A practical introduction to Marketing Environmental Analysis

The development of your overall marketing strategy has to start with an assessment of your business environment. In order to cover all bases, you can use a mix of several marketing frameworks. You can also use applied theories to evaluate different factors that affect your marketing strategy. So this is what marketing environmental analysis is all about. It can be broadly classified under external and internal factors. A marketing environmental analysis will highlight critical factors. You can use this to your advantage. But it also presents elements that are a risk to your planning and implementation.  

Before you look into the “How”, let’s establish the “Why”. The benefits of doing a marketing environmental analysis vary. Generally speaking, the analysis:

• helps in setting and attaining marketing or organizational objectives
  
• indicates internal strengths and weaknesses of the organization
  
• highlights external threats and opportunities
  
• provides an understanding of trends and insights to gain advantage or improve offering
  
• clarifies expectations by considering capabilities and resources
  
• prepares organizations for adversity and changes within their industry
  
• forecasts possibilities for the future of the offering, brand or organization
  

There are 2 widely accepted divisions to the marketing environmental analysis. External & Internal environments. The external is split into macro-environment and micro-environment forces. So, let’s take a deeper dive into each of the main classifications. We will be using some popular models and theories to explain them.

Macro-Environment – Marketing Environmental Analysis

The macro-environment factors are external forces indirectly affecting the growth of your business. These affect both the micro and internal factors. Thus, leaving an impact on your brand and organization. One of the most popular models for inspecting the macro-environment is a PESTLE/PESTEL analysis. PESTLE/PESTEL is a business analysis tool that is also useful for marketing strategy. There are 6 major elements to explore here. These are:

• Political
  
• Economical
  
• Sociological
  
• Technological
  
• Environmental
  
• Legal

By examining each of the 6 forces, you will have a clear understanding of external factors that provide opportunities for you, your brand, or your business. It will also prepare you to plan against threats and challenges.

Let’s look at each of the 6 factors of PESTLE/PESTEL now:

POLITICAL

The political situation of the region/country you are marketing to needs to be considered. Most industries have regulations in place for trade, taxes, quality, and labor. These and other government policies make up the political external factors that affect you and your business.

ECONOMICAL

The pricing of your offering could be severely affected by demand/supply imbalance. Thus, it is important to analyze economic factors. Some inclusions are direct like interest rates and inflation. There are complex ones too. Such as purchasing power of consumers or regional economic growth.

SOCIOLOGICAL

Also referred to as Social factors. These forces include but are not limited to, demographics by region, and general sentiment towards the industry. These also consider the lifestyle, culture, and values of society and individuals.

TECHNOLOGICAL

The innovation revolution today means an ever-changing technological landscape. Consequently, this can affect Research & Development, resource utilization, and costs. It is important to study the way technology changes industries. Also, to understand the way consumers interact with a brand. As a result, it can exponentially help growth.

ENVIRONMENTAL

Besides general sustainability practices, there are government policies and initiatives. They all hold everyone responsible for their own environmental impact. These factors include climate change and best practices. But there is also alignment with regional and international norms. Finally, corporate social responsibility (CSR) initiatives are a part of these as well.

LEGAL

Despite commonalities between legal and political factors, it is necessary to look at these separately. Since there are international and local government laws that could affect you and your brand. The legal factors may include patents and intellectual property. Or occupational health & safety protocols too. But it’s important to also consider employment and consumer protection laws among others.

There are great examples of how to conduct a PESTEL/PESTEL analysis on pestleanalysis.com. Check these out to gain a better understanding of the model. And surely implement its application!

Micro-Environment – Marketing Environmental Analysis

Unlike macro-environmental external factors, these forces have a direct impact on your organization or brand. There are several classifications for these. But the simplest is Competitors, Partners, and Customers. A thorough analysis of micro-environmental factors is necessary. Since the application of strategy and the success of its execution is connected to these forces. Let’s take a closer look at elements of each category now:

Competitors

In 1980, Harvard Business School’s Michael E. Porter outlined his 5 forces theory. He highlights major forces that shape marketing and organizational strategy. Undoubtedly, he did it in a competitive environment. This we can see in all industries now. These 5 forces can be further explored by looking for answers to the questions under each force below:

COMPETITIVE RIVALRY

Who are your competitors? And, how many of them are there? How do their products compare to yours? Besides, what advantages or disadvantages do you have on them? Lastly, how does your pricing, strategy, marketing, and market share match up to these competitors?

SUPPLIER POWER

How many suppliers do you deal with? Furthermore, what are the benefits and risks of dealing with them? If not them, what are your alternatives? And, how much do they charge you? Finally, how much control do you have in the relationship? 

BUYER POWER

How many buyers do you have? Also, what is the nature of your relationship with them? Are they distributors or direct customers? Moreover, what is the size and frequency of their orders? Because that shows who dictates the terms of the relationship. Consequently affecting… Will they go to a competitor’s offering? And the all-important, what will make them stay?

THREAT OF SUBSTITUTION

Is there another way… to do what you do? Are there alternatives? Or new options coming to the market? Besides, can what you do be outsourced for cheaper? Lastly of course, is there an easier solution to the problem you aim to solve?

THREAT OF NEW ENTRANTS

How easy is it for new brands to enter your domain? Is there a way to protect your market share? How are your brand and its identity positioned in your industry? Are you prepared for new entrants?

Customers

Without a doubt, analyzing your prospective and current customers is an essential undertaking. It has the biggest impact on your success. Performing consumer research will help you understand how the “public” feels about your brand. This research can be done with surveys. But also through feedback and analytics. It will aid decision-making for you or your business, as a result.

Successful analysis of your customers will help you:

• Connect with your customers to create meaningful relationships.
  
