BUSINESS ENVIRONMENT

Meaning & Definitions of Business Environment

 ‘Business’ is the activity of making one’s living or making money
by producing or buying and selling products and services i.e. any
activity or enterprise entered into for profit.
 According to Keith Davis, “Business is the organized effort by
individuals to produce goods and services, to sell these goods
and services in a market place and to reap some reward for this
effort.”
 ‘Environment’ is a condition that forms a frame around business,
a sort of limit, within which a business is supposed to operate.
 Environment refers to surroundings in which a particular
organization or object is expected to work. It consists of all the
forces with the potential to influence the organization or a system
and its performance.
 Business and Environment are the relationship of body and soul;
one cannot function without the other.
 The term ‘business environment’ connotes external forces,
factors and institutions that are beyond the control of the business
and they affect the functioning of a business enterprise.
 It may also be defined as the set of external factors, such as
economic factors, social factors, political and legal factors,
demographic factors, technical factors etc., which are
uncontrollable in nature and affects the business decisions of a
firm.
 Business Environment is the sum total of all individuals,
institutions and other forces that are outside the control of a
business enterprise but the business still depends upon them as
they affect the overall performance and sustainability of the
business.
 It is a sum total of all those factors, conditions, situations or
surroundings which directly or indirectly affect (positively or
negatively) the working of a business.
 Business environment is the sum total of all external factors that
influence a business.
 These include customers, competitors, suppliers, government,
and the social, political, legal and technological factors etc.
 While some of these factors or forces may have direct influence
over the business firm, others may operate indirectly. Thus,
business environment may be defined as the total surroundings,
which have a direct or indirect bearing on the functioning of
business.
 “Business environment is defined as the sum aggregate of all
conditions, events and influences that surround and affect it.” -
Keith Davis
 “Business Environment is the total of all things external to firms
and individuals which affect their organization and operations” -
B.O. Wheeler
 “The environment of a company is the pattern of all external
influences that affect its life and development.” -Andrews
Kenneth R.
 “Business Environment consists of all external and internal
factors that influence the complex interaction of the market,
production of finance, the three basic components of our business
world.” –Joseph & Curitz
 “A company’s environment consists of factors and forces that are
external to the business management function of the firm and
impinge on the management's ability to develop and maintain
successful transactions with its customers.” - Philip Kotler
 “Business Environment encompasses the ’climate’ or set of
conditions, economic, social, political or institutional in which
business operations are conducted” –M. Arthur
 A business firm is an open system. It gets resources from the
environment and supplies its goods and services to the
environment.
 Organizations are open systems because they get resources from
others and give output to others.
 A business firm gets human resources, capital, technology,
information, energy, and raw materials from society.
 It follows government rules and regulations, social norms and
cultural values, regional treaty and global alignment, economic
rules and tax policies of the government.
 Thus, a business organization is a dynamic entity because it
operates in a dynamic business environment.
 It is a vital role of managers to analyze business environment so
that they could pursue effective business strategy.
 It is, therefore, very important to analyze business environment
to survive and to get success for a business in its industry.
 Environmental analysis enables a firm to anticipate opportunities
and to plan resources to exploit these opportunities successfully.
 It can also be used as an early warning system to prevent threats
or to turn obstacles into opportunities.
 The external factors/forces and the internal factors/forces can
influence each other and work together to affect a business.
 The environmental factors influence almost every aspect of
business, be it its nature, its location, the prices of products, the
distribution system, or the personnel policies.
 It is important to learn about the various components of the
business environment because the success of every business
depends on adapting itself to the environment within which it
functions.
 Understanding the environment within which the business has to
operate is very important for running a business unit successfully
at any place.
 Those firms which are alert and active in analyzing the
environment and respond positively to the changes in its
surroundings are more successful than those which do not take a
note of changes in their environment.
 When a firm fails to adjust to its changing environment or does
not respond to the demands of the environment, the result is
reduced profits or closure of business.
 The introduction of computer has replaced the typewriters;
the colour television has made the black and white television
out of fashion.
 Again a change in the fashion or customers’ taste may shift
the demand in the market for a particular product, e.g., the
demand for jeans reduced the sale of other traditional wear.
Features/Characteristics of Business Environment
 The features of business environment can be summarised as
follows:
(a) Totality of forces/factors: Business environment is the sum total
of all external and internal factors that greatly influence business
function.
(b) Specific and general forces: Specific forces affect enterprises in
their day-to-day working while general forces have impact on all
enterprises and may affect an individual indirectly.
(c) Varieties of forces: It covers factors and forces like employees,
customers, competitors, suppliers, government, and the social,
cultural, political, technological, legal conditions etc.
(d) Dynamic: The business environment is dynamic in nature, that
means, it keeps on changing.
(e) Unpredictability/Uncertainty: The changes in business
environment are unpredictable. It is very difficult to predict the
exact nature of future happenings and the changes in economic and
social environment.
(f) Variability: Business Environment differs from place to place,
region to region and country to country. It differs even in the same
country at different places.
(g) Interrelatedness: The different factors of business environment
are correlated. A change in one factor affects the other factor.
(h) Complexity: Due to many factors which are related to one
another, their individual effect on the business cannot be
recognised. This makes difficult for the business to face them.

Importance of Business Environment

 There is a close and continuous interaction between the business
and its environment.
 This interaction helps in strengthening the business firm and
using its resources more effectively.
 The business environment is multifaceted, complex, and
dynamic in nature and has a far-reaching impact on the survival
and growth of the business.
(a) Determining Opportunities and Threats: The interaction
between the business and its environment would identify
opportunities for and threats to the business. It helps the business
enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the
environment leads to opening up new frontiers of growth for the
business firms. It enables the business to identify the areas for
growth and expansion of their activities.
(c) Continuous Learning: Environmental analysis makes the task of
managers easier in dealing with business challenges. The managers
are motivated to continuously update their knowledge,
understanding and skills to meet the predicted changes in realm of
business.
(d) Image Building: Environmental understanding helps the
business organisations in improving their image by showing their
sensitivity to the environment within which they are working.
(e) Meeting Competition: It helps the firms to analyse the
competitors’ strategies and formulate their own strategies
accordingly.
(f) Identifying Firm’s Strength and Weakness: Business
environment helps to identify the individual strengths and
weaknesses in view of the technological and global developments.
System of Business Environment
 A business deals with number of business environmental forces.
These forces from where a business gets resources and supplies
resources, forces that influence the business operation, and factor
that present opportunities and threats are taken as the business
environment.
 There are different levels of environmental forces. Some are
close and internal forces whereas others are external forces.
 External forces may be related to national level, regional level or
international level.
