Advantages/Disadvantages
A SWOT analysis is a tool used for strategic planning that looks at the strengths, weaknesses, opportunities and threats for a project. This type of analysis can be applied to a variety of different projects, and looks at positive, negative, internal and external factors involved with achieving specific objectives. There are both advantages and disadvantages to performing this type of analysis.
Advantage: Clarity
One of the greatest advantages of SWOT analysis is that it helps to summarize and clarify whatever opportunities and issues are facing a or project. For this reason, a SWOT analysis is often advantageous and can play a key role in how a business sets its objectives and develops strategies for achieving goals.
Advantage: Cost
Another advantage of SWOT analysis is that the primary cost involved in the process is time. A SWOT analysis makes it possible for new ideas to be generated without costing the business much in the process. Hiring a business strategist or a marketing team would cost time and , but a SWOT analysis can be performed by anyone with time available and an understanding of how the business is run.
Advantage and Disadvantage: Simplicity
A SWOT analysis is simple to conduct, which poses both advantages and disadvantages. The advantage lies in the fact that anyone with a basic understanding of the business can perform this analysis. The disadvantage to the simplicity of this type of analysis is that it usually creates a very simple list that is not presented critically. If a is focused only on the creation of a list, then it may not be focusing its attention sufficiently or deeply enough on how it can actually achieve all of its objectives.
Disadvantage: Further Research Required
In order for a SWOT analysis to be truly successful, it should extend beyond a simple list of strengths, weaknesses, opportunities and threats. For example, a business should consider what degrees of strengths and weaknesses it possesses in comparison to competitors in order to determine how strong those strengths actually are. A thorough SWOT analysis should also look at an opportunity or threat's size in order to see how it is related with the company's strengths and weaknesses. While a SWOT analysis can be simple and straightforward, more research and analysis is usually needed in order to obtain a comprehensive picture.
PESTLE
Political Factors
• Political factors have a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. Businesses must consider issues such as:
- How stable is the political environment
- Will government policy influence laws that regulate or tax your business
- What is the government's arrangement on marketing ethics
- What is the government's policy on the economy
- Does the government have a view on culture and religion
Political factors will always have a major influence on a company’s operations. A stable political environment will benefit a company such as Sainsbury in terms of the consumers being able to afford products offered by the company etc. Another example would be the government’s policy toward the economy; Sainsbury might need to think of new marketing techniques to suite the current economical climate.
Economic Factors
• In the UK, the Government is to decrease the rate of corporation tax from 30% to 28%, which will save big companies like Sainsbury's large sums of money.
• The rapidly increasing global food crisis has increased food prices all over the world, which will result in rising purchasing costs for Sainsbury's. This will have an impact on the margins of the organization and might lead to passing over the cost to consumers by increasing prices of most things in the supermarket. Furthermore, rising fuel costs will have implications right throughout the supply chain of Sainsbury's leading to an overall situation of increasing prices.
• The credit crunch can have a two way impact on Sainsbury's as it also runs a financial services company. The credit crunch might decrease the purchasing power of consumers and though they will still buy the essentials they may be more cautious. They may also spend less on luxury items, something that has a greater profit margin for Sainsbury's. As far the Sainsbury bank is concerned, the credit crunch directly affects its ability to provide credit especially as it is not an established name in the financial services industry.
Social Factor
• Strong competition within every part of the retail sector has lead to retailers giving a lot of incentives to the consumers. This will affect Sainsbury's as the prices have to be driven down most of the time.
• Nowadays there seems to be more emphasis on fresh, easy style cooking. This serves an opportunity for Sainsbury's to encourage new recipes and unfussy eating.
Technological
• There has been a huge emphasis by the government to promote healthy eating, this is due to the increasing level of obesity within the UK. This has lead to many consumers to shift towards healthier food. This presents an opportunity to Sainsbury's to stock up with more healthy food or create healthier foods at a cheaper price than other manufacturers so as to benefit from this new trend.
• The Internet trend seems to be growing within western countries. The Internet accounts for 8% of global advertising spend and is growing rapidly (The Economist, 2007). Competitors like Tesco use their own online delivery model successfully. However, specialist delivery companies like Ocado (working in partnership with Waitrose) provide an alternative for the outsourcing of non-core work.
• One of the downsides of supermarket shopping is the queuing system customers often find themselves in at the checkout. Self checkout machines, available at Asda and Tesco, can help solve this problem, especially for customers who have to queue up for very few items. Furthermore, self checkout machines could help in Sainsbury's opening stores for 24 hours which might help boost sales.
Legal Factors
• Other important issues, like sale of organic food and the ethical treatment of animals, clearly effect Sainsbury's on different levels. The importance of such issues means that they will have to cater to those consumers as well as to consumers who are price conscious. This may cause some controversy because the company will have to find new ways to meet the customers demand ethically and retail the products at prices which the consumer expects.
• With strict laws on food and drinks, Sainsbury's will have to follow more and more packaging and labeling policies to deal with these, which will be an additional financial impact on the company.
