9/25/2021

Concept of Business plan

• Business is an economic activity concerned with production and
distribution of goods and services.

Business Planning • Plan is a proposed or intended course of action. It is a set of decisions

about how to do something in future.
Unit 3 • A business plan is a document about the future of a business. It often
integrates functional plans such as production, finance, human
resource and marketing.
• It provides a roadmap of business operations.
• An effective business plan convince the readers that the new business
is exciting and need support.

1 2

Definition Significance of business plan

• Dollinger – ‘A business plan is the formal written expression of the 1. Create a new business
entrepreneurial vision, describing the strategy and operations of the
proposed venture.’ 2. Business growth

• Kaplan – ‘The term business plan means the development of written 3. Seek business investment
document that spell out like a roadmap where you are, where you 4. Risk Management
want to be, and how you want to get there.’ 5. Means of communication
• Hisrich – ‘ The Business plan is a written document prepared by the 6. Establish benchmarks
entrepreneur that describe all the relevant external and internal
7. Product / Service description
elements involved in starting a new venture.
8. Cash flow

3 4

Significance of business plan Significance of business plan

1. Create a new business : A business plan is the overall roadmap of a 4. Risk management : Risk may be defined as degree of uncertainty
business. It provides the steps to start a new business. It provides involved in business. A business plan helps the entrepreneur to
activates needed to lunch the business. assess and manage risks. It also helps to prepare contingent plan to
2. Business growth: Business plan contains strategy for business to be deal with possible risks.
done. It helps to grow the business. It mentions resources planning 5. Means of communication : A business plan serve as the means of
for successful growth. communication. It communicates business goals and strategies to
outsiders.
3. Seek business investment : Potential investors analyze the business 6. Establish benchmarks: A business plan serve as a successful
potentialities and decision whether or not to invest. They expect benchmarking tool. Benchmarking is the process of comparing one’s
the plan to cover all the main points that support their decision. business process and performance to industry bests and best
practices. The central idea behind benchmarking is to improve
business performance.

5 6

1
 9/25/2021

Significance of business plan Objectives of business plan

7. Product / Service description : A business plan outlines the complete 1. Dedicating time for planning
description of the product, or the service offered by the business. It 2. Create goals and objectives
includes a description of the overall market for the product / service
alone with details of the customer's base. 3. Evaluating performance
4. Gauging business strategy and applying due correction
8. Cash flow : Careful management of cash flow is a fundamental 5. Arranging financial resources
requirement for all business. A business plan clearly spells out the
cash plan of the business. It helps to carry out the business activities
6. Stay consistent
smoothly. 7. Keep your goals “SMART”
8. Performing SWOT Analysis
9. Marketing Analysis

7 8

Dedicating enough time for planning Create goals and objectives

• A workable business plan cannot be created overnight. • An organization depends heavily on the business plan to arrive at the
• It is bound to take its own time to develop. description of business it performs.
• So, a perfect business plan will attempt to spend enough time and • There are several areas that a company will focus on if it wants to
hard work to achieve successful implementation. realize its objectives, understand the market that it is planned to
operate in and the strategy to achieve the goals.
• This should be one of the crucial stages in a business plan.
• Lack of a business plan will leave the management without any means
• A complete analysis of the current situation is the key to to check out the theories on how to operate the business.
evolving(developing) plans.
• In principle, a business plan will help a company to test different
• Review the situation through brainstorming and other techniques to methods in reaching the best standards and policies.
define the goals.

9 10

Evaluating business strategy and

Evaluating performance
applying due correction
• A business needs proper planning and control over the activities for • A Business plan is what would assist you in assessing the efficiency of
enhanced performance. your strategies for achieving business goals.
• It will be an essential step towards achieving the long term survival of the • In an ideal condition, a business needs to have the planned results
organization as a whole. with which the actual results can be compared, and the way forward
• The business plan also comes with a financial part to it and used for is decided.
comparing the actual performance with the estimated one. • If any of the strategies are found to be unsuccessful in achieving the
• The ability and provision for such a control and evaluation procedure are: relevant results, it may be a perfect idea to ditch the strategy or take
what offers you a great advantage in, checking the success of the corrective actions.
operations.
• It is wise to have a good business plan so that the management does
• This way, you will be able to detect issues like production or delivery have a reference with which it can have a healthy comparison of the
delays, or even increasing production costs. actual result achieved.