 These environmental forces provide opportunities or threats to
the business community.
 Every business organization tries to grasp the available
opportunities and face the threats that emerge from the business
environment.
 Business organizations cannot change the external environment
but they just react.
 They change their internal business components (internal
environment) to grasp the external opportunities and face the
external environmental threats.
 Managers can collect resources such as capital, human,
information, idea, land, and equipments. These components are
controllable.
 Managers can operate their organization and use their decision to
run it. Similarly, the output of the organization is also under their
control. But, other broader systems that cover the business may
not controllable.
 A business and its internal areas are controllable for a manager
but other broader systems control the businesses.
 Therefore, the strategy for a manager is to control internal areas
and react with the external forces to grasp the opportunity and
face the threats presented by the external environment.
 This system approach can be classified into three environmental
groups: uncontrollable, semi-controllable, and controllable.
Components/Elements of Business Environment
 A manager must follow a change in his or her structure, strategy
and policies in response to the changing environmental forces.
 Jauch & Glueck (1988) identified business environment
components into three sets namely internal, industry level, and
general level. This concept became very popular and holistic
among the many academicians.
 A business firm exists in two level of business environment a)
Internal and b) External (industry level and general level).
 The internal environment or business components are surrounded
by industry level (external) environment and the industry level
business environment is surrounded by general level (external)
business environment.
a) Internal environment are those factors which are within an
organization and impart strength or cause weakness in management
process.
 The internal environment “consists of those relevant physical and
social factors within the boundaries of an organisation or specific
decision unit that are taken directly into consideration in the decision-
making behaviour of individuals in that system”.
 Internal business environmental forces are the components of the
business which are manageable at managerial level. All these business
environment components are controllable.
 Internal business environment comprises internal structure, system,
owners, share holders, employees, organization culture, staff, and
resources of the organization.
 This is sometimes identified into the internal functional areas such as
marketing-distribution, finance accounting, human resources,
production-operation, and research-development.
b) External environment (Micro & Macro environment) incorporates all
the factors which are outside the organization and influence the ability to
achieve organizational goals. These are outside the organization and
provide opportunities and pose threats.
 The external business environmental forces are semi-controllable and
uncontrollable.
 External business environment are grouped into remote
environment for general level and operating environment for task
or industry level business environment.
 It comprises two layers that are task (industry level) business
environment and general (general level) business environment.
 Task environment is also known as close or industry level
business environment. Such environment more directly interacts
with the business operation and semi-controllable in nature.
 General environment is relatively broader and more indirect in
nature that covers the effect of environment emerged at regional,
national, and international level.
 General business environment is also used as macro-
environment. Similarly, the industry level environment is used as
the micro- environment or competitive environment.
 Micro environment is concerned with immediate environment
components of business organization e.g. suppliers, customers,
intermediaries, competitors, publics etc.
 Macro environment deals with the components of external
environment in which organization operates e.g. PESTEL,
Demographic, Natural, Global etc.
 The general environmental forces may exist at regional, national,
and international level. Therefore, the business environment
figure is presented in three layers.
Controllable factors and Uncontrollable factors
 Controllable factors includes all those factors which are
governed by the organizational control process. Internal factors
are treated as controllable factors as organization has full
freedom to shape or adjust the situations as per its requirements.
 Uncontrollable factors are external factors and beyond the
control of organizations. It is for the organization to define its
operational strategies and adjust within the framework.
Direct and Indirect Action Elements
 There are two approaches viz. direct and indirect elements:
a) Direct action elements are those elements which directly affect the
business operation from its outer world such as suppliers, customers,
competitors, financial intermediaries.
b) Indirect action elements are the factors which affect the climate in
which an organizations’ activities take place but do not affect the
organization directly. These elements are political variables, economic
variables, social variables, technological variables and international
variables.
Specific Environment and General Environment
 Specific environment is the part of the environment that is directly
relevant to the achievement of an organization’s goal e.g. Decrease in
rupee value, increase in petrol prices, etc.
 General environment is the portion of external environment that
contains the external forces that have a more general influence on the
organization e.g. Economic policy, political conditions, socio-cultural
influences, technological conditional and globalization issues.
 The three levels of the Business Environment are:
a) Internal environment– the internal elements of the organisation
used to create, communicate and deliver market offerings.
b) External Micro environment– small forces external the company
that affect its ability to serve its customers.
c) External Macro environment– larger societal forces that affect
the survival of the organisation.

A) Internal Environment of Business

 The factors in internal environment of business are to a certain
extent controllable because the firm can change or modify these
factors to improve its efficiency. However, the firm may not be
able to change all the factors.
a) Value system: The value system of an organisation means the
ethical beliefs that guide the organisation in achieving its mission
and objectives.
 It is a widely acknowledged fact that the extent to which the
value system is shared by all in the organisation is an important
factor contributing to its success.
b) Mission and objectives: The business domain of the company,
direction of development, business philosophy, business policy etc.
are guided by the mission and objectives of the company.
 The objective of all firms is assumed to be maximisation of
profit. Mission is defined as the overall purpose or reason for its
existence which guides and influences its business decision and
economic activities.
c) Organisation structure: The organisational structure, the
composition of the board of directors, the professionalism of
management etc. are important factors influencing business
decisions.
 An efficient working of a business organisation requires that the
organisation structure should be conducive for quick decision-
making.
d) Corporate culture: Corporate culture is an important factor for
determining the internal environment of any company.
 In a closed and threatening type of corporate culture the business
decisions are taken by top level managers while the middle level
and lower level managers have no say in business decision
making.
 This leads to lack of trust and confidence among subordinate
officials of the company and secrecy pervades throughout the
organisation.
 This results in a sense of alienation among the lower level
managers and workers of the company.
 In an open and participating culture, business decisions are taken
by the lower level managers and top management has a high
degree of confidence in the subordinates.
e) Quality of human resources: Quality of employees that is of
human resources of a firm is an important factor of internal
environment of a firm.
 The characteristics of the human resources like skill, quality,
capabilities, attitude and commitment of its employees etc. could
contribute to the strength and weaknesses of an organisation.
 Skilled and experienced employees can help an organization to
achieve organizational goals and objectives as they have
expertise to support organization to get success.
 Conversely, if there is low motivation and low skilled employees,
business would suffer as the employees would be least motivated
towards sales.
 Some organisations find it difficult to carry out restructuring or
modernisation plans because of resistance by its employees.
f) Shareholders: Shareholders of an organization have an influence
on the company. As the company wants investors to increase their
investments, they might make a decision to increase money by
buoyant on stock market, i.e. shifting from private ownership to
public ownership.
