What is Environmental Scanning in Marketing? (With Methods)
Updated July 9, 2022
Environmental scanning refers to examining external environmental factors that can affect an organization. Environmental data is important for marketers as it can provide them with information about the potential competition, changing consumer tastes and preferences, future market trends, risks, and opportunities. Understanding environmental scanning in marketing may help you create successful marketing campaigns and succeed among competitors. In this article, we discover what environmental scanning in marketing is, explore its components, review its techniques, discuss its importance, learn how to apply the environmental analysis process, and determine some applications of environmental scanning.
What is environmental scanning in marketing?
Environmental scanning in marketing is the process of observing and analyzing an individual or organization's external environment. Its purpose is to identify opportunities and threats in the market that may affect a business. To have strategic decision-making capabilities, it's important for a firm to understand its external environment, industry, competitors, and consumers.
A thorough examination of such information can reveal what activities other competitors are performing, such as increasing or decreasing prices or adding and dropping products. This process can inform marketing teams about the changing customer preferences for certain features. It can also help reveal emerging legal or social issues that may influence the business, so marketing teams can create plans to reduce or avoid these risks.
Components of environmental scanning
A business environment includes internal and external components. When performing environmental scanning, it's helpful for individuals to assess the external components to understand better the factors that may impact the company's potential for success. You can further divide the external components that environmental scanning uses into micro-environmental and macro-environmental factors. Examples of micro-environmental factors include consumers, suppliers, clients, and competitors. Whereas macro-environmental factors include demographics, technology, economics, legal regulations, and political climate.
When assessing both categories of external factors, marketing professionals determine how these components may affect a business's operations. For example, a transition in the political climate may lead to an economic shift. A change in the legal regulations around the sale or manufacture of products may play a significant role in a company's ability to make or sell its products. Watching for potential shifts and listening to conversations around these external factors can help marketing departments identify areas of concern and adjust their efforts accordingly.
Environmental scanning techniques
Marketers use various techniques when performing environmental scanning, such as:
A SWOT analysis is a common method of environmental scanning. SWOT stands for strengths, weaknesses, opportunities, and threats. When performing a SWOT analysis, an organization's marketing department looks internally at the company's strengths and opportunities and externally at its weaknesses and threats.
Marketing research is essential in identifying the desires and preferences of customers. As a marketer, you may perform marketing research in-house for an organization or work as part of an external market research company. There are a variety of marketing research methods, including focus groups and surveys. Focus groups are a useful method of gathering information from a group of respondents in a short period.
Asking reputable individuals in the industry for their opinions can provide a wealth of information. Such individuals likely have strong relationships with clients, suppliers, and distributors. Usually, their expertise and contacts may yield valuable insights into an organization's external environment.
Published reports in various industries can be useful sources of information. Reports might discuss emerging issues in the sector, vulnerabilities, and strategies for increasing competitiveness. The key areas of focus of these reports are the organization's competitors. These reports help the organization determine short and long-term goals.
A PEST analysis is a popular and effective method of environmental scanning. It analyzes political, economic, social, and technological factors that influence an organization's external environment. The four categories respectively handle regulatory changes or legislation affecting the industry, measures of central banks to control inflation, consumer attitudes toward products and services, and technical innovation occurring within the industry.
Why is environmental scanning important in marketing?
Environmental scanning usually helps marketers engage in forward-thinking and develop new products. These products and services can meet present needs and anticipate the future needs of the target market. Environmental scanning is important because of several reasons, including:
Identify potential threats: The ability to identify potential threats gives organizations the opportunity to address them. The earlier an organization identifies a threat, the more time it has to adjust its marketing strategy.
Identify potential opportunities: By identifying opportunities, businesses can develop strategies for seizing or capitalizing on them.
Determine competitors: By gathering information about a business's competitors, organizations can better understand what they are doing and how they can respond to market conditions. For example, environmental scanning helps businesses determine possible price changes that competitors may make and if they can react.
Set marketing objectives: Environmental scanning helps marketers set long-term objectives by identifying potential obstacles and opportunities. For instance, environmental scanning can help organizations determine if anything is preventing them from accomplishing their long-term goals or what can help them achieve those goals.
Measure success: By using information obtained through environmental scanning, marketing departments can effectively monitor how well they are achieving their marketing objectives. For example, environmental scanning can help marketing managers measure the success of their product life cycle.
How to apply the environmental analysis process
The environmental analysis process is the technique businesses use to assess the market environment. It uses a combination of internal and external information to evaluate both factors that affect the organization itself and may affect its industry. The analysis process has the following steps:
1. Identify environmental factors
The first step in the environmental analysis process is identifying the factors that can affect an organization or industry. Typical elements include economic, technological, social, and legal forces. Marketers make sure that they pick only factors that apply to the organization. For example, a pharmaceutical company may consider factors that affect the industry and those that influence consumers' choices and their spending habits.
2. Collect relevant data
The next step is to collect relevant data about each factor. Market researchers begin with economic and technological factors that may affect the organization. They then seek information from external sources, such as government agencies, trade associations, consumer research firms, and news media. They also use internal sources, such as customer feedback, sales reports, and sales forecasts, for market analysis.
3. Evaluate the competitors
Businesses make a list of their competitors and determine how each environmental factor affects them. They use this as an opportunity to learn more about their competitors' products and services. Businesses perform a SWOT analysis to identify their competitor's strengths, weaknesses, opportunities, and threats. This helps them understand what their rivals are doing well, where they lag others, and how they may change in the future based on certain possibilities.
4. Predict the impact on the organization
After competitor evaluation, the next step involves predicting the effect of each factor on the organization. Marketers look for any threats that may cause serious disruption if they materialize. They also look for opportunities to benefit from market changes before others do. The goal isn't to make perfect predictions, but to understand how things may change quickly.
5. Strategize accordingly
After gaining an understanding of the market environment, businesses strategize accordingly. They decide where they may allocate resources and what steps they may take to capture potential opportunities or defend against threats. The environmental analysis process doesn't aim at prediction alone. It aims to understand how an organization can best adapt to the changes in the external environment to meet its goals.
Applications of environmental scanning
Environmental scanning has several applications. You can apply it to an individual business or a whole industry. Here are the major applications of environmental scanning:
Market research for competitive advantage
Environmental scanning helps gather market intelligence that can give businesses an advantage over their competitors. When you understand the market environment, you can better assess how changes in other companies affect a business. You can try to benefit from market opportunities or detect potential threats that may hurt the business.
Industry analysis for competitive advantage
Environmental scanning also helps understand market changes at an industry level. This understanding can help organizations compete more effectively against rivals in the same industry. They can do this by understanding the overall trends and how they may affect each other.
Business risk management
The environmental analysis process is an exercise in prediction and planning based on the collected information. Businesses that employ environmental scanning as a strategic management tool can better prepare for the future by identifying threats and opportunities before they happen. They can allocate resources more efficiently to help minimize risk and maximize returns.
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