Indeed, Business Viability Analysis is a boring topic. But this is also the most critical component of your business & merchandising plans which provides direction on the potential market environment, market demand and supply, and to extent, guides your potential market direction decisions. Note that business modeling is beyond the scope of this article.
I have sequestered the Business Viability Analysis into two major categories, viz. Overview Evaluation models and Your Domain Business Evaluation models. The former includes Porter's 5 Competitive Forces Model, P.E.S.T. Analysis. The last mentioned includes SWOT Analysis Matrix, Target Segment Analysis, Product Life Cycle Analysis, Competitive Advantage Model, Product Growth Directions, BCG Matrix. Both set of models will help you to qualify if the business in question is viable from market demand supply besides as potential market perspectives.
1. Porter's 5 Competitive Forces Model
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Porter's 5 Competitive Forces model is developed by Michael E. Porter, an important strategic analysis from a broad market environment perspective. It explores the 5 major factors viz. Bargaining Power of Supplier, Customer Power/Buyer Power, New Entry Threats, Substitution Threats & Competition Rivalry.
These 5 forces are interdependent, influencing and interplaying with each other at any given point in time. This is a model which inevitably to be revisited on a consistent basis, usually, over a half yearly time frame for re-evaluation of market trend.
2. P.E.S.T. Analysis
Doing your "PEST control" ensures good health a strong pulse for your business. PEST analysis in essence means macro environmental evaluations such as Political & Legal, Economic, Social & Cultural, besides as Technological.
Economic environment could make or break your business. In 2008, the US sub-prime issue became a global business crisis which not only affected the hoexploitation market but nearly every aspect of the economy by virtue of its spillover effect. The interest rate at time of writing, is 2%, a far cry from 4% a year ago. Banks tighten their lending belts and business loan adoption become more difficult to obtain. But if you manage to get that business loan, you should be incurring a much lower interest repayment.
One Social factor which is growing in grandness is the environment. Every large corporation nowadays are involved in one way or other in reduction carbon emission to the ozone and in dealing with climate change.
3. SWOT Analysis Matrix
SWOT Analysis, is the acronym for Strengths, Weaknesses, Opportunities & Threats moving your business. Strengths component analyses internal capabilities throughout all business functions which could become unique propositions when mapping out business strategies. Weaknesses analyses the internal gaps in current state. Likewise, Opportunities & Threats analyse your business's external environment which could produce to opportunities or threats to your business. This is a fluid cheat sheet (not whole complete & you should append thereto to cater to your own business type) which should be revisited annually as a reality business stop-check.
4. Target Segment Analysis
This is a very critical section of the merchandising plan which helps you with your market segmentation and defines your target markets. Define & segment your clientèle-base into Primary & Secondary Target market groups exploitation demographic and psychographic information. Demographic data includes age, income group, geographic location etc. Psychographic data includes life-stage inevitably, lifestyle, consumer buying behavior etc. Upon completion, you would have a better gauge on the potential size of your target segments. You may adjust the segments to match your products, thereby expanding your segments for greater potential.
5. Competitive Advantage Model
The Competitive Advantage Model by Michael E. Porter suggests 4 approaches benchmarking against your competitors viz., Cost Leadership, differentiation or focus with 2 variants.
Cost Leadership scheme means leading in a low cost pricing scheme inside your industry. This is achieved from economies of scale. You must near only dominate this competitive space otherwise more than one company in that space will cause a price war.
Differentiation scheme indicates unique value proposition, viz. in areas such as the product, service, image, distribution, merchandising etc or a combination of them.
Focus scheme aspires to be the best in a focused segment, with 2 variants of cost focus and differentiation focus
6. Product Life Cycle Analysis
The Product Life Cycle Analysis helps you to identify the stage of your product. All products go through four stages, viz. the Introduction, Growth, Maturity & Decline stage. Every product has a life cycle. You need to know each of your products' life cycles thoroughly in order to plan to phase their life-stage crosswise the horizon.
This analysis is a fluid document which inevitably to be revisited annually for provision purpose. If you believe that your product has other potential uses not maximized currently, you should pro-actively anticipate rejuvenating the life cycles of such products at their matured and declining stages.
7. Product Growth Directions
Product Growth Directions illuminate the possible growth approaches you can adopt in driving your product sales. This is a ground substance which maps your product growth strategies crosswise new vs existing markets and products. Potentially, the four segments are Market penetration, Market development, Diversification besides as Product Development. Market penetration in essence denotes leverage new markets with existing products. Market development means making inroads on existing markets & products. Diversification indicates leverage on existing markets with new products. And of course, Product development is expansion into new markets with new products.
8. BCG Matrix
Boston Consulting Group developed this BCG Matrix which helps you to determine what priorities should run in your product portfolio of a product. It has in essence two dimensions - market share and market growth rate, with 4 categories fitting into these quadrants.
Stars = Leaders of the Business - Products with high growth rate & high market share. Generates high cashflow and requires high cash input. Usually, Net cashflow is flat.
Cash Cows = Foundation of the Business (stars of yester years) - Products with low growth rate & high market share. They generates high cashflow with low cash input requirements.
Dogs = Drags of the Business - Products with low growth rate & low market share. They must be avoided whenever possible. Liquidate as many as possible.
Question Marks = Ambiguity of the Business - Products with high growth rate & low market share. Have high cash demand and low returns. If keeping question marks, you must ensure increase in market share and deliver cash.
The identification of your products at the various categories will enlighten you to apply the correct growth & funding scheme. For instance, cash extract could be provided to fund Question Marks &/or Stars to drive them towards the next level - Cash Cow positions.
True application of all the above mentioned viability analyzes is a accumulative interplay of the different models, although they are developed on an individual basi by separate strategists. I advocate a broad yet conjugative approach to the application as in that lies great mutuality of each to the other.
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