For this assignment you will need to search the internet for information that would help an entrepreneur and/or small business owner to understand the importance of evaluating their organization’s marketing strategy along with their customer and product portfolios. You would then create a simple, yet very effective step by step instruction manual on how these entrepreneurs and/or small business owners should implement the various business models into their organization’s strategy.
The following are some of models your report must include:
- Porters 5 Forces of Competition
- Breakeven Analysis
- Product Life Cycle Analysis
- SWOT Analysis
- Any other business models you feel should be included
Solution
For a small business owner or entrepreneur, it is not very easy to devise a strategy and effective business plan. Many small businesses become unsuccessful only because of this reason. There are many models which can be used for devising an effective business plan. These models can act as a tool for evaluating the external and internal environment regarding identifying opportunities and threats.
PORTER’S FIVE FORCES
This tool can be used by small businesses and entrepreneurs to analyze the attractiveness and profitability of the industry.
Competitive Rivalry
Owners should look at the number of competitors and their strength to get knowledge about the competition they are facing. How many they are, and who are they, what their objective is and what service or product they are offering. It will tell the owners if they are competing with the same products or is there any difference. It will tell if the company can promote its difference in the product as a competitive edge. If the products are similar, then the company can deploy aggressive price cuts and high-impact campaigns (Roy).
Supplier Power
It is used to determine how easy it is for the suppliers of the company to increase their quotes. The number of suppliers available in the market will create more bargaining power for the owner. Whereas, if the number of suppliers is limited to a few numbers; then it will be vice versa. Moreover, the quality of the products supplied by these suppliers is to be considered as well. The cost of switching from one supplier to another is to be computed as well.
Buyer Power
Here, the owners need to assess how much power the buyers have. It means that how easy it is for them to lower your prices. How many buyers are there, and how much big order are they going to have, how much it would cost them to switch between you and your competitors. If the cost of switching is low, then it can be harmful to the business.
Threat of Substitution
It refers to the possibility of your buyers finding any other way to compensate the use of your product or service. For example, your service of providing accounting, consulting can be substituted by hiring an accountant. The threat of substitution is higher when the substitutes are easy to find and cheap.
Threat of New Entry
The threat of new entry is important to assess the position of one’s own business. The new entrants in the market can capture your market and attract them, hurting your profits. The higher the cost of entrance, the lower would be the threat of entrance. The lower entrance cost would become a nightmare for you.
BREAK-EVEN ANALYSIS
The managers use break-even analysis to set the prices better and also for understanding the economic impact of the price and volume scenarios. Having the right price for your product or service can help boost the profits more than the sales volume. However, the setting of a right price is a complex process. The break-even analysis helps the managers in this respect. It is a calculation which helps the manager understands at what level of volume a specific price can cover the fixed costs.
For showing how this can work for a small business owner, let’s take the example of a kite maker. The kite maker needs to invest $25,000 as fixed costs. These can be the costs of the software needed for designing of the kite, or for the promotional material or both. These costs are referred to as fixed costs because of their nature regarding the activity of the volume. These costs do not change with the level of activity. Then there are variable costs; these can be the costs of fabric, wooden dowels, plastic handle, and special string and of the labor needed to assemble this kit. These all costs included make up a unit cost of; let’s say; $50 per unit. If the owner decides to sell it at $75, the gross margin or contribution margin would be $25. With this $25 margin, the owner needs to sell at least the following number of units to break even;
Break Even (Units)=25,000/25=1000 units
It shows that the company needs to sell at least 1000 units to cover its fixed costs. The lower the fixed cost or, the higher the contribution margin, the lower would be the number of units needed to sell to break even. It also means that to earn a profit, the company needs to sell more than 1000 units. The more units the company sells over 1000 units, the more will be the profit of the company. It can aid the owners to set the price for its product or service better to break even in lower units. However, the pricing needs to be set considering the market and their purchasing power as well (Gallo).
PRODUCT LIFECYCLE
For the marketing of the products and services, managers need to be familiar with the life cycle of the product. It will aid them to understand the type of marketing which is needed to advertise it. The concept of product life-cycle is familiar to the managers, however the implementation seems to be difficult for the managers. There are four stages of product life cycle, which are considered.
