Meaning of Marketing Environment
Environment consists of surroundings or forces influencing growth or development. In broader sense, marketing environment is the totality of forces that affect on the marketing decision and the attainment of the marketing goal. Cravens, Hills and Woodruffdefines marketing environment as "the forces, which are external to the marketing management function, largely uncontrollable, potentially relevant to marketing decision making, and changing and/or constraining in nature.
Thus, marketing environment encompasses all those factors or forces which are constantly changing and carry with them both opportunities and threats or uncertainties and risks, which can support or loose threats for the future of marketing of a firm's products and/or services. These forces include both human and non-human factors that affect a marketer's business life. The marketing environment is more important to management today than ever before. This is both because the rate of environmental change has increased and because there are more types of important environmental change.
Features of Marketing Environment
Marketing environment includes those forces, which are external in nature and cannot be controlled or manipulated by the marketer when and wherever required; Forces in marketing environment are changeable in nature; they go on changing over time; such as habit of people, their needs and wants, technology, demographic character of the people, politics, rules and regulations, competition, etc. Marketing environment is dynamic in nature and may create constraints and threats to the management over time; without the consideration of which smooth functioning of management is not possible.Marketing environment is the source of not only challenges to the management it is also the strong source of opportunities. A marketer identifies business opportunities from among the marketing environmental forces.
Some of the Trends in Marketing Environment
An environmental trend is a direction or sequence of events that have some momentum and durability. Some of the present trends in micro and macro environment may be as follows:
The booming global economy;
The increasing power of Dollar;
The increasing pressure of open economy and globalization;
The increasing competition in the world market;
The increasing trend of privatization;
The increasing political unrest in the world;
The increasing cultural divisions (linguistic, religion, and ethnic conflicts);
Breakdown of cold war and shift of political power to few countries;
Increasing role of women in society and politics;
Economic miracle of East Asian countries;
Development and adoption of new technologies;
Massive development in information technology, especially the Internet; etc.
Scope of Marketing Environment
Marketing environment can be classified into two groups – external and internal environment. An external environment consists of macro and microenvironment. Both of these micro and macro environments are uncontrollable in nature and have considerable effect on any organizational system; while internal environment includes those forces, which can be controlled or manipulated by the management whenever required.
Internal Environment
Internal environment consists of the following forces:
Production and Marketing Facilities;
Financial Resources
Human Resources;
Company Location;
R & D Capability; and
Company Image.
However, internal environment is controllable in nature; it has least effect on a firm’s marketing decisions. Therefore, for our study, external environment is discussed in detail. A firm’s external environment can be classified into two categories – micro environment and macro environment.
Classification of External Environment
External environment consists of macro-environment and microenvironment.
Micro Environment
Microenvironment consists of the following three environmental forces.
The Firm's Market
Producers and Suppliers; and
Marketing Intermediaries.
Macro Environment
Macro-environment is comprehensive in nature and is beyond the company's marketing system. It consists of the following seven environmental forces as follows:
Economic Environment
Demographic Environment
Socio-Cultural Environment
Technological Environment
Political and Legal Environment
Natural Environment
Competitive Environment
External Environment
Micro Environment and its Variables
Micro environment, also called as task environment, which includes the main players in the market. It consists of three external environmental forces, but are a part of a company's marketing system; these are
(a) the firm's market
(b) producer-suppliers, and
(c) marketing intermediaries.
Though these forces are classified as non-controllable forces, these forces can be influenced to a greater degree by management than the macro forces. In other words, these are partly controllable in particular situation.
A Firm's Market
A 'Market' is defined in different ways. It may be defined as a place where buyers and sellers meet, goods or services are offered for sale, and ownership of goods or services is transferred. Since the terms 'Market' and 'demand' are often used interchangeably, a ' market' may also be defined as the demand made by a certain group of potential buyers for a good or service. However, these definitions cannot fulfill the basic objective of marketing since these are narrow in coverage. In comprehensive term, a market can be defined as "People or businesses or organizations with the potential interest, purchasing power, and willingness to spend money to buy a good or service to satisfy a need. "Therefore, a market may be either an individual consumer (Consumer market), or an industrial user (industrial market), or a government (government market). An industrial market and government market is organizational market. A consumer market consists of potential buyers who intend to benefit from the goods or services themselves rather than buying for the major purpose of reselling it. An industrial market consists of businesses, individuals, or organizations that purchase goods and services for resale purpose. And a government market consists of organizations that purchase products for the final use in the organization. Though a firm should design its products and marketing activities on the basis of the market needs, the management may, to some extent, influence such needs by diverting such needs of changing decision regarding the target market.
