External Analysis

As Aaker and Moorman point out, a major part of a strategic analysis is an external analysis. In the microenvironment, current and potential customers must be understood better, competitors must be identified and examined and markets must be carefully characterized. In addition, trends and uncertainties in the broader marketing environment must be monitored and analyzed. The benefit is a stronger understanding of the opportunities, threats, trends and strategic uncertainties facing the firm.

When combined with internal analysis, marketing strategies can be more clearly identified and more carefully selected and reviewed. Important conceptual issues concerning the five major forms of analysis:

Customer analysis
Competitor analysis
Market/Submarket analysis
Environmental analysis
Internal analysis

will be discussed.

Customer Analysis

Customers must be analyzed to understand better the nature and composition of desirable market segments as well as specific customer motivations and current and future unmet needs. Aaker and Moorman suggest that there are threee general areas in which the research and analysis should be performed when analysing customers for insight into marketing strategy development:

segmentation characteristics
customer motivations
unmet needs

Market segments should be examined to identify those that are not only suited to a company's product offering but also those that may be targeted with a product offering that is potentially superior to competing products.

There are, of course, many ways to segment a market when seeking to identify segments that are well-matched to a company's current or planned product offerings. In business-to-business markets, common segmentation approaches include those based on geography/location, company size and standard industrial classifications (SICs). More-sophisticated approaches to business-to-business segmentation, however, are likely to focus on both the behavioural aspects of business buying as well as key characterisations of business needs.

As Kotler and Armstrong (2017) note, the key is to identify and pursue those segments that are measurable, accessible, substantial and actionable. In other words, there should be segmentation viability. Aaker and Moorman (2018) add other criterion:

the segment or segments that would require a unique marketing strategy, where the uniqueness provides the firm with a form of differentiation and a basis for competitive advantage.

Beyond segmentation characteristics, customer motivations should also be examined to understand the extent to which the company is able to meet the needs of current and potential customers in a unique and competitive manner. Focusing on what customers value the most in a product or service and understanding the priorities associated with the customers' motivations can help the company adjust its product offering so it not only meets these needs but also does not include unnecessary features or provide unwanted benefits that customers do not or would not value.

BUYING BEHAVIOR

Further, it is also important to recognize and understand the motivations of customers in relation to their particular buying behaviors and preferences for moving through the buying decision process. The buying behavior of organisations has long been the topic of extensive research in marketing and, as a result, there are a number of concepts and frameworks that marketers can draw upon to characterize the stages of the industrial buying process, the nature of the business situation, and the important organizational factors influential to the business buying process.

Dacko's (2008) entry on industrial buyer behavior sums up and explains many important concepts, frameworks and application areas including international marketing and online business-to-business marketing.

Marketers can, in turn, use such knowledge as a means to establish sharply defined marketing approaches (precision marketing) that are clearly based on the buying process preferences of current and prospective customers in both business-to-business and business-to-consumer contexts.

UNMET NEEDS

Finally,the unmet needs of customers should be examined. A useful means of identifying unmet needs is by evaluating current csutomer satisfaction. It is usually when customers are dissatisfied in some way that an ument need is suggested, for example, customer dissatisfaction concerning the odours of some indoor paints led a number of paint manufacturers to develop and market odourless paints.

The key in this aspect of customer analysis, as with evaluations of market segments and customer motivations, is to identify and pursue strategic options that enhance the fit between offerings and the targeted markets' needs while supporting the pursuit of competitive advantages for some aspect of the offering over the time period of interest in a company's strategic marketing plans.

Competitor Analysis

As much as many companies would like to be in markets where they did not have any competition whatsoever, a healthy and realistic view is that competition is good because it keeps companies on their toes. Rather than being discouraged by strong competitors, a healthier view is to seek to understand these competitors in order to identify where and how the company can strengthen its own marketing strategy in response, as well as attempt to neutralise competitor strengths.

In line with one of Winston Churchill's more thought-provoking quotes, 'there is nothing more exhilarating than to be shot at without result', it is evident that a key aim of a company's marketing strategy should be to create competition that is ineffective, or at least less effective, in meeting the needs of a target market than the firm itself.

In competitor analysis, there are four key areas that are important to understand and appreciate in order that competitor analyses are conducted with high effectiveness. These concepts are:

identifying strategic groups
identifying potential competitors
understanding competitors' individual characteristics including their relevant assets and competencies
understanding where competitors add value in the value chain

According to Aaker and McLoughlin, a strategic group is a term that refers to a set of competitors that appear to be pursuing similar competitive strategies, have similar characteristics and ahve similar assets and competencies to some extent.

The advantage of identifying the extent to which individual competitors fit into different strategic groups is that it simplifies the analysis of the competitive environment because such competitors are therefore likely to share a common set of entry and exit barriers.

