23 Marketing Environment

P.G. Padma Gowri

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Introduction:

 

A marketer has to understand how various external environmental forces impact organization decisions. The response of the marketer is to apply changes in the market place depending on the understanding of marketing environment. Successful marketers and organization are the ones who anticipate, plan, execute strategies to meet these environmental changes. The important fact of organization and industry functioning is mainly depend on external environment.

 

Objective:

  • Understand the behavior of key environmental forces that have an implementation on marketing decision.
  • Understand and get a grasp of techniques available for environmental scanning.

 

External Environment:

 

The organization is sensitive to the external environment and analyzing is very critical Analysis and diagnosis of external environment on a regular and continuing basis is a key factor of successful companies.

 

Analysis of the external environment consists of identification of opportunities and threats and tracing it to a particular source.

 

Example: a small family with one child means the emergence of a child market where all parental attention is focused on just one child. So it leads the markets for toy firm, a readymade garments firm, video games production units etc.

 

To further understand to understand the minor needs of the Childs market it is necessary to breakup this market into its parts and study the relationship to the total market, the below questions are important.

 

1.  What is the rate of growth of children’s market?

2.  Are these patterns visible only in metros and urban cities are also rural markets?

3.  What does the child watch? Read and listen to?

4.  How much the parents concerned about child’s growth?

 

Based on the above, marketing decisions can be taken as to how to react to these changes in the market place.

 

Environmental Factors:

A systematic approach to environmental analysis and diagnosis involves understanding of the following factors

 

1.  Socio-economic factors

2.  Competition

3.  Technology

4.  Government policies

5.  Suppliers

 

Now we examine each of these in a detailed manner

 

Socio-economic factors:

 

Socio-economic factors in a country determine the extent and level of industrialization, as they influence the demand for a product or service at any given point of time.

 

Sociological factors:

 

It refers to changes in population profiles and also shifts in value systems in a society. Changes in population profiles are the following

 

1.  Demographic changes

2.  Geographical location changes

3.  Changes in value system

 

Demographic changes subdivided into age composition, population and sex, occupation and literacy profile. A good marketer needs to understand the age composition in a country.

 

This will help him decide his optimal marketing mix and take strategic decisions to enter or not into a particular market segment, if the youth population is very high it leads to develop their products and promotions for this group. Example: Bike, mobile phones, fashion garments, trendy accessories etc.

 

Population and sex:

 

Besides of age it is important to breakup population in a sex-wise and study the role of women also needed. Number of male female ratio also important factor for any product marketing.

 

Today, an Indian women’s role is also changing. So more and more women have taken to work and professions and we can observe there is an increase in number of working couples. So it’s very high in metro and urban cities. The woman has less time to available to do household work. It leads the potential market for cooking appliances washing machine, vacuum cleaner and ready to eat food.

 

Occupation:

 

The occupational profile of population also affects the media choice and product demand.

 

Example: A shirt or suiting exclusively for the professional, sales increases when advertised in magazines like Business India, India Today etc.

 

Literacy Profile:

 

This is another dimension of population changes which a market needs to address him too. Changes in literacy profile will imply more demanding customers it will also leads better reading habits and hence higher circulation of newspapers and magazines .

 

literacy will necessarily make the marketer look for primitive methods of communication like mobile vans, mass demonstrations , media channels etc. based on the literacy profile in that area we change our marketing strategy.

 

Geographical changes:

 

When a significant population moves from one zone to another , one city to another, rural to urban are the major environmental factor which will not only determine the marketing focus but also other aspects of marketing , like choice of test marketing sections, location of warehouses and methods of reaching out to these areas.

 

The table shows geographical shifts in Indian populations for five years:

 

There is a gradual shift of population from rural to urban areas. For a long time in India there has been a significant migration of population from all over the country to its commercial capital like Bombay, Chennai etc.

 

Changes in value systems:

 

Changes in value systems are a sociological change that occurs over a period of time values or the beliefs which are preserved by the society. They are music, folklores and stories.

 

There are also core values which really changes over a period of time.

