ANSOFF MATRIX

PRODUCT DEVELOPMENT & MARKET

GROWTH STRATEGIES
 The Ansoff Growth Matrix is a marketing planning tool which helps
a company to determine its product and market growth strategy. 

 Ansoff product/market growth matrix shows that growth of a

particular company depend on whether it markets its new, innovative
or existing products in new or existing markets.

 The output of Ansoff product / market matrix is a series

of suggested growth strategies which set the direction for the
business strategic planning.
ANSOFF MATRIX
 A. Market Penetration Growth Strategy
 Market penetration is refers to a growth strategy where a company focuses on selling existing products into
existing markets.

 By the help of market penetration growth strategy a company seeks to achieve four main objectives:
a) Company wants to maintain or increase the market share of current products. A company can achieve this by a combination of
competitive pricing strategies, sales promotion, advertising, and perhaps more resources dedicated to personal selling.

b) Secure supremacy of growth markets

c) Company wants to reorganize a mature market by driving out competitors. For this purpose company require a much more aggressive
promotional campaign, supported by a suitable pricing strategy designed to make the market unattractive for competitor’s products.

d) Increase the usage of a particular product or brand by existing customers for example by introducing loyalty schemes in the market.

 A market penetration growth strategy is very much about “business as usual”.

 The company is focusing on markets and products it knows well. Company need to have good information about
competitors and about customer needs. This strategy will require much investment in new market research.
 B. Market development growth strategy
 Market development refers to a growth strategy where the company seeks to sell/offer its
existing products or services into new markets. In other words we can say this is a market
expansion strategy for an existing product or brand.

 The possible ways of approaching development growth strategy include:

 Find a new geographical markets for example exporting the company existing product to a new country

 New product dimensions or packaging for a product according to new market requirements

 Develop & organize new distribution channels for example a company who is selling its products or
brand via retail can move on e-commerce and mail order etc.
 Make different pricing policies to attract more customers or to create new market segments

 Market development is usually more risky strategy than market penetration because here company need
to target new markets.
 C. Product Development Growth Strategy
 Product development refers to a growth strategy where a company aims to introduce new
or innovative products into existing markets.
 For this strategy a company may require the development of new competencies as well as
to develop modified products which can appeal to existing markets.

 A company which wants to differentiate its product to remain competitive can use the
strategy of product development.
 Marketing emphasis of successful product development strategy is on:

 Research & development about the product and make innovation in products

 Company should have deep concern with customer needs, change in customer need and how company
will satisfied their changing needs
 Being first to market (new product or modification)
 D. Diversification Growth Strategy
 In this type of strategy a company or a business usually introduces new
products & brand in new market.

 There may be some sort of risk in diversification growth strategy because the
business or company may have not such experience.

 Before adopting the diversification growth strategy it is necessary for a

company that it must have a clear idea which is being expected from this
strategy.

 Risks should also be kept in mind before adopting this strategy.

The product life cycle is the length of time that a product is available to customers.
It starts when a product (a good or a service) is introduced into the market and
ends when it's removed from the shelves.

This concept is used by management and marketing professionals to make

marketing and sales decisions, such as whether to increase advertising, reduce
prices, expand to new markets, or redesign packaging. The process of strategizing
ways to continuously support and maintain a product is called product life cycle
management.

The life cycle of a product is broken into four stages:

1. Introduction

2. Growth

3. Maturity
 4. Decline

Introduction Stage

The introduction phase is the first time customers are introduced to the new
product. This stage typically requires the business to make a substantial
investment in advertising. At this point, the marketing is focused on making
consumers aware of the product and its benefits, especially if the item is
broadly unknown or the problem it solves is unclear.

During the introduction stage, there may be little to no competition for a

product, as competitors may only be getting their first look at the new
offering. Even if the business is offering a new product or service in response
to another business's sales, the marketing will still focus on introducing the
new product rather than differentiating it from competitors' products.

Companies often experience negative financial results at this stage. Sales tend
to be lower, promotional pricing may be low to drive customer engagement,
marketing spending is high, and the sales strategy is still being evaluated.

Growth Stage

If the product is successful, it then moves to the growth stage. This is

characterized by:

 Growing demand
 Increase in production
 Expanded availability
 During the growth phase, the product becomes more popular and
recognizable. A company may still choose to invest heavily in advertising if
the product faces heavy competition. However, marketing campaigns will
likely be geared towards differentiating its product from others as opposed
to introducing the goods to the market. A company may also refine its
product by improving functionality based on customer feedback.
 Financially, the growth period of the product life cycle results in increased
sales and higher revenue. As peer businesses begin to offer rival products,
 competition increases, potentially forcing the company to decrease prices
and experience lower margins.

