The Process Of Systematically Assessing How Elements Of The

The Process Of Systematically Assessing How Elements Of The External E

The process of systematically assessing how elements of the external environment will impact a business or market is termed environmental scanning. Factors of particular concern to marketing managers include those issues and trends that influence the attitudes and behavior of current and prospective target markets. Other points of concern focus on conditions relevant to economies, industries, allied companies (e.g., suppliers), and competitors. Conducting an environmental scan can incorporate a wide range of information sources and research methodologies such as statistical trend analysis and data mining. However, each variation on the process shares the goal of providing managers with relevant information to improve the quality of marketing decisions.

These decisions include choices about new opportunities nested in the strategic alternatives of market penetration, market development, and product development. Although there are a number of ways to scan the external environment, among those models with the most comprehensive set of external factors is the PESTEL analysis. PESTEL is an acronym for the six environmental factors identified in the framework shown in Figure 3.4: political, economic, social, technological, environmental, and legal. These macro-environmental variables often appear as the source of opportunities and threats in SWOT analysis. Figure 3.4: PESTEL analysis PESTAL analysis diagramMarketing managers use the PESTEL framework to facilitate a comprehensive scan of the external environment confronting the organization.

Why do you think it is necessary to consider these factors? Political Factors Political factors are external macro-environmental variables that reflect how government forces impact the competitive market as a whole and the company specifically. This category includes trade restrictions, tax policies, employment regulations, and consumer protection legislation. General political stability and the role of government in providing for fair and safe markets can vary widely from one country to the next. Similarly, significance of political influences on business infrastructure can be substantially different when moving from one product category to the next.

Economic Factors Currency exchange rate of different countries When evaluating foreign market opportunities, volatile currency exchange rates add to the risk of new ventures and amplify the need for accurate market research. Economic factors make up a category of variables that relate to the prevailing overall condition and health of the economy in which target markets exist. Specific variables of concern include gross domestic product (GDP), discretionary income, consumer confidence, unemployment, inflation, interest rates, and currency exchange rates. Each of these factors can have a significant impact on product- and market-level decision making. Interest rates are of particular concern to companies in pursuit of growth opportunities, because as the cost of borrowing money directly affects a business’s ability to expand.

Other economic factors directly impact consumers’ ability to afford the products being sold. Social Factors Social factors often represent the most important concerns for marketing managers because they reflect two critical classes of customer characteristics: culture and demographics. Culture embodies the shared beliefs, attitudes, and values of a society. Demographics describes the statistical characteristics of a population expressed by variables such as location, age, and employment. The interaction of marketing and culture is a two-way street.

Cultural meanings are transferred to products via marketing communications, making products more attractive to consumers who hold these values. In turn, the symbols and icons of cultures and subcultures establish foundational values for many types of product markets. For example, health consciousness is both a value promoted by marketers and a core cultural value shared across many consumer markets. The importance of children’s vitamins to good health and how this is expressed in marketing communications connects the advertiser’s brand-specific message to prevailing cultural norms about caring for one’s family. Similarly, marketers find opportunities to sell products at holidays that revolve around cultural rituals that create or affirm specific cultural meanings.

Demographic market characteristics assist marketers in understanding how different segments respond to the marketing programs as a function of personal variables such as age, sex, and income. Attitude research on consumers is often tied to distinguishing how different demographic segments feel about a product or service. Marketers rely heavily on demographics because they can be reliable indicators of how different segments perceive product value. They are also used extensively in the analysis of B2C markets because changes in most demographic variables are easily forecast. Free or inexpensive secondary data are readily available from a large number of government agencies and widely accessible online.

"Tween" Market Research A youth marketing company with several Fortune 500 clients specializes in analyzing "tweens," the group of kids between 8 and 12 years old. A marketer interviews two young girls about their wishes, desires, and dreams as consumers. What does this information offer for the marketers of tween products? Think About It Do demographic factors such as age, sex, income, and family status influence the way we feel about brands? Consider the market for fast food. Some companies emphasize low prices. Others focus on healthy alternatives. Some appeal to prospects based on menu-specific features, while others emphasize everything but the food being sold. Can these differences be tied to the demographic profile of the target market for these restaurants? Why or why not?

Technological Factors Although technological factors are variables that impact some markets and businesses far more than others, all marketing managers need to be aware of the trends and shifts in this category. The dimensions of technological change that most often influence marketing processes include innovations in communication and channels of distribution. Companies at the leading edge of these types of changes can establish competitive advantages and create effective barriers to market entry. By pioneering innovative systems of interacting with customers, processing orders, and distributing products, Amazon.com was able to establish a sustainable competitive advantage rooted in brand awareness and scale economies that effectively prohibits many firms from competing with the company directly.

Environmental Factors Electronics waste is collected for recycling at Wayne State UniversityMarket demand for recycled electronic components has grown steadily over the past 15 years. Environmental factors are primarily long-term ecological concerns that have the potential to impact all businesses at some level. These can be local/regional in scope (e.g., water shortages, chronic flooding) or global. Beyond issues associated with climate change, this category includes factors such as responsible waste disposal, pollution mitigation, and energy efficiency. A prime example of this trend is green legislative initiatives aimed at reducing landfill wastes from sources such as product packaging and the disposal of electronics.