 

Example: Strong family bondage and love for the family as the core value as been major driving factor in Indian market. The marketer has used this to promote his product. Example:

 

The Vicks vapor up story in advertisement. When the child with the cold and mother taking care of them

 

Economic factors:

 

The economic environment affects the demand structure of any industry.

 

In order to assess the impact of these forces, it is necessary that the marketer examines the following factors in detail.

 

  1.  Gross national product
  2. Per capita income
  3. Balance of payment position
  4. Industry lifecycle-stages in the life cycle are – recovery, boom, recession and depression.
  5. Trends in the prices of goods and services
  6. Fiscal policies and prime rate of interest charged by commercial banks.

The above factors can be an opportunity or a threat to a firm.

 

Example – If the prices of raw material, labor and utilities like electricity are showing inflationary trends the firm, have little option but to pass on this hike to the customer in the form of increased prices. If the firm is in a competitive industry the customer may resist or even shift his choice to the competitive product. In the same time the industry is in monopolistic market it might not face any customer resistance a marketer needs to understand the impact of these economic factors on his company’s products and services

 

Competition:

 

The firm should extend their competitive analyses which include substitutes along with the direct competitions. The main objective of such analysis is to assess and predict each competitor’s response to changes in the firm’s strategy and industry conditions.

 

This analysis will hopefully ensure the firm emerging as a competitive organization and decides who should pick up as its major rival in the industry. The fig provides a frame work for competitive analysis.

Forecasting potential competitors is a difficult task but it will provide a strongest insight in to the below areas,

 

  • Firms not in the industry likely to overcome entry barriers, particularly at a low cost.
  • Firms who derive synergy from being in the industry: e.g. a soda water manufacture getting in to flavored soda manufacturing thus getting synergy from diversifications.
  • Firms for whom competing in the industry is an obvious extension of the corporate strategy- e.g. an automobile manufacturer marketing spare parts and competing spare parts manufacturer. Experience reveals that in many such cases, a user preference is for original equipment manufacturer parts.
  • Customers or suppliers who may integrate backward and forward. Firms often integrate in such a way to derive economics of sales and also to ensure fuller utilization of capacity. Example cable manufacturer firm getting in to power generation business or a gear manufacturer setting up a forging shop. Such integration is possible and competitive position was slightly altered by the suppliers or customers.

 

Apart from above, it is also necessary to identify weakness in the strength of the competitions .example: a firm strength may be an extensive dealer network , but if it is not able to supply the goods on time and as desired by the dealers, it may find its rival firm gaining ground and market share. Dealers may lose companies capabilities to supply and may start stocking and pushing competitors’ products. Thus an analyses of competition is critical for not only evolving competitive strategy but also for strengthening a firm capabilitie

 

Besides of above it is necessary to identify the weakness and strength of the completion industry. Thus an example competition industry may good in networking with dealers but not good in punctual delivery. Thus an analysis of competition is critical not only evolving competition strategy but also for strengthening a firms capabilities.

 

Technology:

 

The technological development in the industry creates an opportunities for a marketer to develop new product. The customer also tends to benefit from the new products Example- In an Indian automobile industry have the tremendous change launching new vehicles with the use of latest technology

 

Technological developments are greatly influenced by government policies and industries responds in terms of investments in R&D .These developments may affect a firms raw material, packaging, operations products and services

 

Technological developments in packaging and plastic industry has brought into new packaging style. It reduced cost of packing attractive and more convenient packing. These technological changes lead in shortening of the product lifecycle and create new sets of customer’s expectations as well. In variable it leads to reduce the maturity phase of the products and increase the product shoot to growth phase.

 

Government Policies:

 

Governments all over the world are important aspects of their economy and even in the so called free economy Example- in India government deciding the rules for foreign private investments, export and import policy and taxes. Regulations in advertisement for the specific product like cigarettes, pan masala, liquor etc.

