7 Marketing Environment

Rajwant Kaur

    1. Learning Outcome:

After completing this module, the students will be able to:

  • Understand the concept of marketing environment.
  • Explain the importance of scanning the external environment.
  • Identify the major macro environmental forces that impact the organisations.

    2. Introduction

 

An organisation operates in ever changing environment that has direct or indirect influence on its strategies. Organisation can become successful by understanding, anticipating and taking advantage of changes within its environment.

 

The dynamic business environment has three types of forces :

  1. External uncontrollable forces (demography, economic climate, socio-cultural, environment, technology)
  2. External partially controllable forces (customers, suppliers, market intermediaries)
  3. Internal controllable forces (human and non-human resources such as men, money, materials, machinery)

    An organisation’s macro environment consists of external forces and is termed as marketing environment. Marketing managers must understand this macro environment to formulate smart strategies for the future. Marketers can collect and evaluate information through environmental scanning to track trends, opportunities and anticipate threats.

 

3. Understanding the External Environment

 

Macro Environment provides resources and opportunities to the organisation. It also influences its survival and growth by putting limits and constraints on it. A business organisation must continuously adapt to the opportunities and uncertainties presented by changes in external forces. It will help firm to obtain and retain competitive advantage. Many successful business houses have ceased to exist as they failed to anticipate changes and to adapt their business models to new realities of the market.

 

A firm is influenced by changes in its external environment but every change is not of equal significance. In macro environment, Philip Kotler has identified three types of changes: fads, trends and mega trends. Fads are unpredictable and represent short term commercial success. These short lived changes have no social or economic relevance. Organisations need to be very prudent while making investments in such opportunities.

 

Trends reveal the shape of future and are more predictable. Firms must recognize these trends and evaluate their impact on their businesses as these changes are more durable. However, indepth market research will help in determining the commercial potential of each trend as all trends may not represent business opportunities.

 

Mega trends are slow to form, but once in place, their influence lasts for a longer time. Socio-economic, technological and political changes may reveal mega trends. Globalisation is one such mega trend of last several years which is helping in exploiting regional differences in needs of customers and product capabilities. Marketers must anticipate how these mega trends will unfold and assess their impact on business.

 

4. Components of External or Marketing Environment

 

External forces in organisation’s surroundings have the potential to influence organisation’s strategies. However, the impact of these factors will vary greatly from industry to industry. The major constituents of marketing environment are discussed below:

 

4.1 Demography

 

Demography means study of population. Its deals with quantitative elements such as income, education, age, sex, occupation, urban and rural population etc. Scientific study of human population and its distribution structure offers consumer profile to the marketers which is very necessary in market segmentation and determination of target markets.

 

4.1.1. Population age mix

 

A change in age mix of population has many consequential effects for organisations. Demand for products and services changes with change in age mix. Growing population indicates flourishing markets particularly for baby products. If a baby boom is anticipated, market will offer tremendous potential for baby products. But when there is decline in birth rate and death rate, many companies specialized in baby products will have to adjust their marketing plans accordingly. For instance, many developed countries like United States, Japan are witnessing an increase in the average age of population due to sharp decline in birth rate and improvement in health care. These countries are now seen as ageing countries. Many firms in these countries that traditionally targeted their products towards youth are now developing product lines that appeal to an older market. Health care industry is projected as a growth segment of developed countries simply because of population demographics.

 

4.1.2.Education Levels

 

Increase in education levels help people to find better jobs and earn higher incomes. Increasing proportion of educated people in population mix creates demand for goods and services for better standard of living of a large segment of the population. This offers great opportunities to the organisations. Rising educational levels have made people more knowledgeable and aware of products and services. Now marketers have to adjust their marketing programmes for the target markets accordingly.

 

Quantitative aspect of consumer demand as provided by demography and qualitative aspect of consumer demand like attitudes, perception, personality as provided by behavioural analysis enable marketing managers to understand the bases of market segmentation and to determine consumer reaction to advertising campaign or reaction to new product.

