Justin Bingura

The marketing environment determines the success of marketing strategies. Outline and

discuss the marketing environment scanning process. Highlight how marketing

environment scanning can improve the marketing of a company’s product or services.

(Illustrate and give examples).

In today’s business environment, competition is order of the day. The International or global

environment consists of all those factors that operate at the transactional, cross-cultural and

across the border level which have an impact on the business of an organisation. “Before the

complexity of environmental analysis started, traced back to post-second world war period,

then it was characterised as essential political in nature with little in common with the

interests of business and industry” (Kazmi, 2008). The classification of the general

environment into sectors after this period brings more light and exposes most of the business

owners into real business environment.

Environmental scanning is the monitoring, evaluating, and disseminating of information from

the external and internal environment to key people within the corporation or organisation.

(Kazmi, 2008). It can also be defined as a process of gathering, analysing, and dispensing

information for tactical or strategic purposes. The environmental scanning process entails

obtaining both factual and subjective information on the business environments in which an

organisation is operating or considering entering.

There are three modes by which organisations scan their environment; Ad-hoc scanning

which is short term, infrequent examinations usually initiated by a crisis. Organisations scan

the environment as a result of crisis that is affecting the company at that moment and analyse

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the situation to know if the problem is internal or external. Regular scanning mode is a

study done on a regular schedule for example, once a year. Most very conscious organisations

can see environment scanning as a program that should be done regularly and as such, most

of such organisations do it every year. Continuous scanning also called continuous learning,

is made up of continuous structured data collection and processing on a broad range of

environmental factors.

Marketing environment scanning process consist of seeking information, strategic thinking

where managers generate options then make some strategic decision and strategic planning

where action is taken. Organisational environment consists of both external and internal

factors. Environment must be scanned so as to determine development and forecasts of

factors that will influence organisational success. Environmental scanning refers to

possession and utilisation of information about occasions, patterns, trends, and relationships

within an organisation’s internal and external environment. It helps the managers to decide

the future path of the organisation. Scanning must identify the threats and opportunities

existing in the environment. While strategy formulation, an organisation must take advantage

of the opportunities and minimise the threats. A threat for one organisation may be an

opportunity for another.

Internal analysis of the environment is the first step of environment scanning. Organisations

should observe the internal organisational environment. This includes employee interaction

with other employees, employee interaction with management, manager interaction with

other managers, and management interaction with shareholders, access to natural resources,

brand awareness, organisational structure, main staff, operational potential, etc. Also,

discussions, interviews, and surveys can be used to assess the internal environment. Analysis

of internal environment helps in identifying strengths and weaknesses of an organisation.

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As business becomes more competitive, and there are rapid changes in the external

environment, information from external environment adds crucial elements to the

effectiveness of long-term plans. As environment is dynamic, it becomes essential to identify

competitors’ moves and actions. Organisations have also to update the core competencies and

internal environment as per external environment. Environmental factors are infinite, hence,

organisations should be agile and vigil to accept and adjust to the environmental changes. For

instance, monitoring might indicate that an original forecast of the prices of the raw materials

that are involved in the product are no more credible, which could imply the requirement for

more focused scanning, forecasting and analysis to create a more trustworthy prediction

about the input costs. In a similar manner, there can be changes in factors such as

competitor’s activities, technology, market tastes and preferences.

While in external analysis, three correlated environment should be studied and analysed

which are immediate industry environment, national environment, broader socio-economic

environment and macro-environment. Examining the industry environment needs an

appraisal of the competitive structure of the organisation’s industry, including the competitive

position of a particular organisation and its main rivals. Also, an assessment of the nature,

stage, dynamics and history of the industry is essential. It also implies evaluating the effect of

globalisation on competition within the industry. Analysing the national environment needs

an appraisal of whether the national framework helps in achieving competitive advantage in

the globalised environment.

