The term Marketing Environment refers to the market surroundings which affect the decisions related to the marketing activities and strategies.
“Marketing Environment can be defined as various internal (Micro) and external (Macro) factors under which marketing functions take place.”
According to Philip Kotler, “marketing environment refers to “external factors and forces that affect the company’s ability to develop and maintain successful transactions and relationships with its target customers”.
Learn about:- 1. Introduction to Marketing Environment 2. Meaning of Marketing Environment 3. Concept 4. Scope 5. Characteristics 6. Elements 7. Components 8. Importance 9. Constituents
10. Levels 11. Reasons for Studying Market Environment 12. List of External Environment Factors 13. Impact on Marketing Decisions.
Marketing Environment: Meaning, Concept, Scope, Characteristics, Elements, Components, Impact, Importance and Factors
Marketing Environment – Introduction
The term Marketing Environment refers to the market surroundings which affect the decisions related to the marketing activities and strategies. It may include the factors within the organizations (also called as internal factors) and factors outside the organization (also called as external factors).
“Marketing Environment can be defined as various internal (Micro) and external (Macro) factors under which marketing functions take place.”
“A company’s marketing environment consists of the internal factors and forces, which affect the company’s ability to develop and maintain successful transactions and relationships with the company’s target customers”. – ‘Philip Kotler’
Impact of Liberalization, Privatization and Globalization on Indian Marketing Environment:
Indian economy had experienced major policy changes in early 1990s. The new economic reform, popularly known as, Liberalization, Privatization and Globalization (LPG model) aimed at making the Indian economy as fastest growing economy and globally competitive. The series of reforms undertaken with respect to industrial sector, trade as well as financial sector aimed at making the economy more efficient.
Following are main features of liberalization:
(a) Lessened Government control and freelancing opportunities to private enterprises.
(b) Capital markets opened for private entrepreneurs
(c) Simplification of licensing policy
(d) Opportunity to purchase foreign exchange at market prices
(e) Right to take independent decisions regarding the market
(f) Better opportunity for completion
(g) Widened liberty in the realm of business and trade.
i. Free movement of goods and services it has led to better industrial performances.
ii. Industrial organizations have now become more efficient and market responsive.
iii. Country’s exports are on the increase.
iv. Sectors such as – information technology and computer software here registered tremendous progress.
Liberalization was introduced all on a sudden and proper background was not created to take its full advantage and to face its consequences.
Privatization refers to any process that reduces the involvement of the state, public sector in economic activities of a nation.
The privatization process in a mixed economy such as of India includes:
i. Decentralization the transfer of the ownership of productive assets to the private sector.
ii. Entry of private sector industries into the areas exclusive reserved for the state sector or which are considered exclusive monopolies of state.
iii. Limiting the scope of the public sector or no more diversification of existing public sector understandings.
Steve H. Hanke refers to Privatization as – “the process where by the public operations are transferred to the private sector”.
Advantages of Privatization:
i. The purpose of Privatization is to improve industrial efficiency and to facilitate the inflow of foreign investments.
ii. It recommends a change in the role of the government from that of the “owner” to that of a mere “controller”.
iii. It also intends to ensure efficient utilization of all types of resources including human resources.
iv. Privatization insists on the government to concentrate on the area such as education administration and infrastructure.
Globalization allows the flow of products, finance and other resources worldwide.
i. Interaction and interdependence among countries
ii. Integration of world economy
Advantages of Globalization:
i. Better and faster industrialization – The flow of industrial units from developed countries to developing countries gives speed of industries helping global industrialization. Helps over all balanced development.
ii. Flow of capital – Moves from to surplus countries to the needy in globalization. Investors get advantage of better returns for his capital.
iii. Speed of production facilities throughout the world – The production units give cost competitive and wider availability and manufactured gods.
iv. Flow of technology – The advanced level of technology flow from developed country to less developed countries.
v. Increase in conception – Due to technology and the spared up gradation the demand increases for manufactured good.
Disadvantages of Globalization:
i. Globalization discourages domestic industry and business, if they choose not to be competitive.
ii. Problem on the labor front – The process of Globalization needs to job layoffs and exploitation of human resources. This is especially applicable to under developed countries.
iii. Unemployment does not get addressed because the production might take place in some other country.
iv. Increasing bargaining power of the resource supplier due to availability of other options.
v. Transfer of national resources – The developed countries tend to establish factories in under developed countries may lead to commercial exploitation.
Marketing Environment – Meaning (With Some Factors)
Marketing environment as the external factors and forces that affect a firm’s ability to develop and maintain successful transactions and relationships with the target customers. The firm’s environment defines its threats and opportunities because organisations is a subsystem of a broader supra-system. Rather a system consists of Inputs-Processor Output and Feedback.
Any system is goal oriented and does not exist in isolation. Marketing environment is complex and sometimes cataclysmic change. That the rate of change in the environment outstrips the rate of change in the organisation, thus leaving the organisation in a mal-adjusted state. Therefore, environmental scanning would provide them with continuous interaction between the customers and the business they are in.
Based on interaction, the marketing managers can involve marketing strategies to ensure effective and efficient goal achievement. A passive firm faces extinction; an adaptive firm will survive and probably enjoy modest growth and a creative firm will prosper and even contribute to the changes taking place in the environment.
Environment is classified as external and internal because an organisation works within the framework provided by the various elements of society. All such elements which lie outside the organisations are called external environment. At the same time, organisation may create environment internal to it which affects the various sub-systems of the organisation.
Here we are concerned with external environment. Elements in the external environment consume the organisation’s outputs and provide inputs like raw material, employee’s resources and technology. This dependency creates uncertainty for managers. There are two coping techniques available for managers to adapt to initial contingencies – changing the internal structures of the organization of changing the external environment.
In a broad sense, the environment is infinite and includes everything outside the organization.