 

4.2 Economic Environment

 

Nature and health of the economic system of a country hasimpact on the organisations with varying degree. Interest rates, money supply, state of business cycle, price level, distribution of income within population, savings, consumer credit and monetary and fiscal policies constitute economic environment. Marketing plans and programmes are influenced by these factors.

 

4.2.1. Business Cycle

 

High economic growth assures increasing levels of employment and income which leads to marketing boom in many industries. Recession or depression limits the purchase of durable or luxury goods due to shrinking consumer spending. Lower profits, increased borrowings and decreased productivity for adversely affected firms lead to their exit from market. In recovery periods, marketers have to be very conscious while framing their marketing plans.

 

4.2.2. Income Growth and Distribution

 

Unequal distribution of income divides the people into wealthy, poor and middle class group. Many developing countries have more number of citizens in extremely wealthy or poor group. Growing number of wealthy and middle class consumer group makes for attractive markets. India has become an attractive market for many multinationals today because of growing number of middle class consumers. In many countries, markets are not growing and marketers do not find any opportunity in such countries due to saturation of markets and shifting of job to lower cost economies.

 

4.2.3 Inflation

 

Market for consumer durables is adversely affected by inflationary trends. Consumer buying habits are radically changed due to inflation which affects their purchasing power. Many purchases are either postponed or eliminated. Increasing petrol prices created a trend for small cars and public transport.

 

4.2.4. Savings and Credit availability

 

Attractive interest rates on deposits lead to more savings and curtail consumer spending. Liberal credit by banks at affordable rates increases purchasing power of customers and expansion rate of organisations. This provides for tremendous growth of market for consumer durables. The availability of credit at cheaper rates has fueled the demand for automobiles, housing and other durables in India over the past decade.

 

Economic forces can have positive or negative effects on the promotional efforts of firms. Product planning, price fixing and promotion policies of a business unit should be framed on the basis of important economic indexes.

 

4.3 Social and Cultural Environment

 

Social and cultural factors usually influence the business enterprise in the long run. These factors include values, life styles, attitudes, norms and customs that characterize the society in which the organisation operates.

 

Culture and lifestyle differ between geographical areas and among ethnic groups. Beliefs, morality, superstition and motivation differ substantially between different countries or within a country. Regions or countries vary in their ethic characteristics. The US is considered a multicultural society having people from all nations. India is another example where there are different subcultures and languages. Each subculture has its distinct attitude and life style. Marketers should formulate their strategies by keeping in mind cultural diversities and social values and norms.

 

Marketing executives should focus on various aspects of social environment i.e. (i) changes in life style and social values (emphasis on quality goods, changing role of women, increasing preference for recreational activities) (ii) concern for social issues (socially responsible marketing policies, safety of products, pollution control) (iii) growing consumerism (customer-oriented marketing). Social environment has emphasisedsocial responsibility of business. Societal marketing concept demands not only consumer welfare but also citizen welfare. Marketers have to assure quality of life to people i.e. environment free from pollution.

 

4.4 Technological Factors

 

Technology is the way things are done and techniques or materials are used to achieve business objectives. It is a driving force behind various new product innovations and emergence as well as development of many markets. Every new technology is to be viewed as a force for ‘Creative Destruction’. If the organisations fail to embrace new technologies, they will see decline in their businesses.

 

Phenomenal development in technology has created tremendous impact on life-styles of society, buying patterns, consumption and economic welfare. The availability of frozen foods has made the life of working couples easy and smooth. Developments in the field of microcomputers have expanded the customer base and created plethora of opportunities for firms to engage in business via internet. Continuous developments in technology provide scope for better products at affordable prices. Samsung and Nokia have become successful in providing cell phones to common man at affordable prices just because of better technological innovations.

 

Technological changes pose threats or offer numerous opportunities to the firms. Digital watches and cell phones have killed the market prospects of traditional watches. Television has adverse effect on radio and cinema industries. Computers have expanded the organisation’s base in international markets. Electronic industry is exploiting new marketing opportunities. Use of Robots in production processes, considered hazardous for people or are of repetitive nature, make production easier and larger.

