The active external environment to which marketing managers may need to immediately react and adjust to depend on on two important variables. Macro-environmental forces, those uncontrollable external variables that effect all businesses in an industry are referred to as demographic shifts, prevailing economic conditions, cultural trends, and changes in the bull’s eye market and, Micro-environmental forces the external motivations that selectively and discretely influence each business uniquely and independently Finch, (2000).
According to Finch, (2000) these important variables are not directly under the control of any single equines, some of the components of the external environment a business can be managed and influenced to a substantial amount. Finch, (2000) state “These micro-environmental forces include the behavior of a company s suppliers, customers, and channel intermediaries such as independent wholesalers and retailers. ” Environmental analysis is important for developing a sustainable competitive advantage; identifying opportunities and threats; and providing opportunities for productive co-operation with other companies.
A review of the literature reveals that different approaches and techniques were used for the analysis of macro environment (Lynch, 2009). The procedure of thoroughly evaluating how elements of the external environment will effect a business or market is called environmental scanning. 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 tragic alternatives of market penetration, market development, and product development. According to Finch, 2000 there are a number of methods in which a business can scan its external environment, among those methods with the utmost inclusive set of external factors is the PESTLE analysis. PESTLE is an acronym for the six environmental factors: political, economic, social, technological, environmental, and legal. These macro-environmental variables often appear as the source of opportunities and threats in SOOT analysis.
PESTLE analysis diagram marketing managers use the PESTLE framework to facilitate a unimpressive 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 Ross domestic product (GAP), 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 reduce 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 racketing 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 BBC 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. 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. Mom 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 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 rend 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 tankards for the protection of consumers and a level competitive playing field are generally recognized as valid regulatory goals.