an existing product.
On the other hand, market penetration might not be the strategy you are looking for. What if the market
becomes too saturated? Fighting for a higher market share in a saturated market accounts for higher
expenses and lower profitability. Thus the market analysis needs to be spot on and the market penetration
strategy should be adopted only if there is scope for increasing market share in an existing market.
2) Market Development in Ansoff Matrix Market development is the second market growth strategy
which can be adopted as per the Ansoff matrix. The market development strategy is used when the firm
targets a new market with existing products. There are several examples of the market development
strategy including leading footwear firms like Adidas, Nike and Reebok which have started
entering international markets for market expansion. Every other day we hear of one or the other
companies thinking of lunching their products in a new country. Thats the perfect example of market
development. Similarly, on a micro level, expanding from a current market to another market where your
product does not exist is also an example of market development.
For market development, you have to treat your product as a new entrant in the market. Thus there are
several factors which influence the market development strategy of a firm. If the product already has a
high brand equity, it possibly just needs distribution points in the new market (Example Walmart). The
same goes if the product is a needs product and known to be of high quality. On the other hand, if the
product is not established in your current market, it is not recommended to start a market development
strategy. You need to first cater your existing markets.
The risk factor of a market development strategy is higher. This is because lots of investment needs to be
done when entering new markets. You need to advertise and market your product for the customers to
adopt it. For the same you need to invest in admin expenses, advertising expenses, possibly new
production facilities, so on and so forth. Thus you might have to develop new strategic business units itself
to have a strong market development. This is exactly what is done in international firms, wherein the unit in
another country is treated as a separate business unit or a profit center.
3) Product development in Ansoff Matrix Product development in the Ansoff matrix refers to firms which
have a good market share in an existing market and therefore might need to introduce new products for
expansion. Product development mainly happens when you have a good customer base and you know that
the market for your existing product has reached saturation. Thus you cannot apply the market penetration
strategy. You can therefore opt for a new productdevelopment strategy which caters to your existing market.
Lets take an example Why do firms like P&G and HUL keep on introducing new products in different
categories? This is because both of these top FMCG firms are already present in the market. They are only
leveraging their strength in the existing market by introducing new products. Imagine if HUL today
introduces a soap. It is already selling its shampoos and soaps in all grocery stores across a city. Thus it
will start selling this new product in the same distribution channel and achieve new product launch as well
as an improvement in profitability just by using its current market.
The product development strategy, like the market development strategy is risky. This is because product
development involves investing in developing a completely new product. The product will also need further
investments for distribution, marketing and manpower. Furthermore, by introducing a wrong product which
does not gain acceptance in the market, you might be affecting your brand equity. Thus plotting your firm
in the right quadrant on the Ansoff matrix becomes critical.
4) Diversification strategy in Ansoff Matrix Diversification is a strategy used in the Ansoff matrix when
the product is completely new and is being introduced in a new market. The best example for Diversification
can be big groups like Tata or Reliance which initially started with one product but have expanded into
completely unrelated segments by introducing new or their own products. Tata for example has presence
in steel, motors and now in retail.
However, Diversification should be taken as a last option and should be adopted only when the company
is very strong financially. As seen in the above two strategies, if the product or the market changes, the
company has to do some heavy investments to be successful. In case of Diversification, both product and
market are new and hence the amount of investment required would be high thereby considerably
increasing the risk factor. Therefore we see larger groups with deep pockets and multiple SBUs actually
using the process of diversification.
Thus depending on your product and your existing customer base, you can decide which quadrant you fall
under in the Ansoff matrix. Once you know your position, the Ansoff matrix also outlines the right kind of
strategy to adopt. The Ansoff matrix is especially useful for multi product organizations or organizations
which are planning to increase market share.

The GE McKinsey matrix

The GE McKinsey matrix is a product portfolio analysis matrix. When you have a complex product portfolio,
then it is difficult for you to take decisions. This is because each product will have its own demands and
requirements. But you yourself have limited resources in the company. Thus, what you as a business
manager have to look at is to ensure that the firm grows at the optimum rate. For this, you will have to
support some products by investing money in them, hold some products by letting them be as they are, and
prune other products which are not working as well as you thought. This decision making, on products, is
done by the GE Mckinsey matrix.

The GE Mckinsey matrix has two main variables which are plotted on the X and Y axis of the matrix. These
variables are the Market attractiveness and the Business unit strength. Once each product is given a
value for its market attractiveness as well as the business units strength, than it is plotted in its right place
in the graph. The GE Mckinsey matrix is also known as the nine box matrix, because in the graph, there
are nine boxes where the product can be plotted. Once the product is in its place, you can decide
the strategy for the product. There are 3 main strategies in the GE McKinsey matrix which are grow, hold
and harvest.
Grow If the business unit is strong against a strong attractiveness, you grow the business. This means,
that you are ready to invest a higher percentage of your resources in these businesses. These business
units have high market attractiveness and high business unit strength. They are most likely to be successful
if backed up with more resources. The quadrants marked in green are the places where you can grow your
business.
Hold If the business unit strength or attractiveness is average, than you hold the business as it is. It might
be that the market is dropping in value, or that there is much high competition which the business unit will
be hard put to catch up. In both the cases, the business unit might not give optimum returns even if
resources are invested. Thus, in this case, you wait and hold the business unit to see if the
market environment changes or if the business unit gains importance in the market as compared to other
players.
Harvest If the business unit or market has become unattractive, than you either sell or liquidate the
business or you can hold it for any residual value that it has. This strategy is used in the GE McKinsey
matrix when the business unit strength is weak and the market has lost its attractiveness. The best measure
in this case is to harvest the weak businesses and reinvest the money earned into business units which are
in growth.
Thus, based on the GE McKinsey matrix, you can manage your product portfolio efficiently and can take
the right decision of grow, hold or harvest for your products.
Challenges for the GE McKinsey matrix
Like any other strategy, the GE McKinsey matrix has its own challenges. Some of them are mentioned
below.
1) Determining market attractiveness is a tough task especially looking at the fast paced market
environment. During the dotcom bust, the online market was least attractive. But look where the online
market is now.
2) Similarly, determining the strength of the business unit and weighing it against the attractiveness is
difficult. Thus, if the variables are not matched properly, you might grow a business which is supposed to
be held back and waste unnecessary resources on this business. This might happen if the top management
does not know the core competency of the business units.
3) Companies will be limited by resources even if the business unit falls in the growth criteria. Thus, out of
50 products, if 25 fall in growth criteria, what does the management do when it has limited resources?
Taking decisions again becomes difficult.
Overall, the GE McKinsey matrix is an improvement over the BCG matrix. Where the BCG matrix only has
4 quadrants with focus on business unit and market share, the McKinsey matrix is a finer example of plotting
the actual market conditions against the firms potential to stand up in the current market. Thus, business
decisions taken via the GE McKinsey matrix are likely to be spot on.

Michael Porters Five forces model for industry analysis

Click for large size image

The Michael Porters Five forces analysis framework is used to analyse an industry and more specifically,
the external business environment of the industry. This five forces framework tells us whether or not we
should enter an industry, and also if we enter it, then what can be the challenges faced by us.
The basis of the Five forces analysis model is competition. This model is used when we are entering an
industry where already there is a lot of competition. Anytime we enter an industry, it is understood that there
will be other players who might hold their own aces up their sleeves.
The concept of Attractiveness in Porters five forces model.
The key driving force behind Porters five forces model is to determine attractiveness of the industry. An
industry is said to be attractive if the five forces are arranged in such a manner that they drive profitability.
On the other hand, the industry is said to be unattractive if all the five forces are interconnected in such a
manner that they cause the profitability of the company to drop.
Thus, the net result is that you should avoid entering an industry which is unattractive or at least take the
precautions while entering such an industry, where profitability is low. The concept of attractiveness can be
clearly understood in the consumer durable business.
As we know, in consumer durable, the toughest competition is between companies which have a
good customer base (dealer network). And if the dealer network has high bargaining power, this means
that the dealers are cash rich and hence entering such a segment is difficult for your company. Furthermore,
there are a lot of substitutes in the consumer durable industry with chinese brands mass manufacturing
alternative products.
Thus, the overall profitability is low in the industry and the threats of substitutes, the competition and the
bargaining power of customers has to be taken into consideration before establishing yourself in the
consumer durable industry. Thus, using above examples, you can analyse the attractiveness of any industry
with the Porters five forces analysis model. Now lets study the model in-depth.
The Porters five forces analysis model

Above is a simplified image of the model of Porters five force analysis. As the name suggests, there are
five different forces which play a role in the industry. And these five forces affect each of the competitors
present within that industry. Each individual force of the external business environment is discussed below.
Porters Five forces 1 Threat of new entrants
Do you know why the dotcom industry went bust in 2000? Because anyone, absolutely anyone, was starting
a website and attracting investors. The dotcom industry was expected to reap huge profits, but what we
had was a lot of new entrants with failed business models attracting a lot of money. This was all because it
is very easy to enter the dotcom market, but very tough to establish yourself in it.
This is the threat of new entrants. And this threat exists in all industries. Even telecommunications brands,
which have been shouting out to the government to stop giving more licenses, find this fear in their mind.
That a new entrant will come who will try to win market share in an already intense industry.
The industry attractiveness increases when there are barriers to entry. For example in the import export
business, a lot of barriers exist with regards to government policy. Thus, an established player will see new
entrants as a lesser challenge as compared to an existing competitor. To avoid new entrants, and to keep
the industry profitable, the industry needs several entry barriers in place.

Porters five forces 2 Threat of substitute products

Do you know why China is one of the fastest growing nations in the world? Because of its manufacturing
capability, and because of its smart strategy of making substitute products in millions, such that the original
loses some of its value.
However, what do you do when the threat of substitute products are too high? For example, whenever you
consider spare parts of an automobile or even consumer durable, you will find a lot of substitute spare parts
available. In fact, many consumers prefer the use of substitutes over the original because of the low price
and almost equivalent value added. These substitutes affect the prices of the company, its demand pattern
and therefore its profitability.
Imagine this, you forecasted that there will be a requirement of 1000 membrane filters in your territory for
the next month. But the market bought substitutes of 400 units. You are left with 400 units in your stock.
Now, you will drop prices so that the 400 units sell quickly. And this is how, your profitability drops.
In an industry with high threat of substitute products, it is highly likely that you will worry more about the
substitutes eating your business, and then you will worry about the competition present in the industry itself.
Porters Five forces 3 Bargaining power of Customers / buyers
Do you know why modern retail is taking away the business from small retail outlets? It is because these
modern retail companies have huge bargaining power due to bulk buying. Hence they are crushing
the small retailers. Consider this, the company is selling products to both, the small retailer as well as the
modern retailer.
However, the small retail is buying from a distributor who in turn is buying from a carrying and forwarding
agent. Thus, the chain is huge and profits are lost in the chain. But in the modern retail scenario, there is
at most 2-3 modern retail chains who are buying by truckloads, selling huge quantities and also dont
require a channel. Thus, these modern retailers will have huge bargaining power due to which a small
retailer can consider them as a huge problem when establishing his own business.
Similarly, there are different ways in which a customer or a buyer can have high bargaining power over the
supplier. In such cases, the industry tends to be unprofitable because you have to overcome the challenge
of having the buying power over suppliers. Here are a few factors which give bargaining power to
customers. (Image of customers bargaining power)

Porters Five forces 4 Bargaining power of suppliers

Parachute is one of the top brand in hair cosmetics and it is known for its coconut oil. What if tomorrow, the
coconut vendors were to go upto Parachute, and tell them that the union has decided, from tomorrow rates
will go up by 20%? Will Parachute be able to do anything? There are only few places in the whole country
which can provide them with the raw material.
Parachute will have no other option but to say yes. Or on the other hand, Parachute can negotiate with the
vendors, find out their problems and try to solve the problems so that the rate goes down. What Parachute
did when vendors asked them to raise prices was, they made depots in each small village so that the
villagers could drop their raw material there. And this was collected by the company. This brought down
costs of collection by a huge margin and Parachute was able to avoid the price hike proposed by coconut
farmers.
But other companies might not be lucky when they are dealing with suppliers who have a high bargaining
power. And a successful company has to deal with a lot of suppliers. A restaurant has to deal with vegetable
vendors, a company has to deal with raw material supplies, the manufacturers have to deal with
transporters and distributors.
Any industry with low bargaining power of supplers, can be profitable. For example in the above spare
parts, there is no bargaining power with the supplier. If he does not give spare parts, there are 100 others
who will give the customer spare parts. Thus, an industry which does not have bargaining power with
suppliers can be tension free from that end. On the other hand, if supply is limited, then the company has
the threat of the supply running dry, ruining the companys business. Here are various points which offer a
threat due to bargaining power of suppliers.