11 12

2
 9/25/2021

Arranging financial resources Stay consistent

• A business plan can be much helpful and instrumental in acquiring • This should be yet another objective that a business plan needs to be
adequate business financing. focused with is being consistent.
• Like we stated already, banks and lenders look for a proper business plan • A good business plan should place proper value on the exact process
before lending you any sort of finance. and its adherence to the planned goals.
• A business plan should be prepared in such a manner that the banks will • Sticking to a consistent schedule will work wonders in achieving the
have a clear understanding of the business perspective that the owner has. planned goals effectively.
• The lenders will be able to get to the root of the actual vision shared by the • This will also help the employees and other staff to fall into a proper
promoters and the methods of operation that will be employed. routine.
• Being financially viable is one of the prime objectives of a good business • This will help the concept of planning to be a part of your business
plan. culture.

13 14

Keep your goals ’SMART’ Performing SWOT Analysis

• The business plan should be S-M-A-R-T ( Specific, Measurable, • SWOT Analysis is one of the best options you would want to go with
Actionable, Realistic, and Time-Bound) to achieve success. when it comes to focus on an effective business plan.
• This will help you achieve the business goals as laid out in the • Having perfect knowledge of the strengths and weaknesses of your
business plan effectively and efficiently. organization helps you come up with a better insight into the realistic
• It would be practical to have your team member analyze the goals set goals.
so that you will get back to a realistic approach. • The SWOT analysis also takes into account the opportunities and
threats that the organization can come to face to face.
• This will assist you to focus on the positive factor and take corrective
actions against the negatives.

15 16

Marketing Analysis Scope of business plan

• Marketing forms an integral part of a business and so does with the • The scope of a business plan refers to the target reader of the plan.
business plan. • The reader may be employees, investors, bankers, suppliers,
• This part of the business plan should be focused on determining the customers, advisors and consultants.
potential of your product or service while letting the business owners • Each of these groups read the plan for different purpose.
know more about future customers.
• The scope of business plan may be categorized as internal and
• The marketing analysis part of the business plan should ideally external.
provide you with a means of understanding your industry as a whole.
• Internal : - employees.
• External :- Investor and other stakeholders.

17 18

3
 9/25/2021

Employees Investors and other stakeholders

• An effective business plan articulates the vision and mission of the • Investors and other stakeholders such as potential partners and
firm. suppliers are other important audience of a business plan.
• It is important to both managerial and administrative employees. • Business plan must be realistic .
• It guides the employees to move ahead in a consistent and purposeful • It should ensure a high return to the investors with minimum risks.
manner. • It also requires a sound financial projections.
• It provides a roadmap for employees to discharge their duties for the • It must reflect the business model.
organizational effectiveness.
• It should exhibit resource limitation that the venture is likely to face
before revenues are generated.

19 20

Elements of Business plan

Executive
Management Executive summary
Operation Plan Team & company
Summary
structure
• It should be kept short probably no more than a page. Its main objective is to
provide a synopsis of the business to convince the readers that the new
Product design & business is worth investing.
Industry Analysis Development Overall Schedule
plan • It provides overview of the business step by step.
• Thought it appears at the beginning of the business plan, it is written after the
preparing the plan. Key elements that should be included in the executive
Company Financial
Description
Marketing Plan
projections summary are :
1. Business concept
2. Financial features
The economics of
Market Analysis Appendix 3. Financial requirements
the Business

4. Current business positions

21 22

Industry analysis Company description

• The main body of a business plan starts with industry description in • This section of a business plan present general description of the company.
term of nature, size, growth, scale projection, competitive rivalry etc. • It provides a brief history of company along with the source of business idea and
• The purpose of the industry analysis is to determine the strength and driving force.
weakness of the competitors, strategies that provides a distinct • It also include company vision and mission statements.
advantages, the barriers that can be develop in order to prevent • Vision : Vision statement depicts the desired future state of the company.
competition from entering the market. • Mission : Mission statement defines why a company exists.
• It also involves identification of environment and business trends. • This part of business plan also includes the description of products & service of
the company and shows how they are different in the marketplace.