Analysis of macro-environment includes exploring macro-economic, social, government,

legal, technological and international factors that may influence the environment. The

analysis of organisation’s external environment reveals opportunities and threats for an

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organisation. Strategic managers must not only recognise the present state of the environment

and their industry but also be able to predict its future positions.

Forecasting the environment; Macro-environmental and industry scanning are only

marginally useful if all they do is reveal current conditions. To be truly meaningful, such

analyses must forecast future trends and changes. Environmental forecasting is a technique

whereby managers attempt to predict the future characteristics of the organisational

environment and hence make decisions today that will help the firm deal with the

environment of tomorrow. Forecasting involves the use of statistical and non-statistical, or

qualitative, techniques. Four techniques can be particularly helpful: time series analysis,

judgmental forecasting, multiple scenarios, and the Delphi technique.

Michael Porter identified five basic competitive industry forces: the threat of new entrants in

the industry, the intensity of rivalry among existing competitors, the pressure from producers

of substitute products or services, the bargaining power of buyers of the industry's outputs,

and the bargaining power of suppliers to the industry's companies. Management must find for

a firm a position in the industry from which it can best defend itself against these competitive

forces or can influence them to its advantages. Another major element of the industry

environment is the product/market life cycle which assumes that all products, and, therefore,

industries, move through stages of a life cycle.

In analysing an industry, it is also useful to determine if the industry is a global industry, that

is, an industry that requires global operations to compete effectively. The organisation's

internal environment is the third aspect of assessing the strategic situation, which must be

done before strategy alternatives are formulated. Several techniques are available to help

management develop a worthwhile environmental analysis. Environmental scanning involves

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studying and interpreting, political, economic, social and technological, environment, legal

events in an effort to spot budding trends and conditions that could affect the industry.

Factors influencing the market environment can be categorised under six different titles,

demographic, economic, ecology, technology, regulatory-political and society-culture.

Demographic factors are associated with changing nature and volume of population. It

follows how people are conducting themselves in the new world, increasing per capita

income, urban migration, ethnically diverse cities and mega cities. These are some

demographic factors companies are monitoring. For example, a country like India and China

are showing highest concentration of youth population where as Japan is showing high

number of retired workers. Therefore, demand and consumption of product will also be

different.

Economic factors deals with function like purchasing power parity, income level, savings

level and interest rates among many other. For example, countries with a high income level

are more likely to afford luxury items compared to a low income level country. Savings level

and interest rate determine the borrowing power as well as spending power of consumer.

Ecological factors consist of natural resource composition in a given county. For example,

demand for fossil fuel has sky rocketed in recent years there by increasing general price level

in the market. Companies, therefore, are looking forward to designing products which eco-

friendly design that is they are less fuel dependent and give out less pollution. Technology

factors like internet and connectivity are changing the face of business. More and more

people are doing business online. Science and medicine are also part of technology factors.

Challenges for the company’s is to keep up with innovation and offer products, which are not

obsolete. Political environment is also changing with more and more market based system

rather than the socialist system. Furthermore, regulatory requirements like competition

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policy, investment policy, tax policy, etc. companies should investigate before taking their

business to a particular country. Culture environment, deals with factors like opinion people

have towards themselves, others, organisation and society in general. People have become

more eco conscious, contributing one or many causes they can relate to, want organisation to

be responsible for their action and are looking to open society with meaningful co-existence.

Economic factors include economic growth, interest rates, exchange rates and the inflation

rate. These factors have major impacts on how businesses operate and make decisions. For

example, interest rates affect a firm's cost of capital and therefore to what extent a business

grows and expands. Exchange rates affect the costs of exporting goods and the supply and

price of imported goods in an economy.

Political factors regard how and to what degree a government intervenes in the economy.

Specifically, political factors include areas such as tax policy, labour law, environmental law,

trade restrictions, tariffs, and political stability. Political factors may also include goods and

services which the government wants to provide or be provided (merit goods) and those that

the government does not want to be provided (demerit goods or merit bads). Furthermore,

governments have great influence on the health, education, and infrastructure of a nation.

