Week 2 Assignment for Paula Hog
dcornelius85
petel.docx· TOC/Annotation menu
· Downloads
· Search
· Profile
· Help
3.2 Environmental Analysis
3.2 Environmental Analysis
Marketing managers are tasked with shaping the elements of the marketing mix to fit the preferences and needs of the target market. This process does not, however, take place in a constant or unchanging environment. The dynamic external environment to which decision makers must respond and adapt comprises two distinct types of variables. Macro-environmental forces are those uncontrollable external variables that impact all firms within an industry. These include demographic shifts, prevailing economic conditions, cultural trends, and changes in the regulatory environment. The PESTEL framework, discussed in the following section, addresses these macro-environmental forces. Micro-environmental forces are external stimuli that selectively and discretely influence each firm uniquely and independently. Though not directly under the control of any single organization, some of these elements of the external environment can be managed and influenced to a significant degree. These micro-environmental forces include the behavior of a company’s suppliers, customers, and channel intermediaries such as independent wholesalers and retailers.
Marketing managers exercise direct control over a limited range of internal resources and decision variables through which they can respond to the threats and opportunities posed by the external environment. Primary among these tools are the marketing mix variables and managers’ discretion to identify segments and select target markets. The success of a marketing plan hinges on the ability to adapt the marketing mix to fit the changing character of both the target market and the larger context provided by macro-environmental forces and trends.
Understanding Forces and Trends: PESTEL Analysis
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
{}
Marketing 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
{}
When evaluating foreign market opportunities, volatile currency exchange rates add to the risk of new ventures and amplify the need for accurate market research.
istockphoto/Thinkstock
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
"Tween" Market Research
From Title: How the Kids Took Over: Child-Driven Marketing
© Films Media Group. All Rights Reserved.
Length: 3:97
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
{}
Market demand for recycled electronic components has grown steadily over the past 15 years.
age fotostock/SuperStock
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. In many instances, the environmental scan will highlight the need to undertake custom-designed research studies aimed at answering specific questions about markets, customers, or the impact of particular marketing strategies.
Implementing the PESTEL Analysis
PESTEL analysis is a versatile diagnostic tool for helping managers understand the macro-environmental forces that can impact the attractiveness of alternative markets. The purpose is to identify those market-specific elements that may positively or negatively affect the marketing and sale of individual brands. It is often applied to the process of evaluating international options for market development. When used in this way, the specific characteristics of nations are the subject of the analysis.
One approach to implementing a practical PESTEL methodology is to score each option using standard measures for each of the six environmental factors identified by this framework. A list of potential indicators for each measure is provided in Table 3.1.
|
Table 3.1: PESTEL factors and indicators |
|
|
PESTEL FACTORS |
INDICATORS |
|
Political |
World Bank Governance Indicators, Central Intelligence Agency World Fact Book, Heritage Foundation Economic Freedom Index, Trade and taxation policies |
|
Economic |
Gross Domestic Product and GDP per capita, GDP annual growth rate, Net exports, Balance of payments, Current account deficit, Foreign direct investment, Annual rate of inflation, Interest rates, Currency exchange rates, Unemployment rates |
|
Social |
Population demographics, Income and wealth distribution (GINI coefficient) Literacy rate, Enrollment in educational programs, Human Development Index (HDI) Score (United Nations Development Program) |
|
Technological |
Global Competitiveness Reports: World Economic Forum, Technological infrastructure: Central Intelligence Agency World Fact Book, Rates of innovation and technological obsolescence |
|
Environmental |
Human Development Reports (United Nations Environmental Program), Waste and environmental management policies, Clean air, land, and water standards |
|
Legal |
Transparency International, Corruption Index: http://www.transparency.org, Legal statutes on competition and employee safety, Consumer health and safety laws |
Using standard measures that are directly comparable across countries enables analysts to evaluate the attractiveness of alternative market entry options. In many situations, managers will develop scorecards to systematically organize and analyze the attractiveness of alternative new markets on a fixed set of criteria, as shown in Table 3.2.
· Knowledge Check
· Notebook