The general environment includes everything and consists of the following factors:
(a) Physical structure
(b) Social structure
(c) Ecological structure
(d) Legal structure
(e) Cultural (religious) structure
(f) Political structure
(g) Economic structure
(h) Psychological structure
(i) International structure
“The environment of business consists of all those external things to which it is exposed and by which it may be influenced directly or indirectly.” – Reinecke & Schoell
“In environment there are external factors which constantly spin out opportunities and threats to the business firm.” – William Glueck and Jouch
“There are lots of pressures and controls which are mostly out-side the control of individual firm and its managers.” – Richman and Copen
“Environment consists of atoms and molecules, agglomeration of things in motion, alive of men and emotions of physical and social law, social ideas, norms of action of forces and resistance. Their number is infinite and they are always present – they are always changing.” – Chester I. Barnard
Marketing Environment – Concept
Operationally, five different types of environments may be identified technological, political, economic, regulatory, and social and the environment may be scanned at three different levels in the organization.
Perspectives of environmental scanning vary from level to level.
i. Corporate Scanning:
Corporate scanning broadly examines happenings in different environments and focuses on trends with corporate-wide implications. For example, at the corporate level IBM may review the impact of competition above and below in the telephone industry on the availability and rates of long-distance telephone lines to its customers.
ii. SBU Level Scanning:
SBU level scanning focuses on those changes in the environment that may influence the future direction of the business. At IBM, the SBU concerned with personal computers may study such environmental perspectives as diffusion rate of personal computers, new developments in integrated circuit technology, and the political debates in progress on the registration (similar to automobile registration) of personal computers.
iii. Product / Market Level Scanning:
Product / market level scanning is limited to day-to-day aspects. For example, an IBM personal computer marketing manager may review the significance of rebates, a popular practice among IBM’s competitors. The primary purpose is to gain a comprehensive view of the future business world as a foundation on which to base major strategic decisions.
Marketing Environment – Scope
An organisation’s environment is anything and everything that is external to it. But it is difficult to demarcate an organisation’s boundary i.e., where the organisation ends and the environment begins. An organisation has its own internal environment.
This environment is made up of the people that work in the organisation, their work ethos and culture. The major participants in the organisation share a set of attitudes towards what they want to accomplish and what they think of, is of value.
The organisation’s culture may be favourable or unfavourable to the overall total development. All this constitutes the organisational environment. This internal environment interacts with the external environment which consists of several components like social, political, technological etc.
However between the internal and external environment there exists something known as a task specific environment. A task specific environment is an environment for an individual business. It consists of those forces outside the organisation which are directly relevant to the decision making and transformation process of the individual organisation.
Business organisations basically are resource converters and use inputs from the environment to convert them into product and services for the customers. These products and services are carried to the market either directly or through a chain of marketing intermediaries. A typical organisation thus achieves its objectives by operating through its task environment. Thus an organisation is surrounded in three layers of environment, the internal environment, the task environment and the external government.
The internal environment is made up of factors like people, their culture and work ethos and their attitudes and values. The task environment is made up of suppliers, marketing intermediaries and customers whereas the external environment is made up of factors like political, economic, social, cultural, ecological etc. The factors of the internal environment are controllable by the organisation.
The task environment includes factors that are external to the organisation but controllable to quite an extent and the external environment includes those factors that are external to the organisation and uncontrollable by the organisation.
Marketing Environment – 5 Main Characteristics
The main characteristics of environment are as under:
1. Environmental Complexity—Environmental Complexity is referred to the heterogeneity relates to the various activities in the environment affecting the business organisation. All environment factors are inter related. Therefore, it is very difficult for business organisation to face them.
2. Environmental Variability—The Environmental variability is a most important determinant of organisational functioning. The degree of variability is the environment affect. The organisational functioning through affecting the task performance.
3. Environment is Dynamic—In fact, the environment being dynamic, changes over the period of time.
4. Environment influenced different Firm-differently—”The same environment one organisation perceives as unpredictable another organisation might see as static and easily understood.” —William Starbuck
5. Environment has Long-term impact on business organisation because the dynamic/changed environment factors directly affect the productivity, profitability and progress of business organisation.
Marketing Environment – Top 7 Elements
Marketers are influenced by the competitive, economic, natural, political, regulatory, technological, and social elements of the marketing environment. These elements often shape one another. For example, cigarette marketers now face opposition in multiple areas of the marketing environment because the antismoking sentiment in the social area is fuelling similar attitudes in the legal and regulatory areas.
As social attitudes have turned against public smoking, the U.S. Congress has banned smoking on commercial airline flights between cities in the 48 contiguous states, and some cities have passed ordinances forcing restaurants to maintain nonsmoking sections.
The elements of the marketing environment are:
(1) Competitive Elements:
One of the most important aspects of the overall marketing environment is competition, the rivalry among marketers approaching the same set of customers, each trying to increase sales, market share, or profits. There are several categories of competition, both in terms of products and in terms of overall market structure.
The economy affects marketers and consumers alike. The major economic elements of the marketing environment include business cycles, consumer income, and customer’s willingness to spend. You can’t control these economic factors, but they certainly affect your business. For instance, companies that seem to be doing everything right can simply vanish if the economy slows down.
This is of particular concern to companies that produce nonessential goods and services, which consumers and businesses are likely to stop purchasing if money gets tight. On a more positive note, your sales can really take off during times of economic growth, provided you sense that growth is about to happen and prepare for it.
For example, when marketers realized that one of the fastest growing segments of the U.S. economy was small business, they started altering their strategies by targeting that segment to ensure their own growth. Between 1970 and 1987 the number of Americans starting their own businesses grew 50 percent; between 1982 and 1984 small companies created 74 percent of new jobs.
Responding to these changes in the economic environment, companies such as – Price Waterhouse, AT&T, Microsoft, and American Express started targeting small companies as prospective customers for everything from financial services to computer software.
To attract small firms, these marketers designed products and advertising that addressed the problems and concerns of small businesses, offered lower prices, and gave small-business training and other specialised services.
