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Swot Analysis And Its Importance In Developing Strategy Marketing Essay

Faced with a constantly changing environment, each business unit needs to develop a marketing information system (MkIS) that is capable of tracking trends and developments within the marketplace. Each trend or development can then be categorized as an opportunity or a threat, and an assessment made of the feasibility and action needed if the organization is either to capitalize upon the opportunity or minimize the impact of the threat. Although SWOT analysis is one of the best-known and most frequently used tools within the strategic planning process, the quality of the outputs often suffer because of the relatively superficial manner in which it is conducted. There are several ways in which SWOT analyses can be made more rigorous, and therefore more strategically useful.

STRENGTHS:

Areas of (distinctive) competence that:

Must always be looked at relative to the competition

If managed properly, is the basis for competitive advantage

Derive from the marketing asset base

WEAKNESSES:

Areas of relative disadvantage that:

Indicate priorities for marketing improvement

Highlight the areas and strategies that the planner should avoid

THREATS:

Trends within the environment with potentially negative impacts that:

Increase the risks of a strategy

Hinder the implementation of strategy

Increase the resources required

Reduce performance expectations

OPPORTUNITIES:

Environmental trends with positive outcomes that offer scope for higher levels of performance if pursued effectively:

Highlight new areas for competitive advantage

2) SWOT ANALYSIS IS THEREFORE DESIGNED TO ACHIEVE TWO PRINCIPAL OBJECTIVES:

1) To separate meaningful data from that which is merely interesting 2) To discover what management must do to exploit its distinctive competencies within each of the market segments both now and in the longer term. However, in examining opportunities and threats, the reader needs to recognize that they can never be viewed as ‘absolutes’. What might appear at first sight to be an opportunity may not be so when examined against the organization’s resources, its culture, the expectations of its stakeholders, the strategies available, or the feasibility of implementing the strategy. At the risk of oversimplification, however, the purpose of strategy formulation is to develop a strategy which will take advantage of the opportunities and overcome or circumvent the threats.

For our purposes, an opportunity can be seen as any sector of the market in which the company would enjoy a competitive advantage. These opportunities can then be assessed according to their attractiveness and the organization’s probability of success in this area; The probability of success is influenced by several factors, but most obviously by the extent to which the organization’s strengths, and in particular its distinctive competences, match the key success requirements for operating effectively in the target market and exceed those of its competitors. Competence by itself is rarely sufficient in anything more than the short term since, given time, competitive forces will erode this competence.

2.1) IDENTIFYING STRENGTHS AND WEAKNESSES

Our primary concern within this stage is with the ways in which organizations can most clearly identify their current position and the nature of their marketing capability. It is against the background of the picture that emerges from this analysis that the marketing planner should then be in a far better position to begin the process of deciding upon the detail of the organization’s future direction and the ways in which strategy is to be formulated. The starting point in this process of strategic and marketing analysis involves a detailed marketing audit and review of marketing effectiveness. Together, the two techniques are designed to provide the strategist with a clear understanding of:

➡ The organization’s current market position

➡ The nature of environmental opportunities and threats

➡ The organization’s ability to cope with the demands of this environment.

The results of this analysis are then incorporated in a statement of Strengths, Weaknesses, Opportunities and Threats (SWOT), and subsequently a measure of capability. Although in many markets it is often a relatively simple process to identify a whole series of environmental opportunities, few organizations have the ability or the competences needed to capitalize upon more than a small number of these. Each business needs therefore to evaluate on a regular basis its strengths and weaknesses.

Each factor is rated by management or an outside consultant according to whether it is a fundamental strength, a marginal strength, a neutral factor, a marginal weakness, or a fundamental weakness. By linking these ratings, a general picture of the organization’s principal strengths and weaknesses emerges. Of course, not all of these factors are of equal importance either in an absolute sense or when it comes to succeeding with a specific business opportunity. Because of this, each factor should also be given a rating (high, medium or low) either for the business as a whole or for a particular marketing opportunity. Combining performance and importance levels in this way injects a greater sense of perspective to the analysis and leads to four possibilities emerging; in the form of a performance–importance matrix.

