Marketing environment

CHAPTER 3

MARKETING ENVIRONMENT

 

3.1 INTRODUCTION: 

A company's marketing environment consists of the actors and forces outside marketing that affect marketing management's ability to develop and maintain successful transactions with its target customers.

      The marketing environment presents both opportunities and threats to the company. Companies must use their marketing research and intelligence systems to watch the changing environment and must adapt their marketing strategies to environmental trends and developments.

      The marketing environment consists of a microenvironment and a macro environment.

The Micro environment consists of the forces close to the company that affect its ability to serve its customers it includes other company departments, suppliers, marketing intermediaries, customers, competitors, and various public. Note that the micro environment is sometimes referred to as the competitive environment and customer environment. 

The Macro environment consists of the larger societal forces that affect the whole microenvironment - demographic, economic, natural, technological, political and cultural forces.

 

3.2 THE MICRO ENVIRONMENT:

In order to attract and build relationships with customers bу creating customer value and satisfaction marketing managers must work with other actors in the company's microenvironment which comprise of the company departments, suppliers, marketing intermediaries, customers, competitors, and various public.

 

3.2.1 The Company

In designing marketing plans, marketing management should take other company functions, such as top management, finance, research and development, purchasing, manufacturing, human resources and accounting, into consideration. All these are interrelated groups form the internal environment.

3.2.2 Suppliers

Suppliers are firms and individuals that provide the resources needed by the company to produce its goods and services. Supplier developments can seriously affect marketing. Marketing managers must therefore watch supply availability. Supply shortages or delays, labor strikes, and other events can cost sales in the short run and damage customer goodwill in the long run.

3.2.3 Distributors

Distributors / Marketing intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers. They include middlemen, physical distribution firms, marketing services agencies, and financial intermediaries. Middlemen are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers who buy and resell merchandise.

3.2.4 Customers

The company must study its customer market(s) closely. The customers are of the following types:

• Consumer Markets: it consists of individuals and households that buy goods and services for personal consumption.
• Business Markets: buy goods and services for further processing or for use in their production process.
• Reseller Markets: buy goods and services to resell at a profit.
• Institutional Markets: they are made up of schools, hospitals, nursing homes, prisons and other institutions that provide goods and services to people in their care.
• Government Markets are made up of government agencies that buy goods and services for distribution to the relevant bodies.
• International Markets consist of buyers in other countries, including consumers, producers, rese11ers, and governments

      Each market type has special characteristics that call for careful study by the seller. At any point in time, the firm may deal with one or more customer markets.

      The Total Market Demand for a product or a service is the total volume that would be bought by a defined consumer group in a defined geographic area in a defined time period in a defined marketing environment under a defined level and mix of industry marketing effort.

      Total market demand is not a fixed number, but a function of the stated conditions.

3.2.5 Competitors

The marketing concept states that to be successful, a company must satisfy the needs and wants of consumers better than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers.

      No single marketing strategy is best for all companies. Each firm must consider its own size and industry position compared to those of its competitors. Large firms with dominant positions in the industry can use certain strategies that smaller firms cannot afford.

3.2.6 Publics

А public is аnу group that has аn actual or potential interest in or impact оn аn organization's ability to achieve its objectives. There are seven types оf publics.

• Financial Publics. Financial publics influence the company's ability tо obtain funds. Banks, investment houses, and stockholders аrе the major financial publics.
• Media Publics. Media publics are those that carry news, features, and editorial opinion. Тhey include newspapers, magazines, radio & television stations.
• Government Publics. Management must take government developments into account. Marketers must often consult the company's lawyers оn issues of product safety, truth-in-advertising, and other matters.
• Citizen-action Publics. А company's marketing decisions mау bе questioned bу consumer organizations, environmental groups, minority groups, and others. Its public relations department can help it stay in touch with consumer and citizen groups.
• Local Publics. Every company has local publics, such as neighborhood residents and community organizations. Large companies usually appoint а community-relations officer to deal with the community, attend meetings, answer questions, and contribute to worthwhile causes.
• General Public. А company needs to bе concerned about the general public's attitude toward its products and activities. The public's image of the company affects its buying.
• Internal Publics. А company's internal publics include its workers, managers, volunteers, and the board of directors. Large companies use newsletters and other means to inform and motivate their internal publics. When employees feel good about their company, this positive attitude spills over to external publics.

