Business Studies

SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

Strenghths (internal factors)a strength could be your specialist marketing expertise.

Weaknesses (internal factors)A weakness could be the lack of a new product.

Opportunity (external factors) opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products.

Threats (external factors)A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.

• helps uncover opportunities that you are well placed to exploit.

• by understanding the weaknesses of th business, you can manage and eliminate threats that would otherwise catch you unawares.

• by looking at yourself and your competitors using the SWOT framework, you can start to craft a strategy that helps you distinguish yourself from your competitors

• It helps you focus on your strengths, minimize threats, and take the greatest possible advantage of opportunities available to you.

• SWOT Analysis can be used to "kick off" strategy formulation

• SWOT analysis is one of those things that is misused because people prefer oversimplification. Business situations are very often complex, but when discussing information with others, we often put things in a simplified form. SWOT is one such simplified form. Problems arise when people like the simplified form so much they use it as a substitute for thinking. They wrongly believe that the simplified tool represents the full analysis. The subtle complexities of the situation get lost, and SWOT (or whatever tool is used) ends  up leading to inaccurate results.

• some companies mistake their internal strengths as external opportunities - in which your SWOT analysis becomes skewed and rendered non-helpful.

Common tool used in marketing, for helping the growth of your product/Business

1.  Market penetration = trying to achieve growth from existing products in its existing market, this can be achieved by more aggressive promotion or a different pricing strategy to drive out the other competitors in the market. (least risky as maintaining market share will result in growth however when the market saturates a new strategy will be needed. 

2.  Product development = make developments/changes to a product(new packaging, new flavors, new colours, new formation, new regions), but keep selling it to the same market =riskier than MP

3.  Market development = a firm develops new products targeting an existing market, careful research is required to identify possible markets.  Once the right market/s has been identified they need to make sure they use the right prices and promotion technique is set to suit their market.

4. Diversification = New product in a New Market = HIGH RISK.  Thorough market research is needed so the firm can be aware of any threats, particularly any competition.  Risk may equal a high rate of return for the business but it could lose them lots of money as well.

Benefits

Simple and easy to use - It helps you to identify the full range of your  It helps you to identify Benefits: choices for expansion in a customer/market-focussed way.  In combination with SWOT it also helps you choose between different strategic options and indicates a relative ranking of risk between the option.

Limitations 

Doesn't make your decision for you, Research is required in product and development is needed before further action as it can oversimplify a quite complicated market that needs a complex market growth strategy.

Rising star = a product with a high market share which has potential to grow, to maintain its high market share heavy advertising may be needed to properly establish the product.  If the market share is maintained then the star product may turn into a Cash Cow.

Cash Cow = a product which has a high market share but low growth rate, they have high profit margins and generate lots of cash flow.  They are sometimes used to support the problem child.  These cash cow products are what Businesses strive for.

Problem Child = these products have a low share in a high growth market and  are mostly new products, the marketing strategy is to get markets to adopt these products. They have high demands and low returns due to low market share, these products need to increase their market share quickly or they become dogs.t he best way to handle Question marks is to either invest heavily in them to gain market share or to sell them.

Dog = This product is not likely to have a future, they have low growth/market share.

Some limitations of the BCG matrix model include:

• a problem can be how we define market and how we get data about market share
• A high market share does not necessarily lead to profitability at all times
• The model employs only two dimensions – market share and product or service growth rate
• Low share or niche businesses can be profitable too (some Dogs can be more profitable than cash Cows)
• The model does not reflect growth rates of the overall market
• The model neglects the effects of synergy between business units
• Market growth is not the only indicator for attractiveness of a market

Advantages 

• easy to use/simple
• can see all your products compared to each other
• can simplify your portfolio

Research and development : this is not on the graph but is before the launch and introduction onto the market.  The product's market and will have been researched extensively and then developed accordingly. 

Introduction: costs are very high, slow sales volumes to start, little or no competition, demand has to be created, customers have to be prompted to try the product, makes no money at this stage.

Growth: costs reduced due to economies of scale, sales volume increases significantly, profitability begins to rise, public awareness increases, competition begins to increase with a few new players in establishing market, increased competition leads to price decreases

Maturity/Saturation: costs are lowered as a result of production volumes increasing and experience curve effects, sales volume peaks and market saturation is reached, increase in competitors entering the market,prices tend to drop due to the proliferation of competing products, brand differentiation and feature diversification is emphasized to maintain or increase market share,Industrial profits go down

Decline: costs become counter-optimal, sales volume decline or stabilize prices, profitability diminishes,profit becomes more a challenge of production/distribution efficiency than increased sales

Limitations:

1. Its not easy to predict the future of a product from the life cycle 

2. It is sometimes hard to tell what stage the product is in as not all products/services spend the same length of time at each stage.

3. It is difficult to foresee transitions in PLC stages since the key indicator are sales, which are always calculated with some lag its life cycle.

4. Fluctuations in sales will produce erroneous conclusions, so slowing sales do not necessary mean the product has reached the Decline phase and the resulting conclusion to retire the product and divert resources is wrong.

• Social

• Legal

• Economic

• Political

• Technology

• Environment

Advantages

• the map allows a business to see a gap in the market 
• from their products on the map they can assess where most of their money comes from.
• The audience that they mostly target  will be shown by the products in the map.

Disadvantages 

• perceptual maps are plotted on the basis of someones perception and what maybe a quality product to one person, may not be percieved as quality to another.
• If the Business sees a gap in the market from their product positioning map then they must be careful to research it as there may be a reason why this gap in the market has not been filled.

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry.

• The existence of barriers to entry (Patents/Rights etc.) The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.
• Economies of product differences
• Brand Equality
• Switching costs or sunk costs.
• Capital requirements
• Access to distribution
• Customer loyalys to established brands
• Absolute cost
• Industry profitability; the more profitable the industry the more attractive it will be to new competitors

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

• Sustainable competitive Advantage  through innovation
• Competition between online and offline companies; 
• Level of advertising expanse expense
• Powerful competitive strategy
• The visibility of proprietary items on the Web,  used by a company which can intensify competitive pressures on their rivals.

How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation. Technological advances protect companies from competition. This applies to products and services. Companies that are successful with introducing new technology, are able to charge higher prices and achieve higher profits, until competitors imitate them. Examples of recent technology advantage in have been mp3 players and mobile telephones. Verticle Integration is a strategy to reduce a business' own cost and thereby intensify pressure on its rival.

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

• Buyer propensity to substitute
• Relative price performance of substitute
• Buyer switching costs
• Perceived level of product differentiation
• Number of substitute products available in the market
• Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material product.
• Substandard product
• Quality depreciation

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes.

• Buyer concentration to firm concentration ratio
• Degree of dependency upon existing channels of distribution
• Bargaining leverage, particularly in industries with high fixed costs
• Buyer volume
• Buyer switching costs relative to firm switching costs
• Buyer information availability
• Ability to backward integrate
• Availability of existing substitute products
• Buyer price sensitivity
• Differential advantage (uniqueness) of industry products
• RFM Analysis

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

• Supplier switching costs relative to firm switching costs
• Degree of differentiation of inputs
• Impact of inputs on cost or differentiation
• Presence of substitute inputs
• Strength of distribution channel
• Supplier concentration to firm concentration ratio
• Employee solidarity (e.g. labour unions)
• Supplier competition - ability to forward vertically integrate and cut out the buyer

Ex. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.