The best visualisation techniques to help intuitive but so-called “untrained” enterpreneurs to visualise their business , in terms of its internal and external environment are:
A. Porter’s 5-Force Framework and,
B. SWOT analysis
While Porter’s framework is concerned extensively with a business’s external environment, or, as business analysts like to call it, the ‘competitive’ environment, the SWOT analysis is centred around the internal environment in relation to the external one. Let us now analyse Wanda’s business using these 2 frameworks.
A. Porter’s 5-F for Wanda’s business: Let’s begin with a popular textbook representation of the 5F Framework.
The framework is centered around the idea of competetive rivalry and what promotes or diminishes it. Let us discuss each force one by one now in a way that makes it simpler for Wanda to understand.
F1: Bargaining power of Suppliers – In a sector where there is a large number of available sources for supply of raw materials that your business needs and where the transaction costs associated with changing suppliers (popularly known as Switching Cost) are low, suppliers have very limited bargaining power. They will often buckle and supply material at prices lower than the competitive market price to retain clients.
F2: Bargaining power of Buyers – In Wanda’s case, this depends mostly on a factor called WTP (Willingness To Pay) amongst her core consumer-group. Since she has started with the promise of delivering a more nutritious dog food variety in place of the cheap, commercially available ones, she has already categorised her product as a ‘niche’ product in the dog-food genre. Hence, it is very important for her to promote this idea and retain a niche consumer base that will buy from her even if switching cost is low. The target for her should always be to limit the bargaining power of buys with the promise of superior customised nutritional value compared to her cheaper commercially popular competitors.
F3: Threat of Substituents – The best way for Wanda to neutralise this threat is to invest a little more in marketing and advertising her own brand as offerring a better value for money to its consumers and protecting the pet’s health in the long run.
F4: Threat of New Entrants – No matter how hard businesses try, it is never possible to completely neutralise the threat of a new entrant. The best way to deal with it is to establish a captive consumer base who will not just buy your product regularly but also promote your brand to other potential consumers. This can also be done by providing inducements to some members of the captive consumer base by offering them a place at the stakeholder table and allowing them to have a small amount of decision-making authority.
F5: Competitive Rivalry – This is the most powerful and all-inclusive force. It is influenced by all the forces discussed earlier and has the potential to influence all of them in turn. Competitive rivalry among existing players in the market goes a long way in influencing competetive pricing of products. However, since Wanda has already set her business apart by making it a niche offering, she doesn’t really have to worry about big players in the dog food market like Pedigree. Her only concern should be other local dog-food manufacturers who might also be targeting a niche market.
B. SWOT Analysis for Wanda’s business:
From analysing the external environment, let’s move to the internal environment of Wanda’s business. For this she needs to ask herself the following set of questions.
Answers to these will lead her to a proper analysis of where she stands and how she can sustain herself profitably in her current environment.