      А company can prepare marketing plans for these major publics as well as for its customer markets

 

3.3 THE MACROENVIRONMENT:

The actors of the micro environment operate in а larger macro environment forces that offer opportunities and pose threats to the company. It includes the following major forces: 

3.3.1. Demographic Forces

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics. The demographic environment is of considerable interest to marketers because it involves people, and people make up markets.

Amongst the most important demographic characteristics are

- population size and growth trends

- changing age structure of the population

- the changing family

- rising number of educated people

3.3.2 Cultural Environment

The cultural environment is made up of institutions and other forces that affect society's values, perceptions, preferences and behaviors. People grow up in a particular society that shapes their basic beliefs and values. They absorb a world view that defines their relationships to themselves and others. The following characteristics can affect marketing decision making. Marketers must be aware of these cultural influences and how they vary across societies within the markets served by the firm.

- Persistence of cultural values. People's core beliefs and values have a high degree of persistence.

- Shifts in secondary cultural values. Although core values are fairly persistent, cultural swings do take place. Consider the impact of music groups, etc. Marketers want to predict cultural shifts in order to spot new opportunities or threats.

- People's views of themselves. People vary in their emphasis on serving themselves and serving others. Some people seek personal pleasure, wanting fun, change and escape. Others seek self-realisation through religion, recreation etc. People use products, brands and services as a means of self-expression and buy products and services that match their views of themselves.

3.3.3. Consumer Movement

The consumer movement is a collection of individuals, organisations and groups whose objective is to protect the rights of consumers. For example the Consumer’s Association (CA) in the UK campaigns for consumers and provides information about products often on a comparative basis allowing consumers to make more informed choices between products and services. This information is published in their magazine "Which?" .Besides providing unbiased product testing and campaigning against unfair business practices the consumer movement also is active in areas such as product quality and safety and information accuracy.

      Marketing management should not consider the CA a threat to business, but rather as an opportunity to create new product and service offerings to meet the needs of emerging new markets and customers.

3.3.4. Economic Forces

The economic environment consists of factors that affect consumer purchasing power and spending patterns. Marketers need to be aware of the following predominant economic trends.

- income distribution and changes in purchasing power: Where consumer purchasing power is reduced, as in an economic recession, value-for-money becomes a key purchasing criterion. Marketers must pursue value-based marketing to capture and retain price conscious customers during lean economic times, unlike boom periods when consumers become addicted to personal consumption.

- changing consumer spending patterns: Changes in chief economic variables such as income, cost of living, interest rates, and savings and borrowing patterns have a large impact on the marketplace. Companies watch these variables by using economic forecasting.

3.3.5. Natural Forces

The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities. Environmental concerns have grown steadily during the past two decades. Protection of the natural environment will remain a crucial world-wide issue facing business and the public. Marketers should be aware of the four trends in the natural environment:

- shortages of raw materials

- increased cost of energy

- increased pollution

- government intervention in natural resource management

3.3.6. Technological Environment

The technological environment is perhaps the most dramatic force now shaping our destiny. Technology has released such wonders as penicillin, organ transplants and computers. It has also released such horrors as nerve gas and the nuclear bomb. Our attitude towards technology depends on whether we are more impressed with its wonders or its blunders. Every new technology replaces an older technology. When old industries fought or ignored new technologies, their businesses declined. New technologies create new markets and opportunities. The marketer should watch the following trends in technology.

- fast pace of technological change

- higher R & D budgets

- concentration on minor improvements

- increased regulation

      Increasingly companies in all industries are attempting to harness the benefits of technology in an attempt to reduce costs (e.g. often labour costs) and also develop new income streams (e.g. through the internet). Many industries, particularly those in business to business markets are embracing the internet and using it to identify new trading partners world-wide as well as exploiting the capacity of the net to advertise globally.

