Before entering a new market, targeting a particular segment, or introducing a new product, it is necessary for any organization to explore opportunities and threats to decide which strategy to follow. The external factors that help a company achieve its goals are considered opportunities, while those that hinder a company`s efforts are considered threats.
The external environments that can affect the growth of a company make up two groups: the macro-environment and the micro-environment. A company has zero or little control over the macro-environmental factors. These can be the laws of the country of operation, environmental factors such as weather and climate, political situations, and so on. On the other hand, micro-environmental factors can be controlled by the company; these are the factors that have a more direct impact on the operations and success of the business.
Porter`s Five Forces for Industry Attractiveness, Market Analysis, Marketing Research, and PESTEL Analysis are some of the tools that organizations can use to explore opportunities and threats.
- Porter`s Five Forces for industry attractiveness helps a company decide whether or not to enter an industry. If it already has a presence in a particular industry, then using this model enables a company to devise strategies to achieve and maintain profitability. The five forces are the Threat of New Entrants, Threat of Substitutes, Bargaining Power of Customers, Bargaining Power of Suppliers, and Competitive Rivalry.
- The purpose of performing a market analysis is to understand the attractiveness of a market, identify patterns, and predict future events. David Aaker outlined the following dimensions of a market analysis: Market Size, Market Trends, Market Growth Rate and Profitability, Industry Cost Structure, Distribution Channels, and Key Success Factors.
- Marketing research is conducted when the available information is not sufficient for understanding the external factors that can impact a company. Interviews, group discussions, and survey questionnaires are the primary ways to collect information for any research.
- PESTEL Analysis is used to analyze Political, Economic, Social, Technological, Environmental, and Legal factors. It is an effective tool to measure the overall business environment of a market.
Analyzing opportunities and threats that are native to a particular market is an obligatory task for every organization. Success comes from strategies that take advantage of important opportunities and avert threats.