A SWOT analysis — Strengths, Weaknesses, Opportunities, Threats — is something many MBA students learn. Unfortunately, businesses frequently treat SWOT like geometry: one of those things you learn but never use again. But a SWOT framework offers a concrete, real-world audit of a company and its relative standing within an industry.
While Strengths and Weaknesses are internal, they are measured on a comparative benchmark. Opportunities and Threats are external — your opportunity is usually at the expense of another company. Likewise, Threats come from the competition. Therefore monitoring your competition on an ongoing basis is a necessity. We addressed this in “How to Research Your Ecommerce Competitors.”
The objectives of a SWOT analysis are to build on your strengths and minimize your weaknesses. A business should quickly take advantage of opportunities and mitigate threats. In an industry that changes as fast as ecommerce, such an analysis should occur at least once a year.
A SWOT analysis takes time. An owner could do it herself, but it is often better to retain a consultant who will likely have more objectivity. Customers can be a good source of information about what you do well and what needs improving.
Ecommerce merchants should compare their businesses against other online sellers and brick-and-mortar retailers. This complicates the analysis because what may be a strength when compared to a brick-and-mortar merchant — dynamic pricing, for example — may not be a factor for ecommerce where many competitors deploy dynamic pricing.
Markets change quickly, and competitors may neutralize what was once an opportunity. For instance, 10 years ago an advantage of ecommerce was 24/7 global shopping. Now almost all brick-and-mortar retailers have ecommerce sites.
Strengths. What do you do better than others in your industry? Examples for ecommerce merchants might be a larger selection of products and faster or cheaper shipping. Is comparison-shopping easy and quick? Do you suggest other product options? These are competitive advantages.
Ecommerce companies benefit from lower operational costs than brick-and-mortar stores.
What makes your business unique? Do you offer niche products not available elsewhere? Are they handmade or one-of-a-kind?
Weaknesses. There is no immediate gratification with ecommerce. Goods must be delivered to customers. Heavy, bulky, and perishable items are expensive to ship.
Security and fraud concerns mean some consumers are reluctant to use their credit cards online. Allowing customers to pay with PayPal can blunt this concern.
Showrooming — the process of consumers inspecting goods at a physical store and then ordering online via mobile phones — has blunted the problem of online shoppers’ inability to touch the merchandise.
Opportunities. Ecommerce merchants should likely ask:
- “What new technologies can help grow my business?”
- “Where are my competitors vulnerable?”
Ecommerce changes quickly. New technologies have leveled the playing field with traditional retailers. For instance, improvements to shopping cart software have created a quicker, smoother, more customer-friendly experience. Live chat has enhanced online customer service. Analytics can help ecommerce companies understand customer preferences better. Social media sites provide free or low-cost promotions.
But it’s up to the merchant to stay current.
Threats. Monitor industry shifts that might affect your company’s growth, such as legal and regulatory changes. For instance, legislation currently before the U.S. Congress might force online merchants to collect sales tax.
Low barriers to entry are a constant threat in ecommerce. It’s easy to set up an ecommerce business. Moreover, people can sell items via Facebook or eBay without requiring their own website.
Huge merchants such as Amazon can undercut smaller sellers on price. All ecommerce merchants are competing with Amazon and its successful $79 Prime shipping program. However, options now exist that can put online merchants on a more competitive footing with Amazon.
Once a Year
Using SWOT analysis once or twice a year can provide a broad overview of industry trends and competitors and help mitigate your company’s weaknesses while building on its strengths.