3.1.3 & 3.1.4 - SWOT analysis and PESTLE

Question 1

SWOT analysis

Answer 1

helps a business assess its competitive strength and the nature of its external environment

Question 2

why does a business need to assess strengths and weaknesses

Answer 2

• competitive advantage
• role for benchmarking
• key performance indicators

Question 3

evidence of strengths and weaknesses

Answer 3

• market share
• profitability
• efficiency
• brand recognition and loyalty
• market capitalisation
• reputation for quality

Question 4

evaluating strengths and weaknesses

Answer 4

• important to focus on the most important
• is the judgement made reliable
• how sustainable are the strengths
• can weaknesses be overcome

Question 5

benefits of SWOT analysis

Answer 5

• logical structure
• focuses on strategic issues
• encourages analysis of external environment

Question 6

disadvantages of SWOT analysis

Answer 6

• often lacks focus
• independent?
• can quickly become out-of-date

Question 7

PESTLE

Answer 7

a framework for analysing the key features of the external business environment

Question 8

PESTLE meaning

Answer 8

political
economic
social
technological
legal
ethical/environmental

Question 9

political

Answer 9

• competition policy
• governement spending and tax policies
• business policy

Question 10

economic

Answer 10

• interest rates
• consumer spending and income
• exchange rates

Question 11

social

Answer 11

• demographic change
• consumer tastes and fashions
• changing lifestyles

Question 12

technological

Answer 12

• adaption of mobile technology
• new production processes

Question 13

legal

Answer 13

• employment law
• minimum/living wage
• health and safety laws

Question 14

ethical and environmental

Answer 14

• sustainability
• tax practices
• ethical sourcing
• carbon emissions

Question 15

porters five forces model

Answer 15

• designed by michael porter
• framework for analysing the nature of competition within an industry
• helps understand and assess profitability

Question 16

bargaining power of suppliers

Answer 16

• if a firms supplier have bargaining power they will: exercise that power, sell at high prices and squeeze industry profits
• supplier forces up prices of paid inputs = reduced profits

Question 17

when are suppliers powerful

Answer 17

• when there are only a few large suppliers
• resources they supply are scarce
• cost of switching to an alternative is higher
• customer is small and unimportant
• no/few substitute resources available

Question 18

bargaining power of buyers

Answer 18

able to beat down prices offered by suppliers considerably

Question 19

threat of new entrants

Answer 19

• if new entrants move into an industry they will gain market share and rivalry will intensify
• position of existing firms is strong when there are barriers to the market
• threat of new entrants will be high when barriers are low

Question 20

threat of substitute products

Answer 20

• substitute product = something that meets the same customer need
• if substitutes are available, this will limit the price they can charge and reduce profits
• customer loyalty will limit the extent of this threat

Question 21

degree of rivalry among existing firms

Answer 21

• effects the prices charged and therefore profits
• in industries with strong rivalry firms compete on price, meaning profits are squeezed
• in industries with low rivalry, businesses compete on non price factors, meaning profits can be higher