Introduction to Marketing (MC4050)

Lecture Week 4The Marketing Environment

Learning Outcomes

• Define the broad categories of factors that affect the marketing environment

• Explain the distinction between the microenvironment and the macro environment

• Understand the influences at work within each of these categories and their importance to marketing decisions

• Explain how companies respond to environmental change

The marketing environment

The Marketing Environment• A Definition– The actors and forces outside marketing – that affects management’s ability to develop and

maintain successful transactions with its target customers

• Successful companies know the vital importance of – constantly watching and adapting to changing

environment

Marketing environment• Environment continues to change rapidly.• More than any other group in the company, marketers must be

the trend trackers and the opportunity seekers.– Marketing research and marketing intelligence to collect

information about the marketing environment– Spends more time in the customer and competitor

environments• By carefully studying the environment

– Marketers can adapt their strategies to meet new market place challenges and opportunities

Marketing environment-Micro• Actors close to the company that affects its ability to serve its

customers– The company– Suppliers– Marketing intermediaries– Customers markets– Competitors and– Publics All these actors combine to make up company’s value delivery network

Marketing environment- Macro• Consists of the larger societal forces that affect

the microenvironment

– Political/legal– Economic – Sociocultural– Technological– Environmental

The Macro-Environment (PESTEL)

Technological

*Products*Materials *Distribution*Marketing/admin

Economic

*Market structures*Gov’t policy*Trading blocks*Taxation*Interest rates

Political/Legal

*The EU*National gov’t*Local gov’t*Regulatory bodies*Trade associations

Sociocultural

*Demographics*Culture*Attitudes*Current issues*Ethical issues

Environmental

*Climate change*Sustainable sourcing*Product disposal*Natural resources

How to monitor changes in the external environment

Environmental scanning – the process of monitoring and analysing the

marketing environment of a company.Environment scanning is done by:

The use of SWOT (Strengths, Weaknesses,Opportunities, Threats) analysis

Anticipating change, spotting emerging opportunities

Spotting potential problems early enough to remedy them before they cause damage

Different organisations adopt different approaches and commit different resources to monitoring and evaluating changes in the environment.

Microenvironment- Company• In designing marketing plans, marketing management takes

other company groups into account– Top management, finance, R&D, operations, accounting

• All these interrelated groups form the internal environment• Top management sets the

– company’s mission, objectives, broad strategies, and policies

• Marketing managers – make decisions within the strategies and plans made by top management

• Marketing manager must work closely with other company departments.

Microenvironment- Company• The Company - key questions:– Do all of the departments operate a culture that is

focused on ‘think customer’?– Do they all work together to provide superior

customer value and satisfaction?– Could they be structured better in order to achieve

these objectives?

Microenvironment- Suppliers• An examination of the firms and individuals

– that provide the resources needed by the company and its competitors – to produce goods and services

• Suppliers are a vital link in the overall – ‘value delivery system’

• Must keep an eye on – supply availability, supply shortages or delays, labour strikes.

• This will affect sales on short run and damage customer satisfaction in long run.

Microenvironment- Suppliers• Marketing managers also monitor the price trend of their key

inputs– Rising supply cost may force price increases – Can harm the company’s sales volume

• Treat suppliers as a partners in creating and delivering customer value

• E.g. Wall Mart. – It helps them to test new products in its stores. – Its supplier development department publishes a supplier proposal guide

and maintains a supplier website.

– This will help suppliers to navigate the complex wall mart buying process.

Microenvironment: Intermediaries• Organisations that help the company to– promote, sell and distribute its goods and services to

final buyers• They include – re-sellers, – physical distributors, – marketing-services agencies and – financial intermediaries

• Must partner with marketing intermediaries to improve the performance of entire system.

Intermediaries- Resellers• They are distribution channel firms that help the

company find customers or make sales to them– E.g. wholesalers, retailers

• Large and growing resellers compared to old days. – Such as Wall Mart, Tesco.

• These kind of re-seller have high bargaining power with manufacturing firm.

Intermediaries: physical distribution firms

• Help the company to – stock and move good from their point of origin to

their destination.• E.g. warehouse and transportation firms.• Working together with them to balance the

factors such as – cost, safety and speed.

Intermediaries: marketing services agencies• Marketing services agencies are – marketing research firms, – advertising agencies, – media firms and – marketing consulting firms

• They help the company target and promote product to the right markets

Intermediaries: financial • Financial intermediaries helps – financial transaction or – insure against the risks associated with the buying

and selling of goods.• For e.g. – bank, – credit companies, – insurance companies etc.