Porters Five forces 5 Intensity of rivalry

Now comes the final point which is the base of the Porters 5 force analysis model The intensity of rivalry
between competitors who are already existing in the industry. If the rivalry is too intense, and if there are
bad fishes in the market, it is natural that the firms profitability will drop. Such industries will have high
barriers of entry and hence establishing in such industries will be difficult.
At the same time, if the rivalry is healthy and there are far fewer competitors, then there is a good possibility
that margins will be fair enough and you can establish yourself securely in the industry before the killer
competition starts. However, we have to remember that rivalry may not be because there are a lot of
competitors.
For example if there are only 4 players in an industry, but the industry growth rate is dropping drastically.
The naturally the rivalry between all 4 of the players will increase. This will cause the competitors to work
in a haphazard manner ultimately causing loss of margins and drop in profitability for the industry.

A competitive industry is highly dynamic in nature. Any change can happen anytime. One of the competitor
might drop prices the same day that another competitor introduces a new product in his portfolio. Which
change do you react to? And what effect will it have on your business model? If you dont react, then you
risk being left far behind.
The best example of problems faced due to intensive competition in the Porters five force analysis concept
is from Quick Mba article. And I highly recommend that you read the same. Here is an insight into what the
site mentions about problems with intense rivalry.
Large number of firms Too many firms increase the competition in the industry causing profitability
to drop
Slow market growth Even if there are limited players, and the market growth rate is slow, then
too there will be high levels of competition in the market.
High fixed costs
Low switching costs
High exit barriers
Many other factors
All of the factors above can cause high competition in the industry which is not good for a new business to
be established.
The dynamic nature of Porters five force of competitive analysis
All of the above five factors are highly dynamic in nature and all of them affect each other in such a manner,
that a change in one will cause a change in the other.
Example If the bargaining power of suppliers goes up, then the cost of one firm will go up causing it to
raise prices and therefore offer more value at less price. This will cause a cascading effect where all the
other firms will now have to drop prices or offer more value. At this time, if substitutes are introduced then
the challenge increases. And finally, if the market growth slows down, then this becomes the worst situation
with so many competitors in the market trying to get the larger pie of the market share.
Thus, this dynamic nature of all five forces causes the firm (which is the newest entrant), to either wind up
their business, or take drastic steps. These drastic steps too affect all the other firms in the industry. Overall,
these five forces are always interacting with each other and the profitability rises or drops likewise.

Gap analysis
Gap analysis is an excellent strategic tool used by management to identify where the company is going and
what is the expectation or the potential of the company. In essence, Gap analysis compares the actual
achievement with the potential achievement to find the gap in the existing strategy. This gap then needs to
be filled such that the company meets its own potential.
There can be many reasons that gaps exist within a companies strategy. Most of these reasons are because
of a changing business environment. In the last decade itself, we have many changes in the business
environment. Retail market has come in leaps and bounds, internet is taking over retail and now mobiles
and smart phones are utilizing internet to get the customers what they need at their doorstep. That is a lot
of changes in a decade.

Imagine that you are a very old newspaper company and you only want to continue with traditional paper
distribution. You neither want to have a website, not do you want a mobile app. Slowly but surely, your
newspaper will lose popularity. This is because you are letting go of a majority of potential readers The
online readers as well as the mobile readers. Thus, at the end if the newspaper company looks at its
downfall, it will realize that there was a gap in the technologypresent in the market and the technology that
the company used. Due to the absence of technology usage, the company has failed in attracting new
readers.
Thus, gap analysis analyses where the company stands currently, what is the current business
environment? And where the company needs to go and subsequently what the company needs to do to
reach its potential. Gap analysis can also suggest strategies which optimizes the utilization of resources to
give the best results possible.
Another aspect of gap analysis is expectations. These expectations may be from vendors, employees or
customers. If the expectations are not met, there is a gap between the expectations and the actuals. For
example vendors expect timely payment, but the payments are always delayed. Thus, due to this gap in
communication, the company might be losing vendors. Meeting expectations is another objective of Gap
analysis.
Product market expansion grid
The product market expansion grid was specified by the Ansoffs matrix. The product market expansion
grid is used for planning by a company when the company is looking to increase the sale of
its products either by expanding product range or entering new markets. Thus, there are various strategies
that the company can develop when it compares the product with the current market.
The product market expansion grid considers two main factors. The product and the market. The product
can either be a current product or a new product. And the market can either be a current market or a new
market. Thus, a grid is made, keeping in mind the two forms of products and the two forms of markets. This
grid is the product market expansion grid. With the help of the grid, the proper market expansion strategy is
decided. There are 4 main strategies of the product market expansion grid. These are mentioned below.

Market penetration strategy Market penetration strategy is decided when the product is a current product
in an existing market. It falls in quadrant 1. Thus, in such a case, the customers are aware about the product
and due to one reason or another are not using the product. There are three main tactics which a company
can implement to increase market penetration.
Market development strategy The market development strategy is used when the product is an existing
product but the market is new. This strategy falls in quadrant 2 of the grid. A company might decide to
increase its territorial reach and therefore enter a new market. The new market may have tough competitors,
or it may happen that the new company may be received very positively. In either of the cases, there are
three main tactics which the company can use for market development.
Product development strategy Product development is used when there is a new product which has to
be introduced in an existing market. It falls in quadrant 3 of the matrix. This may be done because the
companies products are not selling anymore or that the company has identified new segments which it had
missed before and wants to introduce new product to increase product sales. There are majorly three
tactics which the company can use for Product development.
Diversification strategy Diversification strategy is used when a company enters new markets with new
products. In such a scenario, the demands of the new market might be different from the current markets
where the company exists. Thus, the company has to bring new products in new markets and hence the
complication rises. In such a case, there are 3 different tactics which a company has to use to establish a
diversification strategy.
Thus, there are many tactics and 4 different strategies for market expansion. In todays world, the most
commonly used strategy is Market penetration, because the market is slowly becoming a crowded place
with products being introduced daily in existing segments. However, for market leadership, companies
like apple and Samsung have demonstrated that either market development or product development is
needed if you want to permanently get ahead of your competition.

Porters Value Chain Value Chain of Porter

Michael Porters Value chain concept is one of the most valued concept in todays market because the
Value chain tells us how we can differentiate our products by analyzing the chain of events which occur
within our company. As differentiation is very important in todays saturated market, naturally Porters Value
chain is being referred in a lot of management studies.
What is the Porters value chain?
The Porters value chain concept says that there is a chain of events which occur in a company right from
the procurement of raw materials to the delivery of goods as well as the post sales service. This chain is
made up of 9 steps and the process can be changed in any of the nine steps to add further value to the
final product. The Porters value chain can be a reference model for Holistic marketing. If a company wants
to add customer value in all the processes that it does, it has to refer to the Value Chain.

The Value chain of porter comprises of total 9 steps

The first 5 are the primary activities which are the basics in any company and are the activities which provide
strength and sustainability to the company. The remaining 4 are the support activities or also known as the
secondary activities and these are used by the company for differentiation as well as maintenance of the
organization. Both, the primary as well as the secondary activities are necessary for the firm to survive.
The 9 steps of the Value Chain are explained in detail in the following article. Overall, we will discuss the
primary activities and the secondary activities in relation to each other.
Primary activities of Porters value chain are as follows
1) Inbound logistics
Bring raw material from source to the company. The value chain can be enhanced in this step by improving
the quality of raw material as well as optimizing the cost of inbound logistics.
2) Operations
Converting the raw material to finished goods is the job of Operations. The customer value is increased
majorly in this step if the operations are up to mark and the product is manufactured in the right manner
and meets quality standards. You can take example of Television or Air conditioners to understand the
importance of Operations and manufacturing in the Value chain.
3) Outbound logistics
Sending finished goods from manufacturing point to distributors and retailers. The value chain receives
a boost if the out bound logistic activities are carried out in time with optimal costs and the product is
delivered to end customers with minimum affect to the quality of the product. Food products can be an
example of how value can be added during outbound logistics by delivering product on time with best
quality.

Product Life Cycle

A product is like a human being. It is born, grows up fast, matures and then finally passes away. The product
life cycle discusses the stages which a product has to go through since the day of its birth to the day it is
taken away from the market. (Image courtesy arundelstreet.com)
However, the basic difference in case of human beings and products is that a product has to be killed by
someone. Either the company (to bring better products) or by competition (too much external competition).
There are several products in the market which have lived on since ages (Light Bulbs, Tubelights), whereas
there are others which were immediately taken off the shelf (HD DVD).
Thus the Product life cycle deals with four stages of a products life.
Stage 1 of Product life cycle Introduction of the product.
The stage 1 is where the product is launched. A product launch is always risky. You never know how the
market will receive the product. There have been numerous failures in the past to make marketers nervous
during the launch of the product. The length of the introduction stage varies according to the product.
If the product is technological and receives acceptance in the market, it may come out of the introductory
phase as soon as it is launched. Whereas if the product is of a different category altogether
and needs market awareness, it may take time to launch.
Characteristics of Introductory stages of Product life cycle
1. Higher investment, lesser profits
2. Minimal Competition
3. Company tries to Induce acceptance and gain initial distribution
4. Company needs Promotions targeted towards customers to increase awareness and demand for
product
5. Company needs Promotions targeted towards channel to increase confidence in the product
Stage 2 of Product Life Cycle Growth of the product
Once the introductory phases are over, the product starts showing better returns on investment. Your
customers and channels begin responding. There is better demand in the market and slowly the product
starts showing profits.
This is a stage where competition may step in to squash the product before it has completely launched.
Any marketing mistakes done at this stage affect the product considerably as the product is being exposed
to the market and bad news travels fast. Thus special care has to be taken in this stage to ensure
competition or bad decisions do not affect the growth stage of the product.
Characteristics of Growth stage of Product life cycle
1. Product is successfully launched
2. Demand increases
3. Distribution increases
4. Competition intensifies
5. Company might introduce secondary products or support services.
6. Better revenue generation and ROI
Stage 3 of Product Life Cycle Maturity stage of the product
One of the problems associated with maturity stages in a technologically advanced environment is the
problem of duplication. Not only is the product available in duplicate markets, but also there are several
competing products which arise with the same features and capabilities. As a result, the USPs of the
product become less attrative.
Along with competition, Penetration pricing becomes a weapon for competitors. Competitors sell products
with the same features at lesser prices thereby trying to penetrate in the market. Nonetheless, The sales
of a product (especially sales from return customers) is at its peak point during the maturity stages. The
growth of sales may be lesser, but the sales revenue of the organization is maximum during the maturity
stage of product life cycle.
Characteristics of Maturity stages of Product life cycle
1. Competition is high
2. Product is established and promotion expenditures are less
3. Little growth potential for the product
4. Penetration pricing, and lower profit margins
5. The major focus is towards extending the life cycle and maintaining market share
6. Converting customers product to your own is a major challenge in maturity stage
Stage 4 of Product Life Cycle Stage of decline
1 product, 10 competitors, minimum profits, huge amount of manpower and resources in use A typical
scenario which a product might face in its last stage. In this stage the expenditures begin to equal the profits
or worse, expenses are more than profits.
Thus it becomes a typical scenario for the product to exit the market. It also becomes advantageous for the
company as the company can use resources it was spending on the declining product on an altogether
different project.

