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value chain marketing-intro to external forces analysis pt1

Small Business External Forces Analysis

by Kenneth Rudich

In the value chain approach to marketing, the external forces analysis evaluates the contextual conditions that impact your business.  As mentioned in an earlier post, they’ll probably be beyond your control but their influence will be such that they must be factored in to the decision-making process.

Context is the operative word here.  It’s about the business climate that surrounds what you’re doing.  It involves the effect it is presently having on your business, and the effect it may well have in the foreseeable future.  It can be favorable, unfavorable or inconsequential.

More often than not, the external forces will carry implications that are specific to your business concern.  Whether they pose an opportunity or a threat will depend on the circumstances they produce, and how they impact your operational capabilities, your prospects and your customers.

For instance, an economic downturn can be detrimental to one business concern but hold a silver lining for another.  Here are a few examples.

If two businesses are competing head-to-head in the same industry and one has deeper pockets or is more firmly established, then they will each view this same circumstance differently.  One may be prepared to hunker down and weather the storm while the other may have no recourse but to watch its resources dwindle away.  If one comes out of the recovery with less competition, then it ends up reaping a significant benefit from the downturn.

A temp agency may flourish in a recuperating economy but do only reasonably well in one that is thriving.

A business that relies on people having discretionary income would surely prefer a robust economy over one that is struggling.

Or the challenge may center on something else, like being responsive to cultural differences.

Having a store located in an Anglo neighborhood can be one thing, while having a similar store located in a Hispanic neighborhood can be another.  Addressing the cultural implications that affect the perception of value can be vital for achieving success at both locations. 

The point is that the external forces are contextual; they demand constant and close attention; and they must be analyzed not only individually but also in aggregate as they converge on your business. 

two dimensions of an external forces analysis

1. The first dimension of an external forces analysis is geared toward outside-in thinking.  The market segmentation that is done during a market characteristics analysis can help with identifying the impact of the external forces as it pertains to your customers and prospects.

Insofar as each external force can carry unique implications for each separate group, it becomes advisable to perform an external forces analysis on each market segment.  This is illustrated in the graphic at the top of the post.  If you isolate the implications in this manner, it becomes easy enough to detect where they are alike and where they differ; and then transfer that information as appropriate to your value chain. 

2. The second dimension of an external forces analysis takes an inward perspective.  The objective is to assess the impact the external forces will have on your ability to gather the inputs needed for the value chain in each market segment.  Are you able to produce the outputs that are required to achieve the outcomes you desire?  How will you do it?

the external forces and marketing strategy   

Evaluating the external forces will aid with understanding where you are, where you want to go (or must go), and what intermediate steps should be taken to get there.  In another post, we called this the strategic learning cycle, and the external forces analysis is an important part of it. 

In part 2, we’ll briefly explore each of the external forces in our list.

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