• Target high-value segments
  
• Meet service expectations
  
• Improve your offering
  
• Shape your brand image.

Once you have completed an analysis of your customers, you have to channel this into successfully creating Customer Personas. You can use these to serve segments better. And, you can check out how to create Customer Personas in this blog post here. Furthermore, Alexa’s blog has 10 great examples of personas that you can use to understand the inputs you may need to take in. Obviously, by adding value to your customers, you will position your brand as an effective solution to their needs!

Partners

Your partners could include a host of affiliates or agencies. Even service providers or consultants. The actual number depends on the nature of your business. It’s vital for these partners to be aligned with your goals. If so, you can be assured of their commitment to mutual success. For example, you could have agencies for your branding needs that uphold your brand image. They do this with quality signage. Additionally, you could be using third-party delivery partners for your e-commerce products. They need to ensure the delivery process is as seamless as an online purchase.

You have to take a deep look at every partnership that can benefit you. Then plan the terms within which you will operate. You have to maintain control processes to uphold your values and standards. Forming the right partnerships propels growth. It can add value for your customers. Further, it can revolutionize the way you and your industry do business. So a periodic examination of your partners will benefit you, your brand, your customers, and all marketing efforts.

Managing Partnerships

According to a 2015 McKinsey survey on managing strategic partnerships, the top 3 essential elements for shared success with partners are:

• Alignment on objectives
  
• Effective communication and trust
  
• Constructive leadership and processes
  
  

While looking at causes of failure in the same survey above, the factor that replaces leadership and processes is restructuring and evolution. How does this affect a constantly changing business landscape? It is always necessary to be prepared for the future! And ensuring your partners are positioned to join you. As you inevitably grow together. Despite this, do not forget to be agile enough. You have to be able to adapt too. There will be changes that your partners may be experiencing. Obviously, all relationships benefit from mutual understanding. And the way through is to have empathy!

Internal Environment – Marketing Environmental Analysis

Lastly, you have to take a closer look at all internal forces affecting how you operate. Your core mission and vision will address why you are in business, Consequently, it clarifies what you want to achieve. The McKinsey 7S framework is one of the most popularly used methods to analyze the internal environment. Being used since the late 1970s, it helps in assessing the functioning of organizations. It contains tangible elements such as Staff, Systems, Skills, and Structure. It also includes others like Shared Values, Strategy, and Style. Let’s take a look at these now:

Strategy

Your goal helps you plan how you establish and grow. You do this to remain competitive within your industry. Your strategy has to be readily adaptable to changes in the environment. That’s how you meet your objectives.

Structure

Before, hierarchy defined the structure. Things are a little complex now with fluid work teams. But the shape and composition can evolve. The difference is made by communication and the ability to work together. This leads to an ideal situation where you work towards goals together.

Systems

Visibly, processes are in place everywhere. It includes all functions such as HR, Finance, IT, Sales, and Marketing. Other procedures also constitute systems like SOPs and guides. This undeniably contributes to how everyone in the organization plans to achieve set goals. Proper allocation of resources is important. But, constant tracking is vital.

Skills

The core competencies and capabilities of the entire team equal its skills. It is important to ensure new skills are taught. As well as the development of current skills. This will increase output. Thus making it easier to reach targets.

Staff

You have to take a look at each of your employees. Assess their behavior and motivations. Track their progression. Provide training. And engage them to earn their commitment. You have to constantly gauge them to have the best possible group of people. They will help you achieve your goals.

Style

How the heads and managers chose to lead is crucial. It becomes a part of its style. Patterns of behavior will help in the formation of a culture. This culture brings employees together. They are in sync. In turn, this creates alignment with broader goals.

Shared Values

Culture is an accumulation of beliefs and values. Also, includes standards and behaviors. They shape how everyone conducts themselves. This applies to teams and organizations as well. It determines how staff treat each other. The shared values boost work ethic. Corporate culture leads to a direct effect on employee output and agility.

Critically, the framework relies on the integration of the 7Ss. You have to set the right goals. You can follow the SMARTER goals framework to do this. Check out this blog post that sheds light on it. Align your goals with your vision and mission. Your values and culture affect how your team performs. This changes the way your organization works and how others perceive your brand.

It’s directly connected to success for a brand. Assessment of your capabilities will help you play to your strengths. Additionally, the systems and processes you have in place optimize efficiency. This directly affects your bottom line. Your resource management and investment into R&D help you chart a way forward. Lastly, your employees, their capabilities, and continued growth are vital to achieving your goals, so keep that in mind always! This is much like running a content audit for your content strategy! It is immensely useful and effective.

Conclusion

Above all, understanding how external factors affect your internal environment is crucial. It determines where you stand. You can’t expect to plan for the future without fully grasping your current position. Listing all the forces, directly and indirectly, is essential. It affects you and your business. But it is only part of the process. And connecting the dots to form patterns and trends in the next step. It will show you a way forward. Using the insights gained from the marketing environmental analysis makes the difference. You have to then turn it into an actionable plan in the next step.

A SWOT analysis is the most common, tried-and-tested method to utilize the information from marketing environmental analysis. You can see more about SWOT analysis, which is discussed here, in another blog post.

Clearly, there are several other frameworks, models, and applied theories in marketing. These are often interconnected. You can connect findings from the marketing environmental analysis to:

– Choosing your Marketing mix
– Selecting a broader marketing strategy such as the Ansoff matrix
– Setting and deriving SMARTER goals or establishing OKRs
– Understanding internal factors affecting change like the 7S McKinsey framework

Though, all can help you achieve similar results. The takeaway should be that your marketing environmental analysis is essential. How you do it, is up to you. It would be based on your resources and capabilities. Just remember that this isn’t a one-off exercise. You have to repeat it periodically. This is how you prepare for continued growth and success.