Marketing Environmental Analysis is strategic analysis tool. This process helps to identify those internal and external factors of the environment which affect the organization’s abilities to work properly. A business leader develops company’s structure, culture and policies to give clear guidelines to employees. But the business success is dependent upon how it deals with external environmental effects if any.
The environmental analysis assesses the business external environment to find out threat and opportunities. After evaluation, the decision makers develop strategies that respond to the environment.
The business market is very dynamic; everyone tries to develop ideas and products which compete in the market but suddenly the whole scenario changes. You cannot control each factor but develop marketing strategies that minimize the risk associated.
There are many business strategic analysis tools out there but the most popular is pestle analysis. This analysis tool is crucial for business success. It is not one-time activity. As I told earlier, market is dynamic and change quickly, that is why analysis should be repeated continuously for competitive advantage and responding to it positively.
Marketing Environmental Analysis Process
Simply, there is four steps process to know your external environment.
- Step 1 – Understand PEST Factors: Scan the environment find and understand as many factors and forces as possible
- Step 2 – Identify Opportunities: Monitor and observe any changes that are positive for your business environment
- Step 3 – Identify Threats: To what extent these changes will affect your organization
- Step 4 – Take Action: Take advantage of identified opportunities and take appropriate measure to minimize threats
How to Prepare Marketing Environmental Analysis
While preparing marketing environmental analysis, it is important to understand the external environment factors that affect your small business decision-making and performance. These factors are uncontrollable in a business environment, but once identified you can take advantage of opportunities and minimize the threats to your business.
Pestle Analysis is a widely used tool to analyze the external environment. The PESTLE factors consist of Political, Economic, Social, Technological, Legal and Environmental factors. All these factors can create both opportunities and threats which can affect every business industry to some extent.
Mostly small businesses apply only four factors Political, Economic, Social and Technological which are the most general variant among all variants of PEST. There are many other variations of PEST like PESTLEI, STEEP, STEEPLED, LONGPEST. All the additional components are the extension of ethical, Demographic and Industrial factors.
In this tutorial, I will discuss 6 factors of environmental analysis.
Political factors are set of government regulations that provide guidelines for business operations. Managers not only take into consideration national politics but also International politics that can also affect your business environment. Other factors are
- Government stability in the future
- Our Government foreign policy toward the export partner
- To what extent government is involved in trade unions and agreements
- Import and export regulations
- Freedom of Press
- Tax Laws
Economic factors include all the important data of both market and economy. For example, business wants to open a new factory and need loan then must analyze the conditions of credit availability. While doing marketing environment analysis managers don’t need to consider all economic factors but those which can affect negatively and positively. It will help to plan business financial strategy and save time and resources. Some of them are as under.
- Credit availability
- Labor cost
- Interest rate
- Fiscal and monetary policy
- Stock market tends
- Inflation rate
- Exchange rate
When managers planning business strategy they should consider societal changes over time, what is the mindset of communities nationally and internationally? Maybe there are hundreds of socio-cultural factors but find out the relevant factors affect product and services.
There are some social factors you can choose them according to your business needs
- Family size
- Income level
- Buying behavior
- Disposable income level
- Brand conscious or price conscious
- Attitude towards saving and investment
Over the years traditional businesses are disappearing and new business taking over due to adopt innovative technologies. Those businesses performing environmental analysis on regular basis keep itself fully equipped and adopt new technology. This strategy gives organizations a competitive edge and is always one step forward from its competitors.
- How rapidly technology change
- Budget allocated to research and development
- Basic and communication infrastructure?
- Automation process
Legal factors affect business if not comply with all current and impending regulation and legislation. Companies must identify and analyze legal issues for all those countries they are operating. Regulatory bodies are responsible to regulate the business environment in a country. Organizations must comply with these regulations otherwise these regulations will affect businesses negatively.
- Consumer Protection laws
- Employees Protection laws
- Law of Health and Safety at Workplace
- Government Procurement Laws
- Product Regulations
- Patent infringement