Another way of looking at issues of performance and importance involves focusing specifically upon the organization’s performance relative to the competition.

On the basis of this sort of analysis it should be apparent that, even when a business has a major strength in a particular area, this strength does not invariably translate into a competitive advantage. There are several possible explanations for this, the two most prominent of which are that it may not be a competence that is of any real importance to customers, or that it is an area in which competitors are at least equally strong. It follows from this that, in order to benefit from the strength, it must be relatively greater than that of the competitor.

Having identified the organization’s weaknesses, the strategist needs to return to consider again the relative importance of these weaknesses. There is often little to be gained from overcoming all of the organization’s weaknesses, since some are unimportant and the amount of effort needed to convert them to a strength would quite simply not be repaid. Equally, some strength is of little real strategic value and to use them in anything other than a peripheral way is likely to prove of little real value.

Recognizing this, the marketing planner should focus upon those areas of opportunity in which the firm currently has major strengths or where, because of the size of the opportunity and the potential returns, it is likely to prove cost-effective in acquiring or developing new areas of strength.

In order to make better use of the SWOT framework, Mr. Piercy proposes five guidelines:

1) Focus the SWOT upon a particular issue or element, such as a specific product market, a customer segment, a competitor, or the individual elements of the marketing mix.

2) Use the SWOT analysis as a mechanism for developing a shared vision for planning. This can be done by pooling ideas from a number of sources and achieving a team consensus about the future and the important issues.

3) The kind of corporate-level strategy pursued by the company

4) Business level strategy of the company and its nature.

5) Company Strategy and its control and structure for achieving that strategy

2.2) [1] SWOT ANALYSIS AND MACRO ENVIRONMENT – FOR DECISION MAKERS

Many changes from the macro environment have the potential to cripple even the best of strategies and must therefore be watched. Managers should note any changes in the environmental factors as conducive to innovation. Potential changes in exchange rates, especially unanticipated large ones, central bank policies that raise interest rates, and taxation laws, along with demographic and socio political changes, all have the potential to impact firm strategies. Managers should examine them carefully for potential threats and opportunities. In particular, they should examine the potential impact of changes in tax policies concerning the Internet. This analysis of a firm’s current performance, appraisal of its business model, appraisal of its competitors’ business models, analysis of industry attractiveness, assessment of its macro environment, projection of the evolution of the Internet, and a forecast of its environmental changes is sometimes called a strengths and weaknesses, opportunities, and threats (SWOT) analysis.

After an analysis of where the firm is now, a manager may also decide not to pursue profits as previously planned but to hone the firm’s capabilities to fit another firm’s portfolio of capabilities so that it can be acquired by the other firm. On the other hand, a firm whose exit strategy had been to be acquired, with no intention of ever making profits, may decide that it now wants to become profitable after all. In all these cases, a firm has decided to move into new areas. It is now intent on doing certain things that it had not done before. If moving into these new areas requires entirely new capabilities, the objective to do so is sometimes referred to as a firm’s strategic intent.

WAL-MART

3) COMPANY HISTORY AND ITS FOUNDER’VISION

2Samuel Moore Walton, the billionaire boy scout of Bentonville, Arkansas, built an empire on a fervid belief in value, pioneered by ideas like empowerment, and revolutionized retailing in the process. Dead at 74 after a long fight with cancer, he did not invent the discount department store, although it hardly seems possible that he didn’t. He grabbed

hold of the leading edge of retailing in 1962 and never let go, creating a value-powered merchandising machine that seems certain to outlive his memory..

