{"id":25,"date":"2014-08-19T07:16:26","date_gmt":"2014-08-19T07:16:26","guid":{"rendered":"https:\/\/courses.candelalearning.com\/principlesmktg1x2kscope\/?post_type=chapter&p=25"},"modified":"2019-06-25T12:19:55","modified_gmt":"2019-06-25T12:19:55","slug":"2-2-components-of-the-strategic-planning-process","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/oakwood-principlesofmarketing\/chapter\/2-2-components-of-the-strategic-planning-process\/","title":{"raw":"Components of the Strategic Planning Process","rendered":"Components of the Strategic Planning Process"},"content":{"raw":"
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Learning Objectives<\/h3>\r\n
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  1. Explain how a mission statement helps a company with its strategic planning.<\/li>\r\n\t
  2. Describe how a firm analyzes its internal environment.<\/li>\r\n\t
  3. Describe the external environment a firm may face and how it is analyzed.<\/li>\r\n<\/ol>\r\n<\/div>\r\nStrategic planning is a process that helps an organization allocate its resources to capitalize on opportunities in the marketplace. Typically, it is a long-term process. The strategic planning process<\/span><\/span> includes conducting a situation analysis and developing the organization\u2019s mission statement, objectives, value proposition, and strategies. Figure 2.2 \"The Strategic Planning Process\" shows the components of the strategic planning process. Let\u2019s now look at each of these components.\r\n
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    Conducting a Situation Analysis<\/h2>\r\nAs part of the strategic planning process, a situation analysis<\/span><\/span> must be conducted before a company can decide on specific actions. A situation analysis involves analyzing both the external (macro and micro factors outside the organization) and the internal (company) environments. Figure 2.2 \"The Strategic Planning Process\" and Figure 2.3 \"Elements of a SWOT Analysis\" show examples of internal and external factors and in a SWOT analysis. The firm\u2019s internal environment\u2014such as its financial resources, technological resources, and the capabilities of its personnel and their performance\u2014has to be examined. It is also critical to examine the external macro and micro environments the firm faces, such as the economy and its competitors. The external environment significantly affects the decisions a firm makes, and thus must be continuously evaluated. For example, during the economic downturn in 2008\u20132009, businesses found that many competitors cut the prices of their products drastically. Other companies reduced package sizes or the amount of product in packages. Firms also offered customers incentives (free shipping, free gift cards with purchase, rebates, etc.) to purchase their goods and services online, which allowed businesses to cut back on the personnel needed to staff their brick-and-mortar stores. While a business cannot control things such as the economy, changes in demographic trends, or what competitors do, it must decide what actions to take to remain competitive\u2014actions that depend in part on their internal environment.\r\n\r\n<\/div>\r\n<\/div>\r\n \r\n
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    Conducting a SWOT Analysis<\/h2>\r\nBased on the situation analysis, organizations analyze their s<\/strong>trengths, w<\/strong>eaknesses, o<\/strong>pportunities, and t<\/strong>hreats, or conduct what\u2019s called a SWOT analysis<\/span><\/span>. Strengths and weaknesses are internal factors and are somewhat controllable. For example, an organization\u2019s strengths might include its brand name, efficient distribution network, reputation for great service, and strong financial position. A firm\u2019s weaknesses might include lack of awareness of its products in the marketplace, a lack of human resources talent, and a poor location. Opportunities and threats are factors that are external to the firm and largely uncontrollable. Opportunities might entail the international demand for the type of products the firm makes, few competitors, and favorable social trends such as people living longer. Threats might include a bad economy, high interest rates that increase a firm\u2019s borrowing costs, and an aging population that makes it hard for the business to find workers.\r\n\r\nYou can conduct a SWOT analysis of yourself to help determine your competitive advantage. Perhaps your strengths include strong leadership abilities and communication skills, whereas your weaknesses include a lack of organization. Opportunities for you might exist in specific careers and industries; however, the economy and other people competing for the same position might be threats. Moreover, a factor that is a strength for one person (say, strong accounting skills) might be a weakness for another person (poor accounting skills). The same is true for businesses. See Figure 2.3 \"Elements of a SWOT Analysis\" for an illustration of some of the factors examined in a SWOT analysis.\r\n
    \r\n\r\n\"\"<\/a>\r\n\r\n<\/div>\r\nThe easiest way to determine if a factor is external or internal is to take away the company, organization, or individual and see if the factor still exists. Internal factors such as strengths and weaknesses are specific to a company or individual, whereas external factors such as opportunities and threats affect multiple individuals and organizations in the marketplace. For example, if you are doing a situation analysis on PepsiCo and are looking at the weak economy, take PepsiCo out of the picture and see what factors remain. If the factor\u2014the weak economy\u2014is still there, it is an external factor. Even if PepsiCo hadn\u2019t been around in 2008\u20132009, the weak economy reduced consumer spending and affected a lot of companies.\r\n\r\n<\/div>\r\n
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    Assessing the Internal Environment<\/h2>\r\nAs we have indicated, when an organization evaluates which factors are its strengths and weaknesses, it is assessing its internal environment. Once companies determine their strengths, they can use those strengths to capitalize on opportunities and develop their competitive advantage. For example, strengths for PepsiCo are what are called \u201cmega\u201d brands, or brands that individually generate over $1 billion in sales.\r\n<\/span>\r\n\r\nPepsiCo\u2019s brand awareness, profitability, and strong presence in global markets are also strengths. Especially in foreign markets, the loyalty of a firm\u2019s employees can be a major strength, which can provide it with a competitive advantage. Loyal and knowledgeable employees are easier to train and tend to develop better relationships with customers. This helps organizations pursue more opportunities.\r\n\r\nAlthough the brand awareness for PepsiCo\u2019s products is strong, smaller companies often struggle with weaknesses such as low brand awareness, low financial reserves, and poor locations. When organizations assess their internal environments, they must look at factors such as performance and costs as well as brand awareness and location. Managers need to examine both the past and current strategies of their firms and determine what strategies succeeded and which ones failed. This helps a company plan its future actions and improves the odds they will be successful. For example, a company might look at packaging that worked very well for a product and use the same type of packaging for new products. Firms may also look at customers\u2019 reactions to changes in products, including packaging, to see what works and doesn\u2019t work. When PepsiCo changed the packaging of major brands in 2008, customers had mixed responses. Tropicana switched from the familiar orange with the straw in it to a new package and customers did not like it. As a result, Tropicana changed back to their familiar orange with a straw after spending $35 million for the new package design.\r\n