Maturity Stage
 The maturity stage of the product life cycle is the most profitable, as it is
the time when the costs of producing and marketing decline. With the
market saturated with the product, competition is now higher than at
other stages, and profit margins start to shrink. Some analysts refer to the
maturity stage as the point at which sales volume is "maxed out."
 Depending on the product, a company may begin deciding how to innovate
its product or introduce new ways to capture a larger market presence.
This includes getting more feedback from customers and researching their
demographics and needs.
 During the maturity stage, competition reaches its highest level. Rival
companies have had enough time to introduce competing and improved
products, and competition for customers is usually highest. Sales levels
stabilize, and a company strives to have its product exist in this maturity
stage for as long as possible.

Decline Stage
 As the product takes on increased competition and other companies
emulate its success, the product may lose market share. This is when the
decline state begins.
 Product sales begin to drop due to market saturation and alternative
products. If customers have already decided whether they are loyal to the
product or prefer those of its competitors, the company may choose not to
invest in additional marketing efforts. Should a product be entirely retired,
the company will cease generating support for it and phase out all
marketing and production endeavours.
 Alternatively, the company may decide to revamp the product or introduce
a next-generation, completely overhauled model. If the upgrade is
substantial enough, the company may choose to re-enter the product life
cycle by introducing the new version to the market.
 Microsoft's decision to sunset Windows 8.1 in January 2023 was an
example of the decline stage. Consumers began receiving notifications the
year before, informing them that Microsoft would no longer support the
product, as the company would focus its resources on newer technologies.
PESTEL ANALYSIS
 PESTEL
A PESTEL analysis is a framework or tool used to analyse and monitor the

external environment factors which have an impact on an organisation.

The result of which is used to identify threats and weaknesses, strengths

and opportunities which can be considered or used in a SWOT analysis.

PESTEL is an acronym which stands for the different factors used in analyzing the
impact of the external environment.

It stands for:

P – Political

E – Economic

S – Social

T – Technological

E – Environmental

L – Legal
 POLITICAL FACTORS
 These are all about how and to what degree a government intervenes in the
economy.

 This can include – government policy, political stability or instability in

overseas markets, foreign trade policy, tax policy, labour law, environmental
law, trade restrictions and so on.

 It is clear from the list above that political factors often have an impact on
organisations and how they do business.

 Organisations need to be able to respond to the current and anticipated future

legislation, and adjust their approach and policy accordingly.
 ECONOMIC FACTORS
Economic factors have a significant impact on how an organisation does business and also
how profitable they are.

 Factors include – economic growth, interest rates, exchange rates, inflation, disposable
income of consumers and businesses and so on.

 These factors can be further broken down into macro-economic and microeconomic factors.

Macro-economic factors deal with the management of demand in any given economy.
Governments use interest rate control, taxation policy and government expenditure as their
main mechanisms they use for this.

 Micro-economic factors are all about the way people spend their incomes.
 SOCIAL FACTORS

 Social Factors also known as socio-cultural factors, they are the areas

that involve the shared belief and attitudes of the population.

 These factors include – population growth, age distribution, health

consciousness, career attitudes and so on.

 These factors are of particular interest as they have a direct effect on how

business understand customers and what drives them.

 TECHNOLOGICAL FACTORS

 Fast the technological landscape changes and how this impacts the way

they need to do business.

 Technological factors affect the way we do business in a number of

ways, including new ways of producing and distributing goods and

services and communicating with target audiences

 ENVIRONMENTAL FACTORS
 These factors have only really come to the forefront in the last fifteen years or
so.

 They have become important due to the increasing scarcity of raw materials,
pollution targets, doing business as an ethical and sustainable company, carbon
footprint targets set by governments (this is a good example were one factor
could be classes as political and environmental at the same time).

 These are just some of the issues business leaders face within this factor.

 More and more consumers are demanding that the products they buy are
sourced ethically and if possible from a sustainable source.
 LEGAL FACTORS
 Legal factors include - health and safety, equal opportunities, advertising

standards, consumer rights and laws, product labelling and product safety.

 It is clear that companies need to know what is and what is not legal in order

to trade successfully.

