Chapter # 5

Chapter # 5
Analyzing the External Environment

Prof. Farooq Qaisar UCP Faisalabad.

Objectives of this Chapter

1. Discuss the appropriateness of models used to analyze the

external environment.
2. Identify the range of external influences that affects marketing
planning.
3. Distinguish between the micro (task) and macro levels of the
external environment.
4. Explain how competition influences an organization's marketing
plan development.
5. Illustrate some of the main ways in which external factors affect
marketing planning in practice.
6. Show the importance of marketing information systems and
explain how they are developed.

Prof. Farooq Qaisar UCP Faisalabad.

 Modeling the External environment
STEP/PEST Analysis
• Socio-cultural factors.
• Technological factors.
• Economic factors.
• Political factors
This model has been expanded to create the PESTEL (or PESTLE)
model, as follows:
• Political factors
• Economic factors
• Socio-Culture factors
• Technological factors
• Ecological factors
• Legal factors
Prof. Farooq Qaisar UCP Faisalabad.
 Porter’s Five Forces Model (Porter 1990

• The model seeks to explain how competitive power

and competitive advantage (the bases for strategic
advantage) come about as a result of environmental
factors. The five forces are as follows:
1. The bargaining powers of suppliers
2. The bargaining powers of customers
3. The threat of new entrants
4. The threat of substitute products and services
5. Rivalry among current competitors
Prof. Farooq Qaisar UCP Faisalabad.
 The danger of new organizations entering the
market is limited by the following factors:
Economies of scale.
• The organizations which can capture a very large chunk of the market
could justify the capital costs needed to enter.
Product differentiation.
• If products can be copied easily, competitors can enter, but if they are
either too technically advanced or are protected by patents or strong
branding, the potential for entering the market is reduced.
Capital requirements.
• If the capital needed to enter the market is significant, fewer potential
competitors will have the resources to enter. An example is the airline
industry, which for many years was the exclusive domain of a relatively
few national carriers. As second-hand aircraft became available on lease,
and as the regulatory framework eased, new airlines were able to enter
the market.
Prof. Farooq Qaisar UCP Faisalabad.
 The danger of new organizations entering the
market is limited by the following factors:
Switching costs.
• If customers find it prohibitively expensive to change suppliers,
competitive pressures will reduce.
Access to distribution channels.
• If the distribution network is already tied up, new entrants will be
unable to access the market. For geographically large markets
such as the United States, obtaining distribution is critical.
However, the Internet has made strong inroads into distribution
because it bypasses wholesalers and retailers for many products.
Cost advantages independent of scale.
• If an organization has access to cheap raw materials, or has
patent protection on a cost-effective manufacturing process,
other companies will find it difficult to enter the market.
Prof. Farooq Qaisar UCP Faisalabad.
Framework for Analysis at the micro level
of the external environment

Prof. Farooq Qaisar UCP Faisalabad.

 Macro-environmental Influences on
Planning
• The political
environment
• The economic
environment
• The socio-cultural
environment

Prof. Farooq Qaisar UCP Faisalabad.

 Macro-environmental Influences on
Planning
• The technological
environment
• Ecological
environment
• The legal
environment

Prof. Farooq Qaisar UCP Faisalabad.

 The Competitor Analysis
• As part of any environmental analysis it is critical to have a detailed
understanding of the competition that the organization faces in the markets
that it operates in and those that it is planning to enter in the future.
• It also involves assessing the level of competition and whether competition is
direct in terms of offering the same or similar products, or indirect where
there is competition for the same ‘share of the wallet’ in a different market.
• A key element of any marketing strategy will be the relationship that the
business has with its competitors and the way that it positions itself against
competitors in the market.
• In particular it is essential to identify who the competitors are, and what
strengths and weaknesses they have, their strategic positioning and source of
competitive advantage, and the way that they are likely to respond to a
competitive move by the organization.

Prof. Farooq Qaisar UCP Faisalabad.

 The competitors analysis Continued
Types of Competitors:
1. Laid-Back Competitors
– Respond slowly or not respond
2. Tiger Competitors
– Respond in aggressive manners and in terms of speed of
weight of response
3. Stochastic Competitors
– This can be viewed as a continuum based on speed and level of
response, and sometimes may simply classify competitors as
unpredictable, therefore making planning for their response
much more difficult to achieve

Prof. Farooq Qaisar UCP Faisalabad.

 Researching the Marketing Environment
A marketing information system consists of four elements:
1. Internal continuous data.
– Internal continuous data is collected through customer feedback (both positive
and negative), sales records, individual performance records for salespeople,
profitability calculations, and so forth.
2. Internal ad-hoc data.
– For specific time period to check some specific issue
3. Environmental scanning.
– Environmental scanning should be a large part of any marketing information
system. Ideally, it should be carried out in a formal way, by checking the national
press, the business press, the trade journals, and business programmes on TV.
4. Market research.
– Primary and secondary research

Prof. Farooq Qaisar UCP Faisalabad.

 Class Activity
A case study on

BAE Systems

Page # 95

Prof. Farooq Qaisar UCP Faisalabad.