3.3.7. Political Environment

The political environment consists of laws, government agencies and pressure groups that influence and limit various organizations and individuals in a given society.

      Marketing decisions are strongly affected by developments in the political environment. Close relationships with politicians are often cultivated by organizations both to monitor political moods and also to influence them.

      For example in America the cigarette industry has a vested industry in maintaining close ties with government to counter proposals from pressure groups. Companies sometimes make sizeable contributions to the funds of political parties in an attempt to maintain favorable relationships. The cigarette industry is a particularly interesting and popular focus both in business terms and also increasingly in popular culture. The marketer should watch the following in relation to political environment:

- legislation regulating business

- growth of public interest groups

- increased emphasis on ethics and socially responsible actions

1. Monopolies and Mergers

In the UK the Competition Commission has taken on the former Monopolies and Mergers Commission's role of carrying out inquiries into matters referred to it by other UK competition authorities concerning monopolies, Mergers and the economic regulation of utility companies (e.g. water and electricity).  The Competition Commission is an independent public body established by the Competition Act 1998.

Monopolies are defined as a situation where at least a quarter of the market is supplied by a single organization or by two organizations acting in a way that prevents, distorts or restricts competition.

2. False Descriptions

Inaccurate statements by salespeople, advertising or sales literature are prohibited in the UK by the Trade Descriptions Act 1968.

3. Faulty Goods

Protection in the UK for the buyer against the sale of faulty goods is the Sale of Goods Act 1979 and 1994. This act states that a product must correspond to its description and must be of merchantable quality i.e. fit for the purpose for which it is being sold.

4. Codes of Practice

In addition to laws, various industries have drawn up codes of practice to protect consumer interests, sometimes as a result of political pressure. For example the UK Advertising Industry has drawn up a self-regulatory code of Advertising, Standards and Practice designed to keep advertising ‘legal, decent and honest and truthful’. Recently the advertisements for the new ‘Alcopop’ products have come under scrutiny as it was felt that under age consumers were being targeted.

 

3.4 ENVIRONMENTAL SCANNING:

A marketing-oriented firm looks outward to the environment in which it operates adapting to take advantage of emerging opportunities, and to minimise potential threats.

      The process of monitoring and analyzing the marketing environment of a company is called Environmental Scanning and Analysis. Two key decisions that management need to make are what to scan and how to organize the activity. Clearly in theory every event in the world has the potential to affect a company's operations, but a scanning system which monitors every conceivable force would be unmanageable. The first task then, is to define a feasible range of forces that require monitoring. These are the potentially relevant environmental forces that have the most likelihood of affecting future business prospects. The second prerequisite for an effective scanning system is to design a system which provides a fast response to events that are only partially predictable and emerge as surprises, and grow very quickly. The internet is an effective method of gathering information on the environment. 

A complete environmental scanning system should perform the following:

1 Monitor trends, issues and events and study their implications.

2 Develop forecasts, scenarios and issues analysis as input to strategic decision- making.

3 Provide a focal point for the interpretation and analysis of environmental information identified by other people in the company.

4 Establish a library or database for environmental information.

5 Provide a group of internal experts on external affairs.

6 Disseminate information on the business environment through newsletters reports and lectures.

7 Evaluate and revise the scanning system itself by applying new tools and procedures.

The benefits of formal environmental scanning are believed to be:

1 Better general awareness of and responsiveness to environmental changes.

2 Better decision-making.

3 Greater effectiveness in dealing with the government.

4 Improved industry and market analysis.

5 Better foreign investment and international marketing.

6 Improved resource allocation and diversification decisions.

 
 

REVIEW QUESTIONS:

1. Define Macro-environment and Microenvironment.
2. List and explain elements of Macroenvironment.
3. List and explain elements of Microenvironment.
4. Write a note on Publics.
5. Write a note on customers.
6. Steps in environmental scanning.