The overall evaluation of a company’s strengths, weaknesses, opportunities, and threats is called SWOT Analysis.
External environmental analysis (opportunity and threat analysis)
In general, a business unit has to monitor key macro environment forces (demographic- economic, technological, political-legal, and socio-cultural) and significant microenvironment actors (customers, competitors, distributors, suppliers) that affect its ability to earn profits. The business unit should set up a marketing intelligence system to track trends and important developments. For each trend or development, management needs to identify the associated opportunities and threats.
A major purpose of environmental scanning is to discern new marketing opportunities. A marketing opportunity is an area of buyer need or potential interest in which a company can perform profitably. Opportunities can take many forms and marketers have to be good at spotting them:
- A company may make a buying process more convenient or efficient e.g. consumers can now use the Internet to find more books than ever and search for the lowest price with a few clicks.
- A company can meet the need for more information and advice e.g. guru.com facilitates finding professional experts in a wide range of fields
- A company can customize a product or service that was formerly offered only in a standard form e.g. P& G’s Reflect.com website is capable of producing a customized skin care or hair care product to meet a customer’s need.
- A company can introduce a new capability e.g. consumers can now create and edit digital “Movies” with the new iMac and upload them to an Apple Web server to share with friends around the world
- A company may be able to deliver a product or service faster e.g. FedEx discovered a way to deliver mail and packages much more quickly than the U.S. Post Office.
- A company may be able to offer a product at a much lower price e.g. pharmaceutical firms have created generic versions of brand-name drugs.
The company now applies Market Opportunity Analysis (MOA) to determine the attractiveness and success probability of any opportunity. Five questions are asked:
- Can the benefits involved in the opportunity be articulated convincingly to a defined target market(s)?
- Can the target market(s) be located and reached with cost-effective media and trade channels?
- Does the company possess or have access to the critical capabilities and resources needed to deliver the customer benefits?
- Can the company deliver the benefits better than any actual or potential competitors?
- Will the financial rate of return meet or exceed the company’s required threshold for investment?
1. Company develops a more powerful lighting system
2. Company develops a device for measuring the energy efficiency of any lighting system
3. Company develops a device for measuring illumination level
4. Company develops a software program to teach lighting fundamentals to TV studio personnel
In the opportunity matrix above, the best marketing opportunities facing the TV-lighting company are listed in the upper-left cell (#1); management should pursue these opportunities. The opportunities in the lower-right cell (#4) are too minor to consider. The opportunities in the upper-right cell (#2) and lower-left cell(#3) should be monitored in the event that any improve in attractiveness and success probability.
Some developments in the external environment represent threats. An environmental threat is a challenge posed by an unfavourable trend or development that would lead, in the absence of defensive marketing action, to deterioration in sales or profits. Threats should be classified according to seriousness and probability of occurrence
1. Competitor develops a superior lighting system
2. Major prolonged economic depression
3. Higher costs
4. Legislation to reduce number of TV studio licenses
The figure above illustrates the threat matrix facing the TV-lighting-equipment company. The threats in the upper-left cell (#1) are major threats, because they can seriously hurt the company and have a high probability of occurrence. To deal with these threats, the company needs to prepare contingency plans that spell out changes it can make before or during the threat. The threats in the lower-right cell (#4) are very minor and can be ignored. The threats in the upper-right (#2) and lower-left (#3) cells do not require contingency planning but need to be monitored carefully in the event that they grow more serious.
Once management has identified the major threats and opportunities facing a specific business unit; it can characterize that business’s overall attractiveness. Four outcomes are possible:
1. An ideal business is high in major opportunities and low in major threats
2. A speculative business is high in both major opportunities and threats
3. A mature business is low in major opportunities and low in threats
4. A troubled business is low in opportunities and high in threats.