Context analysis : environmental scanning

Define market or subject

The first step of the method is to define a particular market (or subject) one wishes to analyze and focus all analysis techniques on what was defined. A subject, for example, can be a newly proposed product idea.

Trend Analysis

The next step of the method is to conduct a trend analysis. Trend analysis is an analysis of macro environmental factors in the external environment of a business, also called PEST analysis. It consists of analyzing political, economical, social, technological and demographic trends. This can be done by first determining which factors, on each level, are relevant for the chosen subject and to score each item as to specify its importance. This allows the business to identify those factors that can influence them. They can’t control these factors but they can try to cope with them by adapting themselves.

The trends (factors) that are addressed in PEST analysis are Political, Economical, Social and Technological; but for context analysis Demographic trends are also of importance. Demographic trends are those factors that have to do with the population, like for example average age, religion, education etc. Demographic information is of importance if, for example during market research, a business wants to determine a particular market segment to target. The other trends are described in environmental scanning and PEST analysis.

Trend analysis only covers part of the external environment. Another important aspect of the external environment that a business should consider is its competition. This is the next step of the method, competitor analysis.

Competitor Analysis

As one can imagine, it is important for a business to know who its competition is, how they do their business and how powerful they are so that they can be on the defence and offence. In Competitor analysis a couple of techniques are introduced how to conduct such an analysis. Here I will introduce another technique which involves conducting four sub analyses, namely: determining of competition levels, competitive forces, competitor behaviour and competitor strategy.

Competition levels

Businesses compete on several levels and it is important for them to analyze these levels so that they can understand the demand. Competition is identified on four levels:

* Consumer needs: level of competition that refers to the needs and desires of consumers. A business should ask: What are the desires of the consumers?

* General competition: The kind of consumer demand. For example: do consumers prefer shaving with electric razor or a razor blade?

* Brand: This level refers to brand competition. Which brands are preferable to a consumer?

* Product: This level refers to the type of demand. Thus what types of products do consumers prefer?

Competitive forces

These are forces that determine the level of competition within a particular market. There are six forces that have to be taken into consideration, power of the competition, threat of new entrants, bargaining power of buyers and suppliers, threat of substitute products and the importance of complementary products. This analysis is described in Porter 5 forces analysis.

Competitor behaviour and strategy

Competitor behaviours are the defensive and offensive actions of the competition.

These strategies refer to how an organization competes with other organizations. And these are: low price strategy and product differentiation strategy.

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