Microenvironment: Customers• A vital factor that clearly has to be examined in

great detail - there are up to five types of customer markets:– Consumer • individuals and households that buys for personal

consumption

– Business • buys goods and services for further processing or for use

in production

– Reseller • buys to resell at profit

Microenvironment: Customers– Government • government agencies that buys goods and services to

produce public services or transfer the goods and services who need them

– International • buyers in other countries, including all of the above

Microenvironment: Competitors

• To be successful– Company must provide greater customer value and

satisfaction than competitors do• They have to gain competitive advantage by – positioning their offer against those of the

competition• You need to draw a competitive map of all your

organisation’s competitors and then decide which of them are worthy of an in-depth analysis

Microenvironment: Publics• Any group that has – an actual or potential interest in or impact on an

organisation’s ability to achieve its objectives• Seven types of publics:

1. Financial 2. media3. government4. citizen action publics5. Local publics6. general public/local groups7. internal

Types of publics• Financial:– Influence the company’s ability to obtain funds– Banks, investment houses, and stockholders

• Media publics:– Carry news, features and editorial opinions– They include newspapers, magazines, radio and

television stations• Government publics:– Management must take government developments

into account– Such as product safety, truth in advertising etc.

Types of publics• Citizen action publics:– Company’s marketing decision may be questioned

by• Consumer organisations, environmental groups, minority

groups and others

• Local publics:– Includes neighbourhood resident and community

organisation– Large companies appoint community relation officer

to deal with• Community, attend meetings, answer questions and

contribute to worthwhile causes

Types of publics• General public:– Need to be concerned about the general public

attitude towards its products and activities• Internal publics:– Include workers, managers, volunteers and the

board of directors– Newsletters and other means to inform and

motivate internal publics

The Macro-Environment (PESTEL)

These are external forces ◦ which may not immediately

affect the relationship that a company has with its customers, suppliers & intermediaries.

But macro-environmental changes will alter the nature of these relationships.

• Changes in the political environment National/ EU/ Globally affect business

• Political stability crucial for market stability• Government legislation is a major influence on

economic environment & businesses• Local/National/European/International law & bylaws all

influence business• Regulation & deregulation of business sectors• Trade associations

Political/Legal

Macro environment• Political– Consists of Laws, government agencies and pressure

groups that influence and limit various organisations and individuals in a given society• legislation regulating business• ethical and social responsibility

Legislation regulating business• The system work best with at least some regulation.• Well prepared regulation can – encourage competition and ensure fair markets for goods

and services.

• Thus government develop public policy – to guide commerce that limits business for the good of

society as a whole.

• Business law protect unfair competition.

Legislation regulating business• For e.g. no permission to advertise alcohol and

cigarettes in TV in Nepal.• Thailand requires food processors selling

national brands to – also market low price brands so that – low income consumers can find economy brands on

the shelves.• US has many laws covering issues such as– Competition, fair trade practices, environmental

protection, product safety, truth in advertising, consumer privacy, packaging, pricing etc.

Increased emphasis on ethics and socially responsible actions

• Beyond written laws and regulations, – business is also governed by social codes and rules

of professional ethics.• Encourages managers to – simply ‘do the right things’

• These socially responsible firms – actively seek out to protect the long run interests of

their consumers and the environment.

Economic• Markets require buying power as well as

people• The economic environment consist of factors

that affect – consumer purchasing power and spending

patterns.• Nations vary greatly in their levels and

distribution of income.

Macro environment- economic• Subsistence economy– Country consume most of their own agricultural and

industrial output.– These countries offer few market opportunities

• Industrial economies– Constitute rich market for many different kind of goods. – Marketers must pay close attention to major trends and

consumer spending patterns• Both across and within their world markets

Economic trends• Change in income:– Different level of income at different times such as • more in boom and less in recession

– Value marketing: • ways to offer financially cautious buyer greater value• Right combination of product quality and good service at

fair price

– The distribution of income has created tiered market targeting customers at different level.• Upper class, middle class, working class, under class

Economic trends• Changing consumer spending patterns:– Consumer at different income level have different

spending patterns.– Changes in economic variables such as income, cost

of living, interest rates and savings and borrowing patterns have a large impact in the market place.

