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Writer's pictureMohammed Umair

SWOT Analysis In Marketing Management. How SWOT Analysis Is Done?

Many marketers around the globe believe that setting the right marketing objectives is the first step towards creating a successful strategic marketing plan. However, many of them ignore the concept of SWOT analysis, involving a scientific process of evaluating a firm's internal and external environment to set the aptest practical marketing objectives rather than a pie in the sky for the given circumstances. Hence, as a marketer, I would like to fill the gap by providing insightful wisdom on SWOT analysis as a value addition to all readers who are marketing enthusiasts. Also, I would like to mention that I have filled the article with many examples of the application of SWOT analysis, for business people to understand the practicability of the topic. So, let's get started with the meaning.


Meaning Of SWOT Analysis


SWOT analysis is a method of evaluating a firm's strengths, weaknesses, opportunities and threats (i.e. SWOT full form) by carefully analysing the internal and external forces that affect the firm. These forces include employees, management, product quality, market trends, competitors, rules and regulations and so on.


SWOT Analysis: Why Is It Important?


The purpose of SWOT analysis is simple. To provide a detailed insight into a firm's situation. What exactly can the firm do and what can be its drawbacks? This becomes a guided framework through which marketers can formulate marketing objectives which can utilise the firm's strengths to its maximum potential and can reduce the weaknesses of the firm to an extent that it is no longer detrimental to the business keeping in mind the opportunities it can exploit and threats it can encounter in the market.


Let me emphasise the importance of SWOT analysis with an example.

Frederick W. Smith, founder of FedEx discovered an opportunity of exploiting the logistics industry by providing faster and quicker delivery services than the U.S. Postal Service in 1971 and the rest is history. The annual revenue of FedEx in the year 2023 is $90.155 Billion (source: macrotrends.net)


Though the SWOT analysis usage is widely popular for individual goal plans, student success plans, etc I would like to limit the discussion to the perspective of the business and marketing world.



SWOT Analysis: Components


  1. Strength Strength refers to the capabilities a business possesses in the current market. To be more precise, it is those capabilities that it has that make it better than its competitors. Even, having the technical know-how of how to develop capabilities to compete in the market is also a strength for a business. For example, having a strong brand recall or having the skills to create a brand recall. Both can be considered as the strength of a firm. For example, Asian Paints' massive network of dealers and distributors, built over a long time can be considered the company's strength since it creates a huge entry barrier for other competitors to compete with them.

  2. Weakness Weaknesses are areas where the business does not possess the expertise and needs improvement to build a sustainable long-term business. It is also those areas where the competitors are better than the firm. For example, Dell's brand was not as strong as its competitors and hence, it faced many challenges to survive in the market.

  3. Opportunities Opportunities are the areas where there is a market need and the firm can satisfy such need profitably in a way better than its competitors. The most popular ways of exploiting market opportunities are, 1. To offer a product/ service that has a market demand but is short in supply. 2. To create a new product/ service to satisfy the market need 3. To offer a product/ service in a superior way than its existing market players/competitors. For example, Amazon being an online book retailer in its initial stages found a massive opportunity to create an online marketplace with a portfolio of products across various categories and built a historic brand of E-commerce marketplace, leaving its legacy for the generations to come.

  4. Threats Threats are challenges faced by a firm due to unfavourable circumstances in the business environment which if not addressed, can be detrimental to the interests of the firm. For example, Emirates faced regional competition when Etihad Airways and Gulf Air owned by the Abu Dhabi government provided its airline services at competitive prices.


How To Create A SWOT Analysis Matrix:


In my understanding, there are two ways of creating a SWOT analysis matrix.

  1. A consolidated matrix containing all four components

  2. Separate matrix representing each component individually.


A consolidated matrix consists of four quadrants. The first row of the matrix represents the components of the internal environment (i.e. strengths and weaknesses) and the second row represents the external environment components (i.e. opportunities and threats). In the columnar view, the left column represents favourable elements and the right column, the unfavourable elements.


The separate matrix for each component again consists of four quadrants. The top left quadrant represents the most favourable/ unfavourable event followed by other events descending in importance forming the shape of a Z. (For your better understanding, refer to the figure of an opportunity matrix below and notice the Z formation )




SWOT Analysis: Benefits


  1. Informed Decision-making: The SWOT analysis framework helps the marketers and management to recognise what the firm can do and what it cannot do. What are the possible factors/ areas of the firm's internal and external environment which can make or break the business? With this awareness, the management can make informed decisions to capitalise on its strengths, reduce its weaknesses, exploit the opportunities to the maximum and respond to the threats as soon as possible. These decisions will be backed by proper analysis of the business rather than any hit-and-trial approach.

  2. Strategic Planning And Long-term Success: SWOT analysis can be used as a basis for setting up the right objectives for the firm. The right objectives with proper resource allocation to achieve the desired objectives can bring long-term success to the firm. This also results in calculative resource allocation thus making it efficient.

  3. Benchmarking performance: SWOT analysis can be used as a great tool to compare a firm's current position with its past by conducting such analysis at regular intervals. Also, it can be used to benchmark the firm's performance against its competitors thus, comparing and analysing what to do to outperform your competitors.

  4. First Mover Advantage: SWOT analysis includes identifying opportunities and threats. Exploiting any opportunity before any other player in the market will give the firm the first-mover advantage thus giving the firm a competitive edge. Early identification of threats and adopting corrective steps can mitigate threats, making the threats non-detrimental to the firm.

SWOT Analysis: Limitations


  1. Time And Energy Consuming Process: Though the cost of performing SWOT analysis in monetary terms is affordable, the opportunity cost in terms of time and energy makes it expensive. To put it in simple words, the time and energy, that management and the employees of various departments have to put in for the data and insights collection and performing the analysis comes against the cost of using the same time and energy to be productive and contribute to the growth of the organisation.

  2. Subjective And Existence Of Internal Biases: SWOT analysis is a subjective process. The data collected and analysis performed thereof can involve insights and opinions of the people who are involved in the process which may be different for the rest of the organisation. The data collected can also be obsolete since markets are dynamic and uncertain. Also, the departments may overlook their flaws and only highlight superficial positives about their departments. Thus, creating internal biases and making the entire process less effective.

  3. Reliability Of Information: The SWOT analysis does not offer any scientific method for collecting reliable and relevant information or data for the analysis. Thus, the probability of omitting the most crucial information and including information which has no significance to the analysis is extremely high because many people are involved in this data collection. Also, people in the organisation can suppress information if revealing such information is not favourable to them.

  4. Not A One-Stop Solution: Indeed, SWOT analysis helps the firm in many ways. But, the firm cannot solely rely on SWOT analysis. This is because SWOT analysis does not offer solutions to the firm on how to take advantage of its positives and how to get rid of its negatives. What to do and How to do shall be decided by the marketers and the management. Hence, the more the people are experienced, the more the firm can benefit from the analysis.


For any query related to this article, feel free to contact us through our Contact Us page or mail us at mohammed0912.umair@gmail.com. We would be glad to clarify your questions and make your learning journey hurdleless.



FAQs


Who invented SWOT analysis?

It is believed that Albert Humphrey invented SWOT analysis. But, there exists a difference of opinion on this matter. (source: www.ncbi.nlm.nih.gov)

What is the difference between SWOT analysis and PESTLE analysis?

What does SWOT in SWOT analysis stands for?

What is SWOT analysis used for?





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