Characteristics of Decline stages of Product life cycle

1. Market is saturated
2. Sales and profits decline
3. Company becomes cost conscious
4. A lot of resources are blocked in rejuvenating the dead product.
5. There are only three options left with the company
Re positioning or Rebranding of the product to extend product life cycle
Maintain the product as it is and reduce costs to get maximum profits till the product can produce profitsTake
the product off the market.

Pricing Strategies
The only time when price setting is not a problem is when you are a price-taker and have to set prices at
the going rate, or else sell nothing at all. This normally only occurs under near-perfect market conditions,
where products are almost identical. More usually, pricing decisions are among the most difficult that a
business has to make.
In considering these decisions it is important to distinguish between pricing strategy and tactics. Strategy
is concerned with setting prices for the first time, either for a new product or for an existing product in a new
market; tactics are about changing prices. Changes can be either self-initiated (to improve profitability or
as a means of promotion) or in response to outside change (i.e. in costs or the prices of a competitor).
Pricing strategy should be an integral part of the market- positioning decision, which in turn depends, to a
great extent, on your overall business development strategy and marketing plans.
Companies usually do not set a single price, but rather a pricing structure that reflects variations in
geographical demand and costs, market-segment requirements, purchase timing, order levels,
delivery frequency, guarantees, service contracts, and other factors As a result of discounts, allowances,
and promotional support, a company rarely real-izes the same profit from each unit of a product that it sells.
Here we will examine sev-eral price-adaptation strategies: geographical pricing, price discounts and
allowances, promotional pricing, discriminatory pricing, and product-mix pricing.
Geographical pricing (Cash. Counter trade. Barter)
Geographical pricing involves the company in deciding how to price its products to different. Customers in
different locations and countries. For example, should the company charge higher prices to distant
customers to cover the higher shipping costs or a lower price to win additional business? Another issue is
how to get paid. This issue is critical when buyers lack sufficient hard currency to pay for their purchases.
Many buyers want to offer other items in payment, a practice known as counter trade. American companies
are often forced to engage in counter trade if they want the business. Counter trade may account for 15 to
25 percent of world trade and takes several forms: barter, compensation deals, buyback agreements, and
offset.
Barter The direct exchange of goods, with no money and no third party involved
Compensation deal The seller receives some percentage of the payment in cash and the rest in products.
A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee.
Buyback arrangement The seller sells a plant, equipment, or technology to another country and agrees
to accept as partial payment products manufactured with the supplied equipment. A US. Chemical company
built a plant for an Indian company and accepted partial payment in cash and the remainder in chemicals
manufactured at the plant.
Offset The seller receives full payment in cash but agrees to spend a substantial amount of the money in
that country within a stated time period. For example, PepsiCo sells its cola syrup to Russia for rubles and
agrees to buy Russian vodka at a certain rate for sale in the United States.
Price discounts and allowances
The role of discount Offering discounts can be a useful tactic in response to aggressive competition by a
competitor. However, discounting can be dangerous unless carefully controlled and conceived as part of
your overall marketing strategy. Discounting is common in many industries in some it is so endemic as to
render normal price lists practically meaningless.
This is not to say that there is anything particularly wrong with price discounting provided that you are
getting something specific that you want in return. The trouble is that, all too often, companies get
themselves embroiled in a complex structure of cash, quantity and other discounts, whilst getting absolutely
nothing in return except a lower profit margin. Let us look briefly at the main types of discounts common
today
Cash and settlement discounts These are intended to bring payments in faster. However, since such
discounts need to be at least 2,5% per month to have any real effect, this means paying your customer an
annual rate of interest of 30% just to get in money which is due to you anyway. What is more, customers
frequently take all the discounts on offer and still do not pay promptly, so that you lose both ways. Much
better, we believe, is either to eliminate these discounts altogether and introduce an efficient credit control
system, or change your terms of business so that you can impose a surcharge on overdue accounts instead.
Whilst you may lose some business by doing this, these will probably be the worst payers anyway. If some
customers will not pay you for months you are probably better off trying to win others who will.
Quantity discounts The trouble with these is that, when formalized on a published price list, they become
an established part of your pricing structure and as a result their impact can be lost. If you are not very
careful, although they may have helped you win the business to start with, in the long run the only effect
they have is to spoil your profit margin. As a general rule, only publish the very minimum of quantity
discounts your very largest customers will probably try to negotiate something extra anyway. Also keep
quantity discounts small, so that you hold something in reserve for when your customers do something
extra for you, such as offering you sole supply, or as part of a special promotion.
Promotional discounts These are the best kind of discounts because they enable you to retain the power
to be flexible. There may be times when you want to give an extra boost to sales to shift an old product
before launching an updated one for example. At times like these special offers or promotional discounts
can be useful. But try to think of unusual offers a larger pack size for the same price or a five for the p
[rice of four can often stimulate more interest than a straight percentage discount. They also make sure
that the end user gets at least some of the benefit, which doesnt always happen with other types of
discounts. Two other points to remember are
Make sure you retain control over your special promotions, with a specific objective, a beginning and an
end point. Be sure to terminate them once they have outlived their usefulness.
Ensure that your offers are linked to sales and not simply to orders. Otherwise you may find that orders to
you are up for a while, only to be followed by a barren period whilst your customer supplies the end user
from his accumulated stocks.
Clearly the role of discounts will vary from one type of business to another and not all of the comments
above will apply to you. In part your ability to minimize discounts, or eliminate them altogether, will depend
on the non-price benefits of your product. But, whatever business you are in, you should always ask yourself
what your discounts are supposed to achieve, whether they are effective, and how long they are expected
to last. In general, keep standard discounts low to retain maximum flexibility and ensure that they are
consistent with your overall marketing and pricing strategy.
Promotional Pricing strategies
Companies can use several pricing techniques to stimulate early purchase:
Loss-leader pricing Supermarkets and department stores often drop the price on well Known brands to
stimulate additional store traffic. This pays if the revenue on the addi-tional sales compensates for the lower
margins on the) boss-leader items. Manufacturers of loss-leader brands typically object because this
practice can dilute the brand image and bring complaints from retailers who charge the list price.
Manufacturers have tried to restrain intermediaries from loss leader pricing through lobbying for retail-price
-maintenance laws, but these laws have been revoked.
Special-event pricing Sellers will establish special prices in certain seasons to draw in more customers
Cash rebates Auto companies and other consumer-goods companies offer cash rebates to Encourage
purchase of the manufacturers products within a specified time period. Rebates can help clear inventories
without cutting the stated list price.
Low-interest financing Instead of cutting its price, the company can offer customers low- interest
financing. Automakers have even announced no-interest financing to attract Customers.
Longer payment terms Sellers, especially mortgage banks and auto companies, stretch loans over longer
periods and thus lower the monthly payments. Consumers often worry less about the cost (i.e., the interest
rate) of a loan and more about whether they can afford the monthly payment.
Warranties and service contracts Companies can promote sales by adding a free or low- cost warranty
or service contract.
Psychological discounting This strategy involves setting an artificially high price and then offering the
product at substantial savings
Promotional-pricing strategies are often a zero-sum game. If they work, competitors Copy them and they
lose their effectiveness. If they do not work, they waste money that could have been put into other marketing
tools, such as building up product quality and service or strengthening product image through advertising.
Discriminatory pricing strategies
Companies often adjust their basic price to accommodate differences in customers, products, locations,
and so on. Price discrimination occurs when a company sells a product or service at two or more prices
that do not reflect a proportional difference in costs. In first-degree price discrimination, the seller charges
a separate price to each customer depending on the intensity of his or her demand. In second-degree price
discrim-ination, the seller charges less to buyers who buy a larger volume. In third-degree price
discrimination, the seller charges different amounts to different classes of buyers, as in the following cases:
Customer-segment pricing Different customer groups are charged different prices for the same product
or service. For example, museums often charge a lower admission fee to students and senior citizens.
Product-form pricing Different versions of the product are priced differently but not pro-portionately to
their respective costs
Image pricing Some companies price the same product two different levels based on image differences
at. A perfume manufacturer can put the perfume in one bottle, give it a name and image, and price it at
Rest. 50. It can put the same perfume in another bot-tle with a different name and image and price it at
Rs.200.
Channel pricing Coca-Cola carries a different price depending on whether it is purchased ill a fine
restaurant, a fast-food restaurant, or a vending machine.
Location pricing The same product is priced differently at different locations even though the cost of
offering at each location is the same. A theater varies its seat prices according to audience preferences for
different locations.
Time pricing Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial
users by time of day and weekend versus weekday. Restaurants charge less to early bird customers.
Hotels charge less on weekends. Hotels and airlines use yield pricing, by which they offer lower rates on
unsold inventory just before it expires. Coca-Cola considered raising its vending machine soda prices on
hot days using wireless technology, and lowering the price on cold days. However, customers so dis-liked
the idea that Coke abandoned it.
For price discrimination to work, certain conditions must exist. First, the market must be segment able and
the segments must show different intensities of demand. Second, members in the lower-price segment.
Must not be able to resell the product to the higher-price segment. Third, competitors must not be able to
undersell the firm in the higher-price segment. Fourth, the cost of segmenting and policing the market must
not exceed the extra revenue derived from price discrimination. Fifth, the practice must not breed customer
resentment and ill will. Sixth, the particular form of price discrimination must not be illegal.
As a result of deregulation in several industries, competitors have increased their use of discriminatory
pricing. Airlines charge different fares to passengers on the same flight, depending on the seating class;
the time of day (morning or night coach); the day of the week (workday or weekend); the season; the
persons company, past business, Of status (youth, military, senior citizen); and so on. Airlines are using
yield pricing to cap-ture as much revenue as possible.
Computer technology is making it easier for sellers to practice discriminatory pric-ing. For instance, they
can use software that monitors customers movements over the Web and allows them to customize offers
and prices. New software applications, how-ever, are also allowing buyers to discrimi-nate between sellers
by comparing prices instantaneously.
Product-mix pricing
Price-setting logic must be modified when, the product is part of a product mix. In this case, the firm
searches for a set of prices that maximizes profits on the total mix. Pricing is difficult because the various
products have demand and cost interrelationships and are subject to different degrees of competition. We
can distinguish six situations involving product-mix pricing: product-line pricing, optional-feature pricing,
captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing.
Product line Pricing Companies normally develop product lines rather than sin-gle products and introduce
price steps. In many lines of trade, sellers use well-established price points for the products in their line. A
mens clothing store might carry mens suits at three price levels: Rs800, Rs.1500, and Rs.4500. Customers
will associate low-, average-, and high-quality suits with the three price points. The sellers task is to
establish perceived-quality differences that justify the price differences.
Optional-feature pricing Many companies offer optional products, features, and services along with their
main product. The automobile buyer can order electric window controls, defoggers, light dimmers, and
an extended warranty. Pricing is a sticky problem; automobiles companies must decide which items to
include in the price and which to offer as options. Restaurants face a similar pricing problem. Customers
can often order liquor in addition to the meal. Many restaurants price their liquor high and their food low.
The food revenue covers costs, and the liquor produces the profit. This explains why servers often press
hard to get customers to order drinks. Other restaurants price their liquor low and food high to draw in a
drinking crowd.
Captive-product pricing Some products requires the use of ancillary, or captive, products. Manufacturers
of razors and cameras often price them low and set high markups on razor blades and film, respectively. A
cellular service operator may give a cellular phone free if the person commits to buying two years of phone
service.
Two-part pricing Service firms often engage in two-part pricing, consisting of a fixed fee plus a variable
usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond the minimum
number. Amusement parks charge an admission fee plus fees for rides over a certain minimum. The service
firm faces a problem sin1ilar to captive -product pricing-namely, how much to charge for the basic service
and how much for the variable usage. The fixed fee should be low enough to induce purchase of the ser-
vice; the profit can then be made on the usage fees.
By-product pricing The production of certain goods- meats, petroleum prod-ucts, and other chemicals-
often results in by-products. If the by-products have value to a customer group, they should be priced on
their value. Any income earned on the by-products will make it easier for the company to charge a lower
price on its main product if competition forces it to do so.
Product-Bundling pricing Sellers often bundle products and features. Pure bundling occurs when a firm
only offers its products as a bundle. In mixed bundling, the seller offers goods both individually and in bun-
dles. When offering a mixed bundle, the seller normally charges less for the bundle than if the items were
purchased separately. An auto manufacturer might offer an option package at less than the cost of buying
all the options separately. A theater company will price a season subscription at less than the cost of buying
all the performances sepa-rately. Because customers may not have planned to buy all the components, the
savings on the price bundle must be substantial enough to induce them to buy the bundle.