 This change will pressure the company as the public shareholders
seek returns on their investment.
 The shareholders’ demand for raise in profit can influence the
business success in the longer-run.
 Therefore, it is important for top management to keep strong and
better relations with shareholders to have a successful business
on long-term basis.
g) Labour unions: Labour unions collectively bargains with the
managers for better wages and better working conditions of the
different categories of workers etc.
 For the smooth working of a business firm good relations
between management and labour unions is required.
h) Physical resources and technological capabilities: Physical
resources such as plant and equipment and technological
capabilities of a firm determine its competitive strength which is an
important factor for determining its efficiency and unit cost of
production.
 Research and development capabilities of a company determine
its ability to introduce innovations which enhances productivity
of workers.
B) External environment (Micro & Macro environment)
 External environment (Micro & Macro environment) incorporates
all the factors which are outside the organization and influence
the ability to achieve organizational goals. These are outside the
organization and provide opportunities and pose threats.
 The external environment “consists of those relevant physical
and social factors outside the boundaries of the organisation or
specific decision unit that are taken directly into consideration.”
 The external business environmental forces are semi-controllable
and uncontrollable.
 External business environment comprises two layers that are
remote environment for general level (general/macro
environment) and operating environment for task or industry
level (task/micro environment) business environment.
 Task environment is also known as close or industry level
business environment. Such environment more directly interacts
with the business operation and semi-controllable in nature.
 General environment is relatively broader and more indirect in
nature that covers the effect of environment emerged at regional,
national, and international level.
 The external environment can be further broken into micro and
macro environments. General business environment is also used
as macro- environment. Similarly, the industry level environment
is used as the micro- environment or competitive environment.
 Micro environment is concerned with immediate environment
components of business organization e.g. suppliers, customers,
intermediaries, competitors, publics etc.
 Macro environment deals with the components of external
environment in which organization operates e.g. PESTEL,
Demographic, Natural, Global etc.
 The general environmental forces may exist at regional, national,
and international level. Therefore, the business environment
figure is presented in three layers.
 i) External Micro Environment
 Micro environment includes those players whose decisions and
actions have a direct impact on the company. Production and
selling of commodities are the two important aspects of modern
business. The various constituents of micro environment are as
under:
a) Suppliers of inputs: An important factor in the external micro
environment of a firm is the supplier of its inputs such as raw
materials and components.
 Actions of a supplier can influence the business strategy, as they
provide the materials for production.
 For instance, if their services are not reasonable and timely that
affects the production time and the sales due to delayed process
of production.
 If the supplier increases the prices of raw materials they provide
to the company, it will lead to the increase in price of finished
goods.
 Therefore keeping a strong relation with supplier can help a
company in getting an edge over competitors.
 Thus, the development in the supplier’s environment has a
substantial impact on the successful operations of a company.
b) Customers: The people who buy and use a firm’s product and
services are an important part of external micro environment.
 According to Peter F. Drucker, “There is only one valid definition
of business purpose that is to create a customer.”
 The business enterprises aim to earn profit through serving the
customer demand.
 Therefore, organizations must adopt various marketing strategies
to attract the potential customers and retain the existing
customers by providing the needs and wants of customers, the
after sales services and value-added services.
 Today marketing of a firm begins and also ends with the
customers.
 Since sales of a product or service is critical for a firm’s survival
and growth, it is necessary to keep the customers satisfied.
c) Marketing intermediaries: Marketing intermediaries are either
individuals or business houses i.e. middlemen (wholesalers,
retailers and agents), distributing agencies, market service agencies
and financial institutions.
 In the firm’s external micro environment, marketing
intermediaries play an essential role of promoting, selling and
distributing its products to the final customers.
 Marketing intermediaries are important links between a business
firm and its ultimate customers.
d) Competitors: Different firms in an industry compete with each
other for sale of their products.
 This competition may be on the basis of pricing, differentiation
and also non-price competition through competitive advertising
such as sponsoring some events to promote the sale of different
varieties and models of their products and services.
 The competitors of an organization can have a direct impact on
business strategies. An organization must know how to do a
competitive analysis of competitors and have a competitive
advantage.
 Philip Kotler is of the opinion that the best way for a company to
grasp the full range of its competition is to take the viewpoint of
a buyer. So, tracing of the consumer mind set will help to retain
the market share for all the firms.
e) Publics: Finally, publics are an important force in external micro
environment. Public, according to Philip Kotler, “is any group that
has an actual or potential interest in or impact on the company’s
ability to achieve its objective.”
 Environmentalists, media groups, women’s associations,
consumer protection groups, local groups, citizens association are
some of the well-known examples of publics which have an
important bearing on the business decisions of the firm.
 The company has a duty to satisfy the people at large. It is an
exercise which has a larger impact on the well-being of the
company for tomorrow s stay and growth.
 Creating goodwill among public helps to get a favourable
response for a company.
f) Media and Social Media: The way media acts can make or break
an organization. Organization should manage to keep a good
relationship with media as whatever it shows directly influences the
organization business.
 If media shows positive aspect, this would increase the business
of organization and vice-versa.
 In order to maintain good relations with media, some
organizations do maintain a public relation department who
manage events and deal with media on behalf of company.
 These days social media applications are a good idea to reach
customers in a more appropriate way i.e. Facebook, Youtube,
Twitter and Instagram etc.
g) Investors: Investors are the prime assets of an organization. The
more they invest, the more a company becomes capable of
spending in its various departments.
 Investor relationship is very vital in this context. If they are
happy with the product performance and get regular Return on
Investments (ROIs), they will invest a higher amount for more
returns.
 Hence, besides satisfying the customers, companies also need to
look after their investors and waste no means to retain them
within the organization’s fold.
h) Financial intermediaries/Financiers: Financial intermediaries
are institutions such as banks, credit companies and Insurance
companies. These organizations have a great influence in the
smooth running of a business.
ii) External Macro Environment of Business
 The macro-environment refers to all forces that are part of the
larger society and affect the micro-environment.
 The macro environment is the broader context within which a
company conducts its commercial operations.
 It is the fundamental guiding factor throwing light on the overall
market conditions like nature and kind of people, society, culture,
lifestyle, the role of government, economical condition along
with presence and use of technology.
 A close analysis of these aspects informs the organizational heads
of the environment in which they are about to operate and most
importantly if this is what they are looking for.
 The purpose of analyzing the macro marketing environment is to
understand the environment better and to adapt to the social
environment and change through the marketing effort of the
enterprise to achieve the goal of the enterprise marketing.
 Apart from micro environment, business firms face large external
macro environmental forces which are uncontrollable by the
management. Because of the uncontrollable nature of macro
forces a firm has to adjust or adapt it to these external forces.
