Businesses need a lot of bells and whistles.

Businesses take the external environment into consideration during the start-up period, but they really need to do an environmental scan every few years to stay in touch with what’s happening around them.

What Is Environmental Scanning?

Environmental scanning is a review of external sources to discover factors that impact a business. The main goal is to identify and consult sources outside the business. Although these sources are uncontrollable from the business’s perspective, it is important to consider them in decision-making processes.

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One popular method of environmental scanning is SWOT analysis. Each letter stands for one area to review: Strengths, Weaknesses, Opportunities, and Threats. The strengths and opportunities are factors within the company, and the weaknesses and threats come from sources outside the company.When companies are putting resources and time toward an environmental scan, they want the results to be as comprehensive as possible. Most scans include a thorough look at competition, economics, technology, legal issues, and social/demographic factors. Let’s dive a little deeper into each of these areas using The Pool Stop, an imaginary small business that sells and services swimming pools.

External Factors

Competition

Businesses should scan the competition to find out how they stack up to competitors and how they can earn a customer’s business.

It’s vital to know what the competition is doing so that a business can be in touch with trends and issues.Our example company, The Pool Stop, has been the only pool company in the area for 20 years, but a competitor crept into the market this year. The Pool Stop may have to change the way it does business now that customers have another option. It should look closely at the competitor’s services, products, pricing, location, customer service, and customer feedback.

Comparing what the company offers versus the competition opens doors for improvement and opportunities to grow and change.

Economics

Businesses need to study the economy to discover the current trends, buying power, and strength. Are people losing their jobs and cutting back on spending? This may be a sign to re-evaluate the pricing strategy, because there are times it may be better to take a 20% profit rather than a 50% profit. Staying on top of what is going on in the economy will save the business from a negative surprise in its finances.

It is better to make gradual adjustments with the economy than a big change that scares away customers.

Technology

Technology has had a dramatic impact on small businesses. Specifically, the use of social media and the Internet has never been more vital to a business’s success. Years ago, a business only used technology in the office to take care of finances and maintain the cash register and customer information. Fast-forward a few years and businesses were paying $500 and up to have a website built to attract customers. Now the Internet has evolved to the point that a business can maintain multiple free accounts on different websites to connect with a huge number of customers.

In addition to using technology to share information, businesses are using it to sell to customers around the world. Why is this scary to a small business? These customers can often get a much better price than you can give them. They simply have to be willing to wait for it. Each business must review how much the Internet impacts sales and how to make the Web work for them instead of against them.The Pool Stop is a small business that does not need a lot of bells and whistles. The company does not want to sell products online, but it does want to keep customers up-to-date on sales, specials, and current products. A scan of available technology reveals that The Pool Stop could accomplish these goals with a free social media page.

Promoting what is in the store and available for quick pick-up is ideal for a marketing campaign.

Legal Issues

The legal environment includes health, safety, taxes, and advertising regulations. Not knowing is not an excuse–every business is required to research, understand, and meet these regulations. What would happen if a restaurant kept a filthy kitchen? It would be shut down. What would happen if a construction company had numerous injuries? It would be reviewed to find out if the company is following safety precautions. Businesses should know regulations to train employees and move forward successfully. Not only will this help the company avoid fines, but it will keep it in business for the long haul.

Social/Demographic Factors

A business should scan a wide range of social and demographic factors including education level, age, income, population, and expectations. Understanding potential customers allows a business to properly market itself to make the most of what is available.The Pool Stop has to keep demographics in mind because it sells expensive products that are wants, not needs. A store like this in an area of low population and low income levels would not likely survive. People without a ton of extra cash lying around are focused on paying for necessities, like food and housing, not luxury items like a swimming pool.

On the flip side, if the business opens in a high-end area, it better have the skills and services necessary to meet those demands. A proper environmental scan of social/demographic factors should always be completed prior to opening and then repeated periodically every few years.

Why Do External Factors Matter?

Take a moment to think about your own life.

Can you imagine if you never considered others’ opinions and actions? What if you didn’t follow the rules? What if you decided to just ignore stoplights and go right through whenever you came to one? Chaos would ensue. A company that ignores external factors is also setting itself up for chaos and, ultimately, failure.External factors are a vital part of every decision.

Take a restaurant that wants to increase business on Wednesday nights. The owner sees other restaurants advertising happy hour specials and decides to do the same thing. One problem: this restaurant did not get the proper license required to sell alcohol. The authorities find out and shut the business down until it is licensed.

This move would probably end up costing the owner more than if he had just done nothing.

Lesson Summary

Environmental scanning is a review of external sources to discover factors that impact business. One popular method of environmental scanning is SWOT analysis. These external factors determine the decisions a business makes. Environmental scans should include a good, hard look at competition, economics, technology, legal issues, and social/demographic factors.

Key Terms

environmentalscanning
  • Environmental scanning: a review of external sources in order to discover factors that impact a business
  • SWOT analysis: translates to a review of strengths, weaknesses, opportunities, and threats
  • Competition: scan the competition to find out how they stack up
  • Economics: discover the current trends, buying power, and strength of the economy
  • Technology: use of social media and the Internet is vital to a business’s success
  • Legal Issues: includes health, safety, taxes, and advertising regulations
  • Social/demographic factors: including education level, age, income, population, and expectations

Learning Outcomes

Discover how thoroughly you can complete these actions after watching the video lesson:

  • Recognize the goal of environmental scanning in marketing
  • Dissect the term ‘SWOT analysis’
  • Contrast the various external factors in marketing
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