New Product Development

New product development is a task taken by the company to introduce newer products in the market.
Regularly there will arise a need in the business for new product development.
Your existing products may be technologically outdated, you have different segments to target or you want
to cannibalize an existing product. In such cases, New product development is the answer for the company.
There are 7 stages of new product development and they are as follows.
1) Idea generation
in this you are basically involved in the systematic search for new product Ideas. A company has to
generate many ideas in order to find one that is worth pursuing. The Major sources of new product ideas
include internal sources, customers, competitors, distributors and suppliers.
Almost 55% of all new product ideas come from internal sources according to one study. Companies
like 3M and Toyota have put in special incentive programs or their employees to come up with workable
ideas.
Almost 28% of new product ideas come from watching and listening to customers. Customers: even create
new products on their own, and companies can benefit by finding these products and putting them on the
market.
Example Pillsbury gets promising new products from its annual Bake-off. One of Pillsburys four cake mix
lines and several variations of another came directly from Bake-Off winners recipes.
2) Idea Screening
The second step in New product development is Idea screening. The purpose of idea generation is to create
a large pool of ideas. The purpose of this stage is to pare these down to those that are genuinely worth
pursuing. Companies have different methods for doing this from product review committees to
formal market research.
It, is helpful at this stage to have a checklist that can be used to rate each idea based on the factors required
for successfully launching the product in the marketplace and their relative importance.
Against these, management can assess how well the idea fits with the companys marketing skills and
experience and other capabilities. Finally, the management can obtain an overall rating of the companys
ability to launch the product successfully.
3) Concept Development and Testing
The third step in New product development is Concept Development and Testing. An attractive idea has to
be developed into a Product concept. As opposed to a product idea that is an idea for a product that the
company can see itself marketing to customers, a product concept is a detailed version of the idea stated
in meaningful consumer terms.
This is different again from a product image, which is the consumers perception of an actual or potential
product. Once the concepts are developed, these need to be tested with consumers either symbolically or
physically. For some concept tests, a word or a picture may be sufficient, however, a physical presentation
will increase the reliability of the concept test.
After being exposed to the concept, consumers are asked to respond to it by answering a set of questions
designed to help the company decide which concept has the strongest appeal. The company can then
project these findings to the full market to estimate sales volume.
4) Marketing Strategy Development
This is the next step in new product development. The strategy statement consists of three parts: the first
part describes the target market, the planned product positioning and the sales, market share and profit
goals for the first few years.
The second part outlines the products planned price, distribution, and marketing budget for the first year.
The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and
the marketing mix strategy.
Business Analysis Once the management has decided on the marketing strategy, it can evaluate the
attractiveness of the business proposal.
Business analysis involves the review of projected sales, costs and profits to find out whether they satisfy
a companys objectives. If they do, the product can move to the product development stage.
5) Product Development
Here, R&D or engineering develops the product concept into a physical product. This step calls for a large
investment. It will show whether the product idea can be developed into a full- fledged workable product.
First, R&D will develop prototypes that will satisfy and excite customers and that can be produced quickly
and at budgeted costs. When the prototypes are ready, they must be tested. Functional tests are then
conducted under laboratory and field conditions to ascertain whether the product performs safely and
effectively.
6) Test Marketing
If the product passes the functional tests, the next step is test marketing: the stage at which the product
and the marketing program are introduced to a more realistic market settings. Test marketing gives the
marketer an opportunity to tweak the marketing mix before the going into the expense of a product launch.
The amount of test marketing varies with the type of product. Costs of test marketing can be enormous and
it can also allow competitors to launch a me-too product or even sabotage the testing so that the marketer
gets skewed results. Hence, at times, management may decide to do away with this stage and proceed
straight to the next one:
7) Commercialization
The final step in new product development is Commercialization. Introducing the product to the market it
will face high costs for manufacturing and advertising and promotion. The company will have to decide on
the timing of the launch (seasonality) and the location (whether regional, national or international). This
depends a lot on the ability of the company to bear risk and the reach of its distribution network.
Today, in order to increase speed to market, many companies are dropping this sequential approach to
development and are adopting the faster, more flexible, simultaneous development approach. Under this
approach, many company departments work closely together, overlapping the steps in the product
development process to save time and increase effectiveness.
Above was the complete process of New product development. You can also read this related article on
why new product development is necessary for survival
Situation Analysis
In real life, or in corporate life, Situation analysis helps you define where you are standing currently, and
what should be your actions to progress further. Situation analysis also means forecasting the results if a
decision is taken in any direction. The fast changing environment and people lifestyles are demanding
regular analysis to provide you with a snapshot of where your company is placed in the business
environment, and to present you with the opportunities to develop and enhance growth.

No matter if you are planning to introduce a new service/product in the market, or if you are in the need of
finding which are your strengths and weaknesses regarding your own company, a micro as well as macro
environmental factor analysis can indicate the strategies which you should follow. This is the purpose of
the Situation Analysis. Involving several methods of analysis, this concept guides businesses on how to
communicate the benefits of their products to the needs of the potential customers.
Being based on both the internal and external environment, the situation analysis tells you what is your
organizations and products position and the options that you have to develop it further. It can be said to
be a very complex type of analysis and generally speaking, every business plan, depending on its purpose,
is going to include the situational analysis concept. In this respect, you need to take a look at your current
product, target market, distributor network, competitors, financial analysis and external forces. As you have
probably guessed, the way to look into and evaluate those factors can be through different models. These
models will offer you a structural way of thinking, in order to avoid confusion.
The situation analysis, similar to the market analysis is a concept, comprising different theories such as:
the 5Cs, SWOT analysis, Porters Five Forces and PEST Analysis. Some marketers affirm that general
situation analysis can be summarized in a SWOT format. However, from other experts point of view, it will
be incorrect to look at the SWOT as a result of the situation analysis instead of as a component of it.
The 5Cs involve in-depth knowledge of the company, competitors, customers, collaborators and climate.
We start by focusing on the companys mission, vision and goals, its position into the market (which we can
easily evaluate through the marketing mix), its performance in order to identify how successfully is the
business fulfilling their goals and strategies, and the last one consisting in its product/service line.
Following the evaluation of the company, we start looking into the competitors through Porters Five
Forces. On the background of analyzing the customers, variables such as customer buying behavior,
distribution channels, quantity and frequency of purchase, income level, market size and potential growth
are just some of them on which we should concentrate for a reliable analysis.
The last two components of the 5Cs are the collaborators, major consolidating part in every business as
they increase the likelihood of enhancing development and gaining more growth opportunities, and the
climate. The climate refers to the macro-environmental factors which can be structured in the PEST
analysis. Finally, a SWOT analysis will help you exactly define the strengths, weaknesses, opportunities
and threats that face your company and the future actions can be taken after taking help of the SWOT
analysis and considering the exact situation the company is in.
While the concept has clear advantages in terms of helping you identify your current position on the market
with all your capabilities and resources as well as your further opportunities to develop, the situation
analysis can also have some disadvantages, mainly consisting in the misinterpretation of collected data.
While some of the components of the concept involve quantifiable data, other parts are represented solely
by qualitative data. Therefore, depending on the person in charge to perform this situation analysis, the
interpretation can take different forms. In order to avoid it and obtain as clear a snapshot as possible,
observations of all the department of your company and collaboration between them should be taken into
consideration.
SWOT Basic and Advanced
Basic SWOT
You can develop a basic SWOT analysis in a brainstorming session with members of your company, or by
yourself if you are a one-person shop. To begin a basic SWOT analysis create a four cell grid or four lists,
one for each SWOT component: Then, begin filling in the lists.
Strengths Think about what your company does well. What makes you stand out from your competitors?
What advantages do you have over other businesses?
Weaknesses List the areas that are a struggle. What do your customers complain about? What are the
unmet needs of your sales force?
Opportunities Try to uncover areas where your strengths are not being fully utilized. Are
there emerging trends that fit with your companys strengths? Is there a product/service area that you could
do well in but are not yet competing?
Threats Look both inside and outside of your company for things that could damage your business.
Internally, do you have financial, development, or other problems? Externally, are your competitors
becoming stronger, are there emerging trends that amplify one of your weaknesses, or do you see other
threats to your companys success?

Advanced SWOT
A more in-depth SWOT analysis can help you better understand your companys competitive situation. One
way to improve upon the basic SWOT is to include more detailed competitor information in the analysis.
You can note the internet-related activities such as trade organization participation, search engine inclusion,
and outside links to the sites. This will better help you spot opportunities for and threats to your company.
You can also take a closer look at the business environment. Often, opportunities arise as a result of a
changing business environment.
Some examples are:
A new trend develops for which demand outstrips the supply of quality options. For example, early on, the
trend toward healthy eating coupled with an insistence on good tasting food produced a shortage of
acceptable natural food alternatives. Tetra pack fruit juices like Real and Onus captured on a nutritional
drink opportunity.
A customer segment is becoming more predominant, but their specific needs are not being fully met by
your competitors. The Indian rural markets have been experiencing this phenomenon in the recent years
for many product categories.
A customer, competitor, or supplier goes out of business or merges with another company. With the demise
of many pure-play dot-coms, examples of this abound. As each went out of business, opportunities arise
to gain the defunct business customers. Customers of bpl.net were ready customers for a company called
Data Access which was operating under the NOW brand.
You can also enhance a SWOT analysis through surveys. You can learn more about your own as well as
competitor sites and businesses. Areas you can research include
1) Customer awareness, interest, trial, and usage levels
2) Brand, site, and/or company image
3) Importance of different site or product attributes to your customers
4) Product and/or site performance.
Whether using a basic or more advanced approach to SWOT analysis, you are sure to come away with
newfound insights. Use these to increase your companys effectiveness and as input into your business
or marketing plan.

