External Environment Analysis
A firm’s ability to earn profit is affected by key macro environment forces such as economy, demography, technology, politics, laws, social-culture etc. In addition to these, it is also affected by micro environment factors, e.g. customers, competitors, suppliers, distributors and dealers. The firm’s management needs to identify the opportunities and threats based on the external environment analysis.
We can classify opportunities based on their attractiveness and success probability. This is illustrated in the Opportunity Matrix, shown below. Apparently, the best opportunities are those with high attractiveness and success probability. Opportunities with low attractiveness and low success probability are too minor to consider.
We can also classify threats based on their seriousness and probability of occurrence, as illustrated in the Threat Matrix show below. A serious threat with high probability of occurrence has to be dealt with promptly. A less serious threat with low probability of occurrence can be ignored.
Reference: Koter & Keller, “Marketing Management”, 7th edition