 If an organisation trades globally this becomes a very tricky area to get right

as each country has its own set of rules and regulations.

 SWOT
Analysis

S W O T
SWOT Analysis

Learning Objectives
WhhaattisisSS
WW T TAnAanlyasliys?sis?
OO

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise for SWOT Analysis

 What is SWOT Analysis?

Acronym for Strengths,

Strengths Weaknesses, Opportunities, and
Threats.
Technique is credited to Stanford
University in the 1960s and
1970s.

Planning tool used to understand

Oppurtunity
SWOT Weakness
Strengths, Weaknesses,
Opportunities, & Threats

Analysis involved in a project / business.

Used as framework for
organizing and using data and
information gained from
situation analysis of internal and
external environment.
Technique that enables a group /
Threats individual to move from everyday
problems / traditional strategies
to a fresh perspective.
What is SWOT Analysis?

STRENGTHS

Characteristics of the business or a team

that give it an advantage over others in
the industry.
Positive tangible and intangible
attributes, internal to an organization.

Beneficial aspects of the organization

or the capabilities of an organization,
which includes human competencies,
process capabilities, financial
resources, products and services,
customer goodwill and brand loyalty.

Examples - Abundant financial resources,

Well-known brand name, Economies of
scale, Lower costs [raw materials or
processes], Superior management talent,
Better marketing skills, Good distribution
skills, Committed employees.
What is SWOT Analysis?

OPPORTUNITIES
Chances to make greater profits in the
environment - External attractive factors
that represent the reason for an
organization to exist & develop.
Arise when an organization can take
benefit of conditions in its
environment to plan and execute
strategies that enable it to become
more profitable.
Organization should be careful and
recognize the opportunities and grasp
them whenever they arise. Opportunities
may arise from market, competition,
industry/government and technology.
Examples - Rapid market growth, Rival
firms are complacent, Changing customer
needs/tastes, New uses for product
discovered, Economic boom, Government
deregulation, Sales decline for a substitute
product .
What is SWOT Analysis?

WEAKNESSES

Characteristics that place the firm at a

disadvantage relative to others.

Detract the organization from its

ability to attain the core goal and
influence its growth.
Weaknesses are the factors which do
not meet the standards we feel they
should meet. However, weaknesses
are controllable. They must be
minimized and eliminated.

Examples - Limited financial resources,

Weak spending on R & D, Very narrow
product line, Limited distribution, Higher
costs, Out-of-date products / technology,
Weak market image, Poor marketing skills,
Limited management skills, Under-trained
employees.
What is SWOT Analysis?

THREATS

External elements in the environment that

could cause trouble for the business -
External factors, beyond an organization’s
control, which could place the
!
organization’s mission or operation at risk.
Arise when conditions in external
environment jeopardize the reliability
and profitability of the organization’s
business.
Compound the vulnerability when they
relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the
stability and survival can be at stake.
Examples - Entry of foreign competitors,
Introduction of new substitute products,
Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt
new strategies, Increased government
regulation, Economic downturn.
SWOT Analysis

Learning Objectives
What is SWOT Analysis?

Aiim
m ooffSSWW
OOT TAn
Aanlyasliyssis?

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise

Aim of SWOT Analysis?

To help decision makers

share and compare ideas.

To bring a clearer
common purpose and
understanding of factors

S W for success.
To organize the
important factors linked
to success and failure in
the business world.
To analyze issues that
have led to failure in the
past.

O T To provide linearity to
the decision making
process allowing
complex ideas to be
presented systematically.
SWOT Analysis

Learning Objectives
What is SWOT Analysis?

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise

Who needs SWOT Analysis?

• When the team has not met its

targets
2 • Customer service can be better
• Launching a new business unit to
pursue a new business
• New team leader is appointed

Business Unit

Management Company
• When supervisor has issues with
work output • When revenue, cost & expense
• Assigned to a new job targets are not being achieved
1 • New financial year – fresh targets 3 • Market share is declining
• Job holder seeks to improve • Industry conditions are unfavorable
performance on the job • Launching a new business venture
 Who needs SWOT Analysis?
SWOT Analysis is also
required for / during...
Effectiveness in Market
Product Launch

Decision Making

Personal Development Planning

Competitor Evaluation

Product Evaluation
Strategic Planning

Brainstorming Meetings

Goods & Services Evaluation

SWOT Analysis
Learning Objectives
What is SWOT Analysis?