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    Video Clip<\/h3>\r\nTropicana\u2019s Recent Ad\r\n\r\nhttp:\/\/youtu.be\/LDnkqlnhGGI\r\n\r\nTropicana\u2019s recent ad left out the familiar orange with a straw.\r\n\r\n<\/div>\r\nIndividuals are also wise to look at the strategies they have tried in the past to see which ones failed and which ones succeeded. Have you ever done poorly on an exam? Was it the instructor\u2019s fault, the strategy you used to study, or did you decide not to study? See which strategies work best for you and perhaps try the same type of strategies for future exams. If a strategy did not work, see what went wrong and change it. Doing so is similar to what organizations do when they analyze their internal environments.\r\n\r\n<\/div>\r\n
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    Assessing the External Environment<\/h2>\r\nAnalyzing the external environment involves tracking conditions in the macro and micro marketplace that, although largely uncontrollable, affect the way an organization does business. The macro environment includes economic factors, demographic trends, cultural and social trends, political and legal regulations, technological changes, and the price and availability of natural resources. Each factor in the macro environment is discussed separately in the next section. The micro environment includes competition, suppliers, marketing intermediaries (retailers, wholesalers), the public, the company, and customers. We focus on competition in our discussion of the external environment in the chapter. Customers, including the public, and marketing intermediaries and suppliers will be discussed later in the course\r\n\r\nWhen firms globalize, analyzing the environment becomes more complex because they must examine the external environment in each country in which they do business. Regulations, competitors, technological development, and the economy may be different in each country and will affect how firms do business. To see how factors in the external environment such as technology may change education and lives of people around the world, watch the videos \u201cDid You Know 2.0?\u201d and \u201cDid You Know 4.0?\u201d which provide information on social media sites compared to populations in the world. Originally created in 2006 and revised in 2007, the video has been updated and translated into other languages. Another edition of \u201cDid You Know?\u201d (4.0) focused on changing media and technology and showed how information may change the world as well as the way people communicate and conduct business.\r\n
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    Video Clip<\/h3>\r\nDid You Know 2.0?\r\n\r\n<\/div>\r\n
    http:\/\/youtu.be\/pMcfrLYDm2U<\/div>\r\n
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    To see how the external environment and world are changing and in turn affecting marketing strategies, check out \u201cDid You Know 2.0?\u201d<\/div>\r\n
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    Video Clip<\/h3>\r\nDid You Know 4.0?\r\n\r\nhttp:\/\/youtu.be\/6ILQrUrEWe8\r\n\r\nAlthough the external environment affects all organizations, companies must focus on factors that are relevant for their operations. For example, government regulations on food packaging will affect PepsiCo but not Goodyear. Similarly, students getting a business degree don\u2019t need to focus on job opportunities for registered nurses.\r\n\r\n<\/div>\r\n
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    The Competitive Environment<\/h2>\r\nAll organizations must consider their competition, whether it is direct or indirect competition vying for the consumer\u2019s dollar. Both nonprofit and for-profit organizations compete for customers\u2019 resources. Coke and Pepsi are direct competitors in the soft drink industry, Hilton and Sheraton are competitors in the hospitality industry, and organizations such as United Way and the American Cancer Society compete for resources in the nonprofit sector. However, hotels must also consider other options that people have when selecting a place to stay, such as hostels, dorms, bed and breakfasts, or rental homes.\r\n\r\nA group of competitors that provide similar products or services form an industry. Michael Porter, a professor at Harvard University and a leading authority on competitive strategy, developed an approach for analyzing industries. Called the five forces model\u00a0and shown in Figure 2.5 \"Five Forces Model\", the framework helps organizations understand their current competitors as well as organizations that could become competitors in the future. As such, firms can find the best way to defend their position in the industry.\r\n
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    Competitive Analysis<\/h2>\r\nWhen a firm conducts a competitive analysis, they tend to focus on direct competitors and try to determine a firm\u2019s strengths and weaknesses, its image, and its resources. Doing so helps the firm figure out how much money a competitor may be able to spend on things such as research, new product development, promotion, and new locations. Competitive analysis involves looking at any information (annual reports, financial statements, news stories, observation details obtained on visits, etc.) available on competitors. Another means of collecting competitive information utilizes mystery shoppers<\/span><\/span>, or people who act like customers. Mystery shoppers might visit competitors to learn about their customer service and their products. Imagine going to a competitor\u2019s restaurant and studying the menu and the prices and watching customers to see what items are popular and then changing your menu to better compete. Competitors battle for the customer\u2019s dollar and they must know what other firms are doing. Individuals and teams also compete for jobs, titles, and prizes and must figure out the competitors\u2019 weaknesses and plans in order to take advantage of their strengths and have a better chance of winning.\r\n\r\nAccording to Porter, in addition to their direct competitors (competitive rivals), organizations must consider the strength and impact the following could have:\r\n