Environmental factors
•There has been a lot of emphasis from the government as well as various green groups on companies to reduce their carbon footprint. Meaning that companies are being pushed to reduce their CO2 emissions by upgrading and purchasing delivery vehicles that are less harmful to the environment, recycling products etc. Companies have been pushed and advised to show a significant change meaning that more money will have to be spent on making the company a green company.
Advantages
A Pestle Analysis shows the user an understanding of the wider business environment. By creating a Pestle Analysis the user is considering many points environmental, legal, technological etc. that will help them improve their product/service or create specific marketing methods that would have a strong impact on the company.
A Pestle Analysis encourages the development of external factors and strategic thinking. By analyzing the information gathered from the analysis the company is able to develop or plan the next step in an effective manner, meaning that the company is more likely to meet customer needs.
A Pestle Analysis can enable an organization to anticipate future business threats and take action to avoid or minimize their impact. Also the analysis can enable an organization such as Sainsbury’s to spot business opportunities and exploit them fully.
Disadvantages
Some companies over simplify the amount of data used for. Data collected by the company will need to be regularly updated. Factors that are taken into consideration are constantly changing. Access to quality of external data sources can be time consuming and costly.
The pace of change makes it increasingly difficult to anticipate developments that may affect an organization in the future. There is a risk of gathering too much data which will make analyzing the data more confusing and difficult to interpret.
Porter's 5 forces analysis
Competitive rivalry
• The retail market is extremely competitive with a very crowded market. Now, more and more companies are trying to get into non food sectors further increasing the competition.
• Tesco, Asda, and Morrison's are the other three big supermarket chains in the UK retail sector. All of them have a different competitive advantage over their competitors. Sainsbury's reach in the convenience stores makes it have a larger customer reach.
• Banks compete with Sainsbury bank but it is not a core business for Sainsbury's.
Barriers for entry
• Barriers of entry are extremely high in the food retail market due to a number of factors. Firstly, organized retail is amongst the most complicated sectors within the UK and needs a lot of investment, along with significant brand development, which takes years to establish. Secondly, retail is also at an advanced stage within the UK and most of the western world, which means there is little hope for new entrants to establish themselves.
• Local knowledge is extremely crucial within the food retail sector, something that is difficult for foreign firms to copy.
Buyer power
• Buyer power is high in this industry due to the presence of so many competitors selling the same products. It is only made different in price and consumer loyalty and nowadays green credentials.
• As the economy goes further towards recession consumers are finding it harder and harder to purchase products that they consider as a luxury meaning that consumers are putting much thought on the products that they spend on and are splurging much less on luxuries.
Supplier power
• Large suppliers can have a huge impact on supermarket revenue. If in demand products don’t reach supermarkets at the right time consumers might consider switching to an alternative company where the products are available.
• Supplier power of smaller suppliers will not be considerable because of their sales volumes on dependence on these supermarkets.
Threat of Substitutes
- A competitor such as Waitrose might choose to open in a nearby location; this means that Waitrose products and services are substitutes to those of Sainsbury’s.
- Own branded Sainsbury products might be presented as a substitute to other high quality labels sold at the store.
Advantages
Porters 5 Forces looks at 5 distinctive subjects, and they are competitive rivalry, barriers of entry, buyer power, supplier power and threat of substitutes.
Porters 5 forces can be used to analyze the environment which the company operates in. The analysis shows rivalry statistics, meaning that the company is able to see who their rivals are and determine the strength of the competition. Analyzing the barriers of entry will show the company how difficult or easy it is for new companies (in the same industry) to start up and pose as competition to Sainsbury’s. The next step taken in analyzing is buyer power. Buyer Power shows companies the buying potential consumers have. This changes regularly depending on the economical climate, for example the current economic downturn has affected consumers in terms of spending by lowering the amount they spend on luxuries and spending more money on essentials.
Analyzing supplier power is another important aspect for a company such as Sainsbury’s. Large suppliers can have a major impact on the company’s finances, delivering goods on time is essential in maintaining customer loyalty. Threat of substitutes does not only apply to products but also companies themselves. A company which provides the same or similar products and/or services is a substitute to the current company. Therefore by identifying the threat the company could form a plan which will differentiate the products/service provided which then eliminates the threat of substitutes.
Disadvantages
The model is best relevant for analysis of simple market structures. A comprehensive description and analysis of all five forces gets very difficult in complex industries with multiple internal topics such as, product groups, by-products and segments. A focus on particular segments in such industries might mean that the company misses out on other important information for other segments.
Porter’s five forces can be seen as an outdated tactic. Technological breakthroughs and dynamic market entrants from start-ups or other industries may completely change business models, entry barriers and relationships along the supply chain within short times. The Five Forces model may have some use for later analysis of the new situation; but it will hardly provide much meaningful advice for defensive actions.
Conclusion
Through this piece it can be seen through the various analyses; Porters 5 Forces, PESTEL and SWOT, that Sainsbury has become well established and well recognized by consumers. The suffered financially at times but managed to raise profits and continue operating. However, it is not protected to many outside risks like recession and rising material costs as highlighted in the PESTEL analysis.