Producer-Suppliers
Producer-Suppliers consist of individuals or organizations regularly supplying the products to the marketing organization for reproduction or resale purpose. Success of marketing organizations depends upon the regular supply of goods and services by the suppliers. But marketing executive often does not concern much with the supply side because supplies can be changed on the basis of marketer's requirement. However, the role of suppliers becomes more important and critical during the period of scarcity.
Marketing Intermediaries
Marketing intermediaries are independent business organizations that help the flow of goods and services from the producing points (marketing organization) to the consumption point (markets). Marketing intermediaries may be either (i) resellers such as agents, distributors, wholesaler, retailers, or other forms of middlemen; or (ii) various facilitating organizations providing services in the flow of goods and services, such as transportation, warehousing and financing (bank and insurance) that are needed to complete exchanges between buyers and sellers. These intermediaries are popularly known as 'Channels of distribution'. When the marketing organizations are not capable of reaching directly to target market, the role of these intermediaries becomes decisive and can affect the management decision. But when a marketing organization is capable or intends to distribute products by itself without using intermediaries, in that particular situation. The role of some intermediaries may be minimized.
Macro Environment and its Variables
Economic Environment According to economic law,
the marketing of a particular product largely depends upon two factors- ability of the consumers to spend and their willingness to spend. One without other cannot fulfill the marketing objective. If a consumer is able as well as willing to spend for a particular product, in such a situation only goods or services could be marketed. In this situation only we can say that the consumer's purchasing power is positive. Total purchasing power is a function of current level of income, monetary & fiscal policy, level of employment, rate of inflation, etc. Marketers should be able to study and analyze the major trends of the economy.
Economic Factors to be analyzed
1. Level of Income:
Their level of income affects consumers' purchasing power. Higher the level of current income, the higher will be the purchasing capacity. As such, the people will be able and willing to purchase more goods and services; or they will consume more commodities. The people of rich countries have comparatively more purchasing power. As such, they buy and consume more commodities as compared to the people of poorer nations.
2. Economic Policy of the Government.
The economic policy of the government includes basically the monetary policy and fiscal policy. Monetary policy is more concerned with the determination of interest rate, supply of money in the country, maintaining status of the currency; while fiscal policy is more concerned with the debt pattern of the country's people. Higher the level of money supply, the higher will be the level of income and higher will be the purchasing capacity of the people. As such, they tend to buy and consume more commodities. Similarly, higher the level of tax burden to the people lower will be their saving capacity and thus, lower will be their purchasing capacity. In this situation, they tend to buy and consume less.
3. Level of Employment:
Employment is the major source of income in any country of the world. If the level of employment in the country is high, then the level of income of the people becomes higher, as such, their purchasing power will be increased and they tend to buy and consume more commodities.
4. Rate of Inflation:
Inflation is the killer of the people's purchasing power. Higher the level of inflation, lower will be the saving capacity of the people. As such, they tend to buy and consume less. On the other hand, if the rate of inflation is low, their saving capacity will be improved, as such, they tend to buy and consume more commodities. Changes in such major economic forces have an immediate impact on the marketplace. So companies whose products are highly income-and price-sensitive need to invest in sophisticated economic forecasting
Impact of Economic Change
The economic change can have a major impact on a firm’s behaviour. For example:
Higher interest rates may deter investment because it consists more to borrow.
A strong currency may make exporting more difficult because it may raise the price in terms of foreign currency.
Inflation may provoke higher wage demands from employees and raise costs.
Higher national income growth may boost demand for a firm’s products. Deterioration in employment situation in the country may damage the purchasing capacity of the people and the firms may feel difficult in surviving in the market in such situation.
Demographic Environment
Demography represents the statistical study of human population and its distribution characteristic. It is an utmost important task for the marketing executives to study about the changing pattern of demography in the country, because population of any country is the main target market of the marketing organization. There are specially two aspects of demography to be studied for making marketing decisions total population of the country and its distribution structure.
1. Total population and its Growth:
The greater the number of population, greater will be the chance of marketing goods and services of the company, because a big size of population means a big size of market for the products. If the rate of population growth goes on increasing, then the demand for the products also goes on cumulating. On the other hand, if the size of population and its growth rate is small, this means the market for the company s products is also small.
2. Structure of population distribution:
Population of the country is distributed in different ways as follows:
Geographical distribution of population.
Sex- wise distribution, including male and, female.
Age wise distribution, including children, youth and old.
Marital status such as, married and unmarried, married with no child, old couple with few children, or many children, old couple with no child, etc.
Fertility and mortality rate.
Population density such as, thick population, thin population, etc.
Distribution by education status such as, educated people are more sensitive about the products and services than illiterate people.
Religious structure such as, Hinduism, Buddhism, Muslims, etc
Change in the total population, population growth and population distribution structure largely affects the company's plan, policy and strategic decisions. Therefore, for the formulation and implementation of effective plan, policy and strategic decision, the company must be able to make a detailed study and analysis about demographic factors.