In 1994, the still-young company earned $2.3 billion on sales of $67 billion. A $1,650 investment in 100 Wal-Mart shares in 1970, when they began trading, is worth $3 million today. He taught American business that the vast amount of American people want value. He saw the future, and he helped make the future. According to a retail executive, while Walton was one of the great showmen of retailing, if he had been a television preacher he’d have become Pope. As a manager he applied such concepts as a flat organization, empowerment, and gain-sharing long before any one gave them those names. In the 1950s, he shared information and profits with all employees. He ingested as much data as he could to get close to the customer and closer to the competition. He stressed flexibility and action over deliberation. Wal-Mart is ultimately a monument to consumers: it has saved them billions. Sam Walton truly believed that nothing happens until a customer walks into a store with a purpose, buys something, and walks out. His philosophy was simple: satisfy the customer. Operating nearly 2,000 stores in 47 states, Wal-Mart remains the leader in the discount store industry. In addition, with over 400 Sam’s Clubs, Wal-Mart is a major factor in the Warehouse Club industry. Combining general merchandise and groceries, Supercenters represent the company’s fastest growing segment, with 65 to 70 stores planned in fiscal 1995 on a base of 68.

Walton long ago wanted manufacturers to see themselves, wholesalers, retailers, and consumers as parts of a single customer-focused process rather than as participants in a series of transactions. He personally and permanently altered the relationship between manufacturers and retailers, which has historically been, to put it politely, antagonistic.

About five years ago he asked Procter & Gamble executives to view a focus group of Wal-Mart executives talking about their prickly relationship with the packaged-goods company. It was sobering. His strategy clearly was that we ought to be able to work together to lower the costs of both the manufacturer and the distributor and get lower costs for consumers. Walton got both sides to focus on distribution costs and how to cut them. Wal-Mart linked P&G with its computers to allow automatic reordering, thus avoiding bulges in order cycles. With better coordination of buying, P&G could plan more consistent manufacturing runs, rationalize distribution, and lower its costs, passing on some of the savings. This systematic approach is now in broad use throughout the industry. Walton has been described as a visionary, and he clearly was that. His vision was apparent in 1956 as a Ben Franklin variety store owner. To lure one of his first store managers, Bob Bogle, away from the state health department, Walton showed him the books and offered to pay him 25 percent of the store’s net profit in addition to salary.

4) STRATEGIC ANALYSIS OF WAL-MART’S SUCCESS-WAL-MART’S COMPETITIVE CAPABILITIES

4.1) Competitive Environmental

Change Rivals are constantly changing their strategies and such changes, especially new game strategies, have to be watched very carefully. A firm is said to pursue a new game strategy if by performing value chain, value shop, or value configuration activities that differ from what the dominant logic of the industry dictates, or by performing the same activities differently than the logic dictates, the firm is able to offer superior customer value. Wal-Mart’s early strategies were new game strategies. It decided to move into small towns, saturate adjoining towns with stores, build distribution centers, and improve logistics, with an empowering culture and information technology to match. This allowed Wal-Mart to achieve high economies of scale and bargaining power over its suppliers. This in turn allowed the firm to offer its customers lower prices than its competitors.

3Low-cost operations as the result of a combination of high productivity, low over heads, low labour costs, better purchasing skills, a limited product range, or low-cost distribution. Amongst those to have achieved this are the low-cost supermarket chains.

4The global, or single brand, enables a product to adapt to new international opportunities. Travellers abroad, whether businessmen or tourists, are more likely to buy a brand they know and trust as it reduces the risk of the purchase. The greater the development of international media, the greater the opportunities for the single brand. The advent of Sky television and the increasing international coverage of satellite transmissions are examples of this widening reach. When a brand goes international, it can attract the interest of large retailers involved worldwide and successfully implemented by the like Wal-Mart to attract international customers. The global brand, having acquired a wider international presence and awareness, provides a lever for entering other markets. Be assumed to be: to maintain continued growth in the US and to extend domination internationally in targeted markets, including the Americas and Continental Europe. Its corporate objective is to achieve ‘an annual growth above the average gained by the food retail industry in general, and above the average annual growth rate achieved by Wal-Mart over the last three years’. An annual turnover growth rate of 5 per cent above inflation with profits of 7 per cent might be set. Additional objectives (or targets) might be to increase customer loyalty as measured by customer repeat shopping visits to Wal-Mart outlets. Wal-Mart’s international marketing plan would cover the basic framework outlined in Table 9.1. It should indicate the group’s business mission and associated corporate objectives. Thus, the Wal-Mart business mission could be assumed to be: to maintain continued growth in the US and to extend domination internationally in targeted markets, including the Americas and Continental Europe. Its corporate objective is to achieve ‘an annual growth above the average gained by the food retail industry in general, and above the average annual growth rate achieved by Wal-Mart over the last three years’. An annual turnover growth rate of 5 per cent above inflation with profits of 7 per cent might be set. Additional objectives (or targets) might be to increase customer loyalty as measured by customer repeat shopping visits to Wal-Mart outlets.