23 24

4
 9/25/2021

Market analysis The economics of the business

• The market analysis breaks the industry into target market which the • It includes the financial analysis of a business.
company intends to serve. It is also called market segmentation. • It mainly analyzes the revenue and cost drivers.
• Market may be segmented in a numbers of way like : • The analysis of revenue driver includes contribution margin analysis
1. Geographic of each product.
2. Demographic • The analysis of dost driver involves fixed and variable costs, which is
3. Psychographic, etc reflected by operating leverage.
• This part of business plan concludes with breakeven analysis which
analyzes the unit to be sold to start earning profit.

25 26

Financial Projection ( Financial information

Marketing plan
Need)
• The marketing plan focuses on marketing and selling product & • Financial information is needed to prepare the financial section of a
service. business plan.
• It deals with price, promotion, distributions and sales. • It includes preparation of different budge. They are as follows
• It involves the firms marketing strategy which dictates how a I. Sales budget
company positions itself in the market differentiating itself from the II. Create expenses budget
competitors. III. Develop a cash flow statement
IV. Projected income statement
V. Projected balance sheet
VI. Breakeven analysis

27 28

Sales budget Create expenses budget

• Sales projection for 3 to 5 years is the first step towards the • After preparation of sales budget, expenses budget should be
preparation of financial section of business plan. prepared.
• The projection should be made in spreadsheet by monthly, quarterly • It should be prepared segregating the cost into variable and fixed,
or annually. direct and indirect, so on.
• It also includes cost of sales to calculate gross margin. • Expense budget may take different from such as
• Forecast should be based on past result, present strategy and other  Production cost budget
environmental compositions.  Marketing cost budget
 Human resource budget, etc.

29 30

5
 9/25/2021

Develop a cash flow statement Projected income statement

• It shows the cash moving in & out of the business. • It is a pro forma profit & loss statement.
• It shows the inflow and out flow of cash under different activities • It uses information from sales budget, expenses budget and cash flow
such as statement.
 Operating activities, • It show the estimated profit of the business in future period of time.
 Investing activities, and
 Financial activities.

31 32

Projected balance sheet Breakeven analysis

• Projection of balance sheet involves estimation of assets & liabilities • It involves analysis of the revenue and cost.
over the future period of time. • Breakeven point is the point of sales where the revenues and cost are
• It forecast the financial position of the business. equal.
• It allows the business understand the minimum sales to avoid losses.

33 34

Vision
• An aspirational description of what an organization
would like to achieve or accomplish in the mid-term or
long-term future. It is intended to serves as a clear
guide for choosing current and future courses of action.
Vision and Mission Statement • ́Vision Statement
A statement that presents a firm’s strategic intent
designed to focus the energies and resources of the
company on achieving a desirable future.

35 36

6
 9/25/2021

Vision Vision Statement Examples

• ́ A vision statement should answer the • Amazon
basic question, “What do we want to "Our [Amazon's] vision is to be earth's most customer
become?” centric company; to build a place where people can
come to find and discover anything they might want to
• ́The vision statement should be short, buy online." (Quoted from Amazon.com)
preferably one sentence, and as many • ́General Motors
managers as possible should have input ‘’General Motors’ vision is to be the world leader in
transportation product and related services.’’
into developing the statement.
• ́ Disney
‘’To make people happy.’’

37 38

Mission and mission statement Mission statement

• A written declaration of an organization's core purpose and • Mission statement:
focus that normally remains unchanged over time. Properly • ́a declaration of an organization’s “reason for being.”
crafted mission statements • ́Answers the pivotal question “What is our business?”
1.serve as filters to separate what is important from what • ́essential for effectively establishing objectives and formulating
is not, strategies
2.clearly state which markets will be served and how, and
3.communicate a sense of intended direction to the entire
organization.

