External Environment

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Marketing Audit: Tools to Analyse the External Environment

A marketing audit is a review of the marketing resources, objectives, strategies, activities and efficiency. We need a marketing audit to measure our commercial progress, identify weak aspects, and improve the marketing activity.

The marketing audit considers both internal and external influences on marketing planning.

This section will discuss the external environment of marketing and explain how it affects a firm. Businesses are subject to many forces over which they have limited control: government economic policy, attitudinal changes among consumers and the development of new technology, to name a few. Environmental analysis examines such forces to predict the environment in which a business may have to operate.

The marketing department’s role is to keep close contact with all these uncontrollable forces. To be successful in marketing, we must learn to accommodate them, and if possible, to take advantage of them in our marketing plans and policies. These uncontrollable forces are the parameters of the overall industry.

The external analysis has three different levels which are summarised in the following figure:

marketing audit, external environment by mkt-audit.com

Macro Environment

All marketing activities are subject to government laws and the rulings of regulatory agencies. Marketers are responsible for remaining aware of and abiding by such regulations. The most common tool used in the industry is Porter’s PEST (or PESTLE) analysis. Although it provides a very good synopsis of the external environment, additional tools may be used to examine the current situation and predict future changes.

For example:

  • The Macro-analysis of the state of the international economy
  • Measuring the Speed of Environmental Change: There are three levels of environmental change: stable, dynamic and turbulent. In stable markets, a well-defined strategic marketing plan can be developed from the outset; but in highly turbulent markets, strategic decisions are more likely to evolve as events unfold and uncertainty reduces.
  • Use of Scenario Analysis to anticipate changes & uncertainty. In stable markets, predicting the future is straightforward; it is likely to be very similar to the past. However, for dynamic and especially for turbulent markets, the future may be unrecognisable from the past so a forecast based on an extrapolation of past events could be very misleading. Scenario planning represents a solution to this problem, providing a structured approach to thinking about uncertainty. Scenarios describe different environments in which a business may have to operate and highlight trends and interactions that may characterise their development.

Industry Environment

Each industry has its own characteristics and requirements. Industries are evolving and changing and depend on the Macro-environment but also the global competition. An industry analysis will give you an understanding of the success factors as well as the potential to grow or not.

For such analysis, you can use the following tools:

  • Specific Industry Regulations. Current state and future changes. How it will impact your business?
  • Industry Life Cycle Analysis: Similar to the Product Life Cycle (PLC), industries have also a life cycle. At which stage of the lifecycle is your industry? Are there any opportunities? Is the industry changing quickly?
  • Potential Industry Earnings For how long the industry will be profitable?
  • Industry Key Success Factors: those factors that are crucial to success and increase your profits.
  • Industry Concentration & Strategic Groups Analysis: Is the industry highly competitive? How many strategic groups exist?
  • Technology & Innovation Impact Analysis: Monitoring new technology and encouraging research and development (R&D) of new technology is essential to keeping up with competitors in today’s marketing environment. Innovation through R&D needs to be stimulated by upper management and fostered in creative environments. Without innovation, companies can’t compete in global markets. Companies that are innovators have stronger performance in their respective markets.
  • Characteristics and structure of the industry value chain.
  • Industry Contacts: No business can operate in isolation and for many the contacts the industry can provide are a vital input to their information systems and sales opportunities. Industry in this context is the whole complex of customers, competitors, distributors, influence formers, associations and government. A company’s image within its own industry will often be a powerful incentive or disincentive for customers to purchase from it. Regular, creative industry contacts can materially assist a firm in many ways by providing ‘visibility’ and conveying credible messages concerning competence, expertise, reliability, quality, technical leadership, and so on. For instance ask the question: What informal industry and inter-industry groups exist? Would it be advantageous to belong? Who are the key stakeholders?

Micro Environment

Microenvironments are closer to the firm and its interactions with your target market, customers and competition.

To analyse your market use the following tools:

  • Market Growth Rate
  • Market Share
  • Market Size Determination
  • Market Saturation Point
  • Market Segmentation
  • Market Attractiveness Factors
  • Market & Sales Forecasting Analysis
  • Supply Chain Analysis
  • Market Trends
  • Market Fluctuations Analysis
  • Market characteristics, growth and trends
  • Physical distribution channels
  • Market Attractiveness Factors (MODEL: McKinsey & Co Model)
  • Key Market Factor Assessment (KMSFs)

To analyse your customers use the following tools:

  • Market Segmentation & Attractiveness per segment
  • Pareto Analysis
  • Customer Profiling
  • Customer Needs (Maslow’s Hierarchy of Needs)
  • Buying Behaviour (Who buys (customer attributes), What is bought (analysis of product & purchase characteristics), Why they buy)
  • Benefit Analysis (major products & differential benefits)
  • Share Of Market Analysis
  • Share Of Voice Analysis
  • Customer Satisfaction Index
  • Customer Profitability Score
  • Customer Turnover Rate
  • Customer Engagement
  • Customer Complaints
  • Buying behaviour
  • Analysing lost business
  • Customer care – services
  • Cross selling

To analyse your competition use the following tools:

  • Porter’s Five Forces Analysis
  • A D Little Competitive Position/Industry Maturity Matrix
  • Benchmarking Studies
  • Market Research
  • Media Usage Expenses by Competitor
  • Marketing Expenses by Competitor
  • Their Pricing & Cost Structure
  • Their Profitability & Financial Structure
  • Competitors’ Sales & Product Performance
  • Analyse their competitive advantages and disadvantages
  • Competitor Market Share
  • Their R&D activity

The analysis of the external environment can be used to define direction in strategic planning and in addition to carry out the SWOT analysis for your company. In the next article we will demonstrate the tools to carry out an internal analysis as part of your marketing audit process.

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