 

Developments in technology have innumerable impacts on all marketing activities:

 

  (i) E-marketing, new tools of advertising and selling

 (ii) Modifying existing outlets

(iii) Use of new materials and designs for packaging

(iv) Effective data collection and analysis techniques for facilitating marketing research

 (v) Sophisticated procedures and computerized models for better marketing decision making.

 

Technological forces lead to changes in life styles and buying patterns of consumers. Marketing executives must relate changing values, life-style patterns and changing technology to market opportunities for profitable sales in particular market segments and firm’s sustainability.

 

4.5. Political and Legal forces

 

Marketing systems are influenced by monetary and fiscal policies, custom duties, import-export policies, political interests etc. Philosophy of the political parties in power determines the risk of doing business and affects business practices. A pro-business attitude of the government enables firms to enter into new arrangements. Political stability creates market attractiveness.

 

Legislations controlling and protecting physical environment, marketing competition and consumer interests cannot be ignored by organisations. Anti pollution laws, laws to control marketing like forward markets of commodities and securities and Consumer Protection Act influence marketing plans and policies. Business enterprises cannot indulge in unfair trade practices, like price discriminations, false advertising, deceptive sales promotion tools. Marketers have to be more sensitive towards consumer interests. A small issue of consumer, if left unattended, can snowball into a major controversy and put the company’s reputation at stake.

 

4.6 Ecology (Nature)

 

Ecology is the science that deals with living things and their environment. Protecting environment is everybody’s responsibility to provide a safe and happy place for others to live.

 

Industrial and technological revolutions have brought innumerable benefits for mankind but led to deterioration of the natural resources. Environmental quality, social wellbeing and human health are interconnected and should not be sacrificed as result of developmental activities. Environmental protection is necessary to assure a healthy, peaceful and productive life in harmony with nature. Only then sustainable development can be achieved.

 

Natural resources should be preserved as far as possible. Scarcity of natural resources points out the need for replenishing the renewable resources such as timber or finding alternative ways in case of non renewable resources such as oil, coal, iron ore. Depletion of fossil fuels is posing a serious threat to automobile industry. Major Auto giants such as Honda, Ford have developed hydrogen fuel cars to combat scarcity of natural resources. Solar energy and wind farming are attracting major investments in global markets as prices of oil and hydro electric power are rising sharply.

 

Any industrial activity damages the natural environment by contaminating ground water with hazardous waste or polluting air by harmful gases. Governments in many countries are now playing an active role in controlling pollution by enforcing laws to treat effluents before disposal or to adopt recyclable packaging. Germany has banned the import of products that are not packed in recyclable package. The Kyoto protocol is forcing business enterprises to invest in cleaner sources of energy. Consumers are also becoming conscious of deteriorating natural resources and are willing to pay higher prices for ‘green’ products.

 

The marketing system of an organisation has now to satisfy not only consumer wants but also societal wants of clean environment which may be adversely affected by its activities. Economical and efficient use of energy and natural resources must be reflected in every marketing strategy and programme.

 

4.7 Competition

 

Competitors significantly affect the company’s choice of marketing strategies regarding selection of target markets, marketing channels, suppliers and marketing mix. Marketing strategy is framed to outmanoeuvre the opponent and assuring survival in competitive environment. The aggressive marketing manager knows that his marketing mix. i.e. combination of product, place, price, promotion will invite tough competition. He must anticipate the competitors’ moves and be prepared to deal with them. Competitive conditions within an industry are ever changing and keep the marketing managers engrossed. Stiff competition can be seen among telecom companies. They offer huge discounts on call rates or better plans from time to time to attract and retain users.

 

4.8 Customer Demand

 

According to P. F. Drucker, there is only one valid purpose of business and i.e. to create a customer. Under market oriented marketing philosophy, customer needs and desires act as the centre of whole marketing universe. Today’s marketing begins and ends with the customers. Firstly customers (markets) are identified and then marketing programmes for target markets in the form of appropriate marketing mix are developed. Goods and services are offered to secure continuous customer satisfaction. Firms should focus on making customer happy. Satisfied and delighted customers become unpaid salesmen of the firms and motivate others to buy goods and services of such firm to satisfy their needs and wants. In today’s scenario, marketing strategies,polices and programmes should respond to customer needs and desires in all respects.