In addition to influencing how marketers do business, the economic elements affect consumers. In a depressed economy, customers tend to think twice before buying the commercial marketer’s products, and they may even hesitate to support nonprofit organisations. On the other hand, when the economy is booming, consumers are confident about the future and more likely to spend their earnings.
(3) Natural Elements:
The availability of natural resources such as – land, water, and minerals significantly affects everyone in the economy, marketers as well as consumers. The natural elements of the marketing environment include natural resources, weather conditions, geological events such as – volcanic eruptions and earthquakes, and astronomical events such as – eclipses. Changes in the natural environment seriously affect marketers, whether positively or negatively.
A lack of natural resources can hurt a company, or it can open new opportunities. For example, the shortage of land in urban graveyards in the United States, England, Germany, and Italy during the mid-twentieth century spurred the popularity of cremation. The result was a market for crematoria and crematory supplies.
Resource shortages may prompt marketers to try to reduce the demand for their products. The electric company tries to reduce demand when it uses public service announcements, conservation tips in bill enclosures, and free inspections of homes and commercial buildings to promote energy conservation.
Several water districts in California have run similar programs to reduce the demand for water in that drought-prone state. In northern California, the North Marin Water District created the “Cash for Grass” program. Home owners who reduced the amount of grass on their property to 800 square feet or less and installed water-efficient irrigation systems earned a $310 rebate.
Climatic conditions are also among the natural elements, and they can play havoc with the marketer’s plans, as Florida’s farmers and orange juice processors know. In 1983 the temperature in north central Florida dropped from 72 to 18 degrees in one day.
The sudden temperature change killed or damaged 250,000 acres of citrus crops, reduced Florida’s orange juice production by 40 percent, and drove up the retail price of citrus fruits. Another Florida freeze in 1985 took a 26 percent bite out of the state’s orange juice production.
Marketers may not be able to influence natural elements much, but they can influence political elements. These are the domestic and international political events and government policies that shape economic conditions and trade relationships.
Businesses and nonprofit organisations see three main reasons for developing close ties to elected officials. First, a politician is unlikely to vote for laws that hurt important constituents such as – the companies that supported his or her election campaign. Second, politicians wield a lot of power over trade relations, so they can create a favourable environment for international marketing.
Third, elected officials influence government spending and may influence the awarding of contracts for items ranging from weapon systems, which the Defence Department buys, to light bulbs, which the General Services Administration purchases in massive amounts. However, developing ties to government officials is a touchy ethical issue, and both marketers and officials need to make sure that ethical standards are not violated.
(5) Regulatory Elements:
One of the most complex parts of the marketing environment is the area influenced by regulatory elements. This includes laws and regulations on pricing, joint marketing agreements, distribution and product labelling, packaging, branding, liability, and other marketing issues.
There are a number of federal laws restricting marketing activities. Marketers are subject to the control and scrutiny of federal, state, and local bodies through thousands of regulations that have evolved over many decades of law-making.
Through the years, layers and layers of regulations have sprung up, with individual regulations uncoordinated at best and contradictory at worst. Dozens of governmental agencies, often with overlapping authority, enforce the regulations, adding to marketers’ confusion about their regulatory responsibilities.
Although the complexity of the regulatory elements makes it tough to honour all the relevant regulations, marketers must strive for compliance. It’s not uncommon for companies to stray accidentally, but as with any law, ignorance is no excuse. The consequences for such a blunder might be as slight as public embarrassment for the marketing company or as serious as prison terms for the marketing executives who authorized the breach.
So it’s extremely important to understand the regulatory environment and meet its demands. U.S. marketers doing business in other countries must adhere to the local rules, just as foreign corporations must respect U.S. law when in this country.
For example, the EC Commission accused Coca-Cola of anticompetitive practices because it was giving Italian restaurant chains special rebates for selling Coke’s soft drinks exclusively. Though Coca-Cola insisted it had not broken the law, it did finally agree to alter its European marketing practices.
An exciting and rapidly changing aspect of the marketing environment consists of advances in technology, the application of scientific and engineering developments to specific problems. Technological changes have completely recast the world in just the last century, bringing both significant new benefits and serious new problems to humanity.
Technology has brought us vaccines against polio, measles, the flu, and dozens of other diseases that, until fairly recently in human history, could wipe out or cripple an entire generation. Thanks to advances in aviation, we can fly to other cities and countries-and even to the moon.
We can use our telephones and fax machines to communicate with faraway businesses, friends, and relatives. And developments in computers have increased our efficiency in areas ranging from banking to engineering.
On the downside, technology has brought us acid rain, air and noise pollution, contaminated waterways, overflowing landfills, and animal exploitation in product testing. There are so many chemicals in the typical U.S. home that some people are allergic to their own houses and furnishings.
In Eastern Europe, things are even worse. Doctors believe air pollution causes as many as 10 percent of all deaths in Hungary, and in Poland pollution has sent the heart disease and infant mortality rates soaring.
All these changes, positive and negative, hold serious consequences for marketers. Technology creates new products but also renders some products obsolete. Some advances in technology are so complicated that promotions have to emphasize education so that potential customers know what the product is about. Here are the major ways that technology affects the elements of the marketing mix.
(7) Social Elements:
Society plays an important role in the marketing process. Social elements are the characteristics of contemporary society that influence how consumers perceive, purchase, and use products, and these elements include values, beliefs, traditions, cultural identities, and life-styles.
Social elements can swiftly change a market’s dynamics. Consider the condom market. For many years, most publishers and all broadcasters refused to carry condom advertising because of the product’s sexual nature. But when the AIDS epidemic broke out, attitudes about sex and health changed so much that more than 120 magazines and even some radio and TV stations now accept condom ads.
Carter-Wallace, which markets Trojan condoms, has responded to the social shift with an aggressive marketing campaign that includes skywriting and educational programs in schools. Changing social values also affect nonprofit marketers, as groups involved with AIDS, abortion, gun control, family planning, and drug abuse education have discovered in recent years.
