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SWOT ANALYSIS

Evaluating Business Unit Opportunities

Now that we have learned how to identify industry value chains and break each value chain down into strategic business units, we can learn one popular technique for analyzing and evaluating business opportunities. Most electronic commerce initiatives add value by the reducing transaction cost, creating some type of network effect, or a combination of both. In SWOT analysis (the acronym is short for Strengths, Weaknesses, Opportunities and Threats), the analyst first looks into the business unit to identify its strengths and weaknesses. The analyst then reviews the environment in which the business unit operates and identifies opportunities presented by that environment and the threats posed by that environment. As shown in the following figure which shows the questions that an analyst would ask in conducting a SWOT analysis.

Strengths Weaknesses
  • What does the company do well?
  • Is the company strong in its market?
  • Does the company have a strong sense of purpose and the culture to support that purpose?
  • What does the company do poorly?
  • What problems could be avoided?
  • Does the company have serious financial liabilities?
Opportunities Threats
  • Are industry trends moving upward?
  • Do new markets exist for the company's products/services?
  • Are there new technologies that the company can exploit?
  • What are competitors doing well?
  • What  obstacles  does  the company
    face?
  • Are there troubling changes in the company’s business  environment (technologies, regulations)?

                            SWOT analysis questions

  • By considering all of the issues that it faces in a systematic way, a business unit can formulate strategies that will take advantage of its opportunities by building on its strengths, avoiding any threats, and compensating for its weaknesses. In the mid- 1990s, Dell Computer used a SWOT analysis to create a strong business strategy that has helped it become a very strong competitor in its industry value chain. Dell identified its strengths in selling directly to customers and in designing its computers and other products to reduce manufacturing costs. It acknowledged the weakness of having no relationships with local computer dealers. Dell faced threats from competitors such as Compaq and IBM, both of which had much strong brand names and reputations for quality at that  time. Dell identified an opportunity by noting that its customers were becoming more knowledgeable about computers and could specify exactly what they wanted without having Dell salespersons answer questions or develop configurations for them. It also  saw the Internet as a potential marketing tool. The results of Dell's SWOT analysis appears in following figure:
Strengths Weaknesses
  • Sell directly to consumers.
  • Keep costs below competitors’ costs.
  • No strong relationships computer retailers
Opportunities Threats
  • Consumer shopping desire for. one-stop
  • Consumers know what they want to 
    buy.
  • Internet could be a powerful marketing tool.
  • Competitors have stronger brand names.
  • Competitors have strong relationships with computer retailers.

                             Results of Dell’s SWOT Analysis

The strategy that Dell followed after doing the analysis took all four of the SWOT elements into consideration. Dell decided to offer customized computers built to order and sold over the phone, and eventually, over the Internet. Dell's strategy capitalized on its strengths and avoided relying on a dealer network. The brand and quality threats posed by Compaq and IBM were lessened by Dell's ability to deliver higher perceived quality because each computer was custom made for each buyer.

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FAQs on SWOT Analysis - Planning Online Business, E-Commerce - E-Commerce - B Com

1. What is a SWOT analysis and why is it important for planning an online business?
Ans. A SWOT analysis is a strategic planning tool that helps evaluate the strengths, weaknesses, opportunities, and threats of a business. It is important for planning an online business as it helps identify internal factors (strengths and weaknesses) and external factors (opportunities and threats) that can impact the success of the business. By conducting a SWOT analysis, business owners can make informed decisions, develop strategies, and allocate resources effectively.
2. How can a SWOT analysis help an e-commerce business identify its strengths?
Ans. A SWOT analysis can help an e-commerce business identify its strengths by examining its internal factors. This analysis can highlight competitive advantages, unique selling points, valuable resources, and positive attributes that set the business apart from its competitors. By identifying and leveraging its strengths, an e-commerce business can position itself for success, attract customers, and establish a strong brand presence in the online marketplace.
3. What are some common weaknesses that an e-commerce business may identify through a SWOT analysis?
Ans. Through a SWOT analysis, an e-commerce business may identify common weaknesses such as a lack of brand recognition, limited product range, insufficient customer service, outdated technology, ineffective marketing strategies, or inadequate supply chain management. Recognizing these weaknesses is crucial as it allows the business to address and overcome them, thereby improving its overall performance and competitiveness in the online market.
4. How can an e-commerce business leverage opportunities identified through a SWOT analysis?
Ans. An e-commerce business can leverage opportunities identified through a SWOT analysis by developing strategies to capitalize on them. Opportunities can include emerging markets, new customer segments, advances in technology, or changes in consumer behavior. By aligning its business strategies with these opportunities, an e-commerce business can expand its customer base, enhance its product offerings, improve customer experience, and gain a competitive edge in the online marketplace.
5. What are some potential threats that an e-commerce business may identify through a SWOT analysis?
Ans. Through a SWOT analysis, an e-commerce business may identify potential threats such as intense competition, changing market trends, economic downturns, cybersecurity risks, logistical challenges, or legal and regulatory changes. By recognizing these threats, the business can develop contingency plans, implement risk management strategies, and stay proactive in adapting to the evolving landscape of the online business environment.
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