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Business & Marketing Theories

SWOT Analysis Tool

Summary: SWOT is an acronym that stands for strengths, weaknesses, opportunities and threats. A SWOT analysis is a tool or technique that can be used in business, design or personal settings to evaluate a project or company and to create constructive goals and strategies.

Originators: George Albert Smith Jr., Kenneth Andrews, Albert S. Humphrey (1927-2005)

Keywords: decision making, goals, strengths, weaknesses, opportunities, threats, strategy tool, management, business, external issues, internal issues, growth, performance

Overview

The exact origin of SWOT Analysis has been debated.[i] Some people believe that it originated in the 1950s at Harvard Business School and was the work of professors George Albert Smith Jr and Kenneth Andrews. Others believe it was created by Albert S. Humphrey in the 1960s during his time at the Stanford Research Institute. Regardless of its origins, SWOT analysis has become quite popular, and may be one of the most widely used management decision-making tools among business managers.

SWOT Analysis gathers data about internal issues within a company or project – strengths and weakness – and external issues outside of the company or project – opportunities and threats. It then analyzes this data to inform future goals, decisions, and strategies. The ultimate goal of SWOT analysis is to achieve a more successful outcome; for a company, the goal may be to improve performance and enhance growth.

Application of SWOT Analysis

One of the most appealing feature of SWOT analysis is its universal applicability. SWOT analysis can hypothetically be used by any type of organization as a decision-making tool. It can also be used by individuals for similar purposes. Consider the following examples.

EdTech designers – As a project is created, SWOT analysis can identify factors that lead to the eventual success of the project, while also considering risks and areas that need improvement.

Small and medium companies – SWOT analysis of small and medium companies can consist of formulating, implementing, and evaluating strategies that lead to improvements in productivity, performance, and successful operation of the company.[ii]

Farming and agricultural development – Researchers have shown the use of SWOT Analysis in the context of farming and agricultural development in Iran.[iii]

Private schools – SWOT analysis was used in an attempt to improve two different private schools. The researchers stated that the analysis benefited one of the schools by allowing it to “advance in the face of growing challenges thereby leading to its stability and increased productivity."[iv]

Nursing policy – Researchers have used SWOT analysis to consider the nursing policies of multiple European countries. Their analysis allowed them to identify factors that prevented collaboration between countries.[v]

You can download a printable SWOT Analysis Template below (in Word and PDF formats).

References

[i] Madsen, D. O. (n.d.). SWOT analysis: A management fashion perspective. Retrieved from https://www.researchgate.net/profile/Dag_Madsen/publication/299278178_SWOT_Analysis_A_Management_Fashion_Perspective/links/56f05fee08ae70bdd6c94a74/SWOT-Analysis-A-Management-Fashion-Perspective.pdf

[ii] Houben, G., Lenie, K., & Vanhoof, K. (1999). A knowledge-based SWOT –analysis system as an instrument for strategic planning in small and medium sized enterprises. Decision Support Systems, 26, 125-135.

[iii] Ommani, A. R. (2011). Strengths, weaknesses, opportunities and threats (SWOT) anlysis for farming businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran. African Journal of Business Management, 5(22), 9448-9454.

[iv]Ifediora, C. O., Idoko, O. R., & Nzekwe, J. (2014). Organizations stability and productivity: The role of SWOT anlysis an acronym for strength, weakness, opportunities and threat. Internatinal Journal of Innovative and Applied Research, 2(9), 23-32.

[v] Uhrenfeldt, L., Lakanmaa, R., & Basto, M. L. (2014). Collaboration: A SWOT anlysis of the process of conducting a review of nursing workforce plilicies in five European countries. Journal of Nursing Management, 22(4), 485-498.

Social Proof

Summary: Social proof describes a psychological phenomenon in which people mirror the actions and opinions of others. In other words, people’s decisions are often impacted by the preferences and modeling of individuals or groups around them.

Keywords: informational social influence, marketing, group norms, standards of behavior, testimonials, crowds, social modeling, sales, business, conformity, group conformity, social media

Originator: Muzafer Sheraf (1906-1988)

 

Social proof was first described in scientific research by a psychologist named Muzafer Sheraf. Sheraf was interested in the impact of groups on individual decision making. In relation to this interest, he completed a famous experiment on group conformity in 1936.[i]

In this study, Sheraf asked participants to observe a blinking light. A blinking light in a dark room often appears to move, even when it remains still. Based on this common perception, Sheraf asked participants to indicate how many inches they thought the blinking light moved. Sheraf first asked participants to guess an answer when they were alone. Then, he asked them the same question again while they were surrounded by a group of other participants. Sheraf found that participants changed their initial answers once they moved to the group setting. Across the board, people changed their number to closer reflect what other group members had guessed.

The concept of social proof came out of studies such as this one. Researchers consistently observe a tendency for individuals to move towards group conformity. Individuals often change their behaviors, opinions, and decisions to match the people around them.