Recognising these conditions enables a company to understand better the competitive moves that are likely given changes in the market environment. The strategic group of the large airlines offering long-haul, international flights is likely to react differently to increases in fuel prices in comparison with the strategic group of smaller, no-frills airlines. Similarly, universities with prestigious MBA programmes will react differently to changes in a country's economic climate in comparison with universities which have less-demanding MBA programmes. In these situations, understanding how groups of competitors will respond in a given product market makes it easier to understand how individual competitors are likely to respond within each strategic group.

The firm should seek to understand any company that the firm views as a current or potential competitor. Characteristics such as the company's size, growth and profitability, its image and positioning, its objectives and commitment to those objectives, its current and past strategies, culture, etc., may provide insight into competitors' strategic marketing plans. As a result of this insight, the firm's marketing strategy can be adjusted accordingly - whether it be accelerating a new product development effort, allying with another firm for its development, putting the effort on hold, or cancelling the effort altogether.

COMPETITORS' ASSETS AND COMPETENCIES

In addition to the above, Aaker and Moorman (2018) suggest that it is also important to understand competitors' relevant assets and competencies (or lack thereof) in order to explain where competitors have and have not been successful over time and why or why not.

By identifying areas of weakness in competitors, such as slowness in developing new products, these can be exploited by firms that, for example, are faster at developing similar new products.

VALUE CHAIN ANALYSIS

Finally, it is important that competitors be examined in terms of the value that they add to the market's value chain. Value chain analysis is an area of analysis that has been advocated by Michael Porter and has since gained a widespread popularity in the business strategy and marketing strategy literature. Essentially, value chain analysis involves identifying where and to what extent a firm adds value to the channels in a particular market in terms of its primary activities that range from inbound logistics to marketing and sales to customer service as well as support activities ranging from procurement to technology development to human resource management.

Collectively, the four areas of competitor analysis discussed above can be very useful for identifying strengths, weaknesses, opportunities and threats to a company's overall marketing strategy, as well as its potential for developing and pursuing sustainable competitive advantages and functional area strategies.

Market Analysis

In addition to customers and competitors, markets also must be analyzed. Specifically, it is important to understand the characteristics such as:

the size of the market
the growth rate of the market / growth potential
entry barriers
cost structure
distribution systems
trends and key success factors

It may seem obvious to analyse such characteristics but a review of companies in the pre-year-2000 dot.com era suggests that many companies failed to fully examine characteristics of the market, such as the cost structure and distribution systems. As a result, some online grocery retailers went out of the business because they failed to understand fully the distribution costs of covering the 'last mile' to reach their customers. Other companies such as online distributors of pet food failed to understand the market size and costs associated with distributing heavy, low-margin pet food to their customers.

For more established markets, it is also useful to examine market characteristics for indications of whether the markets are mature and/or declining. Answering questions such as to what extent there is increasing price pressure in the market, to what extent buyers are becoming very sophisticated and knowledgeable about the product offerings and to what extent a market is becoming saturated with competing offerings can be very useful to detect market maturity and possible decline. To many business analysts, it was thus surprising that Kodak chose to enter the inkjet printer market as a means to fuel its growth. Such analysts would observe that the inkjet printer market was mature, with strong price pressure and high market saturation among key indicators of market maturity.

Bradley (2000) adopts a number of the above views in advocating a sound market analysis but goes one step further by advocating analysis in even greater detail. For example, he suggests that it is important to understand the details related to accessing markets (particularly new markets) including any currency and tax regulations, licensing requirements, health and safety regulations, tariffs, quotas and currency restrictions. To be sure, with regards to market analysis, success is in details! Always!

Macroenvironmental Analysis

The broader marketing environment or macroenvironment must be analyzed to understand better the trends and uncertainties associated with the forces of technology, government, economics, culture and demographics. Such analysis, in turn, can then be used to create scenarios that the company can evaluate and prepare for, as well as idenfity information needs to be addressed by marketing research.

When conducting an environmental analysis, two key points one should consider are:

The environmental analysis should be broad-based, yet objective driven
uncertainties matter more than certainties

DO NOT BE TOO NARROW

The first point highlights the fact that it is often easy to define the scope of an environmental analysis too narrowly and risk missing important developments. Technology firms may focus their analyses on technological developments alone (such as the ability to include more and more functions on a mobile phone, thereby making it more complex and difficult to use) and not consider trends associated with socio-demographics (such as an ageing population wanting simple, easy-to-use devices and instructions). At the same time, in order to make the output of an environmental analysis more meaningful, such analyses should be objective-driven, for example, is the purpose of the analysis to position a product most effectively given immediate trends or possible longer-term trends?

The second point highlights the fact that certainties in a market are actually no big deal since market certainties are likely to be fully comprehended by most competitors. Rather, it is the uncertainties associated with a market that must be addressed and managed if a company is to increase the likelihood of success of its marketing strategy.

When conducting a macroenvironmental analysis, the approach to be taken, therefore, is to make it useful or to forget it altogether. Evaluating the environment along relevant dimensions including technology, government, economics, culture and demographics is only the start. Marketing strategists must ask the question, what are the additional/refined dimensions? For example, within the area of technological developments, what process developments are occuring and what are their specific opportunities and threats to the company technology-based product line?