Scanning the Business Environment

Scanning the Business Environment

The external or sometimes called uncontrollable environment of Business consist of elements that the company has little control over it. It is also called the Macro Business Environment. Managers must scan this environment detect opportunities and threats in the environment and then adjust their marketing programs to deal with changes in the environment.

Among the Major elements of the External Business Environment are:

1. Socio-Cultural (consumers’ behavior).

2. Demographics.

3. Economic.

4. Competitive.

5. Technological.

6. Legal (Government Regulations).

7. Political.

8. Natural Resources.

9. Independent Media.

Let us look into what to look for in some of these elements:

1. Socio-Cultural Environment:

· We need to understand consumers , their culture, values, norms, what they like and dislike, how do they make decisions, their preferences, what kinds and levels of services do they need, sub-cultures, and new life styles.

· We need to study the social and psychological factors that determine consumer behavior as well as changes taking place in society and their impact on buying habits and consumer preferences.

2. Demographic Environment

· Population growth rates

· Population trends and composition have great impact on marketing practices and strategies. Aging Population, rising divorce, social Media, etc.

· We are talking about population composition, changes, and trends in Age distribution, income levels and distribution, race composition & ethnic markets, gender distribution, education levels and distribution, geographic shifts in population, family and household patterns and changing size of families and households.

· Population studies can be done on local, national or international levels, depending on your markets.

· With new trends in demographics and marketing strategies, there is a shift away from Mass Marketing to Market Segmentation or Micro Markets.

2. The Economic Environment:

· Here we study the element of the economy (economic indicators) that affects consumer income, purchasing power, and ability to buy. That is the level of economic development in a country based on economic indicators such as GDP Growth rates, unemployment rates, inflation rates, interest rates, income levels and distribution, currency exchange rate, budget surplus or deficit, tax rates.

· Monetary income, Disposable income, real income, and Discretionary income.

· Levels of savings, investment and spending.

· Economic Cycles – Recession, recovery, boom, or depression.

· The size of various, sectors of the economy, Agriculture, Industry and Service. Modern vs. Traditional.

3. The Competitive Environment

· Here we study the market competitive structure – Monopoly, Oligopoly, Monopolistic Competition or Perfect Competition.

· Ease of entry and Exit into the market

· Market Shares, industry structure, market conduct and performance.

· Industry power sources, industry leaders, conflicts, cooperation, etc.

· Price vs. Non Price Competition.

4. The Technological Environment

· Monitor new technological developments in the industry. Market opportunities resulting from adopting new technology. Threats of competitors using new Technology.

· Need for research and development

· Cost and benefit of developing, adopting, and discarding certain technology.

· Impact of new technology on service and on safety.

5. The Legal Environment

· Monitor and analyze new Government regulations in areas such as Pricing, Safety, Consumer Protection, Anti-Trust, Environmental, Technology adoption, Transportation, labor, etc. All affect marketing decisions.

6. The Political Environment

· Here you have to monitor the political parties and their influence on government regulations affecting marketers and on economic conditions and economic stability.

· Politician’s attitude toward Business.

· Political Stability in the country and the resulting levels of risks on your investment.

· Peace or war situation. Opportunities and threats by each.

7. The Natural Environment:

· You need to study the availability, quality, and cost of natural resources in the economy such as minerals, land, raw material, energy, water, etc.

· Environmental laws in the country. And Pollution levels.

· The Country Infrastructure.

8. Independent Media:

· You need to monitor the media coverage, both commercial and social media, on your industry, products, and company. Positive and negative coverage may have tremendous impact on your marketing efforts. You need to counter negative coverage through crisis management and take advantage of positive coverage.

Lecture 3. 3-10-21

On a Global Basis, there are major Mega trends taking place in the Macro Business environment. These include:

1. The rise in global trade blocks such as the European Union and NAFTA.

2. The Booming Global Economy.

3. The gradual erosion of US Dominance over Multi National Corporation and the rise in the economic Power of China, Japan and several Far Eastern countries.

4. Great advances in information technology.

5. Great advances in transportation, communication, and financial transactions leading to rapid growth in world trade and investment, particularly among developed nations, North America, Western Europe and Japan.

6. The increasing gaps between rich and poor nations and severe debt problem in many countries particularly those in Latin America, Africa and Eastern Europe.

7. The global move toward Market economies, and privatization.

8. The increase use of countertrades.

9. The religious revival in many countries.

10. The rising role of women in leadership.

11. The rise in international corporate strategic Alliance.

12. The growth of Global Brands in Cars, Food, Clothing, Electronics, etc.

DEALING WITH COMPETITION IS IMPORTANT WHEN DEVELOPING BUSINESS STRATEGY.

Lecture on Analyzing Industries & Competitors. Dr. Bagnied

With growing market competition, both in local and international markets, by both local and foreign competitors, companies must conduct intelligence analysis of their competitors.