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise

How to conduct SWOT Analysis?

1. Analyze Internal & 2. Perform SWOT Analysis 3. Prepare Action Plans

External Environment & Document
How to conduct SWOT Analysis?

1. Analyse Internal & External Environment

How to conduct SWOT Analysis?
 2. Perform SWOT Analysis &
Document
Carry your findings forward - Make sure that the SWOT
analysis is used in subsequent planning. Revisit your
findings at suitable time intervals.

Evaluate listed ideas against Objectives -

With the lists compiled, sort and group
facts and ideas in relation to the
objectives.
List Strengths, Weaknesses,
Opportunities, & threats
Create a workshop environment -
Encourage an atmosphere conducive
to the free flow of information.

Select contributors - Allocate research & information gathering tasks -

Expert opinion may be Background preparation can be carried out in two
required for SWOT stages – Exploratory and Detailed. Information on
Strengths & Weaknesses should focus on the
internal factors & information on Opportunities &
Threats should focus on the external factors.
Establish the objectives - Purpose of
conducting a SWOT may be wide / narrow,
general / specific.
3. Prepare Action Plan

Once the SWOT analysis has been completed, mark each point with:

Things that MUST be addressed immediately

Things that can be handled now

Things that should be researched further

Things that should be planned for the future

SWOT Analysis

Learning Objectives
What is SWOT Analysis

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise

 Benefits & Pitfalls of SWOT Analysis

Benefits of SWOT Analysis

Benefits of
SWOT
Analysis

Knowing the Competion Forecasting

Reviews a company's competitors & Provides a variety of information
benchmarks against them to critical to forecasted variables.
configure strategies that will put Threats, for e.g., can impact a
the company in a competitive Decision Making Tool business's forecast. By
advantage. understanding the company's
Provides well-rounded
advantages & disadvantages,
information that prompt forecasts will be more accurate.
well-informed decisions.
Benefits & Pitfalls of SWOT Analysis

Benefits of SWOT Analysis

Besides the broad benefits, here are few more benefits of conducting SWOT Analysis:

Helps in setting of objectives for strategic planning

Provides a framework for identifying & analyzing strengths, weaknesses,

opportunities & threats

Provides an impetus to analyze a situation & develop suitable strategies

and tactics
Basis for assessing core capabilities & competencies

Evidence for, and cultural key to, change

Provides a stimulus to participation in a group experience

Benefits & Pitfalls of SWOT Analysis
Pitfalls of SWOT Analysis

Can be very subjective. Two people rarely come up with the same final
version of a SWOT. Use it as a guide and not as a prescription.

May cause organizations to view circumstances as very simple due to

which certain key strategic contact may be overlooked.

Categorizing aspects as strengths, weaknesses, opportunities & threats

might be very subjective as there is great degree of uncertainty in market.
To be effective, SWOT needs to be conducted regularly. The pace of
change makes it difficult to anticipate developments.

The data used in the analysis may be based on assumptions that

subsequently prove to be unfounded [good and bad].

It lacks detailed structure, so key elements may get missed.

SWOT Analysis

Learning Objectives
What is SWOT Analysis?

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brraiinsttormiing & Priioriitiizatiion in SWOT Analysis

Tips & Exercise
Brainstorming & Prioritization in SWOT Analysis

Brainstorming Prioritization

Output from Brainstorming exercise is Prioritized

Begin brainstorming by asking the At the end of the Brainstorming exercise:

following questions: • Reduce the list of strengths & weaknesses to no
• What opportunities exist in our more than five distinctive competencies and
external environment? debilitating weaknesses
• What threats to the institution exist in • Strengths that are distinctive competencies
our external environment? • Weaknesses that are debilitating
• What are the strengths of our • Reduce threats and opportunities to the five most
institution? critically important of each.
• What are the weaknesses of our
institution?
SWOT Analysis

Learning Objectives
What is SWOT Analysis?

Aim of SWOT Analysis

Who needs SWOT Analysis?

How to conduct SWOT Analysis?

