🏠 Home
AQA A-Level Business · 7132

SWOT & PESTLE
Analysis

Strategic analysis frameworks — internal audit, external environment and Porter's Five Forces

🔍 SWOT matrix 🌍 PESTLE factors ⚔️ Porter's Five Forces ⏱ 24 min 📝 3 practice questions
Learning Objectives

By the end of this lesson you will be able to…

Internal & External Audit

SWOT Analysis

What is it?

SWOT maps a business's internal position (Strengths, Weaknesses) against the external environment (Opportunities, Threats) to inform strategic choices.

Strengths (Internal +)

Brand loyalty, unique technology, skilled workforce, strong cash flow, cost advantages

Weaknesses (Internal −)

High cost base, weak distribution, poor brand awareness, over-reliance on one product

Opportunities (External +)

New markets, demographic shifts, new technology, competitors' weaknesses, regulatory changes

Threats (External −)

New entrants, substitute products, rising input costs, economic downturn, regulation
Strategic Application

Using SWOT to Make Decisions

Evaluation: SWOT is a snapshot — it doesn't prioritise or weight factors. Two businesses can conduct identical SWOTs and reach opposite strategic conclusions. It must be used alongside quantitative data and forecasting.
External Environment

PESTLE Analysis

Political

Government policy, political stability, trade policy, taxation, subsidies. Example: Brexit changed UK–EU trade rules

Economic

GDP growth, inflation, interest rates, exchange rates, unemployment. Example: Rising rates increase mortgage costs → less consumer spending

Social

Demographics, lifestyle trends, health consciousness, urbanisation. Example: Ageing population → demand for healthcare products

Technological

R&D, automation, AI, e-commerce, cybersecurity. Example: Self-checkout reduces labour costs in retail

Legal

Employment law, consumer law, data protection (GDPR), competition law. Example: GDPR forces data handling changes

Environmental

Climate change, carbon regulation, sustainability expectations, natural resource costs. Example: Carbon taxes raise production costs
Exam tip: PESTLE factors interact — e.g. political decisions (trade deals) create economic effects (exchange rate movements) which create social impacts (job losses in export industries).
Competitive Analysis

Porter's Five Forces

Framework Purpose

Porter's Five Forces analyses the competitive intensity and attractiveness of a market. The stronger each force, the lower the industry's profit potential.

Applied Example

Five Forces: UK Supermarket Sector

Low/Moderate Forces

  • Threat of new entrants — LOW: Huge capital needed; planning restrictions; established brand loyalty
  • Supplier power — MODERATE: Large supermarkets have leverage over many suppliers; but branded goods suppliers retain some power

High Forces

  • Buyer power — HIGH: Consumers easily switch between Tesco, Sainsbury's, Aldi — strong price sensitivity
  • Substitutes — HIGH: Online delivery, convenience stores, discounters all compete
  • Rivalry — VERY HIGH: Tesco, Sainsbury's, Asda, Morrisons, Aldi, Lidl all compete aggressively
Conclusion: UK supermarkets face very high competitive pressure overall — this explains thin margins (typically 2–5% net profit), heavy investment in loyalty schemes, and constant price-matching.
Critical Evaluation

Limitations of Strategic Analysis Tools

SWOT Limitations

  • Subjective — different analysts produce different SWOTs
  • Snapshot — doesn't capture how fast things change
  • No weighting — one major threat vs many minor strengths
  • Doesn't suggest actions — only identifies issues

PESTLE Limitations

  • Vast amounts of data — hard to prioritise
  • Factors interact — difficult to isolate individual impact
  • Future is uncertain — any forecast can be wrong
  • Industry-specific relevance varies widely
A-Level evaluation: No single framework is sufficient. The strongest strategic decisions combine SWOT + PESTLE + Five Forces + financial analysis + market research. Frameworks are starting points for thinking, not conclusions.
Strategic Response

From Analysis to Strategy

Key link: PESTLE identifies macro-environment factors; Five Forces translates them into competitive dynamics; SWOT positions the firm relative to both — together they frame which generic strategy is appropriate.
Practice Question 1

A pharmaceutical company holds patents on life-saving drugs, faces no close substitutes, and sells primarily to national health services with fixed budgets. Which of Porter's Five Forces would be rated LOWEST for this firm?

ABargaining power of buyers
BThreat of new entrants
CThreat of substitutes
DCompetitive rivalry
C is correct. Patents mean there are no substitutes for the specific patented drugs. Buyer power (A) remains significant as NHS budgets are fixed and buyers negotiate hard; new entry (B) is restricted but possible for expired patents; rivalry (D) still exists between different patented products.
Practice Question 2

A fashion retailer identifies that its main PESTLE threat is an ageing UK population reducing the target market for trendy youth clothing. This factor is best classified as:

APolitical, as it affects government spending on benefits
BSocial, as it represents a demographic shift in the population
CEconomic, as it reduces consumer spending power
DLegal, as age discrimination laws affect marketing
B is correct. An ageing population is a demographic trend — a Social (S) factor in PESTLE. While it may have economic implications (C), the primary classification is social/demographic. This is a common exam trap: demographic change sits under 'Social', not 'Economic'.
Practice Question 3

A business uses its SWOT to identify that it has a strong R&D capability (strength) and that AI technology is rapidly advancing (opportunity). Which SWOT strategy best fits this scenario?

AWT — reduce costs to survive the technology threat
BWO — invest in staff training to overcome AI weakness
CSO — use R&D strength to develop AI-powered products and capture the opportunity
DST — use R&D to defend against competitors adopting AI
C is correct. When a Strength aligns with an Opportunity, the appropriate response is an SO (Maxi-Maxi) strategy — deploy the strength to fully exploit the opportunity. This is the most proactive and growth-oriented of the four SWOT strategies.
Summary

Key Takeaways

Use arrow keys or buttons