SWOT Analysis

SWOT analysis is a simple framework for generating strategic alternatives from a

situation analysis. It is applicable to either the corporate level or the business unit
level and frequently appears in marketing plans. SWOT (sometimes referred to as
TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. The
SWOT framework was described in the late 1960's by Edmund P. Learned, C. Roland
Christiansen, Kenneth Andrews, and William D. Guth in Business Policy, Text and
Cases (Homewood, IL: Irwin, 1969). The General Electric Growth Council used this
form of analysis in the 1980's. Because it concentrates on the issues that potentially
have the most impact, the SWOT analysis is useful when a very limited amount of
time is available to address a complex strategic situation.

The following diagram shows how a SWOT analysis fits into a strategic situation
analysis.

Situation Analysis
/ \
Internal Analysis External Analysis
/ \ / \
Strengths Weaknesses Opportunities Threats
|
SWOT Profile

The internal and external situation analysis can produce a large amount of
information, much of which may not be highly relevant. The SWOT analysis can
serve as an interpretative filter to reduce the information to a manageable quantity
of key issues. The SWOT analysis classifies the internal aspects of the company as
strengths or weaknesses and the external situational factors as opportunities or
threats. Strengths can serve as a foundation for building a competitive advantage,
and weaknesses may hinder it. By understanding these four aspects of its situation,
a firm can better leverage its strengths, correct its weaknesses, capitalize on golden
opportunities, and deter potentially devastating threats.

Internal Analysis
The internal analysis is a comprehensive evaluation of the internal environment's
potential strengths and weaknesses. Factors should be evaluated across the
organization in areas such as:

* Company culture
* Company image
* Organizational structure
* Key staff
* Access to natural resources
 * Position on the experience curve
* Operational efficiency
* Operational capacity
* Brand awareness
* Market share
* Financial resources
* Exclusive contracts
* Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list of strengths
and weaknesses.

External Analysis
An opportunity is the chance to introduce a new product or service that can
generate superior returns. Opportunities can arise when changes occur in the
external environment. Many of these changes can be perceived as threats to the
market position of existing products and may necessitate a change in product
specifications or the development of new products in order for the firm to remain
competitive. Changes in the external environment may be related to:

* Customers
* Competitors
* Market trends
* Suppliers
* Partners
* Social changes
* New technology
* Economic environment
* Political and regulatory environment

The last four items in the above list are macro-environmental variables, and are
addressed in a PEST analysis.

The SWOT analysis summarizes the external environmental factors as a list of

opportunities and threats.
SWOT Profile

When the analysis has been completed, a SWOT profile can be generated and used
as the basis of goal setting, strategy formulation, and implementation. The
completed SWOT profile sometimes is arranged as follows:

When formulating strategy, the interaction of the quadrants in the SWOT profile
becomes important. For example, the strengths can be leveraged to pursue
opportunities and to avoid threats, and managers can be alerted to weaknesses
that might need to be overcome in order to successfully pursue opportunities.

Multiple Perspectives Needed

The method used to acquire the inputs to the SWOT matrix will affect the quality of
the analysis. If the information is obtained hastily during a quick interview with the
CEO, even though this one person may have a broad view of the company and
industry, the information would represent a single viewpoint. The quality of the
analysis will be improved greatly if interviews are held with a spectrum of
stakeholders such as employees, suppliers, customers, strategic partners, etc.

SWOT Analysis Limitations

While useful for reducing a large quantity of situational factors into a more
manageable profile, the SWOT framework has a tendency to oversimplify the
situation by classifying the firm's environmental factors into categories in which
they may not always fit. The classification of some factors as strengths or
weaknesses, or as opportunities or threats is somewhat arbitrary. For example, a
particular company culture can be either a strength or a weakness. A technological
change can be a either a threat or an opportunity. Perhaps what is more important
than the superficial classification of these factors is the firm's awareness of them
and its development of a strategic plan to use them to its advantage.

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PEST Analysis
A PEST analysis is an analysis of the external macro-environment that affects
all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological
factors of the external macro-environment. Such external factors usually are
beyond the firm's control and sometimes present themselves as threats. For this
reason, some say that "pest" is an appropriate term for these factors. However,
changes in the external environment also create new opportunities and the letters
sometimes are rearranged to construct the more optimistic term of STEP analysis.

Many macro-environmental factors are country-specific and a PEST analysis will

need to be performed for all countries of interest. The following are examples of
some of the factors that might be considered in a PEST analysis.