Marketing Environment – 2 Main Components (Internal and External)
Component # 1. Internal Environment:
There are various internal factors which influence the decisions of marketing and which are present within the business itself. These factors are usually under the control of marketing. Here we are concerned with external factors/environment.
Various factors of internal environment are as follows:
I. Business and managerial Policies.
II. Business Targets and Objectives.
III. Business Concepts, Managerial Philosophy and out-look.
IV. Availability of business resources.
V. Business capacity and its scope of expansion.
VI. Production System, Layout of Machines and Techniques.
VII. Level of efficiency of labour and Management.
VIII. Business Organisation Structure, Decentralisations, Departmentation and Responsibility.
IX. Business Plans and Strategy.
X. Business Management Information System and communication arrangements.
External environment is infinite and includes everything outside the organisation. Organisation has no control over these factors. These factors have the potential to affect all or part of the organisation.
The information about these factors is important for the study of the external environment various factors of external environment are as follows:
I. Physical Environment:
Physical environment is the most important environmental factor which the business organisations take into account. These factors may be classified as-Natural Resources, Climate, Topology etc. The availability of natural resources—land, minerals, fuel, etc.,—becomes a strategic planning factor for organisations requiring such resources in the production process.
Normally locational pattern is decided on the basis of availability of these factors. In our country, there are plenty of natural resources—land, water and minerals of various types. However, in the absence of their proper exploitation and uses, these resources are not able to give adequate benefits.
II. Demographic Environment:
Demographic Transition is a theory that throws light on changes in birth rate, death rate and consequently growth rate of population. Along with the economic development, tendencies of birth rate and death rate are different. Because of it, growth rate of population is also different.
According to E.G. Dolan, “Demographic transition refers to a population cycle that begins with a fall in the death rate, continues with a phase of rapid population growth and concludes with a decline in the birth rate.”
(i) High Dependency Burden — Because of high growth rate of population, percentage of children and adolescents in the total population is very high in underdeveloped countries.
(ii) Low quality of life -Life expectancy of the people is low. Their health is poor. Most of the population illiterate, inefficient and orthodox.
As a result of high growth rate of population, the level of consumption in a country goes up while that of saving goes down. It leads to fall in capital formation and slows down the rate of economic development. Number of people living below the poverty line rises along with rise in unemployment.
III. Economic Environment:
Economic environment is most important environmental factor which the business organisation takes into account. Economic environment factors include like nature of economic systems, Economic Conditions, and various Economic Policies.
IV. Technological Environment:
Technological environment of the country is fast changing because of technology generate out of research and development with in the country. The various techniques are important for business as if affects the working of the organisations.
V. Social and Cultural Environment:
Social and cultural environment is comprehensive. It may include attitude, desires, believes, expectations, education and custom of the society, views towards achievement of work, responsibility and organisational positions, labour mobility. All these factors influence business organisations.
VI. Political, Government and Administration Environment:
Political, Government and Administration Environmental forces are an important element in a capitalistic/mixed economy to affects directly the working of Business-organisations. These forces in the environment perform two roles-promoting and negative (restrating).
The promoting role includes the various facilities incentives for the development of business in the backward areas and protection. On the other hand, when the political environment works as negative forces by limiting the scope of business activities.
VII. Legal Environment:
Legal environment is an important factor to affects directly the working of organisations. The government through various legislations has provided various incentives for the development of business and protection.
VIII. Ethical Environment:
Ethical factors deeply influence the marketing of a country. Ethical factors are those which are related with social costs. The various elements of Ethics affect the working of the organisations mainly Price determination, distribution of Income, Advertisement, Sales, working conditions, Labour-Welfare and Social security etc. The ethical factors affect the basic objectives of the organisation by prescribing the norms within which the organisation objectives are formulated.
IX. International Environment:
Today business organisations are extremely concerned with International Environment factors. Today, the market classification does not take into account National parameters but global parameters. Many Indian companies have spread their wings beyond the Indian Territory. In India, many changes have been introduced which began in 1990s.
The marketing environment comprises of internal and external factors affecting business directly and indirectly.
The two main components of marketing environment are as under:
A. Micro-environmental factors.
B. Macro-environmental factors.
A. Micro-Environmental Factors:
The micro marketing environment is also called as the internal or task environment. It comprises of all the internal factors of the environment which are directly related to the business. Thus affects the business directly.
It includes following factors:
Organizational factors can be classified as tangible and intangible factors.
(a) Employee performance level
(b) Employee satisfaction level
(c) Employee turnover.
(c) Organizational structure
(d) Organizational vision, mission, policies.
Suppliers play an important role in business thus affects the business directly.
(a) The bargaining power of the supplier
(b) Attitude towards risk
(c) Purchasing power of the supplier
(d) Scope of operations of the suppliers.
In modern marketing the customer is the king. All marketing activities revolve around identification of the needs of the customer and fulfilling with the product.
(a) Customer’s taste and preference
(b) Customers bargaining power
(c) Purchasing power of the customer
(d) Customer’s attitude, interest and opinion about the product
Intermediaries are also called as the members of the channel of distribution. The main task of the intermediaries is to make the product available to the customers at the right time as per the demand.
Competitors are also considered as micro factors as it affects the business directly.
(a) Competitor’s market share
(b) Competitor’s hold on the resources
(c) Competitor’s marketing strategies
B. Macro/Broad/External Environment:
The macro environment is also called as the broad and external environment. It comprises of all the factors which are external to the organization. Thus affects the business indirectly.
It involves following uncontrollable factors:
1. Demographic Factors:
The demographic factors monitor the population.
(a) Market size
(b) Growth rate
(c) Education status
(f) Marital status
(g) Family members
(h) Geographic location etc.
2. Economic Factors:
The economic factors monitor the purchasing power of the customers.
(a) Income distribution pattern
(c) Availability of debt, credit and savings.
3. Natural Factors:
The natural factors monitor the deterioration rate.
