ENVIRONMENTAL FACTORS SPECIFIC TO THE BUSINESS CONCERENED
Market/Demand is the first in this category. The aspects include:
* Nature of the demand.
* Size of the demand, present and potential.
* Changes taking place in demand.
* Invasion of substitute products.
* Changes taking place in consumption pattern/buying habits.
A firm must monitor demand in its industry in all its details and gather vital clues on the nature of demand, size of demand, patterns of consumption, buying habits, invasion of substitute products, etc. These details incidentally indicate the attractiveness of the industry. All entrepreneurial decisions such as entry into the industry, expansions, divestment, etc. and decisions on marketing strategy will need information pertaining to demand. Luckily, this is an area where data support is usually available to a firm, through the routine process of demand measurement and sales forecasting.
Consumer tastes and preferences keep fluctuating: A successful business strategy involves designing product and marketing programs that incorporate attributes which provide value to consumers according to their perception. Only by studying, demand and consumer-related factors firms can carry out their business/marketing planning effectively. In many industries, consumer tastes and preferences keep fluctuating. Customersâ€™ brand loyalty too keeps changing.
Today, customers may look forward to a cheaper version of a given product tomorrow they may be bothered more about quality or after-sales service; and the day after, they may go for a substitute product. Industries like cosmetics, personal care products, garments, and entertainment products are a few examples.
A perpetual process of customer analysis is needed to make marketing planning effective. Changes in customer preferences, if left unmonitored, may sound the death knell of a business. At the same time, if properly monitored, they often end up as attractive business opportunities. Only by keeping track of â€˜what the customer wantâ€™ can one grab the opportunities emerging in the environment. That is why we attach great importance to consumer analysis as part of environmental survey.
Industry and Competition
Industry and competition constitutes the other major component of the environment that is specific to a firm. Knowledge about industry and competition is a fundamental requirement for developing marketing strategy. Competitive advantage building too depends on a proper grasp of the position of the industry and competition.
Government policies significantly affect the way businesses operate. Government policies profoundly affect the specific environment of any industry/business. This is particularly true of economies that are regulated to a significant degree. Even in market economies, government policies are an important factor, though their restraining influence is relatively less. Governments play a major role which has a bearing on the functioning of firms. For example:
* Governments are often large purchasers of goods and services.
* Governments subsidize select firms and industries.
* Governments protects home producers against foreign competition in a limited way (post liberalization)
* Governments ban fresh entry in select industries.
* Governments off and on ban certain technologies and products.
* In some cases, governments happen to be producers, and therefore, function as competitors.
Supplier Related Factors
Suppliers form another important component of the proximate environment of a firm. Suppliers constitute one of the five forces shaping competition in any industry. They have their own bargaining power in the industry. They influence the costs of raw materials and other inputs to a firm and consequently influence the profits of a firm. It is in this context that the trade-offs between integrating vs outsourcing of supplies assumes importance for a firm because this has implications on the cost as well as quality fronts.
Suppliers also keep introducing frequent changes in their products, processes and business practices. Sometimes, suppliers suddenly become direct competitors to a firm, by becoming end product manufacturers. Therefore firms have to closely monitor the supplier environment.