Before a business decides where it’s going, it needs to know where it is right now. That sounds obvious. But plenty of marketing plans jump straight to goals and tactics without ever pinning down the starting point.
That’s the job of the situation analysis. It’s an honest look at the business and the market it operates in, done before any objectives are set.
What is a Situation Analysis?
A situation analysis is the section of a marketing plan that looks at the current state of the business, its customers, its competitors and the wider environment.
In other words, it answers the question “where are we now?” It comes before the objectives, because objectives that ignore the current situation are really just guesses.
Let’s use one example throughout. Imagine a marketing manager at a mid-sized furniture retailer who has been asked to write next year’s marketing plan. It’s tempting to jump straight to ideas: more social media ads, a loyalty program, a new store in another city.
But should we do any of those things? We can’t tell yet. Is the retailer losing customers to a cheaper competitor? Is the brand seen as old-fashioned? Is a supply problem limiting what it can sell? The situation analysis answers these questions first.
Why Does It Need to Be Honest?
A situation analysis is not the place to talk up the brand. If repeat purchases are falling, or a competitor has just launched a cheaper range, the analysis needs to say so plainly.
Leaving out an uncomfortable fact doesn’t make the problem go away. It just means the plan built on top of it is more likely to fail.
What Does a Situation Analysis Cover?
There’s no single required format. But most situation analyses look at both internal factors (inside the business) and external factors (outside it). Two frameworks are used a lot: SWOT and the 5Cs.
SWOT Analysis
SWOT analysis sorts the findings into four boxes:
- Strengths (internal): what the business does well
- Weaknesses (internal): where it falls short
- Opportunities (external): changes in the market it could take advantage of
- Threats (external): changes that could hurt it
For our furniture retailer, a strength might be a well-regarded in-house design team. A weakness might be a website that hasn’t been updated in years. An opportunity might be growing interest in sustainably sourced timber. And a threat might be a large online furniture brand arriving with lower prices.
None of these are good or bad in themselves. They’re simply facts that need to be on the table before the plan is written.
The 5Cs
SWOT is good for summarizing. The 5Cs are often more useful for gathering the information in the first place. They ask us to look at five areas:
- Company: the business’s resources, skills, finances and past results
- Customers: who buys, why they buy, and how their needs are changing
- Competitors: who else serves those customers, and how they might respond to our moves
- Collaborators: suppliers, distributors, agencies and other partners
- Climate (sometimes called context): the wider environment, such as the economy, technology, social trends and regulation
The climate area is where a PEST analysis often fits in, as PEST is a tool for scanning the political, economic, social and technological environment.
Do we need to use both frameworks? Not necessarily. A common approach is to use the 5Cs to gather the research, and then summarize the key findings in a SWOT at the end.
Where Does the Information Come From?
None of this works without real information. A situation analysis usually draws on a mix of sources:
- Internal sales data, financial reports and customer service records
- Customer surveys, interviews or focus groups
- Competitor websites, prices and announcements
- Industry reports and trade publications
- Website analytics and social media data
The aim isn’t to collect every piece of data available. It’s to gather enough evidence to answer the questions the plan depends on. A small retailer doesn’t need the research budget of a national chain, but both need conclusions based on evidence rather than assumptions.
What Might Our Furniture Retailer Find?
Let’s go back to the furniture retailer and work through a simplified version.
- Company: healthy cash reserves and loyal repeat customers, but the warehouse and delivery operation hasn’t kept up with online orders.
- Customers: research shows they’ve become more price-sensitive since the online competitor arrived, and they now expect delivery within a week. The retailer currently takes three to four weeks.
- Competitors: the online brand is cheaper, but has weaker customer service and no showroom.
- Climate: rising shipping costs are squeezing margins across the whole industry.
So what does this tell the manager? The retailer probably can’t win on price. Its advantage is service and the showroom experience. But slow delivery is costing it customers, so that needs fixing first.
The situation analysis doesn’t hand the business a strategy. It makes sure the strategy that follows is responding to what’s really going on.
Why Does the Situation Analysis Come First?
Suppose the retailer skipped this step and set an objective to grow online sales by 20% next year. Sounds reasonable, doesn’t it?
But if the real problem is slow delivery, a growth target on its own won’t fix anything. The objective isn’t wrong. It’s just disconnected from what’s holding the business back.
With the situation analysis done, the plan can still aim for online growth. But now it starts with the actual problem, improving delivery times, and treats online sales growth as the result.
What are the Common Mistakes?
The first is treating it as a box-ticking exercise. A weakness like “faces strong competition” could apply to almost any business, so it tells us nothing. A specific one, like “our delivery takes three weeks longer than the main online competitor,” gives the plan something to work with.
The second is only looking at one side. Some plans focus on internal factors and skip the market. Others study competitors closely but ignore the business’s own capabilities. We need both, because an opportunity is no use if the business can’t act on it.