Market Development
It is the stage of the product when it is introduced in the market. It is the stage when the demand for the product is not proved. Sales at this stage are low and take a lot of effort and time to get established. Demand in this stage is created. The time, effort, cost, and dedication required for market development depends upon the complexity of the product, its fit with consumer needs, and its competition. The owner would need to look for customer orientation market development strategies for this stage of the product.
Market Growth
When the demand begins to rise, and the market size starts expanding, the product can be recognized to be in the second stage of market growth. It is also known as the take-off stage. To start of the take-off in sales and demand of the product, potential competitors often jump into the battle as well. Some of these will have the same products; while the others will make improved products. This is the stage where competition by product differentiations starts to develop. The owner needs an entirely new set of strategies for this phase. Many activities which were freely decided in the first stage are now dictated by the presence of competing products. The rising competition will collectively increase the industry sales, attracting more competitors.
Market Maturity
With a large number of competitors in the market, the market seems to look saturated in this stage. It means that the target market is already using the product form one of the competing companies. Sales volume in this stage increases as per the population. The main competition rises in the prices. Attempts to retain customers become vigorous, making the switching cost lower for the consumers. The product differentiation in this stage is based on fine details. Now, more than ever, the competition is based on price, marginal differences and as well as on both. This stage can go on for a long period and can also end in a short instance. But in both cases, it is heading gradually towards steady per capita decline.
Market Decline
This stage marks the end of the product market, which often comes with the transformation of the industry. Mergers, buyouts, and acquisitions are some of the tactics which are often representative of this stage where one business tries to force its competitor’s business to end to survive. Consequently, some survive, with depressed prices and constant innovation (Grunwald).
SWOT ANALYSIS
One can easily conduct a swot analysis of any project or business and yield the data produced by it to improve the internal processes. As depicted by its name; SWOT analysis has four elements (Snelling).
Strengths
Here, you need to identify the things in which your company is very proficient. It can be anything intangible, or tangible. Your brand attributes, your USPs –Unique selling propositions (differentiation in the product), your people, your leadership, or your technology can be your strength. Anything which makes your company stronger comes in this category. Skills, Qualities, assets, specialization, certifications, technology, ideas, etc. can be included in this (Shewan).
Weaknesses
After figuring out one’s strength, the next step is to use your self-criticism to identify weaknesses of your company. Is there anything you don’t like about your company? Or is there anything which makes you weak in front of your competitors? Is there something you wish to have but lacks? It can include technological, human, marketing, financial, and skilled limitations.
Opportunities
If your company sees lots of orders, but is not up to the mark to fulfill them, then it’s an opportunity. If your sales team is generating lots of leads and you have limited resources to track them all, that’s another opportunity. An innovative idea which can tap a new market is an opportunity. List all the opportunities in this category.
Threats
This final element lists all the things which threaten the existence of your company. Anything which can cut your profits, any emerging competitors, and changing customer preferences, any substitutes in the market, any negative media coverage, or any changing laws or economic condition can become a threat for your company growth.
After listing these elements, the company now has yielded some information which can be very helpful in devising the future strategy. Looking at the figure below, one can now look at the strategies which can be planned for it. What are the strengths which can be used to utilize the listed opportunities? How can you use the strengths to reduce the threats? What actions can be taken to improve the weaknesses of the company for taking best advantage of the opportunities? Answering these questions will lead you to have focused and customer-centric strategic plan for your company (Sarsby).
Conclusion
Using the above models can help small businesses and entrepreneurs. It can help to better understand their product, their stage in product life cycle, their environment, and the position of their company in the environment, their strengths, weaknesses, and opportunities. All together this will lead them to devise a better strategy to establish their business.
Work Cited
Gallo, Amy. “A Quick Guide to Breakeven Analysis.” HBR.Org. HBR.Org, 2 July 2014. Web. 25 February 2018. https://hbr.org/2014/07/a-quick-guide-to-breakeven-analysis.
Grunwald, Thorsten. Business Development. Epubli, 2014.
Roy, Daniel. Strategic Foresight and Porter’s Five Forces. 2011.
Sarsby, Alan. SWOT Analysis. Lulu.com, 2016.
Shewan, Dan. “How to Do a SWOT Analysis for Your Small Business.”Word Streem. Word Streem, 20 December 2017. Web. 26 February 2018. https://www.wordstream.com/blog/ws/2017/12/20/swot-analysis.
Snelling, Jennifer. The Influence of the SWOT Analysis in Organizational Development Strategic Planning. GRIN Verlag, 2012.
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