4.2) SWOT ANALYSIS

• [5] Strengths

This Company has reputation of value for your money, convenience and a wide range of production all in one store.

This company is famous among the world over customer with respect to value the customer’s money and providing vides range of goods of different categories.

This Company has increased its market share very sharply with in few years the years both domestically and through acquisition globally. For example, it purchased the UK based Company ASDA engaged in the business of retailing.

The Wal-Mart has a very powerful strength in incorporating information technology in its business. This is very simple way in which the company operates its logistic operations efficiently in international market and also able to procure goods on timely basis.

The Wal-Mart basic aim to improve its HRM department and hired the best people in their profession. Talent is key to Wal-Mart’s business, and its invests time and resources into the training and retention of its people.

• Weaknesses

This is the fact that company is weak in some area of human resource management where it runs on vast span of control.

The company sold the products of many products sector like clothing, food, electronics, etc and there is no flexibility to focus on some sector of economy as its competitors do their business.

The Company claimed that it operates on a global basis but this is the fact that it has a presence in few other countries.

• Opportunities

It has the opportunity to take over, merge with or from of organization who are operated on the world basis and focus on Europe and Asian Markets. The Stores are only in a few countries and opportunity exists to expand in large consumer markets India and China.

New locations and stores types are mobbing from large super centres to local malls.

Continued strategy for the opening of large super centers.

• Threats

AS this Company claimed that its brand name is No. 1 among the retailing business. On the other hand you are the target of competitors whether they are from local business market or from international market.

As the company operate in international business market then there is a probability that the Company will face political and social problems in countries where this operate.

Intense price competition in a threat.

5) CONCLUSION

Completing a SWOT would have identified the threat as a focus on immigration and the possibility of lost crops due to un-harvested products. That threat turned to a weakness for those organizations that did not develop alternative strategies. For those who made the investments in increased mechanical harvesting, no business interruption occurred. For those who waited, it became a competitive disadvantage. Being able to forecast changes in the market and business will lead to insight regarding potential issues and opportunities to be faced in the future. The insights gained from engaging in this forecasting exercise can then be used to create plans of action to deal with the issues before they can have detrimental effects on the functioning of the business.

Although SWOT analysis is a potentially useful input to the strategic planning process, in practice it often suffers from a number of weaknesses. Amongst the most common of these is that:

➡ The planner fails to relate strengths and weaknesses to critical success factors

➡ Strengths and weaknesses are seen in absolute terms rather than in relation to the competition

➡ The elements of the analysis are insufficiently specific

➡ Competitors’ capabilities are underestimated and/or misunderstood

➡ The focus is upon marketing-specific issues rather than reflecting a broader company

perspective

➡ Emphasis is placed largely upon the ‘hard’ or quantifiable elements and fails to take

account of managerial attitudes, cultures, capabilities and competencies.

SWOT analysis can also be made more effective by thinking:

➡ To what extent has the relative importance of the various elements been identified?

➡ To what extent have the implications of each of the elements been examined?

➡ To what extent does the management team really recognize the significance of the

elements?

➡ To what extent have attempts been made in the past to manage the SWOT analysis

outcomes proactively?

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