(a) Storage of raw material
(b) Increased cost of energy
(c) Anti-pollution pressure.
4. Technological Factors:
The technological factors include:
(c) R&D budget
(d) Technical education
5. Political – Legal Factors:
The political – legal factors include:
(a) Government policy
(b) Stability of Government
(c) Trade policy
(d) Tax policy.
6. Social – Culture Factors:
Marketing Environment – Importance
Various facts of environment, they state the importance of environment:
1. Helpful in providing information regarding changes of internal environment.
2. Helpful in providing information regarding Threats.
3. To get information regarding new challenges and problems of liberalisation process of economy this began in 1990s and still continues.
4. Helpful in providing information regarding strength and weakness of organisation.
5. Helpful in formulating future planning and Strategies.
Some other important factors of environment:
(i) Political uncertainty.
(ii) Social and cultural values.
(iii) Sources from which technology can be acquired.
(iv) Expectations of the society from the business.
(v) To get information regarding—what is the style of people and what products fit for the life style.
Marketing Environment – 2 Main Constituents (Internal and External Environment)
Every business firm consists of a set of internal factors and it also confronts with a set of external factors.
Constituent # 1. Internal Environment:
There are number of factors which influence various strategies and decisions within the organization’s boundaries.
These factors are known as internal factors and are given below:
i. Human Resources:
It involves planning, acquisition and development of human resources necessary for organizational success. It points out that people are valuable resources requiring careful attention and nurturing. Progressive and successful organizations treat all employees as valuable human resources.
The organization’s strengths and weaknesses are also determined by the skill, quality, morale, commitment and attitudes of the employees. Organizations face difficulties while carrying out modernization or restructuring process in form of resistance of the employees. So, the issues related to morale and attitudes should seriously be considered by the management.
ii. Company Image:
One company may issue shares and debentures to the public to raise money and its instruments are oversubscribed while the other company may seek the help of different intermediaries like underwriters to generate finance from the public. This difference underlines the distinction between the images of the two companies.
The image of the company also matters in certain decisions as well like forming joint ventures, entering contracts with the other company or launching a new product etc. Therefore, building company image should also be a major consideration for the managers.
iii. Management Structure:
Gone are the days when business was carried out by the single entrepreneur or in the shape of partnerships. Now it has reshaped itself into the formation of company where it is run and controlled by the board of directors who influence almost every decision.
Therefore, the composition of board of directors and nominees of different financial institutions could be very decisive in several critical decisions. The extent of professionalisation is also a crucial factor while taking business decisions.
iv. Physical Assets:
To enjoy economics of scale, smooth supply of produced materials and efficient production capacity are some of the important factors of business, which in turn depends upon the physical assets of an organization. These factors should always be kept in mind by the managers because these play a vital role in determining the competitive status of a firm or an organization.
v. R&D and Technological Capabilities:
Technology is the application of organized knowledge to help solve problems in our society. The organizations, which are using appropriate technologies, enjoy a competitive advantage over their competitors.
The organizations, which do not possess strong Research & Development departments, always lag behind in innovations, which seem to be a prerequisite for success in today’s business. Therefore, R&D and technological capabilities of an organization determine a firm’s ability to innovate and compete.
vi. Marketing Resources:
The organizations which possess a strong base of marketing resources like talented marketing men, strong brand image, smart sales persons, identifiable products, wider and smooth distribution network and high quality of product support and marketing support services make an effortless inroads in the target market. The companies, which are strong on above, mentioned counts can also enjoy the fruits of brand extension, from extension and new product introduction etc., in the market.
vii. Financial Factors:
The performance of the organization is also affected by the certain financial factors like capital structure, financial position etc. Certain strategies and decisions are determined on the basis of such factors. The ultimate survival of organizations in both public and private sectors is dictated largely by how proficiently available funds are managed.
Constituent # 2. External Environment:
Companies operate in the external environment as well that force and shape opportunities as well as threats. To track these external forces a company uses environmental scanning. Continual monitoring of what is going on.
According to Philip Kotler, marketing environment refers to “external factors and forces that affect the company’s ability to develop and maintain successful transactions and relationships with its target customers”.
The External Marketing Environment may be broadly divided into two parts:
i. Micro – Environment
ii. Macro – Environment
I. Micro – Environment:
Micro – Environment implies the factors & forces in the immediate environment, which affect the company’s ability to serve its market. It includes all those factors that are specific to the business concerned. It is the company’s immediate environment where routine activities are affected by the certain factors.
II. Macro Environment:
With the rapidly changing scenario, the firm must monitor the major forces like demographics, economic, political, legal, technological, natural, socio-cultural & socio-cultural forces.
Macro environment refers to those factors which are external forces in the company’s activities and do not concern the immediate environment. This environment consists of uncontrollable factors which indirectly affect the concern’s ability to operate in the market effectively.
Marketing Environment – 3 Main Levels (Micro, Macro and Meso Environment)
The market environment is a marketing term and refers to factors and forces that affect a firm’s ability to build and maintain successful relationships with customers.
Three levels of the environment are:
(1) Micro (internal) environment – small forces within the company that affect its ability to serve its customers.
(2) Meso environment – the industry in which a company operates and the industry’s market(s).
(3) Macro (national) environment – larger societal forces that affect the microenvironment.
Understanding the market environment as it relates to a given company requires not only identifying all known factors but also having some sense of how those factors blend together to create the setting in which the company must operate. By having an idea of how all known factors come together to create today’s business climate, it is easier to consider the potential for different market movements in the future, based on the ebb and flow of the influence of different elements.
By accurately assessing where the market environment stands today and using that information to project where the market is going tomorrow, the business can make changes in procedures, production levels, or even marketing strategies in order to meet those future challenges and ultimately continue to generate an acceptable level of revenue.
A company’s marketing system must operate within the framework of force that constitutes the system’s environment. These forces are either external or internal to the firm. The internal forces are inherent to the organization and are controlled by the management, the external forces which are generally cannot be controlled by firm, may be divided into two groups.