39 40

Mission statement Importance of Vision and Mission Statements

• ́Reveals what an organization wants to be and
• whom it wants to serve 1. To ensure unanimity of purpose within the organization
• ́Also called a creed statement, as it is a statement of purpose, a 2. To provide a basis, or standard, for allocating organizational
statement of philosophy, a statement of beliefs, and a statement of resources
business principles 3. To establish a general organizational climate

41 42

7
 9/25/2021

Importance of Vision and Mission Statements Characteristics of a Mission Statement

4. To serve as a focal point for individuals to identify with the

organization’s purpose and direction • First, a good mission statement allows for the
5. To facilitate the translation of objectives into a work generation and consideration of a range of
structure feasible alternative objectives and strategies.
6. To specify organizational purposes

2-44

43 44

Characteristics of a Mission Statement

Characteristics of a Mission Statement
• Stakeholders
• include employees, managers, stockholders, boards
• Second, a mission statement needs to be broad of directors, customers, suppliers, distributors,
creditors, governments (local, state, federal, and
to reconcile differences effectively among, and foreign), unions, competitors, environmental groups,
appeal to, an organization’s diverse stakeholders and the general public.

2-45 2-46

45 46

A Customer Orientation A Customer Orientation

A mission statement should: A mission statement should also:
define what the organization is and what the serve as a framework for evaluating both current and
organization aspires to be prospective activities
be limited enough to exclude some ventures and be stated in terms sufficiently clear to be widely
broad enough to allow for creative growth understood throughout the organization
distinguish a given organization from all others

2-47 2-48

47 48

8
 9/25/2021

A Customer Orientation Mission Statement Components

A good mission statement reflects the 1. Customers—Who are the firm’s customers?
anticipations of customers. 2. Products or services—What are the firm’s major
The operating philosophy of organizations should products or services?
be to identify customers’ needs and then provide 3. Markets—Geographically, where does the firm
a product or service to fulfill those needs. compete?
4. Technology—Is the firm technologically current?

2-49 2-50

49 50

Mission Statement Components Mission Statement Components

5. Concern for survival, growth, and profitability—Is the firm 8. Concern for public image—Is the firm responsive to
committed to growth and financial soundness? social, community, and environmental concerns?
6. Philosophy—What are the basic beliefs, values, aspirations, 9. Concern for employees—Are employees a valuable
and ethical priorities of the firm?
asset of the firm?
7. Self-concept—What is the firm’s distinctive competence or
major competitive advantage?

2-51 2-52

51 52

Characteristics of a
Mission Statement Example Mission Statements

• Fleetwood Enterprises will lead the recreational vehicle and

manufactured housing industries in providing quality products,
with a passion for customer-driven innovation . We will
emphasize training, embrace diversity and provide growth
opportunities for our associates and our dealers . We will lead
our industries in the application of appropriate technologies .
We will operate at the highest levels of ethics and compliance
with a focus on exemplary corporate governance . We will
deliver value to our shareholders, positive operating results
and industry-leading earnings.

2-53 2-54

53 54

9
 9/25/2021

Example Mission Statements Example Mission Statements

• Fleetwood Enterprises will lead the recreational vehicle and manufactured
housing industries (2, 7) in providing quality products, with a passion for • We aspire to make PepsiCo the world’s premier
customer-driven innovation (1). We will emphasize training, embrace consumer products company, focused on convenient
diversity and provide growth opportunities for our associates and our foods and beverages. We seek to produce healthy
dealers (9). We will lead our industries in the application of appropriate
technologies (4). We will operate at the highest levels of ethics and financial rewards for investors as we provide
compliance with a focus on exemplary corporate governance (6). We will opportunities for growth and enrichment to our
deliver value to our shareholders, positive operating results and industry- employees, our business partners and the
leading earnings (5). communities in which we operate. And in everything
we do, we strive to act with honesty, openness,
fairness and integrity.

2-55 2-56

55 56

Example Mission Statements Example Mission Statements

• We aspire to make PepsiCo the world’s (3) premier consumer • Dell’s mission is to be the most successful computer company in
products company, focused on convenient foods and beverages the world at delivering the best customer experience in markets
(2). We seek to produce healthy financial rewards for investors we serve . In doing so, Dell will meet customer expectations of
(5) as we provide opportunities for growth and enrichment to highest quality; leading technology ; competitive pricing; individual
our employees (9), our business partners and the communities and company accountability ; best-in-class service and support ;
(8) in which we operate. And in everything we do, we strive to flexible customization capability ; superior corporate citizenship ;
act with honesty, openness, fairness and integrity (6). financial stability.

