PriceSmart SWOT Analysis / Matrix

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SWOT analysis is a strategic planning tool that can be used by PriceSmart managers to do a situational analysis of the organization . It is an important technique to evalauate the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) PriceSmart is facing in its current business environment.

The PriceSmart is one of the leading companies in its industry. PriceSmart maintains its prominent position in market by critically analyzing and reviewing the SWOT analysis.  SWOT analysis an immensenly interactive process and requires effective coordination among various departments within the company such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework enables an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also called SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the PriceSmart to develop four types of strategies:

• SO (strengths-opportunities) Strategies
• WO (weaknesses-opportunities) Strategies
• ST (strengths-threats) Strategies
•  WT (weaknesses-threats) Strategies

SWOT Matrix Strategies Objective

The main purpose of SWOT matrix is to identify the strategies that a company can use to exploit external opportunities, counter threats, and build on & protect PriceSmart strengths, and eradicate its weaknesses.

Step by Step Guide to PriceSmart SWOT Analysis

Strengths of PriceSmart – Internal Strategic Factors

As one of the leading companies in its industry, PriceSmart has numerous strengths that help it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of PriceSmart are –

• Strong distribution network – Over the years PriceSmart has built a reliable distribution network that can reach majority of its potential market.
• Strong dealer community – It has built a culture among distributor & dealers where the dealers not only promote company’s products but also invest in training the sales team to explain to the customer how he/she can extract the maximum benefits out of the products.
• Strong Brand Portfolio – Over the years PriceSmart has invested in building a strong brand portfolio. The SWOT analysis of PriceSmart just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
• Reliable suppliers – It has a strong base of reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.
• Automation of activities brought consistency of quality to PriceSmart products and has enabled the company to scale up and scale down based on the demand conditions in the market.
• Strong Free Cash Flow – PriceSmart has strong free cash flows that provide resources in the hand of the company to expand into new projects.
• Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
• Highly successful at Go To Market strategies for its products.

Weakness of PriceSmart – Internal Strategic Factors

Weakness are the areas where PriceSmart can improve upon. Strategy is about making choices and weakness are the areas where a firm can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

• The profitability ratio and Net Contribution % of PriceSmart are below the industry average.
• Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
• Limited success outside core business – Even though PriceSmart is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.
• The company has not being able to tackle the challenges present by the new entrants in the segment and has lost small market share in the niche categories. PriceSmart has to build internal feedback mechanism directly from sales team on ground to counter these challenges.
• Not highly successful at integrating firms with different work culture. As mentioned earlier even though PriceSmart is successful at integrating small companies it has its share of failure to merge firms that have different work culture.
• Investment in Research and Development is below the fastest growing players in the industry. Even though PriceSmart is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
• Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of PriceSmart

Opportunities for PriceSmart – External Strategic Factors

• New environmental policies – The new opportunities will create a level playing field for all the players in the industry. It represent a great opportunity for PriceSmart to drive home its advantage in new technology and gain market share in the new product category.
• The new taxation policy can significantly impact the way of doing business and can open new opportunity for established players such as PriceSmart to increase its profitability.
• Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of PriceSmart.
• The market development will lead to dilution of competitor’s advantage and enable PriceSmart to increase its competitiveness compare to the other competitors.
• Decreasing cost of transportation because of lower shipping prices can also bring down the cost of PriceSmart’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
• Stable free cash flow provides opportunities to invest in adjacent product segments. With more cash in bank the company can invest in new technologies as well as in new products segments. This should open a window of opportunity for PriceSmart in other product categories.
• Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
• Government green drive also opens an opportunity for procurement of PriceSmart products by the state as well as federal government contractors.

Threats PriceSmart Facing - External Strategic Factors

• Imitation of the counterfeit and low quality product is also a threat to PriceSmart’s product especially in the emerging markets and low income markets.
• Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.
• Shortage of skilled workforce in certain global market represents a threat to steady growth of profits for PriceSmart   in those markets.
• New technologies developed by the competitor or market disruptor could be a serious threat to the industry in medium to long term future.
• New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
• Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of PriceSmart
• As the company is operating in numerous countries it is exposed to currency fluctuations especially given the volatile political climate in number of markets across the world.
• Rising raw material can pose a threat to the PriceSmart profitability.

Limitations of SWOT Analysis for PriceSmart

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.

• Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
• SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
• The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of PriceSmart
• SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
• SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of PriceSmart

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis PriceSmart managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.

Limitation of Weighted SWOT analysis of PriceSmart

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.

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Example of Weighted SWOT Analysis

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SWOT Worksheet & Template

If you like to do your own SWOT analysis or want to make your own Weighted SWOT SWOT matrix then feel free to download Fern Fort University SWOT Analysis Template.

References / Citations & Bibliography

• M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
• A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
• O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
• L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
• R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)