Marketing Mix The 4 ps of marketing

The Marketing mix is a set of four decisions which needs to be taken before launching any new product.
These variables are also known as the 4 Ps of marketing. These four variables help the firm in making
strategic decisions necessary for the smooth running of any product / organization.
If you ask What is the marketing mix?
Then in summary these 4 variables comprise the Marketing mix.
1. Product What the company is manufacturing?
2. Price What is the pricing strategy used by the company?
3. Place Where is the company selling?
4. Promotions How is the company promoting the product?
What are the two types of Marketing mix?
1) Product marketing mix Comprised of Product, price, place and promotions. This marketing mix is
mainly used in case of Tangible goods.
2) Service marketing mix The service marketing mix has three further variables included which
are people, physical evidence and process. They are discussed in detail in the article on service marketing
mix.
The term marketing mix was first coined by Neil H Borden back in 1964 in his article The concept of
marketing mix. Several strategic analysts over the years believe that the marketing mix can make or break
the firm. Having the right marketing mix at the start of the marketing plan is absolutely essential. Over time
the concept of marketing mix has provided a steady platform for the launch of a new product or business.
As mentioned before, the marketing mix is characterized by four different but equally important variables.
These variables are never constant and may be changed over time. However, a change in one of the
variables may cause a change in all the other variables as well.
The Variables of Marketing mix are as follows
1) Product in the Marketing mix
The first thing you need, if you want to start a business, is a product. Therefore Product is also the first
variable in the marketing mix. Product decisions are the first decisions you need to take before making
any marketing plan. A product can be divided into three parts. The core product, the augmented product
and the tertiary product. Before deciding on the product component there are some questions which you
need to ask yourself.
What product are you selling?
What would be the quality of your product?
Which features are different from the market?
What is the USP of the product?
Whether the product will be branded as sub brand or completely new?
What are the secondary products which can be sold along with primary (Warranty,
services)
Based on these questions, several product decisions have to be made. These product decisions will in
turn affect the other variables of the mix. For example You plan on launching a car which will have the
highest quality. Thus the pricing, promotions and placing would have to be altered accordingly. Thus as
long as you dont know your product, you cannot decide any other variable of the marketing mix. However,
if the product features are not fitting in the mix, you can alter the product such that it finds a place for itself
in the marketing mix.
2) Pricing in the Marketing mix
Pricing of a product depends on a lot of different variables and hence it is constantly updated. Major
consideration in pricing is the costing of the product, the advertising and marketing expenses, any price
fluctuations in the market, distribution costs etc. Many of these factors can change separately. Thus the
pricing has to be such that it can bear the brunt of changes for a certain period of time. However, if all these
variables change, then the pricing of a product has to be increased and decreased accordingly.
Along with the above factors, there are also other things which have to be taken in consideration when
deciding on a pricing strategy. Competition can be the best example. Similarly, pricing also affects
the targeting and positioning of a product. Pricing is used for sales promotions in the form of trade
discounts. Thus based on these factors there are several pricing strategies, one of which is implemented
for the marketing mix.
3) Place in the Marketing mix
Place refers to the distribution channel of a product. If a product is a consumer product, it needs to be
available as far and wide as possible. On the other hand, if the product is a Premium consumer product, it
will be available only in select stores. Similarly, if the product is a business product, you need a team
which interacts with businesses and makes the product available to them. Thus the place where the product
is distributed, depends on the product and pricing decisions, as well as any STP decisions taken by a firm.
Distribution has a huge affect on the profitability of a product. Consider a FMCG company which has
national distribution for its product. An increase in petrol rates by 10 rs will in fact bring about drastic
changes in the profitability of the company. Thus supply chain and logistics decisions are considered as
very important costing decisions of the firm. The firm needs to have a full proof logistics and supply chain
plan for its distribution.
4) Promotions in the Marketing mix
Promotions in the marketing mix includes the complete integrated marketing communicationswhich in turn
includes ATL and BTL advertising as well as sales promotions. Promotions are dependent a lot on the
product and pricing decision. What is the budget for marketing and advertising? What stage is the product
in? If the product is completely new in the market, it needs brand / product awareness promotions, whereas
if the product is already existing then it will need brand recall promotions.
Promotions also decide the segmentation targeting and positioning of the product. The right kind of
promotions affect all the other three variables the product, price and place. If the promotions are effective,
you might have to increase distribution points, you might get to increase the price because of the rising
brand equity of the product, and the profitability might support you in launching even more products.
However, the budget required for extensive promotions is also high. Promotions is considered as marketing
expenses and the same needs to be taken in consideration while deciding the costing of the product.
Thus as we see from the above diagram, all the four variables of marketing mix are inter related and affect
each other. By increasing the pricing of the product, demand of the product might lessen, and lesser
distribution points might be needed.
On the other hand, the product USP can be such that maximum concentration is on creating brand
awareness, thereby increasing need of better pricing and more promotions. Finally, the overall marketing
mix can result in your customer base asking for some improvement in the product, and the same can be
launched as the upgraded product.
The role of Marketing mix in Strategy
Marketing mix plays a crucial role while deciding the strategy of an organization. It is the first step even
when a marketing plan or a business plan is being made. This is because, your marketing mix decision will
also affect segmentation, targeting and positioning decisions. Based on products, segmentation and
targeting will be done. Based on the price, positioning can be decided. And these decisions will likely affect
the place and promotion decisions. Thus, the marketing mix strategy goes hand in hand with segmentation
targeting and positioning.
The above four Ps of marketing give you an overall look at the product marketing mix. If your product is
a service offering then there are 3 further Ps taken into consideration namely people, physical evidence
and process. For the same, you can refer the Service marketing mix.

Service Marketing Mix 7 Ps of marketing

The service marketing mix is also known as an extended marketing mix and is an integral part of a service
blueprint design. The service marketing mix consists of 7 Ps as compared to the 4 Ps of a product
marketing mix. Simply said, the service marketing mix assumes the service as a productitself. However it
adds 3 more Ps which are required for optimum service delivery.
The product marketing mix consists of the 4 Ps which are Product, Pricing, Promotions and Placement.
These are discussed in my article on product marketing mix the 4 Ps.
The extended service marketing mix places 3 further Ps which include People, Process and Physical
evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in further
detail.
1) Product
The product in service marketing mix is intangible in nature. Like physical products such as a soap or a
detergent, service products cannot be measured. Tourism industry or the education industry can be an
excellent example. At the same time service products are heterogenous, perishable and cannot be owned.
The service product thus has to be designed with care. Generally service blue printing is done to define the
service product. For example a restaurant blue print will be prepared before establishing a restaurant
business. This service blue print defines exactly how the product (in this case the restaurant) is going to
be.
2) Place
Place in case of services determine where is the service product going to be located. The best place to
open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is a wrong
location to start a petrol pump. Similarly a software company will be better placed in a business hub with a
lot of companies nearby rather than being placed in a town or rural area. Read more about the role
of business locations or Place element.
3) Promotion
Promotions have become a critical factor in the service marketing mix. Services are easy to be duplicated
and hence it is generally the brand which sets a service apart from its counterpart. You will find a lot of
banks and telecom companies promoting themselves rigorously.
Why is that? It is because competition in this service sector is generally high and promotions is necessary
to survive. Thus banks, IT companies, and dotcoms place themselves above the rest by advertising or
promotions.
4) Pricing
Pricing in case of services is rather more difficult than in case of products. If you were a restaurant owner,
you can price people only for the food you are serving. But then who will pay for the nice ambiance you
have built up for your customers? Who will pay for the band you have for music?
Thus these elements have to be taken into consideration while costing. Generally service pricing involves
taking into consideration labor, material cost and overhead costs. By adding a profit mark up you get your
final service pricing. You can also read about pricing strategies.
Here on we start towards the extended service marketing mix.
5) People
People is one of the elements of service marketing mix. People define a service. If you have an IT company,
your software engineers define you. If you have a restaurant, your chef and service staff defines you. If you
are into banking, employees in your branch and their behavior towards customers defines you. In case of
service marketing, people can make or break an organization.
Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills
and customer service with a focus towards customer satisfaction. In fact many companies have to undergo
accreditation to show that their staff is better than the rest. Definitely a USP in case of services.
6) Process
Service process is the way in which a service is delivered to the end customer. Lets take the example of
two very good companies Mcdonalds and Fedex. Both the companies thrive on their quick service and
the reason they can do that is their confidence on their processes.
On top of it, the demand of these services is such that they have to deliver optimally without a loss in quality.
Thus the process of a service company in delivering its product is of utmost importance. It is also a critical
component in the service blueprint, wherein before establishing the service, the company defines exactly
what should be the process of the service product reaching the end customer.
7) Physical Evidence
The last element in the service marketing mix is a very important element. As said before, services
are intangible in nature. However, to create a better customer experience tangible elements are also
delivered with the service. Take an example of a restaurant which has only chairs and tables and good
food, or a restaurant which has ambient lighting, nice music along with good seating arrangement and this
also serves good food. Which one will you prefer? The one with the nice ambience. Thats physical
evidence.
Several times, physical evidence is used as a differentiator in service marketing. Imagine a private hospital
and a government hospital. A private hospital will have plush offices and well dressed staff. Same cannot
be said for a government hospital. Thus physical evidence acts as a differentiator.
So next time some one asks what do you mean by service marketing mix or What are the 7 Ps, then
you know the answer. This is the service marketing mix (7p) which is also known as the extended marketing
mix.

7 steps of competitor analysis

Competitor analysis is absolutely essential if you have to grow in a competitive market. It is becoming
increasingly important because of rise in competition in each and every sector. Whether electronics,
automobiles or FMCG, each sector today is facing immense competition affecting margins and sales.
Thus there are some critical steps to be followed by these organizations to outperform their competition.
However, they will be able to stand out only when they KNOW their competition. This is where the step by
step competition analysis comes in the picture. Here are the 7 steps for competitor analysis
1) Identify current and future competitors in the market
The best way to identify current and future competitors is to analyse your target products. Supposing you
are currently selling hair oil. You need to know how many branded and unbranded players are there in the
market. You need to know if any new company is starting to sell Hair oil or if any current company might
stop selling the same.
Furthermore, you also need to know how many of your customers prefer some other product over Hair oil.
Thus by doing this you know your direct and indirect competition. This is the first step in competition
analysis.

2) Finding market share

Naturally, once you have identified the competition, the second step is to know their market share. You
cannot know the strengths and weaknesses of your competition unless and until you know their presence.
Thus if your product is selling in a wide region, you need to break down the region into territories and find
out the share of wallet in each territory.
While doing this, you can also do a mini market research to find the reason for the sale of your competition.
Is it selling because it is easily available, quality is high or price is low. This step will help you perform
a SWOT.
3) Performing SWOT
Once you know the share of market and you have done your secondary and primary analysis, you need to
actually work out the strengths, weaknesses, opportunities and threats for each of your competitor in turn.
This is important as this shows where you currently stand in your industry, who do you need to benchmark
to move forward and what strategies can be most effective to stay on top or to avoid a drop in rank. The
SWOT is indirectly responsible for showing you the steps where you can capitalize and move ahead of your
competition.
4) Build competition portfolio
Once you know the SWOT of your competitors, you can build a competition portfolio. A competition portfolio
will have each and every product of your competitors, their features, logistics, tangible features (product
qualities), intangible features (product service) etc.
This portfolio needs to be treated like MIS and needs to be updated time to time. The best source for
building a competition portfolio is your sales force itself. They are continuously in touch with the market and
therefore can immediately notify you of any changes happening in the market.
5) Plan strategies
Now you have your complete competition portfolio in front of you. Thus you clearly know your line of action.
If the competition is far superior, you have two ways to move forward. You can either try the
same strategies as top competitor and slowly move on top OR you can go creative / innovative and try to
directly take on the market leader. Read more on Market challenger strategies.
At the same time, if the competition is average and you can reach the top through some effort, then do not
procrastinate and put the best strategies forward to reach the top at the earliest. Remember If reaching
the top takes much effort, then staying on top will take double the effort from the complete organization.
You can also read, Market follower strategies.
6) Execute strategies
Quite simple. Execute the strategies which you think are the best and make sure of executing them
effectively. There is no meaning of going to such an effort to analyse a competition and then fail at the
implementation part. At the same time, it is very important to have a contingency plan and to anticipate your
competitors reaction.
If your competitor reacts too strongly, put the contingency plan in place to avoid any long term affects to
the brand / product. This might cause you to lose the advantage of surprise, but it definitely gives you more
chances to form even better strategies (To be truthful, very few companies have actually gotten their
strategies spot on the first time itself). Thus contingency plans while executing strategies is very important.
7) Follow up
Statistics are always useful for a firm and help the firm in practical decision making. Thus by following up
you are making sure of quantitatively and qualitatively measuring the response to the executed strategy.
Ideally, the same should be documented so that future generations of marketers may know the earlier
strategies implemented and might be able to revive the same through different angles.
At the same time, you might actually execute a strategy which gets excellent response from customers. In
these cases too, you need to stick with the same strategy for a longer time and in such cases, it is crucial
to have the feedback from your customers so as to know at all times whether the strategies are working
effectively. Thus follow up is essential for long term competitor analysis.
In the end, whatever strategies you make, your competitor is going to respond. Thus competitor analysis
needs implementation and updation from time to time. There are very few industries in which there are only
34 players. In fact, major industries are characterized by as many as 1020 different
competitors (branded, unbranded, direct, indirect). Thus competitor analysis helps you in pin pointing your
current standing in the market and the future direction