2-57 2-58

57 58

Example Mission Statements Example Mission Statements

• Procter & Gamble will provide branded products and services of • Procter & Gamble will provide branded products and services of
superior quality and value that improve the lives of the world’s superior quality and value (7) that improve the lives of the
consumers. As a result, consumers will reward us with industry world’s (3) consumers. As a result, consumers (1) will reward us
leadership in sales, profit , and value creation, allowing our with industry leadership in sales, profit (5), and value creation,
people , our shareholders, and the communities in which we allowing our people (9), our shareholders, and the communities
live and work to prosper. (8) in which we live and work to prosper.

2-59 2-60

59 60

10
 9/25/2021

Example Mission Statements Example Mission Statements

• At L’Oreal, we believe that lasting business success is built • At L’Oreal, we believe that lasting business success is built
upon ethical standards which guide growth and on a upon ethical (6) standards which guide growth and on a
genuine sense of responsibility to our employees , our genuine sense of responsibility to our employees (9), our
consumers, our environment and to the communities in consumers, our environment and to the communities in
which we operate . which we operate (8).

2-61 2-62

61 62

Environmental scanning ( SWOT analysis The SWOT Analysis –

) The Internal Environment
Strengths
• Any existing or potential resources or capability within the
organization that provides a competitive advantage in the market.
Example :
 Strong distribution network
Intense Staff commitment and loyalty
Increasing profit margin etc.

Activity: Can you identify some of your venture strengths ??

63 64

The SWOT Analysis – The SWOT Analysis –

The Internal Environment The External Environment
Weakness Opportunity
• Any existing or potential force which could serve as a barrier to • Any existing or potential force in the external environment that, if
maintaining or achieving a competitive advantage in the market. properly leveraged, could provide a competitive advantage.
Example: Example:
Lack of clear company strategy Organization’s geographic location
Lack of training opportunities for using new software. New technology.

Activity : Can you think of some of your business venture

weakness ? Activities: Can you think of some opportunities available to your
business Venture ?

65 66

11
 9/25/2021

The SWOT Analysis –

The External Environment Aim of SWOT Analysis
Threat
• Take advantage of strengths and opportunities.
• Any existing or potential force in the external environment
that could erode a competitive advantage. • Minimize weaknesses and eliminate threats
Example:
A new competitor
A recession, rising interest rate etc.
Activity : can you think of some threats to your business
Venture ?

67 68

How to do SWOT Analysis ? Benefits of SWOT Analysis

• Solving Problems
• Implementing change
Analyze Prepare
Step Internal & Step Perform Step Action • Developing strategies for achieving the organization’s objectives and
SWOT
1 external 2 Analysis 3 Plans, mission.
Environment Strategy

A SWOT analysis is useful only when action plans and

strategies are developed from the result.

69 70

Marketing Research Define the research statement and objectives

• Marketing research is the systematic gathering, recording and • The first step in marketing research is defining the statement and
analysis of data about marketing products and service. objective of the research.
• Its main goal is to identify and assess how changing elements of the • Research problem is the main issue behind the research.
marketing mix affects customer behavior. • A clear objective makes the research focused and effective.
Process of Marketing Research • It also provides guideline regarding the techniques to used for the
data collection and analysis, and the extent of information to be
Define research
Determine
Data analysis & collected.
statement & Plan the Sample Data Collection interpretation
research design
objective of result

71 72

12
 9/25/2021

Determine the research design Plan the sample

• A research design is a master plan specifying the procedure for • Sampling involves taking a small number of items or parts from the
collection and analyzing needed information. population to make conclusion regarding the ‘ population’.
• It is the master plan of the research. • Planning the sample include determining population, size of the
sample, methods of sampling etc.

73 74

Data Collection Data analysis and interpretation of result

• Data collection refers to gathering of facts to be used in solving the • Once data have been collected, they are edited, coded and analyzed.
problem. • After this, findings are derived.
• Data may be secondary, i.e., collected from concerned reports, • The result should be evaluated and interpreted with references to
magazines, government publication, company publications, books etc. the research objectives.
• It may be also primary, i.e., collected directly from the sample units.

