Strategic groupings in a market that a firm considers likely to convert to customers.
Understanding The Environment
The first step towards effectively integrating an organization with the external environment is scanning, analyzing, and incorporating external factors into strategic marketing tactics and strategies. Various frameworks such as the PESTEL model, Porter's 5 forces, and a SWOT analysis are useful in framing the key issues an organization faces alongside the internal capabilities of addressing them. Responding to the external environment revolves largely around avoiding threats and capturing opportunities utilizing (or capturing) competitive advantages.
Responding to the external environment is ultimately a question of strategy. Strategy requires the key input of data and understanding of external factors, which are weighed, measured, and considered by the organization. The organization seeks opportunities to leverage what the firm is good at to identify key segments, differentiate from the competition, and ultimately develop a profitable position within the industry. There are countless ways to address external factors, but the general concept can be captured well in the following models.
The Ansoff Matrix
Depending on the organization's current capabilities, products and services, and the maturity of the market, a marketing team could derive different generalized strategies to capture value. This is best illustrated by the Ansoff matrix, where new and existing products can be considered in the context of new and existing markets.
What this indicates is that new products in new markets is differentiated, new products in existing markets is product development, existing products in new markets is market development, and existing products in existing markets is market penetration. This is largely intuitive, but helps frame the perspective of the senior marketing team when determining how to handle a given market.
The next critical consideration utilizing external environmental information about the market is how to segment the market and position the firm to capture value. This is a process where the firm identifies key target markets, and understands the needs the firm could fill when addressing these target markets. By positioning the firm to match the needs, values, and behaviors of their core target segments, the firm can gain a competitive advantage through a strong market position with key target groups.
The Four P's
Product, place, price, and promotion. These four aspects of marketing strategy should be a direct reflection of what the external environment demands, and the core target segments require from the firm.
By building up a product that reflects the current needs in the market, distributing that product to target markets at the appropriate price point, and promoting the product for growth, an organization can capture external opportunities and avoid external threats. This is a question of focus, based upon data from the external environment.
When looking at external environmental data, the firm must consider their relative competitive position in the market, and how that impacts the opportunities and threats from the external competitive landscape. By utilizing the external analysis frameworks, the Ansoff Matrix, the 4 P's, and proper segmentation and positioning, a firm can strategically and tactically utilize external data to develop core competency and competitive advantage in a given market.