Despegar.com (DESP) SWOT Analysis / TOWS Matrix / MBA Resources
Personal Services
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Despegar.com (United States)
Based on various researches at Oak Spring University , Despegar.com is operating in a macro-environment that has been destablized by – competitive advantages are harder to sustain because of technology dispersion, there is increasing trade war between United States & China, increasing government debt because of Covid-19 spendings, increasing energy prices, geopolitical disruptions, talent flight as more people leaving formal jobs, there is backlash against globalization,
wage bills are increasing, technology disruption, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Despegar.com can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Despegar.com, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Despegar.com operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Despegar.com can be done for the following purposes –
1. Strategic planning of Despegar.com
2. Improving business portfolio management of Despegar.com
3. Assessing feasibility of the new initiative in United States
4. Making a Personal Services sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Despegar.com
Strengths of Despegar.com | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Despegar.com are -
Highly skilled collaborators
– Despegar.com has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive Personal Services industry. Secondly the value chain collaborators of Despegar.com have helped the firm to develop new products and bring them quickly to the marketplace.
Organizational Resilience of Despegar.com
– The covid-19 pandemic has put organizational resilience at the centre of everthing Despegar.com does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Low bargaining power of suppliers
– Suppliers of Despegar.com in the Services sector have low bargaining power. Despegar.com has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Despegar.com to manage not only supply disruptions but also source products at highly competitive prices.
Operational resilience
– The operational resilience strategy of Despegar.com comprises – understanding the underlying the factors in the Personal Services industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Diverse revenue streams
– Despegar.com is present in almost all the verticals within the Personal Services industry. This has provided Despegar.com a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Innovation driven organization
– Despegar.com is one of the most innovative firm in Personal Services sector.
Sustainable margins compare to other players in Personal Services industry
– Despegar.com has clearly differentiated products in the market place. This has enabled Despegar.com to fetch slight price premium compare to the competitors in the Personal Services industry. The sustainable margins have also helped Despegar.com to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Despegar.com has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Despegar.com staying ahead in the Personal Services industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
High brand equity
– Despegar.com has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Despegar.com to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Successful track record of launching new products
– Despegar.com has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Despegar.com has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Strong track record of project management in the Personal Services industry
– Despegar.com is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Learning organization
- Despegar.com is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Despegar.com is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Despegar.com emphasize – knowledge, initiative, and innovation.
Weaknesses of Despegar.com | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Despegar.com are -
Slow decision making process
– As mentioned earlier in the report, Despegar.com has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the Personal Services industry over the last five years. Despegar.com even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
High operating costs
– Compare to the competitors, Despegar.com has high operating costs in the Personal Services industry. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Despegar.com lucrative customers.
Ability to respond to the competition
– As the decision making is very deliberative at Despegar.com, in the dynamic environment of Personal Services industry it has struggled to respond to the nimble upstart competition. Despegar.com has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ less understanding of Despegar.com strategy
– From the outside it seems that the employees of Despegar.com don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Workers concerns about automation
– As automation is fast increasing in the Personal Services industry, Despegar.com needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Low market penetration in new markets
– Outside its home market of United States, Despegar.com needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Interest costs
– Compare to the competition, Despegar.com has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Despegar.com is slow explore the new channels of communication. These new channels of communication can help Despegar.com to provide better information regarding Personal Services products and services. It can also build an online community to further reach out to potential customers.
No frontier risks strategy
– From the 10K / annual statement of Despegar.com, it seems that company is thinking out the frontier risks that can impact Personal Services industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Capital Spending Reduction
– Even during the low interest decade, Despegar.com has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the Personal Services industry using digital technology.
High cash cycle compare to competitors
Despegar.com has a high cash cycle compare to other players in the Personal Services industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Despegar.com Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Despegar.com are -
Loyalty marketing
– Despegar.com has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Despegar.com to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Despegar.com to hire the very best people irrespective of their geographical location.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Despegar.com to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Despegar.com can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help Despegar.com to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Buying journey improvements
– Despegar.com can improve the customer journey of consumers in the Personal Services industry by using analytics and artificial intelligence. It can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Despegar.com can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Personal Services industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Despegar.com can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Despegar.com can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Building a culture of innovation
– managers at Despegar.com can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Personal Services industry.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Despegar.com can use these opportunities to build new business models that can help the communities that Despegar.com operates in. Secondly it can use opportunities from government spending in Personal Services sector.
Leveraging digital technologies
– Despegar.com can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Creating value in data economy
– The success of analytics program of Despegar.com has opened avenues for new revenue streams for the organization in Personal Services industry. This can help Despegar.com to build a more holistic ecosystem for Despegar.com products in the Personal Services industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Despegar.com is facing challenges because of the dominance of functional experts in the organization. Despegar.com can utilize new technology in the field of Personal Services industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Better consumer reach
– The expansion of the 5G network will help Despegar.com to increase its market reach. Despegar.com will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Threats Despegar.com External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Despegar.com are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Shortening product life cycle
– it is one of the major threat that Despegar.com is facing in Personal Services sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry to Personal Services industry are lowering. It can presents Despegar.com with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the Personal Services sector.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Despegar.com in the Personal Services sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Despegar.com can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Despegar.com prominent markets.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Despegar.com needs to understand the core reasons impacting the Personal Services industry. This will help it in building a better workplace.
Technology acceleration in Forth Industrial Revolution
– Despegar.com has witnessed rapid integration of technology during Covid-19 in the Personal Services industry. As one of the leading players in the industry, Despegar.com needs to keep up with the evolution of technology in the Personal Services sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Consumer confidence and its impact on Despegar.com demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Personal Services industry and other sectors.
Regulatory challenges
– Despegar.com needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Personal Services industry regulations.
Easy access to finance
– Easy access to finance in Personal Services industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Despegar.com can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Despegar.com will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Despegar.com business can come under increasing regulations regarding data privacy, data security, etc.
Weighted SWOT Analysis of Despegar.com Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Despegar.com needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Despegar.com is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Despegar.com is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Despegar.com to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Despegar.com needs to make to build a sustainable competitive advantage.