Businesses apply PEST and SWOT analysis methods to understand the feasibility of a new product, project or possible expansion. They are commonly used together to get a better understanding of the competitive and economic environment, but they represent two contrasting approaches.
SWOT is more flexible and can be applied to various forms of business functions. PEST — called PESTEL analysis when including legal and environmental factors — is more nonconforming, used only to fully understand the implications of entering a new market.
What Is a SWOT Analysis?
SWOT is an acronym for strengths, weaknesses, opportunities and threats. It is commonly applied to a product, project or business to assess its position in the competitive market. Taking into account every detail of the project, marketers try to get a picture of how it would fare in the market against competitors.
Strengths and weaknesses are internal. An example of a product’s strengths might be its brand equity or loyal customer base. Not enough distribution channels would be a weakness.
Opportunities and threats are the external factors: An untapped market for a product represents an opportunity, while manufacture of a similar product by a competitor might pose a threat.
What Is a PEST Analysis?
To understand the climate of a new market, marketers must to implement PEST analysis, which assesses the political, economic, social and technological climate. PEST would inform marketers of political red tape, economic slowdowns, sociological or cultural hindrances, and if the new market lacks the technological capabilities to perform business. It can also suggest which areas would be best to infiltrate, taking into account political and economic structures.
For example a company looking to expand into a particular state might discover through PEST analysis that the state offers incentives to attract out-of-state companies and that it has the economic resources to make expansion more cost-effective.
PEST and SWOT Analysis Feasibility
Marketers trying to assess the feasibility of a product are most likely to use SWOT analysis. This is because SWOT provides a micro-analysis — an in-depth and introspective assessment — which is essential when considering the launch of a new product. When developing a product’s desired position, a marketer must first assess strengths and weaknesses. PEST analysis, which provides a macro-analysis – focusing on the whole socioeconomic picture – is not helpful in this situation.
For example a local shirt-maker looking to market a new style of shirts would most likely benefit from using SWOT analysis to assess its position against the local competitors. It does not need to assess the sociopolitical landscape of a market of which it has been a part for years.
Analysis for Assessing Expansion
Marketers normally employ PEST analysis when infiltrating a new market — whether it is for launching a new product or a new business. SWOT alone cannot give the depth of view needed to make an educated decision about expansion because it does not cover enough of the external elements involved.
For example, if the same local shirt maker discovered an opportunity to export its shirts to Italy, it would need to identify trade incentives or hindrances associated with the expansion. It might also consider the currency exchange, technological compatibility issues and consumer attitude toward foreign goods. SWOT analysis would be concerned only with the question of opportunity or threat in the context of competition.
PEST and SWOT Analysis Strategic Flexibility
SWOT analysis may be applied to most phases of business because it is a way to analyze the internal workings of business activities. This makes it applicable when assessing any new company resources, partnerships and/or acquisitions. It is more flexible in its application ability than PEST, which is used to assess external factors.
A design house can use SWOT analysis for something as simple as understanding the feasibility of hiring a highly-revered tailor. It could analyze whether the tailor would be an asset or liability to the company, and leverage the potential opportunities of the hire against any threats.