Customer Analysis External analysis also involves an analysis of customers or potential customers, notably an analysis of their needs and price sensitivity. In particular, the strategist can make better decisions about how to offer unique value by considering groups of customers who all have similar needs. This is called customer segmentation analysis.20 For example, in the automobile industry, some customers want cars that are very stylish, powerful, luxurious, and packed with technology and gadgets. These customers are the focus of companies such as Porsche, Mercedes-Benz, BMW, and Lexus. Others want trucks with the capacity to haul heavy items and move easily over rough terrain. These customers are the focus of the truck divisions of Chevy and Ford. Still others want economy cars for basic transportation—the focus of Hyundai and Kia.
External analysis should enlighten managers about the competitive forces that influence the profitability of particular markets and industries, as well as opportunities and threats. In addition, it should shed light on what customers want and what they are willing to pay to have their needs met.
Internal Analysis Whereas external analysis focuses on a company’s industry, customers, and competitors, internal analysis focuses on the company itself. Internal analysis completes the SWOT by focusing on strengths and weaknesses. More formally, internal analysis involves an analysis of the company’s set of resources and capabilities that can be deployed—or should be developed—to deliver unique value to customers. We discuss internal analysis in greater detail in Chapter 3.
In the 1980s, the resource-based view of the firm, also known as the resource-based model, was developed to explain why some firms outperform other firms within the same industry.21 Why does Nucor make money in the steel business when most of its US competitors do not? Why does Southwest fly high in the air travel business while most of its competitors are (financially) grounded? The resource-based model assumes that each company is a collection of resources and capabilities (also referred to as competencies) that are deployed to deliver unique value.22
Firms that don’t have the resources and capabilities that are necessary to implement the strategies they are contemplating may need to improve, change, or possibly create them in order to offer unique value to their customers. This is where resource allocation becomes an
price sensitivity The degree to which the price of a product or service affects consumers’ willingness to purchase the product or service.
segmentation analysis Dividing up customers into groups or segments based on similar needs or wants.
resource-based review of firm Determining the strategic resources available to a company.