Competitive profile matrix and analysis

In a complete ongoing process of globalization, business is required to keep pace with the fast changing
systems. In order to remain competitive, companies need to evaluate their competitive advantages. Various
strategic models such as Porters generic strategies, SWOT or Porters five forces need to be updated to
the current factors shaping the business environment.
Therefore, big companies such as Microsoft, Lego, Arla Foods, Nestle, Ikea, have been basing their
strategies by conducting bench marking. A useful tool that can help in evaluating the strengths and
weaknesses of the company is the competitive profile matrix also known as the CPM matrix.

Through the competitive profile matrix, companies can find out which are the areas where they need to
be strong in, and which are the ones where they need to improve. They can do this by analyzing their main
competitors in the market and asses them based on several success specific factors. These factors, on
which the analysis is made, depend greatly on the industry in which the company is operating. Such factors
could be: market share, range of products, brand reputation, etc.
Steps in developing a competitive profile matrix
If you want to develop a competitive profile matrix, the first step is to define your competitors. Once you
have finalized the competitors you are going to focus on, you need to decide the most important factors
which are needed to be successful in the respective industry. Once these factors are identified, you need
to identify the factors in which your competitors are strong or weak.
Once you have decided a factor for making the matrix, than for each factor, a weight and a rank is going to
be assigned. The weight can range from 0.0(low importance) to 1.0 (high importance) and indicates how
important the factor is for succeeding in the industry. The ratings present how well are companies doing in
each area and it ranges from 4 to 1, from the highest strength to the highest weakness. Afterwards, the
weight is multiplied by the rank, resulting the score. The company with the highest score proves to be
stronger than its competitors.
This identification and the subsequent classification of the factors will give you a fair reading of your
competitive profile in the market as well as the competitive profile of other competitors. This will help you
define your exact competitive advantages and tailor your strategy accordingly. Thus, the competitive profile
matrix paves the way for you to overtake your competition.
Lets take an example of the competitive profile matrix with the company Arla Foods, which is the largest
producer of dairy products in Scandinavia. As the company has been expanding greatly in Scandinavia,
holding approximately 85% of the market share in this region, they continued to follow their expansion also
in Europe and in Africa. Africa represents a great challenge for them as the way business is conducted on
this continent differs greatly when compared to the others.
One of their current plans is to approach the East African market through milk powder initially. The thing
that they have taken into consideration consists in mapping all the potential direct competitors for the small
sachets of milk powder. Following a market research, they have identified that in Tanzania, the primary
focus country, there are two main direct competitors: Cowbell (a Swiss manufacturing company) and
Moregold (a Tanzanian milk powder company).
The research was done with the help of a Competitive profile matrix which is shown below. As you can see,
the factors selected for the dairy industry were brand reputation, market share, low cost structure, variety
of distribution channels and others. All of these factors were weighted and a score was calculated. This
score showed that both Cowbell and MoreGold were very strong competitors in the market for Arla foods.
The competitive profile matrix or CPM matrix is used as a tool in decision making. However, as many other
business models of strategy, the competitive profile matrix it has its own drawbacks. The main drawback
consists in the subjectivity of the person conducting the analysis, as the weights and ranks differ on personal
interpretation, assumptions values and beliefs.
The lack of quantified data is another major disadvantage of this tool, as the disadvantage in one factor can
be paid off by an advantage in another one. Lack of information can also create difficulties in this analysis,
as gaining access to this kind of private information can prove to be rather difficult. Therefore, the CPM
should be used as an orientation tool for getting a birds eye view on the point where your company is
standing as compared to your competitors.

AIDAS theory of selling

The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across
numerous organizations. AIDAS stands for Attention, Interest, Desire, Action, Satisfaction. The AIDAS
theory simply states that a prospect goes through five different stages before finally responding satisfactorily
to our product. thus he should be led comfortably through all five stages.
Attention Gaining attention is a skill and and just like any skill, gaining attention can be improved upon
with practice. A common phrase applicable over here is First impression is last impression. The initial
attempt of the sales person must be to put the customer completely at ease. Casual conversation is one of
the best openers after which the sales person can gain customer attention by leading him onto the sale. to
know more about gaining attention read my post on how to gain customer attention.
Interest Once you have gained attention, it is very important to maintain interest. Some sales people are
very good in the opening but as the technicalities take over, they become uncomfortable while explaining
the product. Whereas others who are strong in the product department might open bluntly but create interest
in the second stage. Maintaining interest is a crucial part of the sales process and hence is included in the
AIDAS theory. Read more on how to maintain customer interest.
Desire Have you seen the commercials wherein you just have to get out of your house and get the
product? Perhaps a car, an ice cream or a house. The same has to be done by the sales person in personal
selling. He has to create enough desire in the customers mind such that he immediately has to buy the
product. Imagine an aquaguard sales man or a tupperware sales person. They highlight the product in such
a manner that you might be thinking Why didnt i buy this product before. Thus kindling that desire becomes
an integral part of the AIDAS selling theory. Read more on how to create desire for the product
Action Although there may be desire for the product, the customer might not act on it. He might want to
buy the product but he might NOT buy it. In such cases the customer needs to be induced. There are
various ways to induce the customer such that he buys the product. It is important for the sales person to
understand whether to directly induce the customer or whether to push subtle reminders that you are there
for a sales call ;) . Both methods work, but you need to know your customer.
Satisfaction What would you do after the customer has given the order? Will you stand up, Point at him
and shout Fooled ya. I dont think so. The customer has just parted with his money. Just like you part your
money and expect good service, he expects the same too. So even after he has bought the product, you
need to reassure the customer that he has made the right decision. The product is good for the customer
and you only presented the product. It was his decision and he is right about it. These small cues post the
sales process really give confidence to the customer and he then looks forward to your product rather than
thinking whether or not he has made the right decision. Learn more about measuring customer satisfaction.
Hope you liked the AIDAS theory. Get more satisfied by subscribing to our newsletter or our feeds and
following us daily with new articles on marketing and sales. Trust me. I wont stand up and shout Fooled
ya :)
PESTLE analysis

As we already mentioned in a previous article, the PEST analysis is considered a useful scanning tool for
identifying the relevant political, economic, social and technological factors from the external environment.
These factors can represent threats or opportunities as well as challenges arising from the external
environment, which can greatly influence your decision making.
To read more on PEST analysis, click here.
A more complete version of PEST Analysis is PESTLE analysis. The upgradation of PESTLE analysis
involves two new factors: the legislative and the environmental components. Initially, the legislative factors
were included in the political and economic environment. However, as society is developing by leaps and
bounds, legal factors have a critical role to play in decision making.
Similarly, environmental hazards have increased after the industrial revolution. And expanding businesses
also have their own effects on the environment. Thus, where environment was considered to be included
in the technological section, it began to be treated separately and had its own standing. We have seen that
with groups like PETA, WWF, Greenpeace and others in full flow, there is an increasing demand for better
environmental conditions with business expansion. These environmental groups cannot be ignored.
What exactly do the legal and the environmental factors of PESTLE analysis consist of? For this, let us
go through all the various factors in PESTLE
Political factors in PESTLE analysis Politics plays an important role in all countries and there are ruling
parties as well as opposition. If the business is going to face problems in politics then the same should be
reflected in the PESTLE analysis report. This will help the company decide what steps should be taken to
overcome the political challenges.
Economical factors in PESTLE analysis Tomorrow, if a company in Kenya wants to expand in USA
then it would not be economically viable. On the other hand, if a company in USA expands to Kenya, then
the US company too would lose revenue because the variance in economic conditions between Kenya and
US. Thus, while considering the external business environment, you have to take economical factors in
consideration.
Social factors in PESTLE analysis Will society accept the product you are offering or is the culture of
the society negative towards your product? At the same time, what sociological factors are in play which
can support your product and which are the social factors you will have to address when you launch your
product? All these questions can be answered when you analyse social factors in PESTLE.
Technological factors in PESTLE analysis Japan has taken years and decades to become the
technological giant it is now. And this has been a contribution of many different companies like Sony and
others. Moreover, the nation supported innovation due to which Japanese companies were at the fore front
of quality. Thus technological factors play an important role in the success of an organization in a new
business environment.
Legal factors in PESTLE analysis Different legal factors like Import/export procedures, employment
law, consumer protection, intellectual property law, copyright, patents, data protection, are just some of the
factors which might influence your business from a legislative perspective. If any of these factors are not
conducive for business, then you have to wait for the right time to enter the new business environment. Or
you have to find a work around to these legal challenges.
Environmental factors in PESTLE analysis Laws regulating environmental pollution, attitudes towards
green solutions, endangered species, renewable energy utilization, waste management, climate change,
recycling are just some of the environmental factors which you should consider in order to estimate the
potential challenges and opportunities in the business context.
The legal factors have the power to influence the companys operations as well as the demand for
its products. On the other hand, by taking the environmental factors into consideration, you are one step
closer to the process of innovation. By restructuring operations and getting involved in Green Business,
companies are actually starting to answer some of the environmental problems of the world. This ensures
lesser pollution and lesser degradation of natural resources.
Other alternatives of PESTLE analysis vary in the way of structuring and positioning the factors depending
on the industry in which you operate, and what is relevant for the respective industry. Here are some other
examples of variants of PESTLE analysis:
STEP
STEEP (where one of the factors is economic and the other one is ethics)
 SLEPT
STEEPLED(social-technological-environmental-political-legislative-ethical-demographical)
LONGPEST (local-national-global factors-PEST)
PESTLE analysis also represents a very useful tool in determining your competitive advantage. However,
it is not to be forgotten that this is an external analysis tool which helps in strategic planning, being part
of situation analysis. But if left alone, the only result you will get is just an overview of the environment of
the industry in which your company operates.

SMART Objectives

The SMART objectives are a part of Management by objectives concept introduced by Peter Drucker. The
SMART objectives are used regularly by companies to give goals and objectives to their employees. It is
important to note that SMART objectives start with the word Specific. Thus the SMART objective helps
the manager or the company to give their team as specific an objective as possible.
The SMART objectives has a full form which is Specific, measurable, assignable, realistic and Time
related. The best way to understand SMART objectives is to look at sales planning. The concept of SMART
objectives is explained below by taking an example at sales planning. Let us say that a sales manager has
given their team a target of Rs 1 crore to be achieved in the next 1 year. So how do we break down each
concept of the SMART objectives?