In many jurisdictions, "reverse value chain" laws prescribe the standards and processes for the safe recycling of consumer electronics and appliances. Although some industries such as farming and paper products are more directly impacted than others, environmental factors represent emerging growth opportunities for many more, as markets are transformed to reflect increasing awareness of business’s role in environmental stewardship. Legal Factors Legal factors in the macro-environment include laws and regulations intended to control the behavior of business organizations and special interest groups. These include antitrust laws, Occupational Safety and Health Administration (OSHA) regulations, consumer protection statutes, and product safety and health laws.

State and local agencies often impose specific regulations to govern the pricing of consumer necessities and natural monopolies such as utility companies. Although some business leaders may resent what they regard as the "over-regulation" of markets and business practices, the objectives of maintaining fair standards for the protection of consumers and a level competitive playing field are generally recognized as valid regulatory goals. Each of the PESTEL model’s six factors will be of greater or lesser importance to any given company based on the character of the markets in which it competes. In general, the process of macro-environmental analysis should incorporate as many credible and reliable sources as possible to create a complete picture of relevant trends in the external environment.

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The external environment significantly influences a company’s strategic decision-making process, particularly in the context of marketing. Systematic assessment of these external elements—collectively known as environmental scanning—is crucial for identifying opportunities and threats that could impact the organization’s success. Among the various models used, the PESTEL analysis stands out as one of the most comprehensive frameworks, offering insights into political, economic, social, technological, environmental, and legal factors. Integrating these considerations allows marketing managers to adapt strategies and capitalize on emerging trends to sustain competitive advantage.

The political aspect of the environment encompasses government policies, stability, trade restrictions, tax regulations, employment laws, and consumer protection statutes. Political stability and government interventions can either facilitate or hinder business operations. For instance, trade policies significantly influence how companies expand internationally. Policies governing trade barriers, tariffs, and sanctions can restrict market entry or create new opportunities. A stable political environment encourages investment and innovation, while political unrest or unpredictable regulations can introduce risks, prompting companies to conduct thorough political risk assessments when considering international markets.

Economic factors reflect the broader health and vitality of an economy, directly affecting consumer purchasing power and business investment. Key variables include GDP, income levels, consumer confidence, unemployment rates, inflation, interest rates, and currency exchange rates. Volatility in these parameters can significantly impact market dynamics. For example, high inflation can erode consumer spending capacity, while fluctuating currency rates can complicate international trade. Companies must monitor macroeconomic indicators to make informed decisions about entering new markets, launching products, or adjusting pricing strategies. Interest rates, in particular, influence the cost of borrowing for expansion efforts, as higher rates increase financial burdens, potentially deterring growth initiatives.

The social dimension encompasses cultural norms, beliefs, attitudes, and demographic shifts. Culture shapes consumer behavior, preferences, and perceptions of value. Shared beliefs and societal values influence how products are marketed and consumed. For example, health consciousness has become a core cultural value in many societies, affecting demand for organic foods, fitness-related products, and wellness services. Demographic variables such as age, gender, income distribution, education levels, and family structure further refine marketing strategies. Understanding these variables helps firms tailor offerings and communications to specific segments, enhancing market relevance and engagement.

For instance, marketing strategies targeting "tweens" (children aged 8-12) must consider their unique preferences and developmental stage. Research into their desires, aspirations, and consumer habits enables companies to craft targeted messages. Similarly, demographic factors like age and income influence brand preferences and purchasing motivations, exemplified by fast-food chains that position themselves based on affordability, health, or convenience—attributes appealing to different demographic groups. These insights underscore the critical role demographic analysis plays in positioning products effectively within target markets.

Technological change broadly influences marketing through innovations in communication, distribution channels, and product development. Rapid advancements in digital technology and the proliferation of online platforms have transformed how companies interact with consumers. Amazon exemplifies how pioneering technological systems in logistics, customer engagement, and order processing can establish sustainable competitive advantages. Companies investing in technological innovation can differentiate themselves by offering seamless shopping experiences, efficient delivery, and personalized marketing, thereby creating significant entry barriers for competitors.

Environmental factors, increasingly prominent due to global ecological concerns, impact business operations and strategic planning. Issues such as climate change, resource depletion, pollution control, and waste management are influencing legislative actions and consumer preferences. The rise of green legislation, such as regulations on electronic waste recycling, exemplifies how environmental considerations can present both challenges and opportunities. Companies adopting sustainable practices—like incorporating recycled materials or reducing carbon footprints—can enhance their brand image and meet growing consumer demand for environmentally responsible products.

Finally, legal factors in the macro-environment set the boundaries within which organizations operate. Laws regarding competition, safety standards, product labeling, advertising, and employment conditions serve to protect consumers and ensure fair market practices. Regulations like OSHA standards and consumer protection laws may increase compliance costs but are vital for building trust and maintaining brand integrity. Businesses active in multiple jurisdictions must navigate different legal regimes, making comprehensive legal analysis indispensable for successful market entry and sustained operations. Awareness of legislative developments and regulatory trends enables companies to preempt legal risks and adapt swiftly to policy changes.

In conclusion, the systematic assessment of external environmental factors using frameworks like PESTEL equips marketing managers with critical insights to identify opportunities and mitigate risks. By continuously monitoring political, economic, social, technological, environmental, and legal trends, organizations can develop agile strategies that enhance competitiveness and ensure long-term sustainability. The integration of reliable data sources and tailored research methods is essential for capturing a comprehensive picture of the market landscape. As global markets become increasingly interconnected and complex, the importance of environmental scanning in strategic planning cannot be overstated, serving as a foundation for informed decision-making in an ever-changing external environment.

References

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