Introduction to Marketing Assignment comparing the two analytical techniques, SWOT and PEST

by sc_shivatsal (student)

Unit 3: Introduction to Marketing Assignment 1 M2

Introduction

In this essay I will be comparing the two analytical techniques, SWOT and PEST, in terms of their usefulness in making particular marketing decisions including the most useful for specific decisions.

What were the reasons for the popularity of these two analytical planning tools and techniques?

An ever changing and more competitive marketing environment.
Higher levels of investment required to develop new products and markets
Better trained marketing managers using more sophisticated and powerful marketing tools
Recognition of the need for improved coordination and integration of marketing with other company functions.

SWOT

What is SWOT?

SWOT analyses are done by businesses at the very start of planning; this is to spot the organisation’s strengths, weaknesses, opportunities and threats. The SWOT analysis should never be done as a separate process and it is important that decisions are taken based on the findings. SWOT falls into the situation analysis stage in the marketing planning.

A SWOT starts with an external analysis of the business environment, known as a PEST analysis, and then looks at the businesses’ internal strengths and weaknesses in relation to the external analysis. This is done so that the company can combine analysis internally with external analysis giving a broader outlook on how they can go about marketing decisions.

Strength

The strengths are the positive bits of the organisation that help it function; organisations without any strengths the organisations aren’t going to be successful. A strength could be anything from the communication of the employees to the service of the staff in store. You can identify strengths in many ways however the BCG Matrix is an excellent way of determining whether a strategic business unit will do well.

If a SBU has a high market growth with a lot of people buying it and planning on getting it then it is in a good situation. Also if this was still the case and you also had a high market share on top of that then you will be milking the public of money and will be doing well financially, this is known as ‘star’ according to the BCG Matrix.

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Weaknesses

The weaknesses are the bad bits about the company that are bringing it down, these need to be identified quickly to ensure that the business doesn’t go bust. A weakness could be poor packaging of products to slow delivery times. Weaknesses of any business are bad and need to be fixed as soon as possible.

Opportunities

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Weaknesses

Opportunities

Opportunities are areas that the organisation could develop into and expand their entire service or product. This could be anything from creating a totally new product under the same brand name to developing a new database that gives more information about customers. Opportunities are there but it is essential that the organisation grasps them fast before other businesses catch on to make them stand out from the crowd.

Threats

The threats of a business are possible dangers that could arise and hurt the financial system of the organisation. A threat could be entries from new competitors stealing customers or sharp rises of rent for a specific outlet.

To determine threats Michael Porter created the five forces these include the following:

Threat of intense segment rivalry
Threat of new entrants
Threat of substitute products
Threat of buyers growing bargaining power
Threat of suppliers growing bargaining power

PEST

What is PEST?

PEST stands for Political, Economic, Social and Technological and is exceedingly good at analysing the external environment of a business. It is very important that an organization considers its environment before beginning the marketing process. PEST has also been know to be called a ‘situation analysis’ and is a detailed appraisal of the organisation and its environment, it aims to build a complete and thorough picture of the organisation. With all the information gathered from PEST analysis it makes performing the SWOT analysis easier as they link together.

An organization's marketing environment is made up from:

The internal environment e.g. staff, office technology, wages and finance
The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
The macro-environment e.g. Political (and legal) forces, Economic forces, social cultural forces, and Technological forces.

Political

The political part of PEST looks at the politics and leaders of the location of business. The stability of the country needs to be looked at to see whether it is well managed and whether it is safe for investors to trade in. Also looking at whether they are encouraged to invest to create business within a particular area could be a incentive for the organisation. The taxation system needs to be analysed with great care to see how much they get taxed, on what items tax is valid on and how to avoid breaking taxation laws.

Economic

The economic is the second of the PEST and analyses the state of the economy of the country or area that the business is looking to invest in. They need to look at the GDP (gross domestic product) which determines how wealthy or poor a country is on average looking at everyone’s individual earnings. Also looking at the unemployment rate will link into the figure given from the GDP, having a lot of unemployment could be a bad investment as there will be less money with customers to spend in store. On the other hand it will mean a lot of choice for employing people into your business and expanding from there.

Social

The third of the PEST is looking at the social lives of the people living in the area. A questionnaire needs to be conducted asking what they do when they go out, do they like going out, what is the normal thing to do in this area, what kind of music, food, games are available, is there a dominant religion that affects the lifestyle of local people, is fashion a big thing in this area, what major events does this place hold, what different cultures are there and what is the share of ethnicity?

All of these questions need to be asked to gather primary research in order to get a good outlook on their chosen people of the area.

Technological

Last but definitely not least is technology. This is a major part of the PEST analysis as it will determine the process of the business and how fast and efficient it will be. You must always look for new technology to expand in quickly before competitors to mark your brand as up to date and on the ball. Nearly every business now has a website and uses email as a form of advertisement, this is just one of the examples of the power of technology and the big impact it has had on the business world.

Comparison of SWOT and PEST

The SWOT and PEST analysis are both very effective, simple methods to show business managers what situation they are in. Using these two analytical techniques they can determine where to go and what to do in future for the company.

They must always be used together at all times as when they are used like this they can be put to maximum use. This is because the SWOT looks at all of the internal factors of a business such as the strengths of their marketing operations and also the weaknesses in the business, this could be poor sales in a particular month for example. The SWOT helps identify what the weakness is and how to improve upon it. The PEST is different and looks at the external factors of the business such as the political views and economic state of a country or specific area. When looking at the external factors it gives a stronger sense of security for the business as it knows what is happening outside of the organisation. Like I stated previously, these analytical techniques must always be used together to get an overall view of the business and its problems or achievements.

The downside of the PEST analysis is that if you are looking too much at the external factors of your market and not putting enough focus on your internal factors you could end up losing profits and loose focus of the core goals of the business. The PEST requires enormous amounts of market research to get a clear view on what is happening but even when you have gathered this information and put it to use it could still be incorrect because the external factors of any business change all the time and this could be a really frustrating and hard way to evaluate your business.

The SWOT analysis also has its downsides as because you have to look at the individual strengths and weaknesses of the business the chances are that the manager will be very biased and won’t want to expose many weaknesses as it may reflect badly upon him. When conducting the SWOT analysis you need someone who is willing to put their hands up and expose the weaknesses of the business and also to not over exaggerate their strengths. It is only this way that a business will really gain anything from the SWOT analysis.

Looking at the two in comparison you can clearly state that there is no ‘better’ analysis as without each other they will leave them selves at risk of losing profits. Both require an extensive upkeep, PEST more than SWOT, and constant evaluation of what to do and how to look at the results. There is no doubt that the results for the market research will have to be done monthly or maybe even less than that. When used correctly in coordination they can make up for promising marketing decisions in the future.

Conclusion

In conclusion, PEST must be done first as it is an external analysis of the business and SWOT must be done second as it is an internal analysis of the business. You can link the SWOT analysis into the PEST analysis to gain a broader look over the overall organisation to see what marketing decisions would be beneficial. Both methods are vitally important in any marketing operation as forecasting financial figures is always challenging but having a method can help structure your plans. In the fast developing world of business these sophisticated techniques are a big asset to management however it is not enough to just undertake the analysis, you have to act accordingly and implement the plan. This said, it is not always possible to act on every element identified in the SWOT and PEST.

All in all, SWOT and PEST have two very effective, but different approaches to developing marketing objectives. When used conjunctively, these are very useful tool for audit and analysis.

References

, Lesson slides

Unit 3: Introduction to Marketing Assignment 1 M2