Situation Analysis

Class Notes begin
Situation Analysis – concluding comments
Results of situation analysis are development of a SWOT (Strength, Weakness,
Opportunity and Threats) table. Our aim as described above to help us in crafting
strategies to pursue opportunities and address threats in external environment while
leveraging our strengths and managing weaknesses.
Intersecting Trends and Market Niche Potentials
When a firm is evaluating the environment, specifically the external, one of the tasks is to
look out for key intersecting trends. These trends may create a market opportunity. For
example, trends such as health consciousness, family Vs work and early start of child
exercise routines created an opportunity for a few companies to start fast growing
“Stroller Fitness” business. Go to this link to get more information:
Headlines from this article:
Franchises push stroller fitness trend to town
Three companies target growing trend in parent-and-child programs
Moms locally and nationally are tapping into a growing business of providing exercise
and camaraderie to other new mothers and their stroller-age kids, with three major
franchise companies in the field already in Greater Sacramento or launching soon.
These stroller-based fitness programs are booming, with the largest franchisers selling
as many as five or six new franchises a month.
Every day you will see many such examples. A BU student while waiting for his food at
a restaurant got an idea to use Instant Messaging to place orders before arriving at a
restaurant. He did not finish his law education and started Shadow Enterprise LLC. To
bring “eCommerce to Instant Messaging”.

Larger firms have also entered into newer
emerging markets, such as Apple into iTune. In
its case, Apple saw such trends as popularity of
music downloads (made by such sites as
Napstar), legalization of music downloads,
increasing use of internet and broadband
technology, and others.
Generic Competitive Strategies
At each business level, a firm needs to position itself strategically vis-à-vis its
competitors. Key questions are: Should the firm/business compete on low price? Should a
firm compete on the basis of differentiation? Or, both?
Competitive advantage exists when a firm’s strategy gives it an edge in attracting
customers and defending against competitive forces. Key to gaining a competitive
Advantage are: Convince customers firm’s product / service offers superior value
A good product at a low price
A superior product worth paying more for
A best-value product
Low cost strategy means that products/services offered to a customer are priced lower
than a firm’s competitors. A firm with this strategy will focus on efficiency in all of its
operational activities. Differentiation strategy, which will be priced at a premium, offers a
customer some unique value/feature not offered by a firm’s competitors. Differentiation
strategy examples include better customer service, higher quality, innovative product
design, etc.
Competitive Strategy
A firm’s competitive strategy deals exclusively with a company’s business plans
to compete successfully
Specific efforts to please customers
Offensive and defensive moves
to counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Five Generic Strategies
Figure 5.1: The Five Generic Competitive Strategies
Benefits of low cost leadership are:
– Capture market share by offering lower-price or
– Earn higher by maintaining price parity
Some examples of low cost leadership are: Wal-Mart, Dell, Southwest Airlines, Home
Depot, etc.
To achieve a low-cost advantage over rivals, a firm’s cumulative costs across its overall value
chain are lower than competitors’ cumulative costs. There are two ways to accomplish this:
a. Perform value chain activities more cost effectively than rivals.
Revamp the firm’s overall value chain to eliminate or bypass some costproducing activities
There are cost drivers that must be considered to achieve a low cost strategy, and these all
must be considered to achieve an overall low cost, not just in product cost (which most
often is the only place a firm looks at)
Key Low cost leadership drivers are: economies of scale; product design; location
advantages; sourcing of inputs; and, technology.
Characteristics of a low cost strategy firm are:
Cost conscious corporate culture
Employee participation in cost-control efforts
Ongoing efforts to benchmark costs
Intensive scrutiny of budget requests
Strong commitment to continuous
cost improvement

Benefits of a Differentiation strategy are:
– Capture market share by offering higher quality at same price or
– Earn higher margins by raising prices over competitors
Some examples of Differentiation strategy are: Apple, Mercedes, etc.
1. Successful differentiation allows a firm to:
a. Command a premium price for its product
b. Increase unit sales
c. Gain buyer loyalty to its brand
2. Differentiation enhances profitability whenever the extra price the product
commands outweighs the added costs of achieving the differentiation.
3. Companies can pursue differentiation from many angles including unique taste,
multiple features, wide selection, superior service, etc.
Key drivers of differentiation strategy are: Premium brand image; Customization; Unique
styling; Speed; More convenient access; and, unusually high-quality

Threats a company faces in a low cost leadership strategy are: New technology; Too lowquality; Social, political, and economic risks of outsourcing
Threats a company faces in a differentiation strategy are: Failure to increase buyer’s
willingness to pay higher prices; under estimating cost of differentiation; Over fulfillment
of buyer’s needs; Lower cost imitation
Best Cost Strategy Provider
Combine a strategic emphasis on low-cost with a strategic emphasis on
Make an upscale product at a lower cost
Give customers more value for the money
Objectives of a Best Cost Strategy are:
Deliver superior value by meeting or exceeding buyer expectations on product
attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes,
then use cost advantage to underprice comparable brands
Competitive advantage is based on the capability to include upscale attributes at a lower
cost than rivals’ comparable products
To achieve
competitive advantage, a company must be able to
Incorporate attractive features
at a lower cost than rivals

Manufacture a good-to-excellent quality
product at a lower cost than rivals
Develop a product that delivers good-to-excellent performance at a lower
cost than rivals
Provide attractive customer service at a lower cost than rivals
Focus / Niche Strategies
These strategies involve concentrated attention on a narrow piece of the total market. An
objective is to serve niche buyers better than rivals. It is important to choose a market
niche where buyers have distinctive preferences, special requirements, or unique needs
and, to develop unique capabilities to serve needs of target buyer segment. There are a
number of approached to defining/selecting a niche: geographic uniqueness; specialized
requirements in using product/service; and, special product attributes appealing only to
niche buyers.
The Legacy and New Business Ecosystems
As a firm deliberates its business strategy options, as discussed above, it is important to
discuss how the business ecosystems have changed in last 2-3 decades. So many
industries have been disrupted that are primarily due to a different business ecosystem,
which is digital-based. Simply stated
A business ecosystem is the network of
organizations—including suppliers, distributors, customers, competitors, government
agencies, and so on—involved in the delivery of a specific product or service through
both competition and cooperation. The idea is that each entity in the ecosystem affects
and is affected by the others, creating a constantly evolving relationship in which each
entity must be flexible and adaptable in order to survive as in a biological ecosystem.”
A legacy business ecosystem consisted a very narrow relationship between these
stakeholders compared to the new digital-based business ecosystem. A few examples will
highlight major differences, which must be considered to craft a business strategy.
Wal-Mart vs Amazon – Amazon created both a retailing and platform (Mall) business
ecosystem quickly changing retailing landscape. Wal-Mart was stuck in its legacy
ecosystem, and was not able to catch up even though they had invested so much in its IT
infrastructure and not able to renovate it.
Hotels vs AirBnB, Taxis vs Uber, Ford/GM etc vs Tesla, etc are all examples of how they
have difficulties in changing their business models to compete with new ecosystems.
Chart below is how Apple created a new business ecosystem, vastly different than their
old/legacy ecosystem for Mac products.

Read The Problem with Legacy Ecosystem for more information.
Back to your assignments!!!