Benefits & Pitfalls of SWOT Analysis

Brainstorming & Prioritization in SWOT Analysis

Tips & Exercise

 Tips & Exercise
TIPS

Do’s Don’ts
 Be analytical and specific. х Try to disguise weaknesses.
 Record all thoughts and ideas. х Merely list errors and mistakes.
 Be selective in the final evaluation. х Lose sight of external influences and trends.
 Choose the right people for the exercise. х Allow the SWOT to become a blame-laying
 Choose a suitable SWOT leader or facilitator. exercise.
 Think out of the box х Ignore the outcomes at later stages of the
 Be open to change planning process.
Tips & Exercise
EXERCISE

Assume that a car manufacturing company has recently

launched its products. Perform a SWOT analysis for the
same.
Tips & Exercise
EXERCISE
Helpful

STRENGTHS WEAKNESSES
•No Competition in the EV • High Price
Segment. • Low aesthetic appeal
• Environment friendly • Small driving range [up to
• Economic to Drive [Rs. 0.4 80 KM]
per km] * • Competition from gasoline
• Government subsidies [8% vehicles
excise duty] *

OPPORTUNITIES THREATS

• Huge untapped EV market • Government incentives

External

• Growing demand of green to gasoline vehicles

technologies • Entry of competitors
• Rising fuel costs • Stringent safety
• Growing road congestion requirements anticipated
in urban cities • Availability of hybrid vehicles

* Hypothetical figures Harmful

Tips & Exercise
EXAMPLE

Mc Donald’s SWOT Analysis

Tips & Exercise
Mc Donald’s
SWOT Analysis INTERNAL

STRENGTHS WEAKNESSES

• Ranks very high on the Fortune Magazine's most • Failing pizza test market thus limiting the
admired list ability to compete with pizza providers.
• Community oriented • High training costs due to high turnover.
• Global operations all over the world • Minimal concentration on organic foods.
• Cultural diversity in the foods • Not much variation in seasonal products .
• Excellent location • Quality concerns due to franchised operations.
• Assembly line operations. • Focus on burgers / fried foods not on healthier
• Use of top quality products options for their customers.

OPPORTUNITIES THREATS

• Opening more joint ventures. • Marketing strategies that entice people from
• Being more responsive to healthier options. small children to adults.
• Advertising wifi services in the branches. • Lawsuits for offering unhealthy foods.
• Expanding on the advertising on being • Contamination risks that include the threat of
more socially responsible e-coli containments.
• Expansions of business into newly developed • The vast amount of fast food restaurants that
parts of the world. are open as competition.
• Open products up to • Focus on healthier dieting by consumers.
allergen free options • Down turn in economy affecting the ability to eat
such as peanut free. that much.
EXTERNAL
Tips & Exercise
Points to Ponder

• Keep your SWOT short and simple, but remember to include important details. For
example, if you think your communication skills is your strength, include specific details,
such as verbal / written communication.

• When you finish your SWOT analysis, prioritize the results by listing them in order of the
most significant factors that affect you / your business to the least.

• Get multiple perspectives on you / your business for your SWOT analysis. Ask for input
from your employees, colleagues, friends, suppliers, customers and partners.

• Apply your SWOT analysis to a specific issue, such as a goal you would like to achieve or
a problem you need to solve. You can then conduct separate SWOT analyses on individual
issues and combine them.
COMPETITIVE ADVANTAGE

Competitive Advantage is an advantage over competitors gained by offering consumers greater value,
either by means of lower prices or by providing greater benefits and service that justifies higher prices.

Michael Porter defined the two ways in which an organization can achieve competitive advantage over
its rivals: a) Cost Advantage b) Differentiation Advantage

(Broad Target , Narrow Target – here target refers to market)

The Four Strategies are:

a) Cost Leadership
b) Cost Focus
c) Differentiation Leadership
d) Differentiation Focus

a) Cost leadership:
This advantage is when a business provides the same products and services as its competitors, at
a lesser cost and price than its competitors. The costs can be reduced by high levels of
productivity, high-capacity utilization, bargaining power to negotiate for lower price of raw
materials, in turn reducing cost of production.
b) Differentiation Leadership:
Differentiation Leadership advantage is when a business provides better products and services as
its competitors. Better products in terms of superior product quality, benefits, strong customer
recognition and in turn building brand loyalty.
c) Cost Focus:
Businesses seek a lower-cost advantage in just one or a small number of market
segments/sector. Eg: A Insurance company providing insurances only on education or
agriculture.

d) Differentiation Focus:
In the differentiation focus strategy a business aims to differentiate within just one or a small
number of market/segments.
BCG MATRIX

The BCG growth-share matrix is the simplest way to portray a corporation’s portfolio of
investments. Growth share matrix also known for its cow and dog metaphors is popularly used
for resource allocation in a diversified company. Using the BCG approach, a company classifies
its different businesses on a two-dimensional growth matrix. In the matrix:

• The vertical axis represents market growth rate and provides a measure of market
attractiveness.