We have direct and indirect competitors, primary and secondary competitors, etc.

The company closest competitors are those seeking to satisfy the same customers and needs, and making similar offers.

The Company need to gather information on competitors’ strategies, objectives, strengths, weaknesses, and reaction patterns. This information need to be collected on a continuous basis, analysed and reacted to by proper strategies.

Even more important is to know future intentions if possible.

You need contingency plans, for all possible actions by competitors. Sometimes, preventive actions or attacks may be advisable. Prevention is sometimes better than reaction. Do not let your competitors take the lead in some situations. Also do not over react. In all what you do, look at the impact on customers. Also avoid if possible destructive competition (like cut throat price competition).

In today’s business it is a war out there, particularly between big corporations, with billion of Dollars at stake. One wrong move can result in huge losses in markets, customers, and money.

Managers fear not only for their company, but also for their jobs.

New competitors, and changing customer needs may hurt your company more than current competitors.

Your new competitor may come from another industry and / or another country.

Offering an excellent product or service, together with excellent marketing program in not enough to succeed or even to survive in today’s market.

When you graduate from the University, with your colleagues, does the one with best performance and grades get the best job in the job market? Does he or she know how to meet the needs of employees better than other graduates? Here the customer is the employer.

How to conduct Competitive Analysis:

First let us look at the Porter Model for Industry Segment rivalry, and competitive threats. The forces are:

Potential entrants

Suppliers’ power

Buyers Power

Substitutes. Threats of Substitutes.

Rivalry among existing competitors.

The Company needs to examine the Industry structure, and market competitive structure in terms of:

· The number and size of firms.

· Market shares.

· Degree of concentration.

· Who is the Industry leader? Do we have more than one?

· Sources of power in the industry.

· Ease of entry and exit (Barriers to Entry and Exit).

· The nature and degree of competition in the market.

· Degree of product differentiation.

· Degree of Vertical and Horizontal integration.

· Degree of Globalization.

· Cost Structure. Labor-intensive or capital-intensive, etc.

· Required Technology.

An Industry is a group of firms that offer a product or a class of products that are close substitutes for each other.

So, who are the major competitors of Coca Cola Company?

Pepsi . Schweppes, etc. How about Producers of Juices, Tea, Coffee, Waters, and other drinks.

Is Coca Cola in the Soda Industry, the Soft Drink industry, or the drinks industry? Is Orange Juice a substitute for an orange soda? Is milk a substitute for Sprite? How about Coffee, Tea, and other hot drinks?

Is Volvo in the Automobile industry or the Transportation Industry? Do cars compete with Buses, Trains, and Airplanes?

Who are the competitors of a University in a country? Is it only other Universities in that country? Can you get a degree from the Internet through distance learning or by correspondence? Yes. Marketing of degrees is now a big business worldwide. Today you can get a degree without leaving your home, and sometimes without studying if you have the means.

How to get information about your competitors’, their objectives, strategies, strength and weaknesses, etc?

· Industry and Trade organizations published data.

· Newspapers.

· Company publications and annual reports.

· Top Executive speeches.

· The internet.

· Court documents in case of legal disputes.

· Former Employees.

· Hiring managers from competing firms.

· Intelligence activities.

Internal Strengths and Weaknesses & External Opportunities and Threats (SWOT) can be related to:

· Financial Resources.

· Management Quality

· Access to Technology

· Labor skills

· Communications and information systems

· Access to row materials (sourcing)

· Suppliers and distributors

· Affiliations, local, national & international

· Government support & contacts.

· Corporate structure and strategy.

· Research and Development activities

· Experience

· Time length of operation

· Location

· Size

· Customer loyalty

Estimated Competitors’ Reaction Patterns:

They vary from:

· Laid-back competitor

· Selective in reaction depending on the threat

· Tiger that react swiftly and strongly to any threat. Fights to the finish.

· Unpredictable Competitor that may or may not react.

Each Company must have its own Competitive Intelligence System that collect and analyse information on a continuous basis.

You need to classify competitors into Good and Bad competitors. Bad competitors, like Japanese, do not follow the ethical rules of competition, they are reckless, risk takers, use unethical means to gain market share or to win.

There are Weak and Strong competitors. Most companies attack weak competitors and avoid confrontation with the strong, or yield to them.

Also there is Close versus Distant Competitors. The focus is obviously on close competitors. For AUK, GUST is a close competitor, while KU is distant.

In reacting to Competitors actions, some companies are Competitor-Centred while others are Customer-Centred. The first direct their strategy to deal with competitors with less priority to impact on their customers. On the Other hand, Customer-Centred Company focuses more on customer developments and their changing needs. The first looks at the competitors pricing, promotion, distribution, service and product policies and react to it. The second deals with consumer market growth rates, and their changing needs in various markets.

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