What is Environmental Scanning?
Imagine trying to research the market for your business pre-internet. Spending hours slogging through potential customers in the phone book, reading countless newspapers to watch for market conditions, and having to use a wide variety of secondary sources (other people's content that may not be tailored to your business plan) to identify market trends and target customers.
Not a good time, right? Not very effective either.
Prior to the internet, gathering information about your competitors, current customers, and potential target customers was a grueling process. There weren’t any “about us” pages to understand the history and mission of a company, data lakes to see general market segmentations, nor any e-commerce stores to examine a consolidated list of all of a company’s product or service offerings.
Today, conducting market research is easier than ever before and can reap even greater benefits than it did 30 years ago.
Environmental scans, one of the many types of market research, have always been a hallmark service of consulting practices. It provides immense value to clients and leverages the unique knowledge bases of individual firms. Good market research is a time (and resource) intensive process, which is why firms so often hire consultants to produce these reports.
One of the most common market research reports that is produced for a consultants' clients is the environmental scan. An environmental scan is a thorough analysis of the business environment that your organization operates in.
For many firms, strategizing is an interdependent process. A good business strategy will reference and evaluate the operations of competitors in order to gain a competitive advantage.
By having a consolidated view of all of your competitors, customers, and primary market through an environmental scan, your business decisions can be better fit your market.
Now, we'll explore the different aspects of an environmental scan and illustrate how one can help your organization.
Organizational Background
After identifying which companies are to be studied, it is crucial to identify the background of the organizations. When conducting background research on your competitors, it is important to consider the following features:
How old is the organization?
The age of an organization can tell you a lot about its operations and culture. Younger organizations tend to pride themselves on their agility and ability to adapt to new market forces. They also tend to focus more on corporate culture and employee lifestyle benefits, which is occasionally associated with lower pay.
In contrast, older organizations tend to have stricter and more rigid operations. This can be accompanied by large efficiencies and well-developed processes. Additionally, they usually have more flexibility with financing and expansion, since they have stabilized cash flows and credit history.
Have there been recent changes in management? If so, have any operations changed as a result?
The current management staff is also an important feature to research. Depending on the profiles of the executives, you can anticipate how the corporation will act in various scenarios. For example, the current management team could be friendly and collaborative, or they could be sharks who hope to eliminate all competitors from the market.
Understanding changes in management can help illustrate the trajectory of the company. Executives put lots of energy into choosing decision-makers, so by understanding who the current and previous managers are, you can understand where the executives hope to take the company in the future.
Who leads the organization? What sort of businessperson are they?
Another feature of a strong organizational background report is research on the president or CEO of the organization. In this section, it is beneficial to note their previous experience and any potential strengths or weaknesses that they may have. As mentioned ad nauseam in previous blog posts, most firms are strategically interdependent. By understanding how to form successful strategies that take into account all available information, your firm can maximize its potential.
What is the customer sentiment like for the organization? Should you be adopting their practices, or trying to do the opposite?
Finally, and possibly one of the most important aspects in a background report, is the customer sentiment around the organization. By analyzing the customer service practices of other business owners and how they can shape the customer experience, you can help optimize your own practices based on what works and what doesn't for the other organizations.
Product or Service Summary
Following the background research, we recommend conducting a thorough analysis on the products and services that your competition offers.
When looking into the products and services, identify any production or operational synergies that the firm's offerings have. For example, if one of your competitors is a furniture manufacturer, they may benefit from economies of scale from supplier contracts and mass manufacturing.
The goal of this exercise is to meticulously understand what value their product or service provides, which will be referenced later on when you analyze the competitive advantage.
To maximize the value of your product/service summary, we recommend framing it using the BCG Growth Share Matrix.
Pricing and Promotion Strategy
After understanding the tangible product or service that your competitors provide, we recommend analyzing the marketing strategy of the firm as a whole and of each individual product line.
This will include, but is not limited to:
Advertising
Branding
Pricing Strategy
Discounts & Price Discrimination
Recent Marketing Campaigns
Social Media Advertising (Google, Instagram, Facebook, etc.)
From a 10,000-foot view, we recommend identifying the ethos of the brand. This includes the corporate values and the underlying mission (i.e. superordinate goal). If implemented properly, all marketing materials should reflect the ethos of the organization.
Next, identify all marketing channels. This can include email campaigns, newsletters, coupons & discounts, digital advertising (i.e. Facebook and Google ads), and physical advertising through billboards or flyers.
Finally, you'll want to examine the pricing strategies of the competition. This includes any pricing tiers, price discrimination tactics, and discounts that the other organization may be using.
By identifying pricing strategies, you'll be able to better target your own offerings to your primary market, and use discounts or price discrimination to target secondary markets, increasing your effective market size.
For a quick and effective marketing framework, check out our article on The 4 P's Framework.
Competitive advantage
The value proposition of your business's offerings is the primary driver of both your revenues and growth. The competitive advantage of a business is fairly straightforward - something that gives the organization an advantage over the competition within the market.
After analyzing your competition's brands and products, you should be able to identify what their competitive advantage is. You may find that some competitors don't have an obvious competitive advantage to their offerings, such as a convenient location that increases their sales numbers.
Having empathy and being able to view a company from the customer’s perspective is crucial here. Although on paper some firms may seem inferior, there usually is some logical reason that they are still operating and generating revenues.
One way to gather information regarding the customer experience is to perform customer surveys. You can email your current customers, or bring in a consultant to analyze the customer's process and how it relates to your business.
In this step, the main elements you want to identify are your competition's value proposition and what makes their business different from other competitors. By articulating these two elements, you should be able to naturally conclude their competitive advantage.
By identifying competitor's advantages and how they differ from your own, you can focus on either further leveraging your advantage, or trying to pivot into a different advantage over the competition.
Target market
Finally, the last major category to research when conducting an environmental scan are your competitor’s target markets.
We find it useful to create customer profiles for each of your competitor’s target markets, and then combining them with demographic data for your business environment to build your ideal customer profile.
A good customer profile should include:
The size of the market
Location of customers
Average income of target demographic
Values and preferences of target market
This analysis is valuable when assessing whether your firm should attempt to capture market share of other firms or seek out different market segments. For example, if your competitor's customers are fiercely loyal, it may be very expensive to try to convert them to your firm.
Customer profiles are useful to reference when creating digital ads, since they allow you to hyper-target unique market segments based on what your customer profile is as well as what demographics are inclined towards your firm.
Conclusion
Environmental scans can provide massive value to organizations. It’s important to remember that environmental scans should be produced proactively, rather than reactively, in order to stay ahead of your competitors. Many firms only produce these reports when things are going awry. Unfortunately, at this point, it is usually too late to change your operations without incurring major costs or changes. In contrast, if your firm is succeeding in the marketplace, you can yield massive benefits from environmental scans, since you'll have the flexibility to adapt to new forces and market entrants.
At Parametric Pro Consulting, we offer in-depth environmental scanning services as well as strategies to take advantage of your competitive environment. To get started with us, book a free consultation call!
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