These factors are:
a) Political-legal Environment: The political- legal environment
includes the activities of three political institutions, namely,
legislature, executive and judiciary which usually play a useful role
in shaping, directing, developing and controlling business
activities.
 As laws and regulations change often, they create barriers that
can hugely influence the way in which companies can market
their business.
 As it consists of all laws, government agencies, and groups, these
forces influence or limit other organizations and individuals
within a society.
 The political forces of a country are not just restricted to the
government and its policies and laws.
 It further extends to the active presence and role of pressure
groups like lawyers, environmental activists and above all the
common people, who possess the utmost power to make as well
as throw the current government.
 Even before thinking of any business, an organization always
observes the political and legal situation of a nation.
 It is because the unstable government or political tensions will
act as a barrier to implementing the marketing strategies.
 In order to attain a meaningful business growth, a stable and
dynamic political-legal environment is very important.
b) Economic Environment: Economic environment includes all
those forces which have an economic impact on business.
 Accordingly, total economic environment consists of agriculture,
industrial production, infrastructure, and planning, basic
economic philosophy, stages of economic development, trade
cycles, national income, per capita income, savings, money
supply, price level and population.
 Economic environment also refers to the purchasing power of
potential customers and the ways in which people spend their
money.
 Some other statistics like current GDP, GNP, PCI, the standard of
living, purchase pattern and frequency of the target group will
also enable the management in taking important decisions
especially those relating to product prices.
c) Socio-cultural Environment: The social and cultural
environment also influences the business environment indirectly.
 These includes people’s attitude to work and wealth, ethical
issues, role of family, marriage, religion and education and also
social responsiveness of business.
 The social structure of a place gives an idea about the
predominant culture and psychographics of the target audience.
 Organisations need to know if the area has a mixed population of
various communities.
 Socio-cultural aspect also talks about the eating habits of the
people. As an example, people living in the western world prefer
to have high protein food like beef, ham, etc. which is why their
burgers come in that fashion.
 However, people living in the tropics live on chicken, mutton and
eggs so do their burgers. Hence, eating habit and consumption
pattern reveals a lot about the probable likes, dislikes, and
preferences of consumers.
 The impact the products and services organisations brings to
market have on society must be considered.
 Any elements of the production process or any products/services
that are harmful to society should be eliminated to show your
organisation is taking social responsibility.
 A recent example of this is the environment and how many
sectors are being forced to review their products and services in
order to become more environmentally friendly.
d) Technological Environment: Technology implies systematic
application of scientific or other organised knowledge to practical
tasks or activities.
 Business makes it possible for technology to reach the people in
proper format.
 As technology is changing fast, businessmen should keep a close
look on those technological changes for its adaptation in their
business activities.
 The technology also affects the business operations. It also has
very strong, direct effects on such business activities as
production, product development, employment, finance,
marketing and information, processing.
 The effects of technology on these activities can be extremely
beneficial or extremely harmful to business organisations.
 The skills and knowledge applied to the production, and the
technology and materials needed for production of products and
services can also impact the smooth running of the business and
must be considered.
 Normally, technological advancement always leads to
improvement in the process of production, transportation and
communication. Change in technology is mostly associated with
better service and cost efficiency.
 In recent years, information processing and storage with the use
of computers and telecommunication facilities have developed
rapidly.
 People now prefer to use mobile phones in place of landline
phones. Now a day’s electronic appliances have replaced
electrical equipment vary widely.
 The business firms are very much required to pay attention to the
changing technological environment and to see as to how new
technologies can serve best to the human needs.
 It also requires a company to stay ahead of others and update
their own technology as it becomes outdated.
e) Global or International Environment: The Global environment
plays an important role in shaping business activity.
 With the liberalisation and globalisation of the economy, business
environment of an economy has become totally different wherein
it has to bear all shocks and benefits arising out of global
environment.
 The environment consists of those factors which have an impact
on foreign trade of a country. Those factors may be foreign
policy, international treaties and foreign investment policy and
various acts which are concerned with the dealings with other
countries in trade matters.
 With the charges in government and their policies, there will be
change in international environment.
 With the introduction of economic reforms and the policy of
liberalisation in our country, our exports have increased
considerably and many foreign companies started to trade with
our country.
 With the formation of World Trade Organisation (WTO), there is
a tremendous change in the international trading environment.
 Although Government of India’s policy has been encouraging
foreign investment in Indian companies, subject to certain
conditions, and several factors like the domestic economic policy
and the domestic economic situation have been deterrents to
foreign investment to Indian companies.
 The new economic policy of India is expected to encourage the
internationalisation of Indian business with removing all
international environmental obstacles.
 The increasing domestic competition is compelling many
companies to pursue International Trade. The foreign
collaborations is enabling Indian companies to upgrade their
production methods.
f) Demographic environment: The demographic environment
includes the physical attributes of the population of the targeted
region such as age, gender, income, race, occupation, size, density,
location, and population growth, migration trends, life expectancy,
rural-urban distribution of population, nature and characteristics of
communities, the technological skills and educational levels of
labour force.
 All these demographic features have an important bearing on the
functioning of business firms.
 This is a very important factor to study for a business and helps
to divide the population into market segments and target markets.
 A comprehensive understanding of all such features gives a clear
picture of the overall demographic composition of the region so that
marketers can pinpoint the viable audience group within that region, as
their prime targets.
 For example, if the region is dominated by matured and senior adults
like that in US, marketers will never try to sell any youth-centric
product over there. Instead, they will either think of some commodity
that will appeal to the majority of the demography or move out from
the place.
 At the same time, if the region is flooded with youths, the same heads
will think of attracting the population towards their product.
g) Natural/ Ecological Environment: The Natural environment
influences business in diverse ways.
 The natural environment includes geographical and ecological factors
and it is the ultimate source of many inputs such as raw materials,
minerals and oil reserves, water and forest resources, weather and
climatic conditions and port facilities, which firms use in their
productive activity.
 In fact, the availability of natural resources in the region or
country is the basic factor in determining business activity in it.
 The natural environment factors all highly significant for various
business activities. By having a concrete understanding of all
these features, marketers will know where to sell what kind of
products.
 For example, steel producing industries are set up near the
coalmines to save cost of transporting coal to distant locations.
 The natural environment also affects the demand for goods. For
example, products like heaters and electric blankets will never be
of any use to equatorial and tropical regions.
 In places where temperatures are high the demand for coolers and
air conditioners are high. Similarly, weather and climatic
conditions influence the demand pattern for clothing, building
materials for housing etc.
.
 Therefore, before launching a product, successful companies
study the environment and ecology of a place to know about the
needs and demands of its inhabitants.
