- Internal and external forces/factors/parameters that can directly or indirectly influence (positively or negatively) the capability of a firm to carry out its business plans.
- The business laws, trading rules and regulations in existence upon which the business firm has no direct control, but they can be phenomenal in influencing the firm's business.
There are two components of these forces, viz., the external factors and the internal factors. We'll look in detail about both these features.
The External Factors
Broadly classified, the external factors consist of micro-environment and macro-environment.
- Micro-Environment: This type influences the firm directly. It includes suppliers, distributors, consumers, and local stakeholders whose every step significantly affects the business of the firm.
- Macro-Environment: In this type, all factors that influence the business of organization are out of control of the firm. For example, consider foreign trade laws. The firm doesn't frame these laws and it has to follow these laws, inevitably. Globalization is also an example of ever changing factors like politics, marketing trends, culture, and economics on which a firm has no control, but has to change as per the needs of the market.
In the internal environment, the parameters that are crucial for a firm are all internal or within the firm. The five pillars around which internal marketing environment revolves are the five M's, viz.,:
Most Important Market Environmental Factors
For gaining a competitive edge, firms have to ensure that they're successfully able to follow some marketing tools that can help them immensely in an external market environment.
What is the strength of your business that you can leverage in a tough marketing environment? Is it your business location, a new product/service you've thought to launch, or specialist marketing expertise? Just focus on your strengths. These are the key factors that all teams should analyze while planning on marketing goals. Once you're aware of the SWOT of your team and firm, you'll be able to perform with more effectiveness. Do a SWOT (Strength, Weakness, Opportunities, and Threats) analysis for every market segment and not together for the entire firm, as that will lessen your efforts.
PEST refers to Political, Economic, Sociocultural, and Technlogical factors that may have significant influence on the business plans of a firm. As a part of your research, analyze properly, how each of these factors affect your chances of success. Success in a tough external marketing environment is highly dependent on how well you use the potential of the market and avoid pitfalls. This is true especially in countries where there is a huge demographic diversity of culture. What appeals to one community, may not appeal to others. So, the PEST factors have to be given importance.
Five Force Analysis
Similar to the above tools, five force analysis is another method to ensure that the firm is prepared for all the risks. However unlike the tools mentioned above, five force analysis focuses on a single objective of SBU or strategic business unit. The strategic planning to deal with competitors and cover a significant market share before the other rivals are able to do so, forms one of the most important aspects of five force analysis. A brief overview of five features will help you to understand this parameter in a better way.
- Threats of entry: What are the possible factors that can prove to be obstacles for your SBU's success? Will competitors come up with a new strategy? Or will the government put some more stringent laws on trades? How beneficial will the differentiation of the firms' product be? Similar questions need to be researched in the domain of the threats of entry.
- The power of buyers: The number of buyers will be high for something that is supplied by a few large players in the market. To target such products and items, you need to come up with a strategy. Similarly, for distributing your products to various distributors, you need to look at the costs for supplying and distributing.
- The power of suppliers: Your marketing environment is influenced by the power of your suppliers. For instance, switching from one software firm to other will cost more. Also, if your customers are not concentrated in one specific area and are spread to remote and large places, you need to consider those factors as well.
- The threats of substitute: Consider fax service that was popular in the last few years. With email now easier and popular, it has somewhat replaced fax services. Similarly, what if some other products are more handy than the one your firm launched? Analysis of market environment for threats of substitute is important.
- Competitive rivalry: This factor is at the helm of all five forces. All other factors vary and are controlled depending on how deep the competitive rivalry is.