What do you mean by environmental analysis in marketing?

Environmental analysis

Porter wrote in 1980 that formulation of competitive strategy includes consideration of four key elements:

1. Company strengths and weaknesses;
2. Personal values of the key implementers (i.e., management and the board);
3. Industry opportunities and threats; and
4. Broader societal expectations.

The first two elements relate to factors internal to the company (i.e., the internal environment), while the latter two relate to factors external to the company (i.e., the external environment).

There are many analytical frameworks which attempt to organize the strategic planning process. Examples of frameworks that address the four elements described above include:

• External environment: PEST analysis or STEEP analysis is a framework used to examine the remote external environmental factors that can affect the organization, such as political, economic, social/demographic, and government regulation. Common variations include SLEPT, PESTLE, STEEPLE, and STEER analysis, each of which incorporates slightly different emphases.
• Industry environment: The Porter Five forces Analysis framework helps to determine the competitive rivalry and therefore attractiveness of a market. It is used to help determine the portfolio of offerings the organization will provide and in which markets.
• Relationship of internal and external environment:  SWOT analysis  is one of the most basic and widely used frameworks, which examines both internal elements of the organization — Strengths and Weaknesses — and external elements — Opportunities and Threats. It helps examine the organization's resources in the context of its environment.

Environmental Analysis - Global Business Environment
Conduct an environmental analysis to look at and comment on the world in which you will be operating. Unemployment rates for the past 2 to 5 years and the impact it has had on sales and the overall customer base is an effective way of demonstrating the effect of "external" pressures onto your business. Threats due to environmental conditions (like unemployment, layoffs, recession, high interest rates) reduce consumer activity, and should be explored in your marketing plan.

Political and Legal

·        Identify the regulations, permits, insurance, liability, municipal zoning and taxation requirements that you must follow in order to operate your business.

·        The business climate of your town, village and surrounding area is an important influence on your day-to-day operations. Reflect on topics such as taxation, zoning and other factors.

Demographics

·        Describe the population base that exists to support your product. Identify the market size for your product, and the people that make up your product/service's consumer group. Provide information about:

·        Where they live, What products do they buy, How much they spend on similar products each year,

·        Where they shop for these products, etc. Indicate whether or not your product is geared towards a specific age group, with spending patterns and consumer demands. Indicate whether this group is shrinking, expanding or yet to be tapped into.

Environmental Analysis - Local Business Environment
Conduct an environmental analysis that looks at and comments on your local area and your network of business contacts, competitors and customers.

Suppliers

·        Identify your sources for direct purchasing by describing their locations, the frequency of your orders and the type and amount of supplies you will be ordering.

Social/Cultural

·        Explain any particular client support or other specialized consumer groups that can be identified apart from the general public. Describe the spending and product requirements of these groups and the characteristics of your company that support the product and services they are demanding. Indicate whether your product is part of the day to day activities of a specific group or the general public. Identify the influence this will have on your projected sales. Identify your networking contacts in the community, and the overall atmosphere surrounding your business. Identify the influence this will have on your projected sales. Predict the receptiveness of your product concepts, and how the community perceives your business.

·        Describe the expected response to your advertising, and how this will boost sales. Indicate what overall market trends you will be following in order to stay current and "in touch" with the public. What special techniques will you be employing in order to match consumer demands.

Competition

·        Identify your direct competition by naming their business, describing their facilities and operations, identifying their share of the consumer market, realizing support for their product and by reviewing the weaknesses of their approach.

Consumer Analysis

·        Identify your target market, describing how your company will meet the needs of the consumer better than the competition does. List the expectations consumers have for your type of product. Since demands may be different, products and services will vary between competitors. Quality, price and after sales service are just some of the areas where this difference occurs.

·        Identify the segment of the market that will benefit from your product and area of expertise as well as your approach to selling your product or service.

·        Predict the sales potential that may be realized by tapping into and holding onto your target market, and attracting others through different strategies and approaches. These different approaches can be all done at the same time or be more incremental - obtaining a core audience for your product or service first, then expanding into the rest of the market. Identify the sales potential for each of these target groups.