 

A marketer needs to not only understand these policies but also the political philosophy and ideologies of major political groups and individuals

 

Suppliers:

 

The suppliers to the firm can also alter the competitive position and marketing capabilities. They are raw material suppliers, energy suppliers, suppliers of labor and capital .Relationship between the suppliers and the firm enhances a power equation between them this equation is based on industry conditions and extent to which each of them is depended on the other

 

  • The buyers firm is monopoly or an oligopoly position and buys large volumes relative to seller’s sales.
  • The buyers firm can easily switch its vendors as it faces few switching costs
  • The buyers firm earns low profit and hence has a pressure to lower its purchasing cost
  • The buyers firm possesses real threats of backward integration
  • The suppliers product or service is unimportant to the quality of buyers finished products or service
  • The buyers firm has full information on sellers industry

 

Techniques for environmental Scanning:

 

To understand the know age of the environmental factors is important. Apart from that the ability to forecast the environment changes in marketing is more important for any marketer. Forecasting skills are more important. Verbal and written information’s are facilitating the casting abilities.

 

Sources of verbal information include:

 

  • Radio and television reports
  • Firm’s employees like peers, subordinates and supervisors.
  • Customers
  • Financial institutions
  • Consultants.
  • Written information is available through trade and industry journals , business magazines and news papers.
  • Governmental publications are a good source of information’s.
  • Another technique for environmental scanning is to create an appropriate marketing information system (MIS) and also to periodically conduct market research.

 

SPARE approach:

 

Integrating environmental forces in to strategic decisions through a novel approach called SPARE –Systematic Probing and Identification of the Relevant Environment is the essence of klein and Newman’s recommendations to a strategist. According to the authors, this approach reduces the risk of overlooking potentially important environmental factors and may seem tedious at times. The probing and identification is extended to variables that have clear operational meaning to the managers.

 

The aim of this approach is not to forecast environmental factors behavior, but is to flag the relevant environment and spell out its potential impact on identified operations. The steps involved in SPARE are,

 

Create possible iterations through a marketing mix which sets out a detailed list of environmental variables and the strategic marketing components.

 

Identify these impact linkages between environmental variables and other strategic marketing components. the effect on each component over each factor is considered. for example the impact on technology in the form of automatic teller machine (ATM) is clearly visible on the banking industry. The impact of the external variable is visible in electronics and computer appliances industry.

 

The impact linkages reveal clusters when arrayed in the SPARE matrix. These clusters are relevant to the environmental factors will influence all other components in an industry. they make the attention to the marketer and other decision makers in the organizations.

 

Scenario building:

 

Another approach in environmental scanning is Scenario building. In this process decision maker who has analyze his decisions which leads to take a right final decision. The steps involved in these techniques are,

 

Stage 1:

 

Analysis of the decision:

 

Example: The marketer of a domestic applies may take decisions to launch a microwave oven. In this stage marketer analyze in terms of financial investment , human resources require , dealer network , addition of plant and machines, evaluating the vendors .

 

Stage 2:

 

Identification of key decision factors:

 

In this stage identify all the key variables that have contributed to the decision continuing the above example microwave oven, decision maker needs to list all relevant factors like market share of the firms in the appliances industry , other modern products like washing machine, dish washers and vacuum cleaners , condition of economy and competition etc

 

Stage 3:

 

Keying in societal factors

 

A very important variable in marketing is societal factor. i.e., the demographic changes, value system and analysis of the social subsystems like family and the influence of reference group on customer decision making. above example microwave oven the marketer now needs to examine the factors like distribution of Indian population , its geographic concentration , literacy rates, nuclear family and its influence on purchases of similar time saving products .

 

Stage 4:

 

Analysis of each of the key variables separately This will involve collection of relevant data from several secondary sources.

 

Stage 5 :

 

The data so collected is now extrapolated and further evidence if any is assembled to support scenario.

 

Conclusion:

 

In this module we discussed how some of the industry leaders lost their competitive advantage because they failed to perceive these changes. Several techniques from verbal and informal to more systematic and written are available to the marketer to scan the environment in order to identify market opportunities Tools like SPIRE and Scenario building force marketers to think through and identify factors that are more likely to be impacting organization decisions. The identification of these impact linkages is builds up the bridge between the forecasts and strategic action plans. The techniques like Delphi, Extrapolation and regression analysis also used for forecasting environmental changes.

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