 The other concerns in this area are the increased pollution,
shortages of raw materials and increased governmental
intervention.
 As raw materials become increasingly scarcer, the ability to
create a company's product gets much harder. Also, pollution can
go as far as negatively affecting a company's reputation if they
are known for damaging the environment.
 The last concern, government intervention can make it
increasingly harder for a company to fulfil their goals as
requirements get more stringent.
 Due to the efforts of environmentalists and international organisations
such as the World Bank the people have now become conscious of the
adverse effects of depletion of exhaustible natural resources and
pollution of environment by business activity.
 Accordingly, laws have been passed for conservation of natural
resources and prevention of environment pollution. These laws have
imposed additional responsibilities and costs for business firms.
 Natural calamities like floods, droughts, earthquake etc. are
devastating for business activities.
Environmental Scanning
 The gathering of large amount of information to measure and study the
changes in the environment is called environmental scanning.
 It is the systematic process of collecting and analysing information for
the purposes of planning, forecasting, or choosing a preferred future.
 Environmental scanning is 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 a company is operating or considering entering.
 There are three ways of scanning the business environment:
a) Ad-hoc scanning - Short term, infrequent examinations usually
initiated by a crisis
b) Regular scanning - Studies done on a regular schedule (e.g.
once a year)
c) Continuous scanning (also called continuous learning) -
continuous structured data collection and processing on a broad
range of environmental factors.
 The environment scanning is taken into business scenario.
 It is very important for any business to get the latest information
about the environment to keep his business steady and stable.
 In large and small organization the environmental scanning is
must.
 Scanning or futures Studies, collects information which is happening
outside of the college or organization which may have a profound
effect on the way it offers services/products or what services/products
it offers in the future.
 The environmental scanning process uses various tools and methods to
collect, analyze and integrate the information that may impact the
institution in the future.
 The benefits to environmental scanning for the businesses are that they
can uncover many issues that can affect on the organizations mission
and goals. They might use it to increase their profits ratio.
Environmental Scanning & Monitoring Techniques
a) SWOT, b) PEST, c) QUEST, d) Industry Analysis, e) Competitor
Analysis
1) SWOT Analysis
 SWOT is an acronym for Strengths, Weaknesses, Opportunities, and
Threats. The SWOT analysis is an extremely useful tool for
understanding and decision-making for all sorts of situations in
business and organizations.
 SWOT analysis is a strategic planning method used to evaluate
the Strengths, Weaknesses, Opportunities, and Threats involved
in a project or in a business venture.
 The internal factors to the organization considered are the
Strengths and Weaknesses while the external factors presented by
the external environment are Opportunities and Threats that are
all used and considered to help improve the overall decision
making process in dynamic strategic situations the business is
facing.
 Identification of Opportunities and Threats in the environment
and Strengths and Weaknesses of the firm is the cornerstone of
business policy formulation; it is these factors which determine
the course of action to ensure the survival and growth of the firm.
 Identification of SWOTs is essential because subsequent steps in
the process of planning for achievement of the selected objective
may be derived from the SWOTs. It is incorporated into the
strategic planning model.
 SWOT analysis involves specifying the objective of the business
venture or project and identifying the internal and external factors that
are favourable and unfavuorable to achieve that objective.
 It must first start with defining a desired end state or objective. If it
does not start with defining a desired end state or objective, it runs the
risk of being useless.
 If a clear objective has been identified, SWOT analysis can be used to
help in the pursuit of that objective.
 The aim of any SWOT analysis is to identify the key internal and
external factors that are important to achieving the objective. It is
particularly helpful in identifying areas for development.
 The SWOT analysis is often used in academia to highlight and identify
strengths, weaknesses, opportunities and threats. It is particularly
helpful in identifying areas for development.
 Another way of utilizing SWOT is matching and converting. Matching
is used to find competitive advantages by matching the strengths to
opportunities. Converting is to apply conversion strategies to convert
weaknesses or threats into strengths or opportunities.
 An example of conversion strategy is to find new markets. If the
threats or weaknesses cannot be converted a company should try
to minimize or avoid them.
 The usefulness of SWOT analysis is not limited to profit-seeking
organizations. SWOT analysis may be used in any decision-
making situation when a desired end-state (objective) has been
defined. Examples include non-profit organizations,
governmental units, and individuals.
 SWOT analysis may also be used in pre-crisis planning and
preventive crisis management. SWOT analysis may also be used
in creating a recommendation during a viability study/survey.
 The SWOTs are:
a) Strengths: The strengths are positive characteristics in the
internal business environment which can be capitalized on to
increase the overall organisations performance. These are the
attributes of a person or an organization that are helpful to
achieving the objective(s).
b) Weaknesses: The weaknesses are the factors of the internal
environment which may restrict and interfere with the positive
organizational performance.
 These are the attributes of a person or an organization that are harmful
to achieving the objective(s). The internal environment factors include
finance, production, research, development and marketing.
c) Opportunities: The opportunities are the external conditions that are
helpful to achieving the objective(s).
 These include factors of the external environment that act like stepping
stones for the organization in order to achieve their current strategic
goals.
d) Threats: These are external conditions that are harmful to achieving
the objective(s).
 The threats include the factors that have an effect and may interrupt the
organization from achieving the goals. Often threats come out of the
external business environment.
 Examples of Strengths and Weaknesses
a) Resources: financial, intellectual, location;
b) Cost advantages from proprietary know- how;
c) Creativity / ability to develop new products;
d) Valuable intangible assets: intellectual capital;
e) Competitive capabilities; f) Big campus selection
 Examples of Opportunities and Threats
a) Takeovers, b) Market Trends, c) Economic condition, d) Mergers, e)
Joint ventures, f) Strategic alliances, g) Expectations of stakeholders, h)
Technology, i) Public expectations, j) Competitors and competitive
actions, k) Poor Public Relations Development, l) Criticism (Editorial),
m) Global Markets, n) Environmental conditions
2) PEST/PESTEL Analysis
 PEST is an acronym for Political, Economic, Social and
Technological factors, which are used to assess the market for a
business or organizational unit.
 PEST analysis identifies and examines the external factors. PEST
analysis examines the influences of political, economic, social,
and technological factors of a business.
 The PEST analysis is a useful tool for understanding market
growth or decline, and as such the position, potential and
direction for a business. A PEST analysis is a business
measurement tool.
 Two more factors, the environmental and legal factor, are defined
within the PESTEL analysis or PESTLE analysis. These factors
can’t be controlled by firms directly. Each factor affects any and
every business.