The first is the set of broad (macro) influences such as culture, lows and economic conditions, the second group is firm’s micro environment. The group deludes producer, suppliers, marketing intermediates and customers.
1. Micro-Environment (Near/Internal Environment):
The micro environment refers to the forces that are close to the company and affect its ability to serve its customers. It includes the company itself, its suppliers, marketing intermediaries, customer markets and publics.
The company aspect of microenvironment refers to the internal environment of the company. This includes all departments, such as management, finance, research and development, purchasing, operations and accounting. Each of these departments has an impact on marketing decisions.
For example, research and development have input as to the features a product can perform and accounting approves the financial side of marketing plans and butt in customer dissatisfaction. Marketing managers must watch supply availability and other trends dealing with suppliers to ensure that product will be delivered to customers in the time frame required in order to maintain a strong customer relationship.
The micro-environment is made from individuals and organizations that are close to the company and directly impact the customer experience. Examples would include the company itself, its suppliers, other marketing input from agencies, the markets and segments in which your business trades, your competition and also those around you (which public relations would call publics) who are not paying customers but still have an interest in your business. The Micro environment is relatively controllable since the actions of the business may influence such stakeholders.
Marketing intermediaries refers to resellers, physical distribution firms, marketing services agencies, and financial intermediaries. These are the people that help the company promote, sell, and distribute its products to final buyers. Resellers are those that hold and sell the company’s product.
They match the distribution to the customers and include places such as Wal-Mart, Big Bazar, Reliance Fresh and Spencer’s. Physical distribution firms are places such as warehouses that store and transport the company’s product from its origin to its destination. Marketing services agencies are companies that offer services such as conducting marketing research, advertising, and consulting. Financial intermediaries are institutions such as banks, credit companies and insurance companies.
Another aspect of micro-environment is the customers. There are different types of customer markets including consumer markets, business markets, government markets, international markets, and reseller markets. The consumer market is made up of individuals who buy goods and services for their own personal use or use in their household. Business markets include those that buy goods and services for use in producing their own products to sell.
This is different from the reseller market which includes businesses that purchase goods to resell as is for a profit. These are the same companies mentioned as market intermediaries. The government market consists of government agencies that buy goods to produce public services or transfer goods to others who need them. International markets include buyers in other countries and includes customers from the previous categories.
Competitors are also a factor in the micro-environment and include companies with similar offerings for goods and services. To remain competitive a company must consider who their biggest competitors are while considering its own size and position in the industry. The company should develop a strategic advantage over their competitors.
The final aspect of the microenvironment is publics, which is any group that has an interest in or impact on the organization’s ability to meet its goals. For example, financial publics can hinder a company’s ability to obtain funds affecting the level of credit a company has. Media publics include newspapers and magazines that can publish articles of interest regarding the company and editorials that may influence customers’ opinions.
Government publics can affect the company by passing legislation and laws that put restrictions on the company’s actions. Citizen-action publics include environmental groups and minority groups and can question the actions of a company and put them in the public spotlight. Local publics are neighborhood and community organizations and will also question a company’s impact on the local area and the level of responsibility of their actions.
The general public can greatly affect the company as any change in their attitude, whether positive or negative, can cause sales to go up or down because the general public is often the company’s customer base. And finally those who are employed within the company and deal with the organization and construction of the company’s product.
2. Macro-Environment (External Environment):
The macro-environment refers to all forces that are part of the larger society and affect the micro- environment. It includes concepts such as demography, economy, natural forces, technology, politics, and culture. The macro-environment is less controllable.
Factors affecting organization in Macro-environment are known as PESTEL, that is- Political, Economical, Social, Technological, Environmental and Legal.
Demography refers to studying human populations in terms of size, density, location, age, gender, race, and occupation. This is a very important factor to study for marketers and helps to divide the population into market segments and target markets. An example of demography is classifying groups of people according to the year they were born.
These classifications can be referred to as baby boomers, who are born between 1946 and 1964, generation X, who are born between 1965 and 1976, and generation Y, who are born between 1977 and 1994. Each classification has different characteristics and causes they find important. This can be beneficial to a marketer as they can decide who their product would benefit most and tailor their marketing plan to attract that segment.
Demography covers many aspects that are important to marketers including family dynamics, geographic shifts, work force changes, and levels of diversity in any given area.
Another aspect of the macro environment is the economic environment. This refers to the purchasing power of potential customers and the ways in which people spend their money. Within this area are two different economies, subsistence and industrialized. Subsistence economies are based more in agriculture and consume their own industrial output.
Industrial economies have markets that are diverse and carry many different types of goods. Each is important to the marketer because each has a highly different spending pattern as well as different distribution of wealth.
The natural environment is another important factor of the macro-environment. This includes the natural resources that a company uses as inputs that affect their marketing activities. The concern in this area is the increased pollution, shortages of raw materials and increased governmental intervention.
As raw materials become increasingly scarcer, the ability to create a company’s product gets much harder. Also, pollution can go as far as negatively affecting a company’s reputation if they are known for damaging the environment. The last concern, government intervention can make it increasingly harder for a company to fulfill their goals as requirements get more stringent.
The technological environment is perhaps one of the fastest changing factors in the macro environment. This includes all developments from antibiotics and surgery to nuclear missiles and chemical weapons to automobiles and credit cards. As these markets develop it can create new markets and new uses for products.
It also requires a company to stay ahead of others and update their own technology as it becomes outdated. They must stay informed of trends so they can be part of the next big thing, rather than becoming outdated and suffering the consequences financially.
The political environment includes all laws, government agencies, and groups that influence or limit other organizations and individuals within a society. It is important for marketers to be aware of these restrictions as they can be complex. Some products are regulated by both state and federal laws.
There are even restrictions for some products as to who the target market may be, for example, cigarettes should not be marketed to younger children. There are also many restrictions on subliminal messages and monopolies. As laws and regulations change often, this is a very important aspect for a marketer to monitor.
