Sector Analysis 2 Chapter 3: Internal analysis

Theme 7 Theme 8 = today’s program From analysis to strategy (8) Mission, value disciplines and market definition (2) Internal analysis (3) Internal analysis Strenghts Weaknesses External analysis Customer analysis (4) Industry analysis (5) Theme 7 Competitor analysis (6) = today’s program Analysis of distribution and suppliers (7) Opportunities Threats From analysis to strategy (8) Company objectives and company strategies (9) Theme 8 Marketing objectives and marketing strategies Objectives and strategies for marketing instruments (11) Organization and implementation of marketing (12)

Problem identification Mission, value disciplines and market definition (2) Internal analysis (3) Strengths, Weaknesses External analysis Opportunities, Threats - Customer analysis (4) - Industry analysis (5) - Competitor analysis (6) - Analysis of distribution and suppliers (7) From analysis to strategy (8) Situation analysis Strategic options and strategy selection (here regarding entering a foreign market)

 input for SWOT-analysis!! Internal analysis What have the results been so far? = evaluation of past Did the company achieve the goals in the past? Provides insight in what a company is (not) good at Compared to competitors!! Conclusion of internal analysis = relative strengths and weaknesses  input for SWOT-analysis!!

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

Objectives Serves as a guideline for what the company wants to achieve Motivates employees because everyone knows what is being pursued It is a tool for the planning process An objective standard for determining whether a strategy has succeeded

Objectives Objectives should meet the following five standards: Specific Measurable Ambitious Realistic Timed

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

The Balanced Scorecard (BSC) Kaplan and Norton (1992) With lower, middle and topmanagement, objectives are developed for: Customer satisfaction Efficiency Innovation Finances Financial goals Customer-oriented goals Internal goals Innovation goals

BSC  Finances Nearly every company sets financial goals that can be defined in terms of: Gross Margin Cash flow Share Price Return on Investment

BSC  Customer-Oriented Goals These goals are also called marketing objectives Marketing objectives include: Hard goals such as sales, turnover, and market share Customer satisfaction Customer Loyalty Perceived quality Number and content of complaints

Goals in this context relate to efficiency and the employees BSC  Internal goals Goals in this context relate to efficiency and the employees Measures for efficiency include: Turnover rate Accounts receivable Liquidity Overhead Costs Measures for employees include: Work atmosphere Personal development Staff turnover Use of sick leave Turnover per employee

BSC  Innovation Innovation is the basis for success Only companies that introduce new products regularly are relatively successful Measures for innovation include: Percentage of successful product introductions Turnover from new products Number of concrete new product plans that are being developed

The Balanced Scorecard (example customer part)

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

Brand performance (evaluation on the results) Setting goals and action steps A systematically designed and sufficiently detailed evaluation system is an important tool in the learning and control processes Evaluation of previously set goals allows the organization determine if they have been achieved Comparison of results with objectives Detailed analysis of customer-oriented variables Process evaluation

ad1) Comparison of results with objectives Factors should be examined to indicate which objectives were formulated in an earlier phase: successful or not? example Level Type of goal Company Brand or Product Marketing Marketing Mix Elements Financial yes possible no Customer-oriented Internal Innovative

ad 2) Detailed analysis of customer-oriented variables The level of detail for the analysis of customer data depends on the availability of data Items that should be analyzed: Market developments Analysis of the manufacturer’s brands Competitor analysis Position of manufacturer’s brands and competitor brands Sales Developments

About market share analysis: A careful analysis of the market share may also give indications of problems Definition of the market is absolutely necessary for this to be accomplished A useful tool is the Parfitt-Collins Analysis because it divides market share into three components Degree of penetration – percentage of households that have ever bought the product Percentage of repeat purchases Usage intensity index – degree to which buyers of the brand use more or less of the relevant product group The Parfitt-Collins analysis often is used in combination with awareness measurements. The following indicators are then relevant: percentage of people who know the brand (awareness, spontaneous or assisted), percentage of people who are considering the brand (consideration set), percent trial purchases (trial), and percent repeat purchases (repeat). The size of the various percentages and especially the differences between them form an important starting point for the formulation of objectives for the elements of the marketing mix. For example, a low awareness and a relatively high trial lead to the conclusion that the communication should be intensified. A low trial may be related to a price that is too high or distribution that is too limited. A low repeat is more closely related to the performance of the product itself.