• The horizontal axis represents relative market share and serves as a measure of company
strength in the market.

Using the matrix, organizations can identify four different types of products or SBU as follows:

• Stars are products or SBUs that are growing rapidly. They also need heavy investment to
maintain their position and finance their rapid growth potential. They represent best
opportunities for expansion.
• Cash Cows are low-growth, high market share businesses or products. They generate cash
and have low costs. They are established, successful, and need less investment to maintain
their market share. In long run when the growth rate slows down, stars become cash cows.

Question Marks, Sometimes called problem children or wildcats, are low market share business
in high-growth markets. They require a lot of cash to hold their share. They need heavy
investments with low potential to generate cash. Question marks if left unattended are capable
of becoming cash traps. Since growth rate is high, increasing it should be relatively easier. It is
for business organizations to turn them stars and then to cash cows when the growth rate
reduces.

• Dogs are low-growth, low share businesses and products. They may generate enough cash to
maintain themselves, but do not have much future. Sometimes they may need cash to survive.
Dogs should be minimized by means of divestment or liquidation.

Once the organizations have classified its products or SBUs, it must determine what role each
will play in the future. The four strategies that can be pursued are:

1. Build: Here the objective is to increase market share, even by forgoing short-term earnings in
favour of building a strong future with large market share.

2. Hold: Here the objective is to preserve market share.

3. Harvest: Here the objective is to increase short-term cash flow regardless of long-term effect.
Divest: Here the objective is to sell or liquidate the business because resources can be better
used elsewhere. The growth-share matrix has done much to help strategic planning study;
however, their are problems and limitations with the method. BCG matrix can be difficult, time-
consuming, and costly to implement. Management may find it difficult to define SBUs and
measure market share and growth. It also focuses on classifying current businesses but provide
little advice for future planning. They can lead the company to placing too much emphasis on
market-share growth or growth through entry into attractive new markets. This can cause
unwise expansion into hot, new, risky ventures or giving up on established units too quickly.
AI IN ENVIRONMENTAL SCANNING:

10 Uses of AI in Environmental Scanning

1. Trend Analysis – AI can analyse vast datasets to identify emerging market, industry, and
consumer trends.

2. Real-time Monitoring – Tracks political, economic, social, technological, legal, and

environmental (PESTLE) factors continuously.

3. Predictive Analytics – Forecasts future risks and opportunities using machine learning models.

4. Competitor Analysis – Collects and interprets competitor strategies from news, social media,
and financial reports.

5. Sentiment Analysis – Examines public opinion through social media, forums, and reviews to
gauge stakeholder perceptions.

6. Risk Detection – Identifies geopolitical, regulatory, and environmental risks before they escalate.

7. Market Intelligence – Gathers and synthesizes data from global sources to help firms spot new
markets.

8. Automation of Data Collection – Reduces time and effort by automatically scanning multiple
databases and reports.

9. Scenario Planning – Simulates possible future scenarios to help decision-makers prepare

strategic responses.

10. Early Warning Systems – Provides alerts for sudden disruptions like policy changes, natural
disasters, or competitor moves.

Advantages of AI in Environmental Scanning

1. Speed & Efficiency – Processes massive data volumes faster than humans.

2. Accuracy & Consistency – Reduces human errors and biases in analysis.

3. Predictive Power – Provides forward-looking insights, not just historical data.

4. Cost-Effective – Cuts down the need for extensive manual research.

5. Global Reach – Scans worldwide sources beyond local/national boundaries.

Disadvantages of AI in Environmental Scanning

1. Data Dependency – AI insights are only as good as the quality of data available.

2. High Initial Costs – Implementing AI systems requires significant investment.

3. Lack of Human Judgment – AI may miss cultural, emotional, or ethical nuances.

4. Privacy & Security Risks – Handling sensitive data raises compliance issues.

5. Over-reliance on Technology – Organizations may ignore human intuition and strategic thinking.
PORTERS 5 FIVE FORCE MODEL
The collective strength of the 5 forces determines the profit potential, defined as long run return on
invested capital, of the industry. Some industries have inherently high profits due to

the weakness of these forces. Others, where the collective force is strong, will exhibit low returns on
investment.

The model can be used in several ways.

