Saturday, December 6, 2008

SWOT and Strategic Marketing

If you have worked on business-case development, you know that "SWOT analysis" is central to analyzing market opportunities or any business investment for that matter. SWOT is an acronym for Strength, Weakness, Opportunity and Threat analysis. It is a tool used to analyze external factors (opportunities/threats) and internal factors or capabilities (strengths/weaknesses). I am not going to explain here how to do a SWOT analysis - that's easy.

The difficult part is to know what to do with SWOT analysis. In other words, you have just completed SWOT - now what? In my own experience, I have seen people jumping from SWOT analysis to defining their value proposition and product-fit (with opportunity). They have missed the point though - SWOT analysis is as good as its application....

What is SWOT's application - you might ask. Well! in simple terms SWOT results should define your marketing strategy.

Strategy is about choices. Strategy demands a focus of effort, deciding where your priorities lie and, by implication, deciding what you will no do. SWOT helps define that "strategic focus" and therefore allow businesses to market strategically - define their competitive turf and build capabilities to beat the competition.

From my days at business school, I remember key lessons from our marketing class - and one such lesson was on "strategic marketing" and the "right" use of SWOT analysis. "Opportunities and Threats" help define market attractiveness. At the same time, "Strengths and Weaknesses" analysis explain how well the company is positioned vis-à-vis competition.

Armed with this information, business leaders should apply different strategies depending on competitive position in both potential and/or existing markets (see chart above). [This strategic framework was shared by Prof. Ken Wong of Marketing at Queen's University. He is an award-winning professor and frequently cited marketing authority. He is a Professor of Business, expert in marketing and business strategy, and co-author of Canada’s largest-selling introductory marketing text, Basic Marketing]

1) INVEST - Build/buy capabilities if your product/business unit is positioned strongly in an attractive market. (These are your "Star" products or businesses)

2) BE SELECTIVE - Given medium-to-weak competitive position in a flat-growth market market, companies should invest their dollars selectively. Game theory would tell us how companies would still invest in weak categories and declining markets to distract their competition from investing in their turf.

3) HARVEST/ DIVEST - Milk your "cash cows" and sell-off "dogs" (or sick units). Harvesting strategy calls for increasing prices, halt product development and cut down on customer-service. This is done to strategically wind down business and move customers away from and towards "stars" products/units.

By applying SWOT analysis to develop a marketing strategy, companies would be able to leverage market opportunities effectively and invest to build a strong competitive position.

RECOMMENDED READING: For better grasp of strategic marketing, I'd recommend one of the best books on this subject- Basic Marketing, written by Ken Wong. Another book is SWOT Analysis part I and II - from Harvard Business School Press.


Pameljit said...

I really liked the way you have explained SWOT. I sometimes find strategy decisions being taken on basis of someone's hunch or politics. What do you think about that?

Marketing Genius said...

Thanks for your comments, Pameljit. I agree with your assessment: Strategy is often directed by the top executives which if not communicated properly sounds like someone's hunch. In addition to articulating their strategy, executives must ensure theire is a strong political-will at all levels of organization needed for successful execution of that strategy. And often that is not easil achieved - I recommend business leaders should spend more time articulating their strategy to rest of the organization. Also it is important that they review business cases with objectivity (and no executive bias) for fair evaluation of new opportunities. This is achieved by creating a Strategic Thinking Or Business Intelligence group in your company tasked with reviewing business cases and performing post-launch analysis. This group should work closely with senior executives in providing them market intelligence that feed into the future strategy of the company.