 

5. Summary

 

An organisation operates in ever changing environment that has direct or indirect influence on its strategies. Organisation can become successful by understanding, anticipating and taking advantage of changes within its environment. The dynamic business environment has three types of forces: External uncontrollable forces (demography, economic climate, socio-cultural, environment, technology), External partially controllable forces (customers, suppliers, market intermediaries), Internal controllable forces (human and non-human resources such as men, money, materials, machinery). An organisation’s macro environment consists of external forces and is termed as marketing environment. Marketing managers must understand this macro environment to formulate smart strategies for the future. Marketers can collect and evaluate information through environmental scanning to track trends, opportunities and anticipate threats. In rapidly changing global economy, companies must monitor external forces which may be economical, political, legal ,technological, demographic, social, cultural or ecological. Nature and health of the economic system of a country hasimpact on the organisations with varying degree. Interest rates, money supply, state of business cycle, price level, distribution of income within population, savings, consumer credit and monetary and fiscal policies constitute economic environment. Scientific study of human population and its distribution structure offers consumer profile to the marketers which is very necessary in market segmentation and determination of target markets. Competitors significantly affect the company’s choice of marketing strategies regarding selection of target markets, marketing channels, suppliers and marketing mix. Marketing systems are influenced by monetary and fiscal policies, custom duties, import-export policies, political interests etc. Philosophy of the political parties in power determines the risk of doing business and affects business practices. A pro-business attitude of the government enables firms to enter into new arrangements. Political stability creates market attractiveness. Legislations controlling and protecting physical environment, marketing competition and consumer interests cannot be ignored by organisations. Business enterprise has interaction and interdependence with external factors. The market place, which is a constituent of external environment, has many uncontrollable factors shaping and influencing the nature of customer demand. These forces continue to change and determine new requirements for effective marketing plans and policies. Marketers have to offer product, price, place and promotion mixes within the limitations imposed by marketing environmental forces.

 

Learn More
Few important sources to learn more about Marketing Environment:
  1. Baker,J.Michael (2000). Marketing Strategy and Management, Macmillan Press Ltd., London
  2. Bearden, Ingram, Laforge (1995). Marketing: Principles and Perspectives, Irwin Inc.
  3. Bose,S. Biplab (2010) Marketing Management, Himalaya Publishing House, Mumbai.
  4. Cannon, Tom. Basic Marketing: Principles and Practice, 3rd Edition, A.I.T.B.S. Publishers, Delhi.
  5. Dalrymple and Parsons. Marketing Management: Text and Cases, 6th Edition, John Wiley & Sons, Inc.
  6. Gandhi,C J (1998). Marketing-A Managerial Introduction, Tata McGraw Hill, New Delhi
  7. Kotler, Philip; Keller, Kevin; Koshey, Abraham; and Jha Mithileshwar, (2009). Marketing Management: South Asian Perspective. 13th Edition. Pearson Education, New Delhi.
  8. Sherlekar,A.S.(1996). Marketing Management, Himalaya Publishing House, Mumbai.
  • http://blog.oxfordcollegeofmarketing.com/2014/11/04/the-impact-of-micro-and-macro-environment-factors-on-marketing/
  • http://www.yourarticlelibrary.com/marketing/technological-factors-affecting-marketing-environment-discussed/12868/
  • http://www.slideshare.net/mustafvi786/marketing-environment-15497160
Points to Ponder
  1. Environmental Scanning is necessary for firm’s sustainability
  2. External environment may bring opportunities or threats for the firms.
  3. Study of trends in external environment helps in framing more realistic policies.
  4. Business firms now have to be more sensitive towards societal issues. Laws to protect environment and consumer interest cannot be ignored by firms.