S Specific The Specific in SMART states that the objective should be specific. In the above example
of sales planning, the objective given by the sales manager is very specific. He has given a target of 1
crore. Thus the first condition of SMART objective is met. If the sales manager would have said that the
team needs to achieve as much sales as possible by them, then the SMART objective setting has failed.
M Measurable SMART objectives, or for that matter any objective, needs to be measurable. The intent
is to know whether the objective is on track or improvement is required. The SMART objective given in the
above example is measurable. The team has to achieve 1 crore of target. Thus, if 80 lakhs is achieved,
than the team has under achieved with 20% loss. If 1.2 crore is achieved, than the team has over achieved
with 20% gain. Thus the SMART objective given is very much measurable.
A Assignable The SMART objective needs to be assigned to someone. A business man might target
40% growth this year. However, for the growth, he needs to assign the objectives to someone. It may be
his finance team, his sales team or his production team. In the above sales planning example, the sales
manager has assigned a specific and measurable target to his sales team. It is the sales team who will help
achieve the SMART objectives.
R Realistic The SMART objective needs to be realistic. The objective should not be what you want, the
objective should be what you can achieve. Thus, in the above example, if last year the total sales of the
organization was 40 lakhs, than the demand by the sales manager to achieve 1 crore this year is an
unrealistic demand. In this case, there is no use of the SMART objective as the objective is likely to fail. In
the unlikely event that the objective is too far fetched, there needs to be a justification as to why these
unrealistic figures are kept on the table.
Time related Goals are kept only by keeping a time limit. Similarly SMART objectives need to have the
element of time involved. In the above case, if the sales manager had said that you need to achieve 1 crore
sales but time had not been specified, the sales team can show the 1 crore sales figure in the next 100
years. This is because no time related target has been given. Hence, there would be no urgency in
achieving the objective. Similarly, in production if you give a target to the production team but do not mention
the time in which products are needed, you are likely to delay the production. Thus, SMART objective needs
to clearly specify the time and it needs to be time related.
It makes business sense for an organization to regularly use the SMART objectives. Remember that
SMART objectives also need feedback. Only after taking feedback can you know whether the SMART
objectives have been achieved or not.
If you are a manager, the SMART objectives need to be established in several places at once and the
feedback taken. Examples for SMART objectives in various organizations are as follows.
Sales Achieve the given target in a specified time period.
Communications Ensure that the proper ATL and BTL activities are carried out on timely basis as planned
by the management.
Logistics SMART objectives Deliver the goods as per terms and conditions. Ensure that the goods are
delivered in proper condition.
Commercial Manage accounts properly on a quarterly or annual basis. Submit the accounts to the
accounting team for analysis on a time basis.
All of the above are SMART objectives followed by various departments in an organization. Thus each of
the department is being led through management by objectives for which SMART objectives is a very useful
tool.

5 steps in consumer buying behavior

A consumer takes decisions based on many criteria. However, the triggers of consumer purchases happen
much before the actual purchase itself. This is where marketing plays its part. Marketing & Advertising look
to change or affect the consumer buying behavior, so that the consumer prefers buying the product of a
company he is well aware of (and one which has been well marketed).
However, if you want to look at the consumer buying behavior of the 21st century, you have to acknowledge
that consumerism is playing a major role in their decision making. The consumers are getting used to their
regular brands and they hardly shift from these brands. Accordingly, there are three levels of involvement
of a consumer towards the purchase of a brand. Depending on these levels of involvement, consumer
buying behavior may vary.
Step 1 of consumer buying behavior Problem recognition
It all starts when a customer realizes a need or a problem. When you are in college, your need is for courses
which throw light on specific subjects. This is why the education sector is thriving. There are
specific needs of customers some requiring science classes, others math.
As you move on from college to a professional life, your needs, wants and demands change. You may want
better clothes, a car, a house and all the comfort and amenities that money can provide. When you get
married, you will be looking for vacations as well as investment and saving options. So on and so forth, you
get the drift.
In all stages of life, humans are customers of one company or another. And they keep having more
requirements and needs which have to be fulfilled. These requirements may be low involvement ones, or
high involvement ones. The first step of consumer buying behavior starts when the customer realizes that
he wants or needs something.
Step 2 of consumer buying behavior Information search

Let us continue the above example to understand the 2nd step of consumer buying behavior. When you
are in college and you need extra courses, dont you search for all the alternatives out there? The different
classes and tutorials which teach different subjects?
Similarly, dont get me started on the level of options available for youngsters, bachelors as well as
married people. Clothes, cars, shoes, whatever product you may pick, has ample options available for
customers, in terms of brand as well as in terms of product differentiation.
So the first thing a consumer does when he realizes he needs something is He sets out to get more
information. A person buying clothes will visit all retail stores. Same for a person buying shoes or watches.
However, what would a person buying toothpaste do? Will he step out each time he has to buy toothpaste
and collect information?
No, he wont. There are products in which the customer gains information for the first time, but after that,
because of the low involvement of the purchase, this step is ignored completely. My favorite toothpaste
is Colgate. But every time i have to buy toothpaste, i dont check the advantages of buying Pepsodent or
Sensodyne. I buy Colgate.
So, the extent of information search depends completely on the level of involvement of customers in the
purchase. The major source of information for customers, and the sources which influence consumer
buying behavior heavily are Friends, commercials & advertisements, Public and experience.
Step 3 of consumer buying behavior Evaluation of alternatives
The best way to explain the evaluation of alternatives is the image below.

As seen in the image, the total brands considered in the start by the customer are 5. Whereas, he has
finalized 1 brand in the end. This means, that there are 80% brands which are rejected by customer. Now
this is just a simple example. But this is what is happening in the real market. Brands are being rejected by
customers based on a number of aspects such as price, features, color, benefits etc.
So, when a customer has all the information, he starts considering the alternatives and weighs the factors
against each other. This is where many of the E-commerce companies benefited in the long run. A store
executive, who was not well informed, was unable to give all the information to consumers.
What the E-commerce companies did was allow comparisons between multiple products, thereby allowing
consumers to evaluate alternatives while from the comfort of their home or office. Naturally, with such
insight into consumer buying behavior, online purchases increased because consumers were able to
compare between products, evaluate the alternatives and make purchase decisions accordingly.
It is important that i also mention the various factors which influence the evaluation of alternatives as well.
For example the above image has only sports shoes brands which the customer is considering. However,
if the customer wanted to purchase formal shoes, his consideration of brands would have changed. Thus,
customers current needs, his financial standing, psychography and many such things influence the
alternatives which the customer will consider.
Step 4 of consumer buying behavior Purchase
This is the simplest stage of the consumer buying behavior. Or is it? If purchase was so simple, there would
not be a line of men in a ladies retail store, sitting idly when women make their decision on which dresses
to buy. So the purchase decision is not easy.

Once the consumer has considered the alternatives of each brand in his kitty, he will then have his own
internal stuggle as to factors which are important and factors which are not. So, while buying shoes, one
customer might think that the looks of the shoes are the most important, whereas other might think that he
needs a light shoe, which is light on his feet and hence can help him while jogging or running.
This purchase is again influenced by many factors which also played its role in the evaluation of alternatives.
For example our dear customer does not have a good financial standing. In that case, he will never
consider shoes like Adidas, Reebok or even Lee Cooper. He will consider local made shoes which fit in his
budget.
Secondly, if the climate changes and the customer is faced with upcoming summers or winters, then again
his purchase decisions will change based on the current situation. In essence, the customer considers all
the alternatives, chooses which factors are most important to him as per the situation, and then finally
makes the purchase decision.
The purchase of the product, depends on the values, attitude and lifestyle which defines the customer.
Step 5 of consumer buying behavior Post purchase behavior.
The whole prospect of customer relationship management softwares as well as the concept in itself, is
based on post purchase behavior. Marketers want their customers to be happy even after the purchase of
the product. If the customer is not happy, he is likely to leave the product or bad mouth it. Worse, if there
are issues in the product, the customer can go legal and spoil the name of the brand.
Hence, many companies take proactive steps in keeping customers satisfied or even delighted so that they
are happy with the brand and dont switch. Above is an image of Duracell Ultra which allows customers to
check their battery levels while using the battery. Similarly, Oral B, has indicators which indicate when the
toothbrush has crossed its expiry date.
These are tactics that ensure that post purchase, the customer remains happy.
Many automobilemanufacturers nowadays have their own second hand purchase showrooms. This is
because they know that post purchase, customer will like to sell their existing cars after a certain period of
time. At the same time, there are other customers who are ready to buy second hand cars. So why not help
both by having an authorized resale counter?
Hence, the use of CRM is very common to influence consumer buying behavior. I love it when i call
Dominos and they have my address and number saved. I dont have to repeat it each time. I also love it,
when they remind me of any offers that are currently going on (i am a pizza fan).
Overall, these 5 stages of consumer buying behavior are stages each customer goes through when they
are purchasing a product. The most vulnerable stage for the customer is the evaluation of alternatives. At
this stage, the customer can be influenced the most, and hence most sales people are required to be
communicative and charming, so that they can influence customers at this stage.
To take the perfect example, a single line at the McDonalds billing counter, Would you like to have some
fries with it has given a turnover of millions to the company. Just before buying the burger, the customer is
thinking whether he should buy the french fries or not. A poke by the executive, helps him make his decision
(And being the junk food addicts that we are, we mostly say yes)

Vals Values attitude lifestyle

Vals which is also known as values attitude and lifestyle is one of the primary ways to
perform psychographic segmentation. All three terms are intangible in nature and therefore give an idea of
the inert nature of the consumer. If you know what your consumer is thinking, you would know what kind
of promotions or communications will attract him most. And how do you know what the consumer is
thinking? By determining his vals Values, attitudes and lifestyle.
VALS is different for different people. Lets take income as an example. If you are a person with high income
your lifestyle would probably include habits of the SEC A class such as dining out of home frequently and
that too in top class restaurants, wearing only branded clothes and buying the best cars out there. Whereas
if you are a middle class income group consumer, you would be more wary of spending money and would
rather concentrate on savings.
So now how does VALS affect a marketer? Lets say you were a banker. What would you sell someone who
had a high income lifestyle? You would sell them investment options and would also dedicate a relationship
manager to take care of their needs. In fact, the bankers also have a term for high income individuals known
as HNI high networth individuals. But, if your lifestyle was that of a low income customer, you are more
likely to be targeted for savings
History of the term VALS VALS is actually a proprietary term of SRI international. The term was
developed by Social scientist and futurist Arnold mitchell. Arnold mitchell actually developed the vals
framework to determine different classes of people who had varying values, attitudes and lifestyle. These
people were determined by the resources they had at their disposal as well as the amount of
primary innovation they could accept or create. Thus the people with low resources were low on innovation
and the ones with higher resources were higher in innovation. This formed the basis of the VALS framework.
The VALS framework