Summary of Strategy Before an evaluation can be undertaken management should clearly understand the strategy of the organization This is one of the first steps in an internal analysis It sometimes is said that strategy often can be determined only afterward as being the common denominator of a number of relatively consistent actions by a company. In short, companies are often “unconsciously” kept on a certain course. Without making a statement about the desirability of this situation, we believe that the identification of the company’s strategy should be a first step in the internal analysis. In effect, this step is comparable to one of the first steps in a competitor analysis, where the objectives and strategies of a competitor are determined through observation. A strategy may be identified by observing and analyzing the a company’s elements of the marketing mix over a longer period. Which product varieties exist? What is our price in relation to that of the competitors? Do we use price promotions? Do we often react to competitors, and if so, to which ones? What is the margin policy toward distributors? What do we communicate to our target audiences? Has the content of our communications been consistent over time? The answers to questions such as these typically make it possible to indicate the marketing strategy: Who do we actually target, and what image do we project?

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

Competitive Advantage The most important goal in identifying strenghts and weaknesses is to find a potential competitive advantage Three components: Sources of advantages: company strengths that may lead to: Positional advantages: in terms of lower cost or higher customer value which may lead to: Better results: in terms of higher brand loyalty and finally higher market share

Analysis of Strengths and Weaknesses Day and Wensley present various methods that may be helpful in identifying competitive advantages or strengths (along with weaknesses) of the company and the brand. Those authors classify those methods on the basis of two criteria: the element of the competitive advantage to which a method relates and whether the method is competitor-oriented or customer-oriented.

Management evaluation Strengths relate to functional areas or core skills/ core competencies In the context of the analysis of strengths and weaknesses, by “the organization level” we refer to the visible organization or company that creates the product. For purposes of convenience we ignore here the intermediate level of the strategic business unit (SBU).

Learning Objectives Know how to define objectives for a company Recognize the importance of applying customer-oriented objectives Be capable of analyzing a brand’s performance Apply appropriate frameworks for a strengths-weaknesses analysis Know how to assess a company’s marketing effectiveness

The Marketing Audit The marketing audit seeks to answer the question is whether the company is truly customer-oriented by examining the following: The extent to which a company is operating in a market-oriented fashion The knowledge that the company has of the environment The analysis the company has made of the environment

Marketing effectiveness review instrument: To perform a marketing audit a checklist, like the one this slide, shows the marketing effectiveness review instrument developed by Kotler. For each question a maximum of two points can be scored; the total score provides an indication of the level of marketing effectiveness.

S+W at brandlevel  benchmarking Benchmarking is a comparison of a company’s achievements with those of competitors – it is actually an attempt to learn from competitors Analysis of the application of resources by competitors and the results of that application Cost analysis of the competitors What does the experience curve of the competitors look like? A comparison of the resources and costs of a competitor with those of the company provides insight into the company’s strength or weakness in that area. For example, if costs are relatively high, it will be difficult to achieve a competitive advantage in this regard. A manager obtains insight into strengths and weaknesses at the brand level largely through the customer analysis. The goal is to know how the customer perceives the brand (attitudes). In the context of value thinking, using a customer perspective in the analysis of strengths and weaknesses is relevant. Whatever the customer thinks is the reality with which the manager has to deal.

Looking Back You know how to define objectives for a company You recognize the importance of applying customer-oriented objectives You are capable of analyzing a brand’s performance You can apply an appropriate frameworks for a strengths-weaknesses analysis You know how to assess a company’s marketing effectiveness