Week Ten: Anticipating Environmental Forces
There are a lot of ingredients that go into making a delicious, cold-cut sandwich. There’s ham, turkey, roast beef, salami, cheese, pickles, tomatoes, green peppers, onions, lettuce, mayo, mustard and bread.
That’s 13 different ingredients from 13 different parts of the world. A lot has to go right for you to craft the perfect cold-cut sandwich.
This week you’ll be able to anticipate forces and factors that will lead to changes in your business model. If the banking industry had gone through week ten, then we wouldn’t be in such a financial pickle.
Economic forces affect business operations as well as consumer decisions. It’s important to consider the economy when planning your business. If the economy begins to slide, then it’s obviously going to affect the profitability of your business.
This doesn’t mean you should spend hours a day watching the stock market . But if you notice an economic shift, then it’s worth looking into. Economic forces can be broken down into three areas: business cycles, inflation and income.
- Business cycles – Reflect dynamic economic conditions from prosperity to recession, and eventual recovery. In a prosperous economy, consumers are more willing to spend money on frivolous purchases. In a recession, consumers are cost-conscious. As a marketer, you have to adjust your prices and positioning accordingly.
- For example, in a recession Toyota should offer deals on their cars and position their vehicles as the smart, economical alternative. One way to do this is to promote the fuel efficiency as a method for saving money on gas.
- Inflation – Compares the relative raise in price levels to the percentage raise in consumer spending. The U.S. has stable inflation levels, but if you want to sell abroad, you should give this force more consideration.
- For example, if Verizon wants to sell calling plans in a country with high inflation, then they must position their brand as a value-oriented alternative.
- Income – The percentage rise in your target market’s yearly income. Over the past several years, the bottom 80% has experienced a stable rise in income level. But the top 20% has experienced relatively large gains in their income. If you have an upscale target market, then feel free to consistently raise your prices.
- For example, Subway is positioned higher than McDonald’s when it comes to quality of food. So Subway won’t experience as much backlash from their customers when they raise their prices.
If the economy is shifting towards prosperity, be prepared to raise your prices or offer a more expensive product/service. If it’s moving towards recession, be prepared to do the opposite.
Political and Legal Forces
The political and legal environment is constantly changing. It’s hard to keep up. Marketers must be aware of laws and regulations that affect the future of their operations and strategies. Political and legal forces can be categorized in two ways: antitrust regulation or consumer protection.
- Antitrust regulation – Laws that affect business operations and prevent monopolies from forming. They’re enacted to promote competition. As an entrepreneur, it’s something to keep in mind.
- For example, the Federal Trade Commission Act established the FTC which regulates unfair business practices. If Verizon were to advertise false information to gain a competitive advantage, then the FTC would intervene.
- Consumer protection – Laws that protect consumers from deception, fraud and harmful products.
- For example, the Food and Drug Administration (FDA) was put in place to prevent consumers from dangerous foods and pharmaceuticals. If Subway offered a sandwich that had a toxic amount of mayonnaise in it, the FDA would step in.
Generally, political and legal forces are implemented to protect competition and consumers. If you’re planning on operating an ethics-minded business, then these forces probably won’t affect your business as much as the other ones.
Now more than ever, the technological environment is changing and it’s mostly due to the Internet and electronic media. If you want to run a successful business, it’ll be hard to ignore the Internet. On the other hand, the Internet offers entrepreneurs an advantage over slow-moving, bureaucratic corporations.
Because of the new age of technology, businesses must adapt in three ways: their product strategies, promotional strategies and pricing strategies.
- Product strategies – As consumers become more consumed with technology, they’re going to demand that the products they purchase keep up.
- For example, if Toyota wants to keep up with the curve, they have to offer built-in technology that allows drivers to play the MP3 players through the car. If they want to stay ahead of the curve, they might want to put an actual computer in ever car that can sync with the consumer’s MP3 players.
- Promotional strategies – Through technology, consumers are becoming more and more connected. Businesses need to take advantage of this connectivity and find ways to promote positive word-of-mouth from their customers.