Strategic managers must not only understand the current state of the environment and their

industry but also be able to forecast its future states. Moreover, once having implemented the

environmental analysis process, management should continually evaluate and strive to

improve it.

SWOT Analysis Application; A scan of the internal and external environment is an important

part of the strategic planning process. Environmental factors internal to the firm usually can

be classified as strengths (S) or weaknesses (W), and those external to the firm can be

classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is

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referred to as a SWOT analysis. The SWOT analysis provides information that is helpful in

matching the firm's resources and capabilities to the competitive environment in which it

operates. As such, it is instrumental in strategy formulation and selection. The importance of

environmental scanning is that it is the process of dealing with the measurement, projection

and evaluation of changes in the different environment variables (Oladele 2006).Most of the

organisations today are developing different types of strategies that will sustain them in their

business environment, and this can only be achieved through the analysis of the environment

(Opportunity and Threats). The environment is dynamic in nature, therefore scanning is

necessary to keep abreast of change and reveals the elements or factors that constitute threats

and opportunity to the overall objectives of the organisation, competitor’s activities can be

monitored and appropriate strategies put in place to check market incursion, it also gives

necessary inputs to the formulation and implementation of potent marketing strategies.

A company’s marketing system must operate within the framework of forces which constitute

the system’s environment, the major environmental forces are external variables which are

not easily controlled or manipulated by the executives in a firm. Proper planning must put in

place to ensure that the business environment is conducive enough and ready to put the

organisation to the best position in the market place. Any business that is not aware of its

environment is bound to run into some crises that will definitely arise from the increasing

complexity of the environment in which such business operates.

Environmental scanning on organisation performance and establish clear position about the

result of company that adopts continuous environmental scanning and the company that

merely operate with it. Organisations can use environmental scanning to determine whether

or not to enter new market and also to know the present situation or condition of its

environment. Its purpose is to identify strategic factors- external and internal elements that

will determine the future of the organisation. The simplest way to conduct environmental

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scanning is through PESTEL (Political, Economic, Social, Technology, Environment, Legal)

Analysis.

The external environments consist of variables opportunities and threats that are outside the

organisation and not typically within the short-run control of the top management. The

management of any organisation has little or no influence on the external environment. Most

managers feel that in today's turbulent business environment the best scanning style is

continuous scanning using PESTEL analysis because this allows the firm to act quickly, take

advantage of opportunities before competitors do and respond to environmental threats before

significant damage is done, this will allow the organisation to survive, sustain the

environment hardship. As a way of managing organisation strategies, the managers have to

keep abreast of everything about his environment (internal and external) for the purpose of

achieving the organisation goals and objectives. It is the fundamental decision about the

future direction of an organisation, its purpose, its resources and how it interacts with the

world in which it operates (the environment of the organisation).

Environmental Scanning can confer many advantages upon the company which successfully

executes a constant scanning strategy. Here are some of the most important benefits of

environmental scanning which can improve marketing of a company’s product or services.

Information for strategic planning: Saxby et al (2002) observe that environmental scanning

provides information about the environment which can guide strategic direction. Porter

(2004,) notes that a successful strategy should result in "a favourable position in an industry"

a "competitive advantage". Sustainable competitive advantage is achieved by generating or

possessing resources that are inimitable, are valued by the customer and can be used

effectively (Fahy and Smithee,1999). These distinctive capabilities distinguish the company

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from the competition and lead to competencies which can provide a competitive advantage in

the market. Environmental scanning provides information, such as the strengths or

weaknesses of competitors and consumer behaviour and enables companies to discern which

resources are valuable to the market and also provides information which can be used as the

basis of marketing strategies to leverage these resources and apply them most appropriately.

This can strengthen a company’s own competitive position and weaken that of the

competition. For example, an awareness of the dynamic environment was responsible for

Nokia taking advantage of increased growth and, according to Strategic Direction (2007),

Nokia accurately predicted and planned for a slowdown in growth when their competitors'

strategies were based on a predicted 30-40% growth. This inaccurate forecasting, lead to

Sony Ericsson issuing a profit warning as demand for replacement handsets in the European

market was less than their predictions. Moreover, it also signalled a missed opportunity to

create products more relevant to the market demands and environmental conditions.