• Economic growth and unemployment• The state of the economy and business cycle• Interest rates• Personal disposable income• Currency fluctuations• The BRICS, and other growth economies

Other Economic Factors

Sociocultural

Consumer attitudes & changes in taste and fashion for products and services over time

Role of women & balance between population of women and men and age distribution

Race, subcultures and occupationThe importance of leisure timeThe role of the familyChanges in the structure of population

globallyGeographical distribution of populations

Macro environment: sociocultural• The study of human populations in terms of– size, density, location, age, sex, race, occupation

and other statistics

• It is of particular importance because – it involves people and people make up markets

• Population is growing at an explosive rate– 8.1 billion by the year 2030

Macro environment: sociocultural

• The worlds large and highly diverse population poses both opportunities and challenges.

• for example in china – regulation to control the population by allowing only one

child has created huge market opportunities for children’s product.

– Chinese children’s known as ‘little emperors and empresses’

• Similarly at the other end of this is the opportunity of senior citizens business.

Macro environment: sociocultural• Marketers need to keep close track of

demographic trends and developments in their markets both at home and abroad.

• They track – Changing age and family structures, – Geographic population shifts, – Educational characteristics, and – Population diversity.

Changing age and family structures• Changing age structure of the population

• Several generational groups– The baby boomers

• Born between 1946 and 1964, 27.5% of the population• Spend about $2.1 trillion annually

– Generation X• Born between 1965 and 1976 with population of 49 million• Grown up during recession and corporate downsizing, therefore more

cautious economic outlook• $1.4 trillion purchasing power

– Generation Y• Born between 1977 and 1994• 76 million population• Marge teen and young adult market• Requires creative marketing approaches

The changing family• Traditional family in US– Husband, wife and children, and may be grand

parents• US today:– Married couple with children make up only 23%– Married couple without children: 28%– Single parents 16%– No family households: 32%

• More women at work– Rise in child day care business

Geographic shift in population• Great migration movements between and

within countries• Movement from rural to metropolitan areas• Such population shifts interests marketers as

people from different region buy differently

Educational characteristics• Population of– Better educated– More white collar– More professional

• Rising number of educated people will increase demand for– Quality products– Books, magazines– Travel– PC and internet services

Increasing diversity• Countries vary in their ethnic and racial makeup– Japan: mostly Japanese– US: diverse groups of many nations

• International market: more diverse– Proper segmentation and target market required by

business to meet their needs

Macro environment: sociocultural• Cultural– Institutions and other forces that affect society’s

basic values, perceptions, preferences and behaviours

– Peoples basic beliefs and values are shaped by the society where they grow.

Cultural characteristics• Following cultural characteristics affects marketing decision making.

– persistence of cultural values• Core belief and values have high degree of persistence• For e.g. American believe in working, getting married, giving to

charity and being honest• Core belief passed on from parents to children• Reinforced by schools, churches, businesses and governments

– shifts in secondary cultural values• Secondary beliefs and values are more open to change• For e.g. impact of popular personalities on young people hair style

and clothing norm

• Allows new goods and services to be offered to consumers• New technology can allow existing products to be made more

cheaply, thereby lowering an organisations costs and widening their markets

• Technological development allows for new methods of distributing goods and services (e.g. online marketing and selling)

• New opportunities for companies to communicate with their target customers

Technological

Macro environment: Technological • Forces that create new technologies, creating

new product and market opportunities– fast pace of change– high R&D budgets– concentration on minor improvements– increased regulation

Consumer concerns have led to demand for:• products not tested on animals• more natural ingredients in products• ingredients from renewable resources and/or processed with

minimal environmental impact • organic/non-factory farmed produce, particularly in light of the

recent debate on genetically modified foods• health orientated foods and drinks with minimal artificial

additives• Recyclable/refillable packaging/minimal packaging• Less energy consumption

Environmental

Trends in natural environment

• shortage of raw materials– Firms using such scarce resources face large cost

increases• increased pollution– Industry will almost always damage the quality of

natural environment• Increased government actions

Macro environment- environmental• Environmentally friendly companies are developing

environmentally sustainable strategies and practices.• More environmentally responsible products– E.g. recyclable or biodegradable packaging, energy efficient

operations

• Company are learning that environmentally responsible actions can also be good business.

Responding to marketing environmentThree kind of companies– Who makes thing happen– Who watch things happen– Who wonder what’s happened.

• Proactive approach vs reactive approach to respond to the marketing environment

Responding to changes in the environment

Organisations who ignore or fail to read the marketing environment may not survive in the competitive market

Successful organisations anticipate change and spot emerging opportunities

Successful organisations spot potential problems early enough to remedy them before they cause damage

Organisations must be aware of:o Information overloado Problems associated with handling & sorting

informationo Failure to appreciate the significance of

information