What Is SWOT Analysis?

Here, we study about SWOT analysis which is very important topic of Management.

SWOT Analysis Definition

This analysis which helps in making strategic decisions by evaluating strengths, weakness, opportunities and threats of the business in order to achieve strategic goals effectively. By conducting this analysis, the company knows its competitive position in the market.

SWOT Analysis in which both external and external analysis are made to check the opportunities, threats, strengths and weaknesses of the organization. There are four components of SWOT analysis which are discusses below:

(i) Strengths

These are resources and capabilities which the organization have better than its competitors. For example if a company provides premium quality products, give high salary packages to employees, etc., then these show the strengths of the company in the market.

(ii) Weaknesses

Weaknesses are activities or resources which the organization is not doing well or possessing. For example, poor quality products or services and higher prices than the company's competitors.

(iii) Opportunities

These are positive trends in the market which the organization should avail to compete in the market in order to gain sustainable competitive advantage over its new competitor.

(iv) Threats

Threats are negatives trends which can decline the business’s growth in the market such as competitors adopts new technology but the company fails to do so which resulted in lower sales in future.

Test Your Understanding:

Mr. A Is A Mid-Level Manager At A Running Shoe Company. Sales Have Been Declining Due To A New Competitor Entering The Market With A Lower-Priced Shoe. The Company Is Known For Its High-Quality, Premium Running Shoes. Management Has Asked Him To Brainstorm Strategic Options. What Is The FIRST Step He Should Take To Develop A Strategic Response To This Situation?

The correct option of multiple choice (mcq) is D.

Mr. A) must conduct SWOT Analysis in which both external and external analysis are made to check the opportunities, threats, strengths and weaknesses of the organization.

(a) Here, the strengths of existing shoe company include high quality and premium brand prevailing in the market.

(b) Here weakness for existing shoe company, in which Mr. A is currently working as a middle manager, is high price.

(c) To adopt latest and improved shoe styles in the market due to the latest and modern equipment is an opportunity for shoe company

(d) The entry of new shoe company is a threat for existing shoe company in this scenario.

Here, Mr. A should make a complete market analysis before taking any strategic decision or response to this particular situation. He should see the following points:

1. Market Trends

He should see market trends. What is trending in the market in which the company is not fully utilizing its resources and capabilities to gain sustainable competitive advantage. Explore the market to make correct analysis of the situation.

2. Understanding of Competitors

Mr. A should make analysis of competitors competing in the market. What are their pricing strategies, brand qualities, market expectations, etc., in order to gain Competitive Advantage over them. If the competitors charge low price, then see what quality they offer to customer at such low-price level.

The company should also make analysis for his products’ substitutes so that the more new customers will remain loyal with brand and not shift towards its competitors.

3. Analysis of Customers

Check the customers’ expectations, their needs and demands, preferences and perceptions about the company’s product pricing, quality, delivery services, their feedbacks about brand and service, etc. It helps in improving the quality of products and services, rebuilding brand image, meeting customers’ needs, wants and wants in order to attract them, satisfy and retain them for a long period of time.

The company should see the bargaining power of buyers. If they afford to buy at the current price, then it is set for them, otherwise, lowering price without losing quality of shoe is an option which can be applies to retain competitive edge over its competitor.

After making the market analysis, if the company knows that the quality of competitor’s product (shoe) is not so good, then the customers will not shift towards new competitor, otherwise, the company should either adopt cost leadership strategy or differentiation strategy in order to compete and retain sustainable competitive advantage over its competitor.

The option A is incorrect choice here as before starting a marketing campaign, market analysis is necessary to better know about competitor position in the market.

The option B is also not correct as benchmarking, in which the quality of product is measured and compared against the set standard, may not work correctly without knowing SWOT Analysis.

The option C is wrong choice as reducing production costs without making market analysis may not work as may be the quality of shoe is low offered by competitor to customers as compared to existing company which offered high premium quality shoe to its customers.

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