 The PEST analysis headings are a framework for reviewing a
situation, and can also (like SWOT analysis, and Porter's Five
Forces model), be used to review a strategy or position, direction
of a company, a marketing proposition, or idea.
 PEST analysis also works well in brainstorming meetings. PEST
analysis exercises can be used for team building games.
 PEST analysis can also be used for business and strategic planning,
marketing planning, business and product development and research
reports.
 PEST analysis can be used for marketing and business development
assessment and decision-making, and the PEST template encourages
proactive thinking, rather than relying on habitual or instinctive
reactions.
 PEST analysis is similar to SWOT analysis - it's simple, quick, and
uses four key perspectives. As PEST factors are essentially external,
completing a PEST analysis is helpful prior to completing a SWOT
analysis (a SWOT analysis is based broadly on half internal and half
external factors).
 A PEST analysis most commonly measures a market while a SWOT
analysis measures a business unit, a proposition or idea.
 A PEST analysis measures the market potential and situation,
particularly indicating growth or decline, and thereby market
attractiveness, business potential, and suitability of access - market
potential and 'fit' in other words.
 The six environmental factors of the PESTEL analysis are the
following:
a) Political factors: Political factors are related to the government. They
consist of legislative bills, tax policies, health and safety laws, labour
law, environmental law, trade restrictions, tariffs, political stability, and
government stability.
 The businessmen must understand these factors on a grand level and
ensure their business aligns to laws, regulations, and policies.
 The company/organization needs to consider the political environment
when creating business strategies.
 The entire political environment includes looking at government
policies and the risk and instability of current political factors.
 Political risks can include an unexpected loss of ownership due to
government takeover (nationalization), or changes in labour laws
which might increase the cost of the company's workforce.
 However often business can anticipate issues by performing a political
risk analysis. The political instability can influence the business and
the duration of time that business/ organization is profitable.
 Some of the major political environment factors are Taxation Policy,
Trade regulations, Governmental stability, Unemployment Policy,
political stability, etc.
b) Economic factors: The economic factors of the business environment
are all the variables that impact how the consumer spends their money
and the power of that purchase.
 These factors are related to Inflation and inflation rate, Economic
growth, Exchange rates, Taxes, Unemployment, Interest rate, Growth
in spending power, Rate of people in a pensionable age, Recession or
boom, etc.
 While people in business can track trends and implement planning,
many businesses are not recession proof.
 An example of an economic factor is the recent recession influenced
people to spend less and save more which has impacted current
consumer spending patterns.
 The economic development of a country is an important element when
scanning the economic environment.
 The exchange rate of a country can have an extensive impact on the
profitability of a business. Relatively small changes in the exchange
rate may be the difference between profit and loss.
 When promoting, selling a product it is important for an organization
to consider the extra financial information including current rates,
taxes etc. in the economy of the country.
c) Socio-cultural: The socio-cultural environment looks at the
demographic characteristics of the current business environment.
 It looks at demographic location, ethnic background, social status,
immediate needs, lifestyle changes, trends, values, consumer buying
patterns, consumer attitudes and opinions, advertising and publicity,
ethical issues, customs and norms of the environment of which a
company or organisation is placed.
 When looking at the socio-cultural environment it is important to
consider the social values of the environment.
 Organizations look at the cultural characteristics of the society and
consider all values and customs that are often associated with the
culture while they try to market and sell the product or service, such
as, Values, Beliefs, Language, Religion, Education, Literacy, Lifestyle,
etc.
d) Technological factors: The technological environment is becoming a
lot more important in the modern day business environment.
 New technology produces new opportunities for companies and
organizations to create, sell and promote a product.
 Technology is rapidly growing and forever changing.
Telecommunication technology e.g. cell phones and laptops are
increasing the opportunity within an organization to promote and
sell a product.
 The internet has made information available to the consumer to
easily compare current prices of a product or service with the
price of the competitors of the same product or service.
 The internet has also created more opportunity to market the
product or service via the use of social media.
 The main technological factors include Internet, E-commerce,
Social Media, Electronic Media, Automation, Research and
Development, Rate of technological change, Technology access,
Licencing, Patents, etc.
e) Environmental factors: The environmental factors of the
PESTLE analysis include natural resources that are affected by the
processes of selling and marketing products or services.
 The two main environmental trends that need to be considered
when evaluating the natural environment are the increased
pollution and growing shortage of raw materials.
 Government regulations are creating practices that encourage
environmental sustainability.
 A business might utilize recyclable and biodegradable packaging,
thus making the most of the environmental opportunities to
create a sustainable organizational in the current natural
environment.
 The environmental factors include ecological and environmental
aspects such as weather, climate, and climate change, which may
especially affect industries such as tourism, farming, and
insurance.
f) Legal factors: The legal environment includes the laws and
regulations of a state. The laws and regulations will influence the way in
which an organization will market or sell the product and services.
 The legal factors influence trade agreements between different
governments and states.
 The governments that have a well-developed public policy about
selling and marketing goods may limit competition and place other
obligations on retailers.
 The legal factors are related to Employment law, Health and safety,
Product safety, Advertising regulations, Product labelling, Labour laws
etc.
3) Quick Environmental Scanning Technique (QUEST)
 The Quick Environmental Scanning Technique (QUEST), is a
scanning procedure designed to assist executives and planners to keep
abreast of change and its implications for the organizational strategies
and policies.
 The procedure permits administrators and top executives to share
their views and to develop a shared understanding of high
priority issues, future options and eventualities which have
implications to the institution.
 QUEST produces a) a broad and comprehensive analysis of the
external environment and b) analysis and assessment of the
institutions capacity and strategic options for dealing with the
external environment.
 In doing this, the organization can clarify their underlying
purpose in relation to environmental changes and also encourage
strategic thinking and an understanding of the dynamics of
change.
 The QUEST procedure involves four stages. These are: a)
preparation, b) environmental scanning workshop, c)
intermediate analysis and report, d) strategic options workshop
and follow-up.
i) Preparation: Preparation for the QUEST involves four specific tasks.
These tasks are definition of the strategic issue, selection of participants
(usually between 12-15 members), preparation of a notebook which
contains information on the major environmental trends and events
which are pertinent to the institution, and selection of suitable
distraction-free sites for the QUEST workshop. Usually an off-premises
site is recommended.
ii) Environmental Scanning Workshop: Following the preparation
phase, an all-day workshop is organized to discuss the strategic
environment in which the institution operates.
 The workshop begins with a definition and discussion of the mission,
purposes and objectives of the institution in order to increase the
relevance of the deliberations.
 After the discussion of the strategic context, an open-ended discussion
of the critical events and trends in the external environment which
could have significant impacts on the institution takes place.