Forecasting changes in demand helps to sift new opportunities from red herrings and ensure

that resources are used in the most effective manner.

Detecting new opportunities: Kotler (2003) notes that a key purpose of environmental

scanning is to detect new opportunities and forecast demand. Carral and Kajanto (2008)

assert that Nokia's position as market leader in the mobile communication industry owes

much to understanding industry dynamics. They note that gathering, analysing and acting on

data was a key factor in Nokia taking advantage of inflection points and capitalising on the

potential for growth. Parker, (2008) cites Nokia's vice-president who predicted that, in

developing markets, 2008 would be the first year that replacement handsets outsold first-time

purchases. This information enabled Nokia to create plans to introduce more feature rich

products for the replacement handset market to cater for the customer demands, thus yielding

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higher-margins.

Executive stimulation and development: Executive level strategic planning should base on

data rather than whim. This is important as it not only projects a more professional image but

also keeps the executive decision makers in tune with the market. Further, it provides

education and stimulation for decision makers, who are usually appointed to these positions

due to their capacity to turn thought in to action and ultimately profit. Moreover, Dibb et al

(2001) note that environmental scanning has an additional benefit in that it helps to assess

current performance in relation to the competition. The first step in the strategic planning

process is to determine the current situation "Where are we now? Environmental scanning

helps to assess the company's position in the market and measure the success of previous

strategies and direct future strategy.

Monitoring market trends and fashions: Strategic Direction (2005, 21) note that success or

failure depends on "ever-quicker reactions to market trends, requirements and aspirations".

However, it could be argued that to "react" suggests that companies should act after the event,

by which time, it may be too late. Environmental scanning increases sensitivity to customers

changing needs and companies should be proactive in monitoring, predicting and responding

to market trends. Even if the company is not able to be first to market with a new product or

service, simply being aware of what is happening in the competitive environment enables

them to plan ahead and build competitive strategies. Nokia have paid dearly for failing to

respond to the needs of some markets, particularly in the Africa, European etc. where delay

in introducing clamshell and smartphones eroded market share and damaged brand-image.

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Monitoring the dynamic business environment: Saxby et al (2002) emphasise the

importance of regular and continual scanning due to the dynamic nature of the modern

business environment. This is vital as small changes in the environment such as legislative,

cultural or technological changes, if not anticipated and acted upon, can be the difference

between becoming the market leader and insolvency. It is important to note that the effect of

environmental changes on one company may be different to the effect on another. Changes in

the economic environment have meant that companies with heavy reliance on finance have

been stripped of working capital whereas cash-rich companies have been able to take

advantage of this by positioning themselves to acquire insolvent competitors and increase

their market share. A threat for one company can be an opportunity for another

environmental scanning helps to anticipate these threats or opportunities at the earliest

opportunity and act on them proactivity rather than reactivity

Environmental analysis will help the firm to understand what is happening both inside and

outside the organisation and to increase the probability that the organisational strategies

developed will appropriately reflect the organisational environment.

Decision-making is a process of selecting the best alternative from among various available

alternatives. An environmental analysis is an extremely important tool in understanding and

decision making in all situation of the business. Success of the firm depends upon the precise

decision making ability. Study of environmental analyses enables the firm to select the best

option for the success and growth of the firm. Before managers can begin to formulate an

effective strategy, they must make a critical examination of the firm’s environment.

Assessing the strategic situation is the first phase in determining the content of the proper

strategies for a firm. This process begins with an assessment of the general environment of

the firm, in terms of economic, technological, social, political and legal influences. Analysing

the organisation's industry is the second major aspect of assessing the firm's strategic

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situation. An industry structure analysis identifies the major forces affecting competition in

an industry and determines the strengths and weaknesses of the business relative to the

industry.

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