A marketing framework for analyzing a company's operating environment
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5C Analysis is a marketing framework to analyze the environment in which a company operates. It can provide insight into the key drivers of success, as well as the risk exposure to various environmental factors. The 5Cs are Company, Collaborators, Customers, Competitors, and Context.
When analyzing a company using the 5C marketing framework, the key issue is to identify the Sustainable Competitive Advantage that belongs to the focal company. It can be in the form of brand equity, economies of scale, technological development, etc. To identify if the focal company has a sustainable competitive advantage, the VRIO (Variable Rare Imitable Organized) model can be utilized to distinguish if a company’s assets offer a temporary or sustainable advantage.
Collaborators are entities that allow or enhance a company’s ability to provide its particular good or service in the way that it does. This factor primarily revolves around a company’s supply chain, that ranges from spot contracts up to quasi-vertical integration. The direction of integration can only be upstream, as downstream collaborators are more specifically defined as customers in the 5C Analysis framework.
The group of potential customers a company can reach with its products or services can be broken down into three main sizes: Total Available Market, Serviceable Available Market, and the Serviceable Obtainable Market. The market segments may be further segmented through demographics, psychographics, geography, and other distinguishing factors.
The Total Available Market (TAM) is the most generalized customer segment that includes every possible customer that demands a particular product or service. The Serviceable Available Market (SAM) would be a subset of the TAM that is categorized by the potential use of a company’s product or service. The Serviceable Obtainable Market (SOM) sub-segment of the market is the narrowest definition that specifies the segment of a market that a company could realistically aim to capture.
Competition can be found in the form of other companies operating in the same industry as the focal company. To determine the industry, industry classification systems such as the North American Industry Classification System exist to provide a standardized method of defining an industry.
One common metric to identify players of interest is to examine their market share within the industry. It is typically stated through the concentration ratio CR4, which shows the percentage of the market share held by the four largest firms in the industry.
Note, however, that industry classification systems may not provide a sufficiently thorough industry definition for certain companies. This can occur because a firm may operate across multiple industries or it may serve a niche market that differs from the traditional industry definition.
The context in which a business operates is most often analyzed with the use of PESTEL analysis. It provides coverage into the areas that may affect a business, but where the business exercises either no or limited control. Changes to contextual factors may impact the industry as a whole rather than a particular company. As such, an advantage experienced by such changes may not translate into a competitive advantage for the focal company or vice versa.
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