As expressed by Aguilar 1967, environmental scanning gathers and uses information regarding events, trends, and relationships in a businesses’ external environment..
Conceptual Framework for Environmental Scanning (Choo 2001, p.103)
Environmental analysis has the role of assisting managers in “assessing and interpreting the information gathered” (Dibb, Simkin, Pride, Ferrell 1997) from environmental scanning. Hence environmental analysis is a vital means of organisational learning. As indicated by Dibb, Simkin, Pride and Ferrell, the process may help managers to describe current and future changes in the external environment.
By evaluating changes the marketing manager can pinpoint opportunities and threats that may arise from environmental fluctuations. Understanding the current state of the environment and identifying threats and opportunities, companies assess the current performance of their marketing campaigns and develop future strategies.
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The External Marketing Environment
Is determined by “social, demographic, economic, technological, political and legal, and competitive variables” (Williams, 2004). The external market environment is also described “in terms of four key components: economic, technological, political and legal, social and cultural” (Perreault & McCarthy 2000, p.
78). “PESTLE analysis is a popular method of examining the many different external factors affecting an organisation” (Thames Valley University, 2006).
There are different ways of dividing the external marketing environment which vary from text to text. Regardless of what headings it is divided into on paper, the reality is that all external factors are very real forces which are inter-linked and unavoidably affect all businesses thus needing to be examined. For the purpose of this essay the headings used will be: Economic, Competitive, Technological, Social/Cultural, Geographic/Demographic and Political.
The Economic Environment
Affects the way resources are utilised by the company in question and by the economy as a whole and is dependant on all the other parts of an external marketing environment.
Due to an ever fluctuating economic environment, changes in marketing strategy are often vital. Well planned strategies can fail in cases where a country or region goes through a rapid economic decline. As incomes drop, spending patterns will shift.
Interest rates and inflation also influence spending patterns. Changes in economy are often followed by fluctuations in interest rates, which change the price borrowers pay for products. This often determines when and whether people buy. Interest rate changes affect business markets like the manufacturing and distribution industries and consumer markets where high value purchases on credit take place, such as real estate. Inflation often has a knock on effect, leading to increased prices, which adds to macro-level inflation. “Many economists consider rising prices to be the greatest economic evil, and it is this which drives Western governments to mercilessly track and target inflation” (BBC News June 2006). Governments may introduce policies reducing income, employment and consumer spending, which will undoubtedly affect businesses. Marketing managers must be aware of this delicately balanced interdependence.
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The Competitive Environment
“The competitive environment encompasses the number of competitors a firm must face, the relative size of the competitors, and the degree of interdependence within the industry… rising costs, and shortages of resources can heighten domestic competition” (Williams, 2004).
Changes in the exchange rate can affect businesses involved in international trade and businesses that operate on a domestic level. When the pound sterling is strong, it is more valuable in foreign currencies. Companies relying heavily on imports benefit from reduced prices, generating increased competitiveness at domestic level as well as on the international arena. Companies relying heavily on exports and companies operating solely at domestic level will be hindered by this. British goods become more expensive in foreign markets, translating into a disadvantage for exporters. Furthermore, foreign goods become cheaper in Britain, facing companies in the domestic market with an influx of new competition able to trade at lower prices.
The Technological Environment
“Provides a base for the economic environment. Technical skills and equipment affect the way companies convert an economy’s resources into output” (Perreault & McCarthy 2000, p.85).
Technology provides new business processes, such as use of computers for more accurate planning and control. Shifts in the technological environment lead to new products such as the ipod which shows how new technology can create new markets.
Furthermore, the internet has changed the way many businesses operate their marketing strategies. Blockbuster offer online DVD rental as can be seen on their website (www.blockbuster.co.uk).
When dealing with the technological environment, marketing managers must take care not to violate the social and cultural environment as well as the legal environment. Invasion of privacy over the internet may be used for marketing purposes, however this may be more detrimental than beneficial to a company, as an invasion of privacy is generally perceived as a negative action. In many cases such actions may be also considered unlawful. Hence, each part of the external environment goes hand in hand with the rest.
Describe popular culture – read also here
Social and Cultural Environment
Affects the way businesses market their products to consumers. The current western social trend of striving towards a healthier lifestyle has completely changed the face of the food industry and even the fast food industry, with McDonalds introducing salads to their menu. The marketer must examine cultural/social norms and beliefs carefully, as they are vital and vary drastically around the world.
However it would arguably be wrong to state that society and culture shape marketing when marketing campaigns have brought about changes in traditions world-wide. The marketing of the concept of Father Christmas in Spain around the late 1970s means that Father Christmas is now a tradition for the later generations in Spain. Similarly, the marketing of Halloween in the UK has resulted in British society adopting a new tradition, arguably shaping society and culture.
Geographic and Demographic trends
Affect consumer behaviour which will undoubtedly affect business. The rate of population growth, changes in particular regions, the age distribution of the population, and where people live must be considered when drawing a marketing strategy. In this way, a country with a young population is likely to see a high number of pregnancies and a high demand for baby products.
The Political Environment
Determined indirectly by population trends and socio-cultural attitudes, and determined directly by government policies, international issues and events. Consumers in the same country usually share a similar political environment. The political climate within a country can shape the whole external marketing environment. Nationalistic policies and protectionism can close certain markets to foreign investors. In contrast, economical alignments such as the EEU can open new markets and stimulate international trade through the elimination of trade barriers, whilst increasing competition.
The Legal Environment
Often affected by the political environment, the legal environment defines how a company may operate in society. In the UK the office of fair trading, established by the Fair Trading Act 1973, enforces consumer protection and competition law. Consumer protection laws are government regulations designed to protect the interest of consumers. The government may request that companies provide detailed information about their products.
These types of law are stricter where public health and safety is an issue. It is expected that by January 2007 all junk food adverts on television will be banned from daytime broadcasting. “OFCOM said the moves would cost broadcasters an estimated ï¿½39m in lost advertising revenue” (BBC News, 17 November 2006). This depicts the extent to which changes in social attitudes and awareness can influence the political environment which in turn can change the legal environment. All these environmental factors will, according to the evidence, deal a ï¿½39 million blow to UK broadcasters.
“Careful monitoring of the macro environment can enable an organisation to identify opportunities for and threats to its business and will enable it to adopt a proactive rather than a reactive approach in the action it takes”(Atkinson M. 1997, p.26). Somewhat like preparing for the arrival of a hurricane rather than waking up to the hurricane.
An understanding of the external marketing environment allows businesses to design their marketing strategies having observed and analysed the big picture, enabling them to plan ahead. “Therefore those who do not know the plans of competitors cannot prepare alliances. Those who do not know the lay of the land cannot manoeuvre their forces. Those who do not use local guides cannot take advantage of the ground. The military of an effective rulership must know all these things”
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