Political Analysis
* Political stability
* Risk of military invasion
* Legal framework for contract enforcement
* Intellectual property protection
* Trade regulations & tariffs
* Favored trading partners
* Anti-trust laws
* Pricing regulations
* Taxation - tax rates and incentives
* Wage legislation - minimum wage and overtime
* Work week
* Mandatory employee benefits
* Industrial safety regulations
* Product labeling requirements

Economic Analysis
* Type of economic system in countries of operation
* Government intervention in the free market
* Comparative advantages of host country
* Exchange rates & stability of host country currency
* Efficiency of financial markets
* Infrastructure quality
* Skill level of workforce
* Labor costs
* Business cycle stage (e.g. prosperity, recession, recovery)
* Economic growth rate
 * Discretionary income
* Unemployment rate
* Inflation rate
* Interest rates

Social Analysis
* Demographics
* Class structure
* Education
* Culture (gender roles, etc.)
* Entrepreneurial spirit
* Attitudes (health, environmental consciousness, etc.)
* Leisure interests

Technological Analysis
* Recent technological developments
* Technology's impact on product offering
* Impact on cost structure
* Impact on value chain structure
* Rate of technological diffusion

The number of macro-environmental factors is virtually unlimited. In practice, the

firm must prioritize and monitor those factors that influence its industry. Even so, it
may be difficult to forecast future trends with an acceptable level of accuracy. In
this regard, the firm may turn to scenario planning techniques to deal with high
levels of uncertainty in important macro-environmental variables.

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The Marketing Mix (The 4 P's of Marketing)

Marketing decisions generally fall into the following four controllable categories:
* Product
* Price
* Place (distribution)
* Promotion

The term "marketing mix" became popularized after Neil H. Borden published his
1964 article, The Concept of the Marketing Mix. Borden began using the term in his
teaching in the late 1940's after James Culliton had described the marketing
manager as a "mixer of ingredients". The ingredients in Borden's marketing mix
included product planning, pricing, branding, distribution channels, personal selling,
advertising, promotions, packaging, display, servicing, physical handling, and fact
finding and analysis. E. Jerome McCarthy later grouped these ingredients into the
four categories that today are known as the 4 P's of marketing, depicted below:
These four P's are the parameters that the marketing manager can control, subject
to the internal and external constraints of the marketing environment. The goal is to
make decisions that center the four P's on the customers in the target market in
order to create perceived value and generate a positive response.

Product Decisions
The term "product" refers to tangible, physical products as well as services. Here
are some examples of the product decisions to be made:

* Brand name
* Functionality
* Styling
* Quality
* Safety
* Packaging
* Repairs and Support
* Warranty
* Accessories and services

Price Decisions
Some examples of pricing decisions to be made include:

* Pricing strategy (skim, penetration, etc.)

* Suggested retail price
* Volume discounts and wholesale pricing
* Cash and early payment discounts
* Seasonal pricing
* Bundling
* Price flexibility
* Price discrimination

Distribution (Place) Decisions

Distribution is about getting the products to the customer. Some examples of
distribution decisions include:

* Distribution channels
* Market coverage (inclusive, selective, or exclusive distribution)
* Specific channel members
* Inventory management
* Warehousing
* Distribution centers
* Order processing
* Transportation
* Reverse logistics

Promotion Decisions
In the context of the marketing mix, promotion represents the various aspects of
marketing communication, that is, the communication of information about the
product with the goal of generating a positive customer response. Marketing
communication decisions include:

* Promotional strategy (push, pull, etc.)

* Advertising
* Personal selling & sales force
* Sales promotions
* Public relations & publicity
* Marketing communications budget

Limitations of the Marketing Mix Framework

The marketing mix framework was particularly useful in the early days of the
marketing concept when physical products represented a larger portion of the
economy. Today, with marketing more integrated into organizations and with a
wider variety of products and markets, some authors have attempted to extend its
usefulness by proposing a fifth P, such as packaging, people, process, etc. Today
however, the marketing mix most commonly remains based on the 4 P's. Despite its
limitations and perhaps because of its simplicity, the use of this framework remains
strong and many marketing textbooks have been organized around it.

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PRODUCT LIFE CYCLE

When a product reaches the market, it enters the product life cycle (PLC). A series of stage through which
it passes during its profit-producing life. Depending on the product’s ability to attract and keep customers,
its PLC may be a matter of months, years or decades. There’s the 4 stages in the Product Life Cycles.
1. Introduction
 - This stage begins when the product reaches the market place
- Create the awareness of the product and its benefits
- Extensive promotion
- Development costs erase all profits
2. Growth
- If the new product attracts enough consumers, sales start to climb rapidly
- The product starts to show a profit
- Other firms move rapidly to introduce their own version
3. Maturity
- Sales growth starts to slow
- Competition forces prices cutting and lower profits
- Sales will fall
4. Decline
- Sales and profit continue to fall, as new product in the introduction stage take away sales
- Firms end or reduce promotional support (ads and sales people)
- May let the product linger to provide some profit

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