75 76

Steps in preparing the marketing plan Marketing Strategy

• Marketing Strategies are the board action plan for achieving

Situation Analysis
Defining Target
Consider
strength &
Establish goals the goals and objectives.
Market and objectives
weakness
• They specify action plan for achieving the goals and objectives.
• They are related to marketing mix.
• Marketing strategies deals with following :
Development of
Evaluation & implementation Define marketing  Product or Market
Program, budget
control of marketing plan strategy
& procedures Pricing
Distribution
Promotion

77 78

13
 9/25/2021

Industry Analysis Studying Industry Trends

Assessing Industry Attractiveness •Environmental Trends

• Include economic trends, social trends, technological
advances, and political and regulatory changes.
Study Environmental The Five Competitive • For example, industries that sell products to seniors are
and Business Trends Forces Model benefiting by the aging of the population.
•Business Trends
• Other trends that impact an industry.
• For example, are profit margins in the industry increasing or
falling? Is innovation accelerating or decreasing? Are input
costs going up or down?
5-79 5-80

79 80

The Five Competitive Forces Model

The Five Competitive Forces Model
• The industry environment is the set of factors that directly influence
sa firm and its competitive actions and competitive responses which
are :
1.Threat of new entrants
2.The power of suppliers
3.The power of buyers
4.The Threat of products substitutes
5.The intensity of rivalry among competitors.

5-82

81 82

Threat of New Entrants Barriers to Entry

• The new entrants brings additional production capacity as they
can threaten the market share of existing competitors.
• This might result in less revenue and lower returns for the
existing firms.
Access to
• The new entrants normally have a keen interest in gaining a large Economies of Capital Product
distribution
market share which may force the existing firms to be efficient Scales Requirement differentiation
channel
and competitive.
• There are two factors that determine the likelihood that firms will
enter and industry. Cost
disadvantages
Switching costs Government policy
independent of
scale
Barriers to Expected
Entry Retaliation

83 84

14
 9/25/2021

Economies of Scale Capital requirement

• Economies of scale are derived from incremental efficiency • A firm needs capital for physical facilities, inventories, marketing
improvements through experience as a firms grows larger. activities and other business functions.
• They are developed in functional units as marketing, production, • It would be risky of the new firms to invest heavily for market if the
research and development and finance. capital requirement is very high.
• If the existing firms are running in economies of scale, it poses
barriers for the new entrants.

85 86

Product differentiation Access to distribution channel

• Product differentiation is a marketing process that showcases the • A distribution channel is a chain of businesses or intermediaries through
differences between products. which a good or service passes until it reaches the end consumer.
• Differentiation looks to make a product more attractive by • It can include wholesalers, retailers, distributors and even the internet
contrasting its unique qualities with other competing products. itself.
• Successful product differentiation creates a competitive advantage • Channels are broken into direct and indirect forms, with a "direct" channel
for the product's seller, as customers view these products as being allowing the consumer to buy the good from the manufacturer,
unique or superior. • and an "indirect" channel allowing the consumer to buy the good from a
wholesaler or retailer
• Product differentiation enhances customer loyalty which is an barrier
for the new firms. • New entrants may not have strong distribution channel which creates entry
barrier to them.

87 88

Switching Cost Government policy

• Switching costs are the one time costs customers incur when they • Government can also control entry into an industry through licensing
buy from a different supplier. and permit requirements.
• If switching cost are high, a new entrant must offer either a • Liquor retailing, radio and TV broadcasting, banking and trucking are
substantial lower price or much better product to attract buyers. examples of industries in which government decisions and actions
• Hence, high switching cost of the products of existing firms crates may pose entry barrier for the new firms.
entry barriers for the new firms.

89 90

15
 9/25/2021

Cost disadvantage independent of scale Expected Retaliation

• The high level of retaliation by the exiting firms creates entry barrier to the
• Sometimes, established competitors have cost advantages that new new firms.
entrants cannot duplicate. Proprietary product technology, favorable • This is likely when the existing firms have a major stake in the industry with
access to raw materials, desirable locations, and government substantial resources and the industry grow is slow.
subsidies are example of it. • Factors that make retaliation a serious issue for market entrants include:
• The size of competitors and their ability to attack.
• The extent and duration of the retaliation.
• The number of competitors who retaliate.
• The ability of competitors to control access to resources, key suppliers
and market channels.
• Bias in governments or local bodies towards supporting existing firms.