 

Using Social Proof to Influence People

Social proof is commonly used in marketing and social media to influence people to buy products. Listed below are a variety of different types of social proof that are used in the context of marketing.[ii]

Social proof uses the influence of social media friends. For example, a business might indicate how many of a person’s Facebook friends “liked" a particular product they sell. People are more influenced to buy something when they know that their friends like the product.

  • Social proof uses the influence of celebrities. Research shows that people are more likely to buy a product when it is endorsed by a familiar and well-liked celebrity.
  • Social proof uses the influence of professional certifications and testimonials. Experts in an area may be called upon to endorse a product or provide a testimonial of how they have enjoyed a product.
  • Social proof uses the influence of crowds. Sometimes businesses indicate the number of people who have bought a product. When people know that a product or service is popular, they are more likely to want to buy it.

 

Social Proof and Personal Decisions

Social proof is a great marketing strategy and an effective means of influencing people to make certain choices. However, individuals should consider if social proof is always the best way to make decisions.

Quite notably, Sharif’s original study indicated that people were not aware of the extent to which they were impacted by the group. When participants where asked if they thought they were influenced by the group, most of them believed they had not been influenced. However, it was clear from the results of the study that people were wrong to believe this.

Negative forms of social proof can lead to bad decision making and giving into peer pressure. A prime example of this is college students who abuse alcohol and drugs.[iii] Research has drawn connections between social proof and this common dangerous behavior in college students. On a college campus, so many people engage in substance abuse that this behavior is observed to be the norm. Incoming students are apt to conform with the group and begin abusing substances just like the older students around them.

It is not always wrong to make decisions based on social proof. However, Sharif’s study provides an important caution that people should develop self-awareness surrounding this topic, so they can know when their decisions are being influenced by the people around them.

 

References

[i] Sherif, M. (1936). The psychology of social norms. Oxford, England: Harper.

[ii] Talib, Y. Y. A. & Saat, R. M. (2017). Social proof in social media shopping: An experimental design research. SHS Web of Conferences, 34

[iii] Cullum, J., O’Grady, M., Armeli, S., & Tennen, H. (2012). Change and stability in active and passive social influence dynamics during natural drinking events: A longitudinal measurement-burst study. Journal of Social and Clinical Psychology, 31(1), 51-80.

Network Effects

Summary: Network Effects describes the phenomenon how the value of a good or service increases as more people start to use that good or service.

Originators: Theodore Vail (1845-1920), Robert Metcalfe (1946-Present)

Keywords: network externality, demand-side economies of scale, marketing, customer base, value, monopoly, social media, congestion, good, service

Certain products only have value if a large number of people are using them. A classic example is that of technology used for communication such as a phone or fax machine. Critical mass is needed — these devices are only valuable if lots of other people have phones that you can call and machines you can fax.

This phenomenon was first described by Theodore Vail in 1908. Vail used the concept of Network Effects to build AT&T into a monopoly of telephone communication in the early 1900s. Later, Robert Metcalfe described Network Effects related to the importance of more people engaging in use of the Internet for it to become beneficial to everyone.[i]

Both the Internet and the telephone are examples of Direct Network Effects, in which more customers directly increase the value of a product or service. There are also Indirect Network Effects, which occur when more customers indirectly increase the value of a product of service. For example, when more people use Uber, this does not directly make Uber more valuable. However, the more people who use Uber, the more Uber is motivated to improve the quality of their service, which ends up indirectly impacting the value of this service.[ii]

Another prime example of Network Effects can be found in various social media services, such as Facebook. The more people who use Facebook, the more valuable Facebook becomes. This in turn, attracts more people to Facebook, as people do not want to miss out on a service that so many other people are using. Thus, Facebook continues to increase in value and attract more people at the same time.

Using Network Effects to Improve Businesses

Businesses who succeed at utilizing Network Effects can gain a competitive advantage in their industry. Consider two ways in which this can happen:

  1. Businesses can harness the power of Network Effects through engaging with products that are already highly valuable. They can consider what products are being used by a large number of people and consider utilizing those products within their business.

For example, Visa is a type of credit card used by over 2.9 billion people. Businesses can make a point to accept Visa credit cards and gain more customers who might have gone elsewhere if the business only accepted cash.

Businesses can harness the power of social media through advertising via various media platforms that are already popular and attract large numbers of people.

  1. Businesses can create network effects within their own products and services through encouraging high engagement, interacting with customers, and providing high quality products.

The reason many social media platforms developed high network effects is because they are engaging and interactive. This is a means of drawing new customers in and building up a client base to build value within the business.

Once people engage with a product or service, businesses can focus on keeping products and services as high quality as possible. This keeps people engaged in the long run.

References

[i] Easley, D. & Kleinberg, J. (2010). Networks, crowds, and markets. Reasoning about a highly connected world. Cambridge University Press.

[ii] Clements, M. T. (2004). Direct and indirect network effects: Are they equivalent? International Journal of Industrial Organization, 22(5), 633-645.


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