 During this meeting, time is also devoted to analyzing the cross-
impacts of these issues on each other and on the institution's strategic
strengths.
iii) Intermediate Analysis and Report: Following the all-day workshop,
the results are summarized in a written report.
 The brief report is presented in two sections with the first part dealing
with the institution's mission, purposes, objectives, stakeholders, and
the second part presenting alternative scenarios describing the external
environments which the institution may face in the interested future.
iv) Strategic Options Workshop and Follow-up: The final QUEST step
is to hold a strategy meeting, usually for about half a day, to discuss the
report and the strategic options open to the organization.
 The strategic options are evaluated, keeping in mind the expected
external environment and for consistency with the strengths and
weaknesses of the institution.
 The QUEST is not used to set strategic policies. However, it provides
the organization with a series of precise strategic issues which have to
be studied in detail before decisions are made.
 In doing QUEST or any other active environmental scanning various
tools can be used to solicit emerging issues which are of importance to
the organization.
 Questionnaires, Delphi, SWOT analysis, stakeholder analysis, futures
wheels, probability charts, assumption testing, structural analysis,
cross impacts analysis, and scenario planning are among the various
procedures which can be used.
4) Industry Analysis: Industry analysis is a tool that facilitates a
company's understanding of its position relative to other companies that
produce similar products or services.
 Industry Analysis is a market assessment tool designed to provide a
business with an idea of the complexity of a particular industry.
Industry analysis involves reviewing the economic, political and
market factors that influence the way the industry develops.
 Understanding the forces at work in the overall industry is an
important component of effective strategic planning. Industry analysis
enables small business owners to identify the threats and opportunities
facing their businesses, and to focus their resources on developing
unique capabilities that could lead to a competitive advantage.
 Porter's Five Forces is a framework for the industry analysis and
business strategy development developed by Michael E. Porter of
Harvard Business School in 1979.
 Michael Porter’s five forces are widely used to assess the structure,
competitive intensity and therefore attractiveness of a market in any
industry.
 Three of Porter's five forces refer to competition from external
sources. The remainders are internal threats. It is useful to use Porter's
five forces in conjunction with SWOT analysis.
 Porter's five forces include three forces from ‘horizontal’ competition-
Threat of substitutes, Threat of established rivals (Rivalry among
competitors), and Threat of new entrants; and two forces from
‘vertical’ competition- Bargaining power of suppliers and Bargaining
power of customers.
 Together, the strength of the five forces determines the profit potential
in an industry by influencing the prices, costs, and required
investments of businesses—the elements of return on investment.
Stronger forces are associated with a more challenging business
environment.
 Porter’s five forces are:
a) Bargaining power of suppliers: The bargaining power of suppliers is
also described as the market of inputs.
 Suppliers of raw materials, components, labour, and services (such as
expertise) to the firm can be a source of power over the firm, when
there are few substitutes.
 Suppliers may refuse to work with the firm or charge excessively high
prices for unique resources.
 Suppliers can gain bargaining power within an industry through a
number of different situations. Suppliers gain more power when
i) an industry relies on just a few number of suppliers,
ii) there are no substitutes available for the suppliers’ product,
iii) there are switching costs associated with changing suppliers,
iv) inputs are unique and difficult for company to switch to another
supplier
v) each purchaser accounts for just a small portion of the suppliers’
business,
vi) purchaser does not have full understanding of your supplier’s market,
and
vii) suppliers have the resources to move forward in the chain of
distribution and take on the role of their customers.
 Supplier power can affect the relationship between a small business
and its customers by influencing the quality and price of the final
product.
 All of these factors combined will affect your ability to compete. They
will impact your ability to use your supplier relationship to establish
competitive advantages with your customers.
 b) Bargaining power of customers (buyers): The bargaining power of
customers is also described as the market of outputs. The ability of
customers to put the firm under pressure also affects the customer's
sensitivity to price changes.
 The reverse situation occurs when bargaining power rests in the hands
of buyers. Powerful buyers can exert pressure on small businesses by
demanding lower prices, higher quality, or additional services, or by
playing competitors off one another.
 The power of buyers tends to increase when
i) substitutes are available for the product,
ii) single customers account for large volumes of the business's product,
iii) there are many small companies supplying the product and buyers are
few,
iv) customers have access to and are able to evaluate market information,
v) the product is not unique and can be purchased from other suppliers,
vi) the costs associated with switching suppliers are low, and
vii) buyers possess the resources to move backward in the chain of
distribution.
 c) Threat of substitutes: “All firms in an industry are competing, in a
broad sense, with industries producing substitute products. Substitutes
limit the potential returns of an industry by placing a ceiling on the
prices firms in the industry can profitably charge," Porter explained.
 Product substitutes are a greater threat when
i) customers have little loyalty,
ii) easy way of substitution is there,
iii) substandard products are provided
iv) there is perceived level of product differentiation,
v) it is easy for customers to switch due to low switching costs,
vi) more number of substitute products are available in the market,
vii) a company’s product doesn’t offer any real benefit compared to other
products,
viii) price is the customer’s primary motivator, the threat of substitutes is
greater, and
ix) a customer comes to believe that a similar product can perform the
same function at a better price
 The main defence available against substitution is product
differentiation. By forming a deep understanding of the customer,
some companies are able to create demand specifically for their
products.
d) Rivalry among competitors (Threat of established rivals):
Competitive battles can take the form of price wars, advertising
campaigns, new product introductions, or expanded service offerings—
all of which can reduce the profitability of firms within an industry.
 The most intense rivalry competition occurs when
i) there is different level of advertising expenses,
ii) companies have powerful competitive strategies,
iii) high fixed costs of production for the companies,
iv) there is sustainable competitive advantage through innovation,
v) there is vertical integration of rivals to reduce a business’ own cost
vi) two or three dominant firms have incentive to try and become the
market leader status,
vii) there is a number of well-balanced competitors in terms of price,
quality, and innovation,
viii) products are perishable and need to be sold quickly in order to avoid
spoilage or high inventory costs,
ix) the rate of industry growth is slow or shrinking i.e. stagnant or
declining in the potential to sell products,
x) a lack of differentiation between products i.e. products with same
value are not unique but homogenous,
xi) competitors with diverse strategies and relationships have different
goals and the “rules of the game” are not well established,
xii) there are high exit barriers—including specialized assets, emotional
ties, government or social restrictions, strategic inter-relationships with
other business units, labour agreements, or other fixed costs—which
make competitors stay and fight even when they find the industry
unprofitable.
 Technological advances protect companies from competition.
