The Marketing Environment

Scanning and Analysis

Environmental scanning is one technique used by organizations to monitor the environment.

Learning Objectives

Describe how environmental scanning helps marketers understand the current state of the marketplace

Key Takeaways

Key Points

  • In a sense, such data collection scanning acts as an early warning system for the organization. It allows marketers to understand the current state of the environment, so that the organization can predict trends.
  • A formal but simple strategic information scanning system can enhance the effectiveness of the organization’s environmental scanning efforts. An information system (part of marketing research) organizes the scanning effort so that information related to specific situations can be more readily used.
  • The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.

Key Terms

  • trend: An inclination in a particular direction.
  • PESTEL analysis: The PEST analysis is a political, economic, social, and technological analysis that describes the framework of macro-environmental factors used in the environmental scanning component of strategic management. Some analysts added legal and rearranged the mnemonic to SLEPT; inserting environmental factors expanded it to PESTEL or PESTLE, which is popular in the United Kingdom.

Introduction

Marketing managers are confronted with many environmental concerns, such as those posed by technology, customers and competitors, ethics and law, the economy, politics, demographics, and social trends. All organizations should continuously appraise their situation and adjust their strategy to adapt to the environment.

A sign that says "Internet upstairs."

Technology: The commercialization of the Internet has rattled many industries.

One technique used by organizations to monitor the environment is known as environmental scanning. This term refers to activities directed toward obtaining information about events and trends that occur outside the organization and that can influence the organization’s decision making.

In a sense, such data collection scanning acts as an early warning system for the organization. It allows marketers to understand the current state of the environment, so that the organization can predict trends.

Issues are often forerunners of trend breaks. A trend break could be a value shift in society, a technological innovation that might be permanent, or a paradigm change. Issues are less deep-seated and can be “a temporary short-lived reaction to a social phenomenon. ” A trend can be defined as an “environmental phenomenon that has adopted a structural character. ”

A formal but simple strategic information scanning system can enhance the effectiveness of the organization’s environmental scanning efforts. An information system (part of marketing research) organizes the scanning effort so that information related to specific situations can be more readily obtained and used.

The Macro Environment

There are a number of common approaches for how the external factors, which describe the macro environment, can be identified and examined. These factors indirectly affect the organization but cannot be controlled by it. One approach is the PEST analysis.

PEST stands for political, economic, social and technological. Of the four categories explored in the PEST analysis, the company has the least control over economic factors.

Two more factors, the environmental and legal factor, are defined within the PESTEL analysis (or PESTLE analysis).

The segmentation of the macro environment according to the six presented factors of the PESTEL analysis is the starting point of the global environmental analysis.

PESTEL Analysis

The six environmental factors of the PESTEL analysis are the following:

Political factors

  • Taxation policy;
  • Trade regulations;
  • Governmental stability;
  • Unemployment policy.

Economical factors

  • Inflation rate;
  • Growth in spending power;
  • Rate of people in a pensionable age;
  • Recession or boom;
  • Customer liquidations.

Socio-cultural

  • Age distribution;
  • Education levels;
  • Income level;
  • Consumerism.
  • Diet and nutrition;
  • Population growth;
  • Life expectancies;
  • Religion;
  • Social class;
  • Expectations of society about the business.

Technological factors

  • Internet;
  • E-commerce;
  • Social media.
  • Level of Automation

Environmental factors

  • Competitive advantage;
  • Waste disposal;
  • Energy consumption;
  • Pollution monitoring.

Legal factors

  • Unemployment law;
  • Health and safety;
  • Product safety;
  • Advertising regulations;
  • Product labeling labor laws.

Ecology

  • Affects customer’s buying habits;
  • Affects the production process of the firm.

Potential supplies

  • Labor supply;
  • Quantity of labor available;
  • Quality of labor available;
  • Material suppliers;
  • Delivery delay;
  • Level of competition to suppliers;
  • Service provider;
  • Special requirements.

Environmental Management

Companies which have the environmental management perspective take actions to influence their marketing environment.

Learning Objectives

Give examples of common environmental management tactics

Key Takeaways

Key Points

  • Some companies treat the external marketing environment as if it were an uncontrollable force and choose to sit on the sidelines and either let it overtake them (and then wonder what happened afterwards) or adapt to the changes it leaves in its wake.
  • Companies who manage their external environment may find themselves creating a competitive advantage.
  • Companies which follow the environmental maketing approach may hire lobbyist, place advertorials, or file lawsuits to keep the owner on his toes.

Key Terms

  • lobbyist: A person remunerated to persuade (to lobby) politicians to vote in a certain way or otherwise use their office to effect a desired result.
  • distribution channels: Distribution of products takes place by means of channels. Channels are sets of interdependent organizations (intermediaries) involved in making the product available for consumption.

Environmental Management

There are three types of companies: those who make things happen, those who watch things happen, and those who wonder what happened.