- For example, maybe Subway could develop an app that allows customers to inform their friends when there are fresh cookies.
- Pricing strategies – The Internet gives a huge advantage to the consumer in that it allows them to efficiently find the best deals. This means that businesses need to be constantly aware of their competitors.
- For example, if Verizon wants to set themselves apart from AT&T then they can constantly monitor AT&T’s prices and adjust theirs accordingly.
Technology moves so fast that it’s practically impossible to track everything that’s changing, especially as an entrepreneur. You have so many things to monitor. But if you truly want to stand out, then you have to stay up-to-date with how your industry is technologically changing.
When you’re not working, your competitors are. It’s easy to fall into the entrepreneurial trap of thinking you’re the only one trying to build your business. Just as you want to gain market share in a particular industry, your competitors are trying just as hard to squash you. Anticipating competitive forces can be broken into three steps.
- Researching the market – This is something that most entrepreneurs fail to do. Thomas Edison never invented a product that couldn’t change lives. As an entrepreneur you need to make sure your product or service adds real value to the consumer. So, what is the core benefit you’re providing to your customers?
- For example, the core value that Subway promotes is that they offer healthy alternative with sandwiches that are made fresh right in front of you.
- Identifying current and potential competitors – An exercise I recommend doing is listing all of your competitors and writing out how you are different from them. If you don’t have a competitive advantage over each and every one, then how can you expect consumers to choose you? But first, you need to identify them.
- For example, Verizon’s obvious competitors are AT&T, T-Mobile, Sprint, Cricket ad Boost Mobile. Some of their less obvious competitors are Qwest, Comcast, Skype and maybe even email.
- Anticipating competitive actions – Once you know your market and know your competitors, you need to anticipate how your competitors will change to adapt to the changing market.
- For example, if Toyota wants to maintain their market share, then they have to anticipate what their competitors will do. If they think Ford will release a revolutionary method for playing MP3s, then maybe they should release a revolutionary method for their cars to connect to the Internet.
Whether or not you choose to believe it, you have lots of competitors. You need to be different. In order to be consistently different, you have to anticipate how the competitive environment is changing.
The sociocultural environment is best described as the consumer’s attitudes, beliefs, norms, customs and lifestyles. Lots of things could change this environment. One day you could be the fast food leader of the world. The next, someone could release a documentary that completely changes the eating habits of millions of your customers.
Sociocultural forces are tracked under three categories: emerging markets, family structure and aging population.
- Emerging markets – Right now, one of the largest emerging markets in the U.S. is the minority population. Smart companies recognize this emerging market and tailor their marketing campaigns to appeal to them.
- For example, Verizon.com is now available in Spanish.
- Family structure – Rising divorce rates and an increase number of mothers in the workplace are two trends that companies should consider in determining their marketing strategies.
- For example, it’s hard for single mothers to get their kids in the car. So Toyota should know that automatic doors are important to this growing market.
- Aging population – America is getting older. To keep up with the aging population, U.S. companies need to adapt to physical impairments that their customers will face as they get older.
- For example, Subway might consider lowering their counters so people in wheelchairs can see their sandwiches being made.
Tracking sociological forces is important because more effective target markets can emerge, existing target markets can change and more profitable marketing strategies can be established.
Natural forces can include everything from depleting environmental resources to anticipating natural disasters.
- Depleting environmental resources – If you need to use a depleting environmental resource to manufacture your product or deliver your service, then this will become a huge issue in the future.
- For example, most cars need gas. Gas needs oil. And oil is depleting. So Toyota needs to develop products that aren’t so dependent on gasoline.
- Anticipating natural disasters – If any part of your business exists in a part of the world that is vulnerable to natural disasters, then your company should be prepared to handle such a disaster.
- For example, if Verizon sources their phones from overseas, then they need to have a back-up plan if a hurricane swallows up a shipment of their orders.
Natural forces are one of the more trivial environmental forces that you’ll have to monitor as an entrepreneur. But it’s still worth noting.
After analyzing the economic, political/legal, technological, competitive, sociocultural and natural forces that could affect the future of your company, it’s important to take a moment and think of any other forces that you could face.
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