Analysing the marketing environment
4.6 Evaluating developments in the marketing environment
The kind of analysis described in the previous sections will generate a large amount of data. The process of SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is one of the simplest techniques for summarizing information about the marketing environment and guiding the direction of strategy. The information col- lected in the environmental analysis can be classified as either external (i.e. it relates to the outside environment) or internal (i.e. it relates to the organization itself).
External information may present the organization with an opportunity, or it may create a threat. Equally, internal information may describe either a strength or a weakness. Any evidence produced by the environmental analysis will therefore belong to one of these groups:
● Strength. Any particular resource or competence that will help the organization to achieve its objectives is classified as a strength. This may relate to experience in specific types of markets – for example, HSBC may point to its accumulated knowledge of Asian markets. Specific skills or abilities may also constitute a strength, as will resources such as a strong brand image, or an extensive branch or ATM network.
● Weakness. A weakness describes any aspect of the organization that may hinder the achievement of specific objectives. Weaknesses are often the opposite of strengths, so, for example, a small branch network, poor internal information sys- tems or an unfavourable brand image may all constitute weaknesses.
● Opportunity. Any feature of the external environment that is advantageous to the organization, given its objectives, is classed as an opportunity. Credit card issuers may see the growing demand for foreign travel as an opportunity to increase the sale of credit cards. Insurers looking at the Chinese market might see the current low take-up of life insurance as an opportunity.
● Threat. A threat is any environmental development that will create problems for an organization in achieving its specific objectives. Opportunities for one organi- zation may be a threat for others. The efforts of the EU to create a single market in financial services might be classed as a threat by some providers because of its potential to increase competition.
Once information has been classified in this way, it can be presented as a matrix of strengths, weaknesses, opportunities and threats. For SWOT analysis to be of value it is important to ensure that strengths and weaknesses are internal factors specific to the organization, and that opportunities and threats are factors which are present in the external environment and are independent of the organization.
A common mistake in SWOT analysis is to confuse opportunities and threats with strategies and tactics. For example, the ability to contact customers via direct mail is not an opportunity, it is a marketing tactic. The relevant opportunity would be the existence of a segment in the market that would respond favourably to promotion via direct mail.
Given the volume of information, a SWOT analysis should concentrate only on the most important strengths, weaknesses, opportunities and threats. Whether something is important depends upon how likely it is to happen and how signifi- cant its effect would be. Thus, for example, a provider of housing finance may con- sider a major economic downturn to be something that would have a big impact on new and existing business, but if the likelihood of this happening is low, then this factor should not be seen as a serious threat. In the example in Figure 4.4, the infor- mation in each cell is ranked to account for these factors.
Having formulated this matrix, it then becomes feasible to make use of SWOT analysis in guiding strategy formulation. The two major strategic options are:
1. Matching, which entails finding (where possible) a match between the strengths of the organization and the opportunities presented by the market. Strengths that do not match any available opportunity are of limited use, while opportunities that do not have any matching strengths are of little immediate value from a strategic perspective. Thus, for example, the bank in Figure 4.4 may consider a strategy of using its captive account base to pursue a strategy of cross-selling
other financial products through direct mail campaigns that emphasize the bank’s trustworthy image.
2. Conversion, which requires the development of strategies that will convert weak- nesses into strengths in order to take advantage of some particular opportunity, or converting threats into opportunities which can then be matched by existing strengths.
Case study 4.1 shows how the Czech insurer Kooperativa was able to build on key strengths, relating to staff skills, expertise and willingness to learn, to exploit the oppor- tunities created by liberalization and the low penetration of insurance products.
Strengths
1. Large captive account base 2. Extensive branch network 3. Adequate capital for expansion 4. Considered trustworthy
Weaknesses
1. Underdeveloped selling skills 2. High cost structures
3. Inflexible information systems 4. Historic banking culture
Opportunities
1. Increased demand for personal financial services
2. Rising personal wealth
3. Growth in demand from younger sections of population
4. Easier future access to European markets
Threats
1. Competition from non-bank suppliers of personal financial services 2. Consumers becoming more critical 3. Consumers have higher expectations of services
4. Potential for increased competition from elsewhere in Europe
Figure 4.4 SWOT Analysis for a UK clearing bank in relation to the market for personal financial services (adapted from Ennew, 1993).
Case study 4.1 Kooperativa Insurance Company Ltd
Kooperativa pojistovna a.s. (Kooperativa Insurance Company Ltd.) is one of the largest and fastest-growing insurance companies in post-Communist Eastern Europe. In just 15 years it has grown from scratch to become the Czech Republic’s second largest insurance company, with a record-breaking US$1.1bn of written premiums in 2005.
Case study 4.1 Kooperativa Insurance Company Ltd—cont’d
The following factors have been of significance in enabling Kooperativa to achieve its success:
● the formation of a group of competent and well-skilled staff from the insur- ance business who were willing to take the risks associated with leaving the former monopolist company to set up the new venture
● support from shareholders, chief of which was Wiener Staedtische Allgemeinge Versicherung
● a favourable backdrop whereby the Czech insurance market was open to new kinds of insurance
● the extensive use of reinsurance to hedge risk
● a willingness to gain know-how from foreign shareholders and reinsurers.
Kooperativa strengthened its position as second in the market, and by the end of 2005 its market share had increased to 22.9 per cent; non-life insurance accounted for 28.9 per cent of the market. Life assurance written premiums had grown by 25 per cent to a total of CZK 6 billion. It has more than two million clients – indeed, Kooperativa insures every fifth Czech citizen. The financial results are also positive; for example, in 2004 Kooperativa achieved a gross profit of CZK 765 million (US$30m) and in 2005 it was CZK 1300 million (US$52m) – a year on year increase in profit before tax of 11.9 per cent and 70 per cent respectively.
Today, Kooperativa offers a complete insurance service for all kinds of clients – business as well as individuals. Its product range comprises general insurance and life assurance, including insurance for liability risks. From the beginning, Kooperativa positioned itself in the market with an individual approach to the client – a new phenomenon in the Czech insurance market. For the country’s bud- ding new entrepreneurs, it has helped to identify the risks that most endanger their economic prospects in both their personal and business affairs. It offers modern contracts drafted in order to inconvenience them as little as possible.
Being simple and quick to complete, they save time and provide a wide range of insurance coverage according to customers’ wishes, needs and financial possibil- ities – from its very start the company has always provided insurance to fit closely both their product and service needs.
Another reason for Kooperativa’s success is the quality of its claims adjustment.
This includes the ability to report losses by telephone, the use of up-to-date meth- ods of communication, and technologies such as digitalization and the Internet.
In 2004, the company acquired four smaller insurance businesses and estab- lished the development of a strategic co-operation with the Ceska Sporitelna Financial Group (one of the biggest Czech banks). These events represented the company’s response to changes in its business environment – including: the Czech Republic’s entry into the European Union, new competition, and the continuing adaptation of the Czech market to the up-to-date insurance trends found in more commercially advanced countries. This has enabled Kooperativa to respond to the
Continued
SWOT analysis is probably one of the most widely used tools in marketing and strategic planning, and is simply a method of structuring information of both a qual- itative and a quantitative nature. Its advantages arise from the fact that it is easy to use, does not require formal training and therefore is accessible to all levels of man- agement across a broad field. This simple technique provides a method of organiz- ing information and identifying possible problems and future strategic directions.