The aspect of the macro-environment is the cultural environment, which consists of institutions and basic values and beliefs of a group of people. The values can also be further categorized into core beliefs, which passed on from generation to generation and very difficult to change, and secondary beliefs, which tend to be easier to influence. As a marketer, it is important to know the difference between the two and to focus your marketing campaign to reflect the values of a target audience.
When dealing with the marketing environment it is important for a company to become proactive. By doing so, they can create the kind of environment that they will prosper in and can become more efficient by marketing in areas with the greatest customer potential. It is important to place equal emphasis on both the macro and micro-environment and to react accordingly to changes within them.
The meso-environment is the setting between the macro and micro opportunities. It shapes the framework of a business or organisation and can be considered as its infrastructure- policies, standard operating procedures, rules and guidelines.
The meso concept is a difficult one to understand, there is very little research relating to the idea, although we can recommend, Micro-Meso-Macro by, Dopfer, Kurt; Foster, John; Potts, Jason. Journal of Evolutionary Economics, 2004.
From a practitioner’s point of view, it is fair to say that the meso-environment is rarely considered. In reality however, most companies are actually using it. Quality systems or staff hand-books are good examples of the meso. The big question is, “how many companies have considered the impact to the strategic processes when writing these documents”? A good example of where most businesses fail is with their IT policies.
Technology has changed so much, yet most corporate organizations have failed to capitalise on the opportunities, social networking can bring a new perspective to the marketing plan but the team is unable to exploit it because of IT restrictions!
Marketing Environment – Reasons for Studying Market Environment
It is very necessary to study internal and external environment of market in order to assess strength, weaknesses, opportunities and threats presented by marketing environment.
Why to study internal environment?
Internal environment is basically the environment prevailing within the organization.
It is an organizational environment in terms of its:
1. Business resources like brands, product features and product lines, competitive advantage, core competencies.
2. Infrastructure like men, machine, methods, materials and money
3. Relationships with stakeholders regarding business.
Internal environment study helps us in realizing organizational capabilities with reference to performance of different business functions. It basically directs towards analysis of strength and weakness within an organization. Strong areas or strength of an organization may help to explore long term advantage in market. Analysis of weak areas or weaknesses may help in realizing their marketing objectives accordingly.
Why to study external environment?
External business environments comprises of favourable events and unfavourable events. Favourable events if properly explored can result in leading a successful business. Unfavourable events if not managed effectively may pose tough times for the organizations. Scanning of external environment may lead to exploration of opportunities and threats.
Opportunities may help an organization taking advantage of external environment. Exploration of threats helps an organization to construct and implement a plan in order to safeguard their business interest.
Main purpose of environmental scanning is to recognize new marketing opportunities. Marketing opportunity is an area of buyer need or potential interest in which a company can perform profitably. Opportunities can be in many forms and marketers must have an ability of spotting them.
Marketing Environment – List of External Environment Factors
1. Competitive Environment:
The actions of competitors should be addressed in setting prices- what will competitors do if the company sets the price lower than that of competitors? Will they quickly meet the low price, beat it and offer an even lower one, or raise prices and put the additional money into advertising? Similarly, how will the competition react to a higher price? Will they raise their prices accordingly or advertise that their product is better value for less money?
Obviously, a firm cannot know precisely how competition will react to its prices, but they can obtain a good idea by studying and noting how competition has previously responded. One thing is certain- any price action that significantly threatens a competitor’s market share or sales volume will elicit a competitive response. This response may be in the form of either direct price competition or increased non price competition.
Telecom’s Mobile Phones division has had a policy of not engaging in direct price competition. They have, however, used other means of competition including offering customers the opportunity of purchasing a mobile phone for a mere $1 on completion of their lease.
i. Price Competition:
A quick perusal of the local newspaper will reveal that a fair amount of advertising is price oriented. Consider the price advertisements illustrated. Price is obviously an important competitive tool.
ii. Non-Price Competition:
Although price is an important competitive tool, many firms try to compete primarily on non-price variables for the following reasons. First, if a firm decides to compete primarily on price, its price cuts typically can be matched or even beaten by a competitor. For instance, when one petrol station in your neighbourhood markedly lowers its prices, other stations in the area do the same in a few days, if not hours.
Second, many firms also try to compete on non-price variables, such as prestige, convenience and taste, because buyers are looking for more than the lowest price. For example, groceries in convenience stores, nearer to your house are typically more convenient and acceptable than in large supermarkets far from your house. Customers are prepared to pay extra for convenience.
Third, firms compete on a non-price basis because it allows them to change the position of their demand curve. A demand curve shows the quantity that will be purchased at different prices. If a firm emphasises non-price factors such as product quality, brand image through advertising, or good customer service, then it could increase demand for the product and shift its demand curve to the right.
Shifting of the demand curve is especially important when the firm is selling an undifferentiated product in a perfectly competitive market, as is true for farm products such as wheat, corn, potatoes. In this situation the seller has no control over price and must sell at the market price unless the shape of the demand curve can be changed.
Indeed, the seller of the farm products, usually the farmer, cannot differentiate his or her wheat, corn or potatoes from the others available and hence when demand is great relative to supply, higher prices can be obtained. Conversely, when the demand is low, prices are low.
2. Legal Environment:
Businesses are not free to set any price they wish for their products or services. American antitrust laws, including the Robinson-Patman Act, the Clayton Act, and the Sherman Act, restrict certain types of pricing behaviour. These laws prohibit price discrimination, which means quoting different prices to different customers for the same product or service.
Such price differences are unlawful unless they can be clearly justified by differences in the costs incurred to produce, sell, or deliver the product or service. Managers should keep careful records justifying such cost differences when they exist, because the records may be vital to a legal defense if price differences are challenged in court.
Another pricing practice prohibited by law is predatory pricing. This practice involves temporarily cutting a price to broaden demand for a product with the intention of later restricting the supply and raising the price again. In determining whether a price is predatory, the courts examine a business’s cost records. If the product is sold below cost, the pricing is deemed to be predatory.