91 92

Factor that determine the threats of

Threats of Substitutes substitutions
• Substitute products are the goods or services that perform similar function as a
product that the industry produces.
• For example, newspaper by internet source, Dial up by cable internet, etc. Relative price
• In general, product substitutes pose a strong threat to a firms when switching
costs and the price of substitute products are lower with similar quality or
performance Switching Cost
performance. of substitutes
• There are different forms of substitution such as :
1. Product for product substitution: under this product substitutes another product, eg tea by
coffee.
2. Substitution of need: It is the substitution of the existing product by a new product, eg paper
Buyers
letter by email.
3. Generic substitution: Under this, a product substitutes the disposable income. Eg.
propensity to
Substitution of travelling by a motorcycle. substitute

93 94

Relative price performance of Switching Cost

substitutes
• If the substitute products price is lower or its quality and • If the switching cost of the substitutes is relatively low, the threaten
performance are equal to or greater, there is always the possibility of of substitution is very high.
substitution. • Example, DishTV vs Digital Cable TV service provider
• For example : Samsung mobile vs other international brand of mobile NTC internet ADSL VS Cable internet
like LG, HTC, SONY, Motorola etc.

95 96

16
 9/25/2021

Buyer’s propensity to substitute Bargaining power of the Supplier

• Supplier exert pressure over the firms on price and quality of the
products. The following are some of the conditions where the
• If the propensity of the buyer towards the substitute is high, there is suppliers power is high.
always a high threat of substitute.
• For example : Nepalese youth’s propensity towards IPhone.
Bargaining
power of the
supplier

large and
Fragmented Forward
monopoly Few substitutes Powerful brand
buyers integration
supplier

97 98

Bargaining power of the Supplier Competitive Rivalry

1.Large and Monopoly supplier: If the suppliers are large and enjoy • Competitive rivalry intensifies when a firms is challenged by a
monopoly, their bargaining power is high. competitor’s actions or when it recognizes an opportunity to improve
2.Few substitutes : If the number of substitutes is low, the bargaining its market positions.
power of the supplier is high. • Industry rivalry usually takes the form of jockeying for position using
3.Powerful brand: If the product brand of the suppliers is very strong, it various tactics for example:
makes them more powerful. • price competition,
• advertising battles,
4.Fragmented buyers: If the customers are not organized and • product introductions.
centralized, they have less bargaining power making the suppliers
more powerful. • The following are some of the conditions in which the competitive
rivalry is high.

99 100

1.Large number of competitors: if there is a large number of competing 5. Capital utilization: if the competing firms are operating in full
firms, the competitive rivalry increase. capacity, it leads to price war making competitive rivalry among them.
2.Balance among the competitors: If the size and capability of the firm
in the industry are similar, their level of competition increases. 6. Low market growth : If the product is in maturity stage of it life cycle,
its sales may decrease as a result of which the firms compete for
3.Higher exit barrier: If there is a high exit barrier for the firms from the market.
industry, they are forced to exist in the industry as a result of which
the competitive rivalry increases. 7. Global customer : If the customers are global, the firms compete
4.Lack of product differentiation: If there is a lack of product with better resources and strategies to gain market. It increase the
differentiation among the competitors, the switching cost is low competition at global level.
among the competitive rivalry high.

101 102

17
 9/25/2021

Monitoring the Competitors Competitors Analysis

( Competitors Analysis) Answer questions such as:
• Who are your competitors?
• What products or services do they sell?
• A competitive analysis is a critical part of the company marketing plan. • What is each competitor's market share?
• With evaluation, company can establish what makes their product or • What are their past strategies?
service unique. • What are their current strategies?
• Evaluate competitors by placing them in strategic groups according to • What type of media are used to market their products or services?
how directly they compete for a share of the customer.
• How many hours per week do they purchase to advertise through the
• For each competitor or strategic group, list product or service, its media used in this market?
profitability, growth pattern, marketing objectives and assumptions, • What are each competitor's strengths and weaknesses?
current and past strategies, organizational and cost structure, • What potential threats do your competitors pose?
strengths and weaknesses, and size (in sales) of the competitor's
• What potential opportunities do they make available for you?
business.

103 104

105

18