Some companies treat the external marketing environment as if it were an uncontrollable force. As there is nothing they can do to change it, their choice is to sit on the sidelines and either let it overtake them (and then wonder what happened afterwards) or adapt to the changes it leaves in its wake. Those who try to adapt will use tools to analyze the changes and then design strategies that will help the companies take advantage of any opportunities that may arise, while avoiding the threats.

Other companies, however, take the reins. They take the environmental management view. Instead of doing nothing or reacting to change, companies with this perspective take actions to influence their marketing environment.

You find these companies:

  • Hiring lobbyists to influence legislation that’s related to their industry;
  • Putting on media events in an effort to get good press;
  • Running advertorials in an effort to shape public opinion;
  • Filing lawsuits and complaints to keep competitors in line; and
  • Forming contractual agreements in an effort to have better control over their distribution channels.

Cathay Pacific Airlines is an example of a company that chose to manage their external environment even though it seemed to some people that the situation was totally out of their control. Here’s what happened.

an airplane facing front on the runway

Cathay Pacific: Cathay Pacific Airlines successfully managed changes in their external environment.

The airline realized that they were suffering because travelers where making a conscience effort to avoid flying through Hong Kong due to long delays at immigration. Instead of just throwing their hands up and living with the situation, the members of the airline senior staff worked with the Hong Kong government to figure out how to avoid the delays.

The solution? Cathay Pacific agreed to give the government an annual grant-in-aid so that more immigration inspectors could be hired. But these inspectors weren’t to be placed just anywhere. The extras primarily served Cathay Pacific gates. So not only did the airline solve the problem, it also created a competitive advantage.

Responding to the External Environment

Understanding the various external factors in a given competitive environment equips an organization with the information necessary to optimize marketing strategies and tactics.

Learning Objectives

Leverage external environmental knowledge to create informed marketing tactics and strategies

Key Takeaways

Key Points

  • Models like Porter’s Five Forces and the PESTEL framework are useful in collecting data on the external environment.
  • Utilizing information about the external environment in marketing strategy allows for the development of competitive advantage within a given competitive landscape.
  • The Ansoff Matrix is a useful tool in identifying broader strategy based on internal proficiency and external market development.
  • Segmentation and positioning based on external information and internal strengths will allow the organization to focus on the consumers who are most likely to make a purchase from the firm.
  • The 4 P’s should reflect external knowledge, segmentation, and positioning, allowing the organization to put strategy into action based on external and internal data.

Key Terms

  • target segments: Strategic groupings in a market that a firm considers likely to convert to customers.

Understanding The Environment

The first step towards effectively integrating an organization with the external environment is scanning, analyzing, and incorporating external factors into strategic marketing tactics and strategies. Various frameworks such as the PESTEL model, Porter’s 5 forces, and a SWOT analysis are useful in framing the key issues an organization faces alongside the internal capabilities of addressing them. Responding to the external environment revolves largely around avoiding threats and capturing opportunities utilizing (or capturing) competitive advantages.

Marketing Strategy

Responding to the external environment is ultimately a question of strategy. Strategy requires the key input of data and understanding of external factors, which are weighed, measured, and considered by the organization. The organization seeks opportunities to leverage what the firm is good at to identify key segments, differentiate from the competition, and ultimately develop a profitable position within the industry. There are countless ways to address external factors, but the general concept can be captured well in the following models.

The Ansoff Matrix

Depending on the organization’s current capabilities, products and services, and the maturity of the market, a marketing team could derive different generalized strategies to capture value. This is best illustrated by the Ansoff matrix, where new and existing products can be considered in the context of new and existing markets.

When determining marketing strategy, the Ansoff Matrix looks at new and existing products and markets based on market development, diversification, market penetration, and product development.

Ansoff Matrix: The Ansoff Matrix is a useful frame of reference when considering product type and market type from a marketing strategy point of view.

What this indicates is that new products in new markets is differentiated, new products in existing markets is product development, existing products in new markets is market development, and existing products in existing markets is market penetration. This is largely intuitive, but helps frame the perspective of the senior marketing team when determining how to handle a given market.

Segmentation

The next critical consideration utilizing external environmental information about the market is how to segment the market and position the firm to capture value. This is a process where the firm identifies key target markets, and understands the needs the firm could fill when addressing these target markets. By positioning the firm to match the needs, values, and behaviors of their core target segments, the firm can gain a competitive advantage through a strong market position with key target groups.

The Four P’s

Product, place, price, and promotion. These four aspects of marketing strategy should be a direct reflection of what the external environment demands, and the core target segments require from the firm.

By building up a product that reflects the current needs in the market, distributing that product to target markets at the appropriate price point, and promoting the product for growth, an organization can capture external opportunities and avoid external threats. This is a question of focus, based upon data from the external environment.

Conclusion

When looking at external environmental data, the firm must consider their relative competitive position in the market, and how that impacts the opportunities and threats from the external competitive landscape. By utilizing the external analysis frameworks, the Ansoff Matrix, the 4 P’s, and proper segmentation and positioning, a firm can strategically and tactically utilize external data to develop core competency and competitive advantage in a given market.