Socio-Cultural Environment
Culture is the means used in adjusting to the biological, environment, psychological, and historical components of human existence. A society is a group of people having distinct beliefs, knowledge, costumes, habits, taste, values culture and life-style. These socio-cultural characteristics differ from people to people and society to society. Therefore, their choice of goods and services also differ from one another. With the passes of time, these characteristics go on changing. A successful market is one who can adjust its product to the changing socio-cultural environment. Change in socio-culture may include demography of society, ageing of population, consumerism, etc. Therefore marketer must be able to make a detail study and analysis of these characteristics.
1. Demographics of Society:
The consumption pattern of urban people, males, children, educated people, married people and urban people may differ substantially from those of rural people, females, youths or old-aged people, illiterate people, unmarried people, and mountainous people.
2. Cultural Value of Society:
Cultural value of society reflects the religious structure of society, role of men and women, existence of sub-cultures, etc. The belief, taste and habit of a Hindu differ from that of a Muslim and Buddhist. Under a single religious group also there may be several sub-cultural and ethnic groups whose consumption pattern may differ from one another. Some may be vegetarians, while others may be non-vegetarians. In some society, women dominant men in selecting, preferring and consuming goods, while in some society, men dominate women. Due to this diverse nature of cultural value of the society, a marketer had to treat them differently.
3. Socio-economic Characteristics of Society:
Socio-economic characteristics of society reflect the level of income of the society or family, distribution of income in society, level of employment and unemployment, saving capacity of society or family. Some families may belong to high-income group; some may belong to low- income group, while others belong to middle-income group. Therefore, their consumption pattern also differs from one another.
4. Ageing of Population:
Increased rate of aging population may costs for firms who are committed to pension payments for their employees, decrease in economic active population in the country. In some of the advanced countries like in UK, Japan, Israel, and USA, the ageing trend has been increasing. These countries need to import population from developing countries to support such aged population and employ in industries. In the UK, for example, the population has been ageing and this trend has increased the costs for firms who are committed to pension payments for their employees because their staffs are living longer. It also means some firms such as ‘Asda’ have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodations and medicines have increased whereas demand for toys is falling. Similarly, the impact of ageing population in a particular country or some countries may have effect of ‘labour flight’ from especially the developing countries, which may have adverse effect on industrial and economic growth in such developing countries.
5. Consumerism:
Consumerism reflects the social movement in favor of or against the goods and services offered by a marketer or a company. While analyzing consumerism, a marketer must be able to understand and study about several factors such as concept of the particular groups on the marketing mix, their safety, their right, their influence on each other, information received by them, motivational factors, etc. If the concept of the particular groups about the marketing mix offered by a marketer is positive, they will move in favor of the company's products, as such, there could be a good chance for the company to go forward. Due to the safety and health reasons, sometimes people move against the products such as, smoking, use of Hemoglobin contained medicines, etc. Sometimes one group of people may influence the other groups and motivate them to do as they do. Culture is a complex phenomenon. It comprises the way in which we do things, say things, use things, and judge things, and it varies from society to society. For a marketer it is a very difficult task to study and analyze about the diverse culture of the society. But without an appropriate analysis of socio-culture, it would be quite difficult for him to formulate a suitable marketing program and decision.
Technological Environment
Technology is the knowledge and procedure used in the conversion of resources to a finished product. The simplest definition of technology, is, ‘the practical application of science, new or old, to meet a need or solve a problem’. (International Business: text & cases edited by Jill Preston, p.55), A simple illustration is applying salt to roads in winter: this application of science, lowering the freezing point of water by adding salt to it, is the simplest and earliest form of what is now called ‘de-icing technology’. The technology has grown beyond the simple spreading of salt to include highly sophisticated systems, which keep airport runways open, prevent ice building up on aircraft wings, and remove frost from car windscreens. Most modern technology is freely a combination of several others. The OECD Frascati Manual talks about ‘technological innovation’ as ‘the transformation of an idea into a new or improved saleable product or operational process in industry and commerce or into a new approach to a social service. It thus consists of all those scientific, technological, commercial and financial steps necessary for the successful development and marketing of new or improved manufactured products, the commercial use of new or improved processes and equipment or the introduction of a new approach to a social service’. The economic, social and industrial development of the advanced countries is mainly due to the development of appropriate and advanced technology.
Contributions of Technology
Technology has usually four effects on business;
It leads to better-finished products. Over time, functionally superior products are developed.
It can improve both effectiveness and efficiency of the conversion process so that a superior product is produced at a cost lower than its predecessor.