1. To help management decide whether to enter a particular industry. Presumably, they would only wish
to enter the ones where the forces are weak and potential returns high.

2. To influence whether to invest more in an industry. For a firm already in an industry and thinking of
expanding capacity, it is important to know whether the investment costs will be recouped. The present
strength of the forces will be evident in present profits, so management will wish to forecast how the
forces may change through time. Alternatively, they may decide to sell up and leave the industry now if
they perceive the forces are strengthening.

3. To identify what competitive strategy is needed. The model provides a way of establishing the factors
driving profitability in the industry. These factors affect all the firms in the industry. For an individual firm
to improve its profitability above that of its peers, it will need to deal with these forces better than they.
If successful, it will enjoy a stronger share price and may survive in the industry longer. Both increase
shareholder wealth.

Each of the five forces is explained below.

Threat of entry

Entrance can affect the profitability of the industry in two ways:

1. Through the impact of actual entry. A new entrant will reduce profits in the industry by: (a) Reducing
prices either as an entry strategy or because of increased industry capacity. There is also the danger that
a price war may break out as rivals try to recover share or push out the new rival.

(b) Increasing costs of participation of incumbents through forcing product quality improvements,
greater promotion or enhanced distribution.

(c) Reducing economies of scale available to incumbents by forcing them to produce at lower volumes
due to loss of market share.

2. By forcing firms to follow pre-emptive strategies to stop them from entering. In view of the above
danger, firms may take action to forestall entry of new rivals by: (a) Charging an entry-deterring price
which is so low as to make the market unattractive to new, and possible higher cost, rivals.
(b) Maintenance of high capital barriers through deliberate investment in product or production
technologies or in continuous promotion of research and development.

Porter suggests that the strength of the treat of market entry depends on the availability of barriers to
entry against the entrant. These are:

1. Economies of scale. Incumbent firms will enjoy lower unit costs due to spreading their fixed costs
across a larger output and through the ability to drive better bargains with their suppliers. This gives
them the ability to charge prices below the unit costs of new entrants and hence render them
unprofitable.

2. Product differentiation. If established firms have strong brands, unique product features or
established good relations with customers, it will be hard for an entrant to rival these by a price
reduction, and expensive and time consuming to emulate them.

3. Capital requirements. If large financial resources will be needed by a rival to enter, the effect will be
to exclude many potential entrants. Porter argues this will be particularly effective if the investment is
needed in dedicated capital assets with no alternative use or in promotion. Few would-be entrants will
want to take the risk.

4. Switching costs. These are one-off costs for a customer, to switch to the new rival. If they are high
enough, they will eliminate any price advantage the new rival may have. Examples include connection
charges, termination costs, special service equipment and operator training costs.

5. Access to distribution channels. If the established firms are vertically integrated, this leaves the
entrant needing either to bear the costs of setting up its own distribution or depending on its rivals for
its sales. Both will reduce potential profits.

6. Cost advantages independent of Scale. These make the established firm to have lower costs.
Examples are unique low-cost technologies, cheap resources, or experience effects (a fall in cost gained
from having longer experience in the industry, usually influenced by cumulative production volume).

7. Government policy. Some national governments jealously guard their domestic industries by
forbidding imports or using legal and bureaucratic techniques to stall import competition. Also, some
governments prefer to allow existing firms to grow large to give them the economies of scale that they
will need to compete in a global market. Therefore, they try to restrict industry competition.

Pressure from substitute products:

Substitute products are ones that satisfy the same need despite being technically dissimilar. Examples
include aeroplanes and trains, e-mail and postal services, and soft drinks and ice cream.

Substitutes affect industry profitability in several ways:

1. They put an upper limit on the prices the industry can charge without experiencing large scale loss of
sales to the substitute.
2. They can force expensive product or service improvements on the industry.

3. Ultimately, they can render the industry technologically obsolete.

The power of substitutes depends on:

1. Relative price/Performance: A coach journey is cheaper than a rail journey which is in turn cheaper
than a flight. However, coach is slower than a train. The trade-off is far less clear between e-mail and
postal services for simple messages, since e-mail is both quicker and cheaper!

2. The extent of switching costs.

Bargaining power of buyers:

Buyers use their power to trade around the industry participants to gain lower prices and/or
improvements to product or service quality. This will impact on profitability. Their power will be greater
if:

1. Buyer power is concentrated in a few hands. This denies the industry any alternative markets to sell
to if the prices offered by buyers are low.