Image source SRI International

As mentioned in the history of VALS, The VALS framework was developed keeping a consumers resources
as well as his capacity to accept innovation in mind. The X axis consisted of primary motivation (explained
below) and the Y axis consisted of resources such as income, education, confidence etc. Thus these two
factors were determined to be critical to define the values attitude and lifestyle of any consumer.
Resources Included resources available to an individual such as income, education, intelligence,
emotional support, etc.
Primary motivation Which determined what actually drives the individual. Is it knowledge, the desire to
achieve something or is it to be social.
After researching above 1500 consumers, Arnold mitchell actually divided consumers into 9 different types
based on the amount of resources they had as well as their capacity for primary motivation. These classes
of consumers based on their VALS were.
1. Innovators The class of consumer at the top of the vals framework. They are characterized by
High income and high resource individuals for whom independence is very important. They have their own
individual taste in things and are motivated in achieving the finer things in life.
2. Thinkers A well educated professional is an excellent example of Thinkers in the vals
framework. These are the people who have high resources and are motivated by their knowledge. These
are the rational decision making consumers and are well informed about their surroundings. These
consumers are likely to accept any social change because of their knowledge level.
3. Believers The subtle difference between thinkers and believers is that thinkers make their own
decisions whereas believers are more social in nature and hence also believe other consumers. They are
characterized by lower resources and are less likely to accept innovation on their own. They are the best
class of word of mouth consumers.
4. Achievers The achievers are mainly motivated by guess what Achievements. These
individuals want to excel at their job as well in their family. Thus they are more likely to purchase
a brand which has shown its success over time. The achievers are said to be high resource consumers but
at the same time, if any brand is rising, they are more likely to adopt that brand faster.
5. Strivers Low resource consumer group which wants to reach some achievement are known as
strivers. These customers do not have the resources to be an achiever. But as they have values similar to
an achiever, they fall under the striver category. If a striver can gain the necessary resources such as a
high income or social status then he can move on to becoming an achiever.
6. Experiencers The group of consumers who have high resources but also need a mode of self
expression are known as Experiencers. Mostly characterized by young adults, it consists of people who
want to experience being different. This class of consumers is filled up with early adopters who spend
heavily on food, clothing and other youthful products and services.
7. Makers These are consumers who also want self expression but they are limited by the number
of resources they have. Thus they would be more focused towards building a better family rather than going
out and actually spending higher amount of money. Making themselves into better individuals and families
becomes a form of self expression for the Makers.
8. Survivors The class of consumers in the Vals framework with the least resources and therefore
the least likely to adopt any innovation. As they are not likely to change their course of action regularly, they
form into brand loyal customers. An example can include old age pension earners living alone for whom
the basic necessities are important and they are least likely to concentrate on anything else.
Thus the vals framework can be used primarily to classify consumers based on their values, attitudes and
lifestyle. Once the classification has been done, you know which types of customers you want to target.
Depending on your target customers vals, you can make up your marketing strategy and your promotional
message such that it hits your audience at the right spot

Diffusion of Innovation

How do innovations spread in the population? Why do certain innovations fail? What would be the qualities
that determine the success of an innovation? And how can companies increase the rate of adoption of the
latest innovations? If companies do not act properly, than they are likely to lose the advantage they might
have after introducing a new innovation in the market.
These and an endless number of questions keep marketers awake when trying to introduce something new
to the market. The concept which gives an answer to all these questions is called the diffusion of innovation.
Diffusion of innovation is a theory which explains how innovation is adopted by the population, in how much
time does the innovation spread, and finally whether the innovation actually succeeds in bringing a
change or it fails in the process.

The Diffusion of innovation concept provides us with a deep insight on how innovations are accepted into
a population which then brings about a social change. The diffusion of innovation concept also describes
the qualities that help innovations spread through either face-to-face communications or mass media.
There are five different stages of Diffusion of innovation
Knowledge Where the target customer gets to know about the innovation
Persuasion Either internal or external, the customer persuades himself or is persuaded through
word of mouth to adopt the innovation.
Decision After persuasion, the customer takes a decision and actually adopts the product.
 Implementation At this stage, the customer is continuously analyzing the innovation while at the
same time using it. By using the innovative product, he is getting to know the advantages and disadvantages
of the innovative product.
Confirmation At this stage, the customer finally decides to stick with the innovative product. After
this stage, the customer himself becomes an influencer and might make other people adopt the innovation.
If we were to think what exactly describes an innovation, we should consider any new idea, behavior or
even object that is brought to the market. Due to globalization, technological and knowledge revolutions,
people have greater expectations and they are in a permanent search for solutions to facilitate their daily
lives. Companies which do not respond accordingly risk to loose position on the market and slowly starting
to notice a decline in growth. Besides adding value for a company, innovations help it to remain effective
and competitive on the market and develop profit maximization.
Lets take a look into the higher education business. The current model of education consisting in lecturing
and examinations has started to experience a decline in growth for the past couple of years. With rising
tuition fees, changes in the lifestyles of people by getting married earlier, having children and jobs,
remaining with no time for obtaining a degree, innovation is a must.
Therefore, in 2008, a university from Canada has been the first to introduce an online computing course.
During the next years, numerous universities from all around the world have started to introduce online
courses, providing online degrees also. The innovation proved to be extremely effective. Why? Because it
has presented people with an economic advantage in terms of the tuition fees. The tuition fees is
considerably lower for the online course as compared to a normal degree. This innovation was convenient,
as people could plan their time according to their priorities, and as per their own satisfaction.
By taking an online degree from one of the most prestigious universities such as Harvard or Stanford, we
could also add the element of social prestige. Thus, this innovation is proving to be simple and easy to use.
Online degrees have remained consistent with the perceptions and valuesof people in search for higher
education. But at the same time, they have offered them observable results.
Once online degrees are introduced, the process of redevelopment of the higher education systems doesnt
stop here. For example, Unopar University in Brazil offers low cost degree courses using online materials
and weekly seminars, transmitted via satellite. Thus, it is not that traditional education systems will be lost.
But because of the innovation of online courses, it is only a matter of time until things are going to change.
Basically, the degree of adoption of innovations depends on the needs of the user group. As innovation
spreads from early adopters to majority audiences, face-to-face communication becomes more essential
to the decision to adopt. Techniques like popular opinion leaders or focus groups are some of the essential
tools to start focusing on innovation and identify how you can cover the unthought of needs of your
customers.
It might sound easy to come up with different kind of innovations. However, many of the new ideas dont
even get to spread around the market, as they fail to be accepted from the beginning. This might happen
because of customers increased fear of change and the risks associated with it. Or it may happen because
the idea was not executed properly. Finding ways to provide credible reassurances, might represent a
method to overcome these kind of barriers.
Value chain analysis 9 points to create a value chain
By Hitesh Bhasin November 30, 2016
A customer nowadays has a lot of options in front of him where products and brands are concerned. What
helps the customer decide on a final product, is the value which he derives from that particular product. A
customer might be looking for a television or he might be looking to travel abroad. In both the cases, there
are processes involved which ensure that the customer gets the best product or service from the company.
The customer expects to get a television at the optimum price with the best after sales service OR the
customer gets the tickets timely, has a safe travel and enjoys his trip abroad. In both the cases, if the chain
of events is right, the customer has gotten the best value after purchasing the product. This is where
the Value chain concept of Michael porter sets in.

The Value chain analysis of Michael porter suggests 9 steps in the creation of a value chain. The value
chain is nothing but a set of operations which keeps on adding value to your raw product so that when the
final product comes out, it matches the customers expectation or even gives delight to the customer.
If you do not add value in some steps of the value chain, your product might be inferior to your competition.
Whereas, if you add features which better than competition in other steps of the value chain, you may have
created a product which is highly differentiated from the competition. The profit margin of the end product
is directly derived from the value chain. The more value that your product has, the more profit for the
company.
For the value chain analysis, let us look at the 9 steps involved in Value chain.
Primary activities for Value chain analysis Primary activities are activities which directly affect the end
product. These are the activities which form the base of the value chain analysis and are also responsible
for the skeleton of the final product. In a manufacturing company, the process of manufacturing and after
sales service itself will be a primary activity. Thus, we can see that primary activities are the most important
to a value chain. You may fail in your support services and survive, but you cannot afford to fail in your
primary activities. On the other hand, for differentiationand competitive advantage, you need your
secondary activities to be stronger than competition.
1) Inbound logistics Each company needs to have raw materials and the importing of raw material is
known as Inbound logistics. In the process of inbound logistics, your relations with your suppliers play a
crucial role towards adding value to your end product. If your relations are good with your suppliers, you
are likely to get the raw material in a timely manner and at optimal cost. Also, the rate at which you are able
to get the raw material from your supplier to your company also adds value to the process. Thus, your
material is available for further operations.
2) Operations Operations involves converting the raw material to the final product. The better your
operations, the higher will be your output speed as well as output quality. Both, speed and quality
are important in Operations. Ultimately, you cannot succeed as a company, if your supplydoes not meet
demands. And operations determines the supply.
3) Outbound logistics Once the final product is manufactured, its distribution is carried out in the form
of outbound logistics. Just like suppliers are involved in inbound logistics, outbound logistics has transport
firms, distributors and retailers playing the main role. The better your distribution, the more opportunity you
have to sell your own products in the market. The more products sell in the right manner, the more is the
value created for you.
4) Marketing Marketing is a key function in todays world and nowadays most companies believe
in Holistic marketing. The companies believe that marketing starts from the beginning to the end of
the product life. Thus, marketing involves branding the suppliers, the vendors, distributors as well as
using ATL and BTL activities to build awareness and confidence for the end product. Thus, overall
Marketing or the lack of it can create a huge difference in the overall value of a product.
5) Service In a product company, after sales service is important. In a service company, the complete
process leading to the acquisition & disbursement of the customer is important. Service is
an intangible asset for the company. The key factor here is to give the optimum maintenance for your
tangible products or give the best service marketing mix for your intangible services product.
Secondary activities for Value chain analysis Secondary activities are activities which do not directly
affect the end product and are not involved in day to day operations but they play a crucial and important
part in adding value to the end product. An example is Technology. It is important that a chocolate tastes
nice, but the technology gone behind making a chocolate in massive amounts and still maintaining the
same taste is also very important. Thus, these secondary activities are added in the value chain to add
further value to the end product.
6) Procurement It may sound similar to inbound logistics, but where logistics mainly deals with the
transportation, procurement deals with the complete process of bringing in raw materials, the way to bring
them in so that they are fresh, negotiating with the vendors and managing the complete process of inbound
logistics. One of the best example of procurement is Marico company which procures coconut oil from all
across the southern region of India. Marico has various deposit points where farmers can deposit huge
quantities of Coconut oil which is then transported to the main compnay via refrigerated transport system.
7) Technology development Technology affects each and every aspect of the product, from the
procurement to the distribution of the product. Imagine distributing milk day in and day out. We know that
milk has to be stored in a refrigerated manner, it has to be pasteurized and then distributed throughout the
region and all this has to be done within a matter of 24 hours. So you can imagine the technology behind
milk procurement, pasteurization and distribution. On the other hand, check out any of the documentary
Mega Factories shown on Discovery channel and you will come to know about Food factories and how
much technology is involved in delivering a packet of Lays chips or a packet of Cadbury chocolate.
8) Human resource management Getting the right people for the right job is tough and this is where
Human resource department plays its role. It is not easy to recruit the right people for the right job, especially
when the candidate is simultaneously being poached by competition. There are a lot of procedures involved
and at the same time, you have to go through tons of applications day in and day out to keep recruiting the
right people and to take care of attrition. An ideal company has to have right people in procurement,
operations and manufacturing, distribution, sales, marketing, transportation, accounts, finance, and many
other such departments. Thus, maintaining an A grade manpower is an important job and might be the
difference between a normal company and an excellent company.
9) Firm infrastructure With all this mainstream activity going on, there is a lot of behind the scenes
activity which the management needs to plan. These activities are mainly related to the firms infrastructure.
A firm has to have various departments which are involved in numerous activities which are necessary to
reduce loss and at the same time to increase profits. These departments can be planning, finance,
accounting, legal, IT, and government affairs. All these departments play a crucial role in strengthening the
complete process.
Thus, overall, the above 9 points are needed to create a value chain or for Value chain analysis. It is
interesting to note, that both the primary as well as secondary activities react dynamically to each other. If
you increase your primary activities, your secondary activities will also go up. However, reduction of
secondary activities will also affect primary activities as the firm will not run as smoothly without its
secondary activities in place.
Also, it is important to note that some points like Technology and human resources are the major points for
differentiation in any industry today. The technology you have and the people who are propagating
your brand can make all the difference in the world for a market leader or a market follower. Thus, to create
a value chain, the primary as well as the secondary activities should work together to give the maximum
value and therefore the maximum profits as well.