Companies that are successful with introducing new technology are
able to charge higher prices and achieve higher profits, until
competitors imitate them.
e) Threat of new entrants (Threat of the entry of new competitors):
Profitable markets that yield high returns attract new firms. This results
in many new entrants, which eventually will decrease profitability for all
firms in the industry.
 Unless the entry of new firms can be blocked by incumbents, the profit
rate will fall towards zero (perfect competition).
 The threat of new entrants is greatest when
i) access to inputs is easy,
ii) access to customers is easy,
iii) access to distribution is easy,
iv) the products provided are not unique,
v) the production process is easily learned,
vi) switching costs and or sunk costs are low,
vii) Economies of scale for existing firms are minimal,
viii) processes are not protected by regulations or patents,
ix) start-up costs are low for new businesses entering the industry,
x) there is existence of high entry barriers and low exit barriers barriers
to entry,
xi) customers have little brand loyalty or customer loyalty to established
brands, and
xii) there is industry profitability; the more profitable the industry the
more attractive it will be to new competitors
5) Competitor analysis
 Competitor analysis is an assessment of the strengths and weaknesses
of current and potential competitors. This analysis provides both an
offensive and defensive strategic context through which to identify
opportunities and threats.
 Competitor profiling coalesces/combines all of the relevant sources of
competitor analysis into one framework in the support of efficient and
effective strategy formulation, implementation, monitoring and
adjustment.
 Given that competitor analysis is an essential component of corporate
strategy, it is argued that most firms do not conduct this type of
analysis systematically enough.
 Instead, many enterprises operate on what is called “informal
impressions, conjectures, and intuition gained through the titbits of
information about competitors every manager continually receives.”
 As a result, traditional environmental scanning places many firms at
risk of dangerous competitive blind spots due to a lack of robust
competitor analysis.
a) Competitor profiling: The strategic rationale of competitor profiling is
powerfully simple. Superior knowledge of rivals offers a legitimate
source of competitive advantage. The raw material of competitive
advantage consists of offering superior customer value in the firm’s
chosen market.
 The definitive characteristic of customer value is the adjective,
superior. Customer value is defined relative to rival offerings making
competitor knowledge an intrinsic component of corporate strategy.
 Profiling facilitates this strategic objective in three important ways:
a) profiling can reveal strategic weaknesses in rivals that the firm may
exploit.
 b) the proactive stance of competitor profiling will allow the firm to
anticipate the strategic response of their rivals to the firm’s planned
strategies, the strategies of other competing firms, and changes in the
environment.
c) this proactive knowledge will give the firms strategic agility.
 Offensive strategy can be implemented more quickly in order to
exploit opportunities and capitalize on strengths. Similarly, defensive
strategy can be employed more deftly in order to counter the threat of
rival firms from exploiting the firm’s own weaknesses.
 Clearly, those firms practicing systematic and advanced competitor
profiling have a significant advantage. As such, a comprehensive
profiling capability is rapidly becoming a core competence required
for successful competition.
 An appropriate analogy is to consider this advantage as akin to having
a good idea of the next move that your opponent in a chess match will
make. By staying one move ahead, a good offense is the best defense
in the game of business as well.
 A common technique is to create detailed profiles on each of a
company’s major competitors. These profiles give an in-depth
description of the competitor's background, finances, products,
markets, facilities, personnel, and strategies. This involves:
 Background
 location of offices, plants, and online presences
 history - key personalities, dates, events, and trends
 ownership, corporate governance, and organizational structure
 Financials
 ratios, dividend policy, and profitability
 various financial ratios, liquidity, and cash flow
 Profit growth profile; method of growth (organic or acquisitive)
 Products.
 products offered, depth and breadth of product line, and product
portfolio balance
 new products developed, new product success rate, and R&D strengths
 brands, strength of brand portfolio, brand loyalty and brand awareness
 patents and licenses
 quality control conformance
 reverse engineering
 Marketing
 segments served, market shares, customer base, growth rate, and
customer loyalty
 promotional mix, promotional budgets, advertising themes, ad agency
used, sales force success rate, online promotional strategy
 distribution channels used (direct & indirect), exclusivity agreements,
alliances, and geographical coverage
 pricing, discounts, and allowances
 Facilities
 plant capacity, capacity utilization rate, age of plant, plant efficiency,
capital investment
 location, shipping logistics, and product mix by plant
 Personnel
 number of employees, key employees, and skill sets
 strength of management, and management style
 compensation, benefits, and employee morale & retention rates
 Corporate and marketing strategies
 objectives, mission statement, growth plans, acquisitions, and
divestitures
 marketing strategies
b) Media scanning: Scanning competitor’s ads can reveal much about
what that competitor believes about marketing and their target market.
 Changes in a competitor’s advertising message can reveal new product
offerings, new production processes, a new branding strategy, a new
positioning strategy, a new segmentation strategy, line extensions and
contractions, problems with previous positions, insights from recent
marketing or product research, a new strategic direction, a new source
of sustainable competitive advantage, or value migrations within the
industry.
 It might also indicate a new pricing strategy such as penetration, price
discrimination, price skimming, product bundling, joint product
pricing, discounts, or loss leaders.
 It may also indicate a new promotion strategy such as push, pull,
balanced, short term sales generation, long term image creation,
informational, comparative, affective, reminder, new creative
objectives, new unique selling proposition, new creative concepts,
appeals, tone, and themes, or a new advertising agency.
 It might also indicate a new distribution strategy, new distribution
partners, more extensive distribution, more intensive distribution, a
change in geographical focus, or exclusive distribution.
 A competitor's media strategy reveals budget allocation, segmentation
and targeting strategy, and selectivity and focus. From a tactical
perspective, it can also be used to help a manager implement his own
media plan.
 By knowing the competitor’s media buy, media selection, frequency,
reach, continuity, schedules, and flights, the manager can arrange his
own media plan so that they do not coincide.
 Other sources of corporate intelligence include trade shows, patent
filings, mutual customers, annual reports, and trade associations.
 Some firms hire competitor intelligence professionals to obtain this
information. The Society of Competitive Intelligence Professionals
maintains a listing of individuals who provide these services.
c) New competitors: In addition to analyzing current competitors, it is
necessary to estimate future competitive threats. The most common
sources of new competitors are:
 Companies competing in a related product/market
 Companies using related technologies
 Companies already targeting your prime market segment but with
unrelated products
 Companies from other geographical areas and with similar products
 New start-up companies organized by former employees and/or
managers of existing companies
 The entrance of new competitors is likely when:
 There are high profit margins in the industry
 There is unmet demand (insufficient supply) in the industry
 There are no major barriers to entry
 There is future growth potential
 Competitive rivalry is not intense
 Gaining a competitive advantage over existing firms is feasible