2. Products are undifferentiated. This enables the buyer to focus on price as the important buying
criterion.

3. The buyer earns low profits. In this situation, they will try to extract low prices for their inputs. This
effect is enhanced if the industry’s supplies constitute a large proportion of the buyer’s costs.

4. Buyers are aware of alternative producer prices. This enables them to trade around the market.
Improvements in information technology have significantly increased this, by enabling a reduction in
‘search costs.’

5. Low switching costs. In this case, the switching costs might include the need to change the final
product specification to accept a different input or the adoption of a new ordering and payments
system.

Bargaining power of Suppliers:

The main power of suppliers is to raise their prices to the industry and hence take over some of its
profits for themselves. Power will be increased by:

1. Supply industry dominated by a few firms: Provided that the buying industry does not have similar
monopolistic firms, the supplier will be able to raise prices. For example, the ‘Wintel’ domination in
personal computers developed because IBM did not insist on exclusive access to Microsoft’s operating
systems or Intel’s processors.
2. The suppliers have proprietary product differences. These unique features of images make it
impossible for the industry to buy elsewhere. For example, branded food suppliers rely on this to offset
the buyer power of the large grocery chains.

Rivalry among existing competitors:

Some industries feature cut-throat competition, while others are more relaxed. The latter have the
higher profitability. Porter suggests that the factors determining competition are: 1. Numerous rivals,
such that any individual firm may suddenly reduce price and trigger a

price war. If there are fewer firms of similar size, they will tend to, formally or informally, recognize that
it is not in their interest to cut prices.

2. Low industry growth rate. Where growth is slow, the participants will be forced to compete against
one another to increase their sales volumes.

3. High fixed or storage costs. The former, sometimes called operating gearing, put pressure on firms to
increase volumes to take up capacity. Because variable costs are low, this is usually accomplished by
cutting prices. This is common in transportation and telecommunications. Similarly, high storage costs
are often the cause of a sudden dumping of stocks on to the market.

4. Low differentiation or switching costs mean that price competition will gain customers and so be
commonplace.

5. High strategic stakes. This is where a lot depends on being successful in the market. Often this is
because the firms are using the market as a springboard into other lines of business. For example, banks
may fight for a share of the current (chequing) account or mortgage markets in order to provide a
customer base for their insurance and investment products.

6. High exit barriers. These are economic or strategic factors making exit from unprofitable industries
expensive. They can include the costs of redundancies and cancelled leases and contracts, the existence
of dedicated assets with no other value or the stigma of failure.
SITUATIONAL ANALYSIS

1. Company

 Focuses on internal aspects of the business.

 Key factors:

o Political influence on company policies

o Strategies for growth and positioning

o Objectives defining the vision and mission

o Strengths & Weaknesses that determine competitiveness

o Technology adoption and innovation levels

o Culture shaping organizational behaviour

Example: Infosys evaluates its strengths (IT expertise, global reach) and aligns technology like AI and cloud
services with its goals.

2. Customers

 Examines the people/organizations who buy products/services.

 Key factors:
 o Value delivered to customers

o Satisfaction levels that ensure loyalty and repeat business

Example: Amul provides affordable, high-quality dairy products ensuring trust and customer satisfaction
across India.

3. Competitors

 Focuses on market rivalry and external threats.

 Key factors:

o Opportunities & Threats from competitors

o Market share analysis to assess position

o Current and prospective competitors at different levels (direct and indirect rivals)

Example: Ola competes with Uber and new EV ride-sharing entrants, influencing its pricing and expansion
strategies.

4. Collaborators

 Refers to partners who help deliver products/services.

 Key factors:

o Shared interest with partners

o Upstream partners (suppliers, manufacturers)

o Downstream partners (distributors, retailers, dealers)

Example: Maruti Suzuki has a vast network of vendors (upstream) and dealers (downstream), ensuring
smooth production and sales.

5. Climate (Context / Macro Environment)

 Refers to the external environment in which a business operates.

 Key factors (similar to PESTLE analysis):

o Political stability, policies, trade laws

o Economic conditions like inflation, interest rates, growth

 o Social/Cultural trends, demographics, consumer behaviour

o Technological advancements impacting industry

o Environmental concerns and sustainability requirements

o Legal regulations that businesses must comply with

Example: Reliance Jio benefited from India’s Digital India initiative (Political), cheap smartphones
(Technological), and rising internet demand (Social/Economic).