The laws and court cases are ambiguous as to the appropriate definition of cost. This is one area where a price-setting decision maker is well advised to have an accountant on the left and a lawyer on the right before setting prices that could be deemed predatory.
Marketers do not have total flexibility in their pricing decisions because of a variety of state and federal laws that regulate price decisions for businesses. The practice of horizontal price fixing is illegal in some countries. When a group of competing sellers establish a fixed price at which to sell their products, they are engaged in horizontal price fixing.
Trade Practices Act strictly prohibits agreements between businesses that fix prices by collusion are strictly prohibited. Vertical price fixing (or resale price maintenance) occurs when a retailer or wholesaler agrees with a manufacturer or other supplier to resell a product at an agreed-on price. This practice is illegal under the Trade Practices Act. The act states that a supplier cannot specify a minimum price below which goods cannot be resold or advertised for resale.
A supplier can recommend a price, but only if the document states that it is a recommended price only. This is rigidly enforced by the Trade Practices Commission.
Retail price maintenance stifles competition and therefore prevents consumers shopping around for the best price. Businesses also can suffer—especially if the product is in competition with rival brands. Being able to advertise and sell at a discounted price can mean the difference between making a sale and not making a sale. Loss leader selling is allowed under the Trade Practices Act.
A retailer may advertise and sell a product at below cost price to encourage customers into the shop. Once the customers are there, the retailer hopes they will also buy other goods. A supplier can, legally withhold supply from a retailer who has sold the supplier’s goods below cost price.
a. Price Discrimination:
Price discrimination occurs when two business firms buy identical merchandise and / or services from the same supplier but pay different prices. In Australia Section 49 of the Trade Practices Act states that suppliers of goods can normally give preferential prices (such as discounts) to their purchasers.
Suppliers will be in breach of the price discrimination prohibition:
i. If there is discrimination between different purchasers of goods of like grade and quality; and
ii. If the discounting is so large and happens so often that its effect is to substantially lessen competition either in the supplier’s or the reseller’s market.
Suppliers will not be in breach of this prohibition if their preferential pricing has a precompetitive effect on the market or if they can show that the difference in prices reasonably reflects the difference in costs, or likely costs, of manufacture, distribution, sale or delivery of the goods. Suppliers can also give preferential discounts to meet a competitor’s price.
b. Deceptive Pricing:
Deceptive pricing is illegal under the Trade Practices Act. Companies should avoid using a misleading price to lure customers into the store. Bait and switch pricing, a type of deceptive pricing, is when an item is advertised or promoted at an unrealistically low price to serve as ‘bait’ and then the customers are steered away from the low-priced item to a higher-priced model.
Also included within this category of deceptive pricing is advertising goods or services at a price below what the seller would be willing to pay and then adding on hidden charges. Not only is a firm’s customer being unfairly treated when the firm uses deceptive pricing, but the firm’s competitors are being harmed because some of their patrons may be diverted unfairly to the deceitful firm.
c. Predatory Pricing:
Predatory pricing occurs when a business charges different prices in different geographic areas in order to eliminate competition in selected areas. This practice is in violation of the Trade Practices Act which forbids the sale of goods at lower prices in one area for the purpose of destroying competition or sales of goods at unreasonably low prices for such purpose.
Marketing Environment – Impact of Marketing Environment on Marketing Decisions
According to Mary Strain of Demand Media, USA, The marketing environment is everything a company must take into consideration when developing and presenting a new product. The elements of a marketing environment include, but are not limited to, the changing preferences of customers, the competition, the legal, political and regulatory environment, the company’s resources and budget, current trends and the overall economy. All these elements affect the marketing decisions or at least they should, because all of them influence the company’s prospects.
All marketing decisions should take into account the consumer preferences and current market trends. For example, many large retailers have decided to adapt to consumers’ increasing enthusiasm for social media by establishing corporate Twitter accounts and opening online storefronts on Facebook.
Consumers no longer need to visit a retailer’s main website to buy – some platforms allow them to make the purchase without ever leaving Facebook. Companies that fail to take major trends into account may find their sales lagging behind the competitors that are in sync with the current trends.
Demographics give marketers details about who is buying or should be buying their services and products. Ethnicity, age, lifestyle, housing, household composition, income and education are just a few demographic points that marketers track, and take into account while taking marketing decisions. For example, a demographic trend of increasing money power in the hands of the rural population will give rise to a shift in marketing policy focused only at the cities to shift towards the rural areas.
Your corporate budget or the amount of finance available to you will definitely impact your marketing decisions. For example your advertising budget will determine exactly which media you will use to grab the attention of the consumer.
The Current Economic Scenario:
Economic trends can be local, regional or even global, and may cause marketers to increase or decrease spending depending on the buying power in each marketplace.
The overall current existing economic scenario is thus a major factor influencing the marketing decisions. If the overall economic scenario is one of depression or on a decline then the consumers by and large will have less finance at their disposal to buy your products and services. In such a scenario the company’s pricing decisions will usually be that of pricing below the competition.
All prudent marketing decisions must take into account the competitors. A good marketer will have complete information on who is the competitor, where they are and how good the competing product is. Further a good marketer will be in complete sync with the marketing strategy of the competition as it directly affects his own marketing decisions. If for example your competitor is charging a particular amount for a particular size or package of the product you may decide to price either over, below or with the competition depending on the status of the other environmental factors.
Legal and Political:
The changes in the political and legal environment too affect the marketing activities. For example the passing of the legislature of allowing FDI in single brand retail by the Indian Government had a high level of impact on all single brand retail organisations that geared up to open their outlets in India.
In a similar move the Passing of the legislature for allowing FDI in multi brand retail too has had its impact on the marketing decisions to be taken not just by the brands gearing up to enter India but the other Indian big and small retailers who foresee these giant multi brand retail outfits as their competitors.