It can change not only the-product's cost but also the demand functions, product itself, or product mix, to its own advantage. Technology can reduce production costs by more than the cost increases imposed by transient local factors, such as labour rates or currency fluctuations. For example, Matsushita, between 1985 and 1987, reduced the cost of its video recorders by 20 per cent, despite a 46 per cent appreciation in the yen, for example. Many other Japanese industries have been outstandingly successful in using this aspect of technology to achieve global growth, reducing prices in world markets to levels lower than their competitors could profitably sustain.
It improves competency of the company and leads to a quick growth of the company as well.
New technologies were developed basically after the World War II. Technology provides new opportunities to the individual consumers, society and the company as well. So technology cannot be separated from human beings these days since the degree and level of human and social change depends upon the change of technology.
Technological Factors to be Analyzed
If marketers want to cope with the global change, they must be able to adapt to the modern and approach technology. For this purpose, they must analyze at least the following technological change in the market or the world as well.
The pace of technological change in the market;
The level of technological adaptation in the market;
Competitors’ move on technological change;
The strength of the technology that is to be adopted by the firm.
Political and Legal Environment
The political system is a broad term covering the firms and institutions by which the nation is governed. It consists of an interacting set of laws, government agencies, and pressure groups that influence and constrain the conduct of various organizations and individuals in the society. While formulating a marketing plan and program, a marketer must be able to analyze all these political and legal factors.
1. Type of Government and Permanency of Government:
Type of government refers to a particular government having a particular ideology and principle of governing the nature. Change in the form of a particular government before its tenure-ship is called as temporary government. Frequent change in government creates business uncertainties because of changes in business policy and law regulating such policy. The nature of business policy may differ according to the type of government. Some government may desire to have greater intervention on business activities; while other may grant some sort of freedom or autonomy in business conduct.
The degree of intervention in business may determine –
What goods and services does a government want to provide?
To what extent does it believe in subsidizing firms?
What are its priorities in terms of business support? etc.
Political decisions can impact on many vital areas for business such as the education of the workforce, the heath of the nation, peacefulness in business sector, infrastructural development in the country, etc. For the smooth functioning of business sector, the country must have permanent government at least for a specified time period. Frequent change in government also results in frequent changes in government laws, rules and regulations, which may develop certain restrictions or control in business. Permanency of government is affected by several factors, such as; frequent change in government, shift of political parties in the head of the government, etc.
2. Government Laws, Rules and Regulations:
Government laws, rules, and regulationsare concerned with the legal environment of the country in which firms operate. All marketing organizations must follow government laws, rules and regulations. Any organization not incorporated under the concerned laws, rules and regulation becomes their operation illegal. Government laws, rules and regulation control all activities of the marketing organizations. There are several forms of laws such as;
a. Consumer laws – these are designed to protect customers against unfair practices such as misleading descriptions of the product.
b. Competition laws - these are aimed at protecting small firms against bullying by larger firms and ensuring customers are not exploited by firms with monopoly power.
c. Employment laws – these cover areas such as redundancy, dismissal, working hours and minimum wages. They aim to protect employees against the abuse of power by mangers.
d. Health and safety legislation – these laws are aimed at ensuring the workplace is as safe as is reasonably practical. They cover issues such as training, reporting accidents and the appropriate provision of safety equipment. Hence, there are three basic purposes of government regulations:
i. To protect companies from each other;
ii. To protect consumers from unfair business practices; and
iii. To protect the larger interest 'of society against unbridled business behaviour. The marketing executive needs' a good working knowledge of the major laws protecting competition, consumers and the larger interests of society.
3. Power and Influence of Government Agencies:
Government agencies include various government organizations, ministries, and departments that enforce the laws, rules and regulations concerned. In Nepal, Ministry of Industry is responsible to 'formulate' Industrial Policy, Ministry of Commerce is responsible to formulate Trade Policy, and so on. These agencies influence the conduct of marketing organizations by issuing and implementing policies. They enjoy power to penalize the companies if the companies neglect the policies concerned.
4. Increasing Pressure Groups:
Pressure groups, also known as social groups or public relation groups, have power and influence on restraining marketers. Here, pressure groups indicate Chamber of Commerce, Federation of Nepal Chamber of Commerce & Industry, Nepal Foreign Trade Association, Specialized Trade Associations, Women's Organizations, Human Rights Organization, Consumers' Association, etc. All these groups have their own role, power, and influence on the company's conduct. Therefore, the marketers must be clear about their plans and policies with the company's legal, public relations and/or public affairs department.
5. Political Climate:
For better business performance, there must be better political climate in the country. Political climate is more concerned with the political attitude i.e., government attitude towards the opposition party and the business community, attitude of opposition party towards the government and business community, attitude of politicians towards the business community and their respective politicians, attitude of people towards the government, business community and the political parties, etc. In principle, all the parties concerned must have positive attitude towards each other. Otherwise, business communities may not be able to work efficiently and effectively due to the creation of uncertainty in business climate.
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