Marketing Environment - BBS TU notes

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  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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