Marketing Management

MARKETING ENVIRONMENT

Market and Environmental Analysis

 Lecture Outcomes

 The components of marketing environment

 The key elements of the environment

 How firms go about analyzing the environment

 How the environmental factors changing markets

 Factors involved on internal environments

 Key tracking and identifying opportunities in the

microenvironment

 Dynamic and complex marketing environments

 Example of each environment.

p. 02
 Introduction

The marketing environment consists of external factors and

forces that directly and/or indirectly impact the organization
to develop and maintain successful relationships with its
target customers.

There are two perspectives (sometimes three) namely:

1. the macro-environment,

2. the micro-environment,

3. the internal environment.

The external environment, which includes all the

external factors—competitive, economic, political,
legal/regulatory, technological, and sociocultural—that
can exert considerable direct and indirect pressures on

p. 03
both domestic and international marketing activities.
 Introduction: Marketing Environment

Micro- consists of the forces close to the company that

environment affect its ability to serve its customers, e.g.,
 the company,
 suppliers,
 marketing channel firms,
 customer markets,
 competitors and publics.

Macro- consists of the large societal forces that affect

environment the micro-environment:
 Demographic environment,
 Economic environment,
 Natural environment,
 Technological environment,
 Political environment, and
 Cultural forces.
p. 04
 Marketing Environment

Demography
Cultural &
Customers
Social
Suppliers
Economic
The factor
Organization Distributors
Company’s Internal Environment
Natural
Competitors force

Supply chain Technological

change
Political issue

Fig: Marketing Environment including micro, macro and internal environment

p. 05
 Introduction: Marketing Environment

Internal All factors that are internal to the organization

environment are known as the 'internal environment'.

They are generally audited by applying the 'Five

Ms' which are Men, Money, Machinery, Materials
and Markets.
The internal environment is as important for
managing change as the external.

The internal environment can be audited using

other approaches such as
 SWOT Analysis,
 Michael Porter's Five Forces Analysis or
PEST Analysis.
p. 06
 Marketing Environment

With regard to the question of how the organization monitors

the environment, there are two types of environments are:
1. Dynamic environment
2. Complex environment
In a dynamic environment, organization is typically faced with
major change in the areas of technology and markets, with
the result that decisions can no longer be based upon the
assumption, rather than that of scientific basis.

The focus needs to be upon the future with a far greater

degree of inspirational interpretation. Idea of alternative
futures can then be used to identify the likely impact upon
consumers, suppliers, competitors, government, the financial
institutions, their probable responses.

For organizations faced with a complex environment, many of

the issues and problems to which reference has been made
are exacerbated.
p. 07
 Questions in Environment Based Marketing

Marketing analysis is based upon the answers to six questions:

1. How complex is the environment? (Complexity is a measurement of the

number of different environmental forces which have an impact, or potential impact)

2. How routine and standardized are orgn interactions with

elements of the environment?
3. How interconnected and how remote, initially, are the
significant environmental variables?
4. How dynamic and how unpredictable are the changes
taking place around the organization?
5. How receptive is mgt to the ways in which environmental
pressures adversely affect input and output processes?
6. How is flexibility of choice and to what extent is the orgn
constrained from moving into new areas?
p. 08
 Micro Environment

The micro-environment is made up of those elements that

are closest to the company and that exert the greatest and
most direct influence over its ability to deal with its markets.

The micro-environment includes:

 the organization itself,
 other company departments,
 suppliers,
 marketing intermediates,
 customers,
 competitors, and
 various publics, which make up the company’s market.

Marketing management’s job is to attract and build

relationships with customers by creating value and satisfaction.
p. 09
 Micro Environment: The Company

In designing marketing plans, marketing management takes

other company groups into account – groups such as:
 Top management,
 Finance,
 Research and development (R&D),
 Purchasing,
 Manufacturing, and
 Accounting.
All those interrelated groups form the internal environment.

 Top management,
 Finance,
 Research and development,
 Purchasing,
 Manufacturing, and
 Accounting.

p. 10
 Micro Environment: The Company

The responsibilities of all departments:

 Top management sets the company’s mission, objectives,

broad strategies and policies. Marketing plans must be
approved by top management before be implemented.

 Finance is concerned with finding and using funds to

carry out the marketing plan.

 Research and development (R&D) department focuses on

designing safe and attractive products;

 Purchasing worries about getting suppliers and materials,

 Manufacturing is responsible for producing the desired

quality and quantity of products.

 Account measures revenues and costs to help marketing.

p. 11
 Micro Environment: Suppliers

 Suppliers provide the resources needed by the

company to provide its goods and services,
therefore, they are linked in the company’s overall
customer value delivery system.

 Suppliers sometimes are treated as partners to

provide customer value

 Marketing managers must watch supply availability,

supply shortage or delays, labor strikes, and other
events

 Marketers must watch supply availability and pricing

 Effective partnership relationship management with

suppliers is essential
p. 12
 Micro Environment: Marketing Intermediates

Marketing intermediates help the company to:

 promote,
 sell, and
 distribute its goods to final buyers.

They include:
 resellers,
 physical distribution firms,
 marketing services agencies, and
 financial intermediates.

Resellers are distribution channel firms that help company

find consumers or make sales to them. These include:
 wholesalers, and
 retailers.

Physical distribution firms help the company to stock and

move goods from their profits of origin to their destinations.
p. 13
 Micro Environment: Customers

Consumer markets consist of individuals and households

that buy goods and services for personal consumption;

Business markets buy goods and services for further

processing or for use in their production process;

Reseller markets buy goods and services to resell at a profit;

Reseller
Market
Govt. markets are made up of
govt agencies that buy goods

Business Government & services to produce public

Market Market services or transfer the
goods and services to other;

International markets consist

Consumer International
Market Market of buyers in other countries,
plus consumers, producers,
Fig. Different types of consumers resellers and governments.
p. 14
 Micro Environment: Competitors

A company must provide greater customer value and

satisfaction than competitors do.

Marketers must:
 do more than simply adapt to the needs of target
consumers,
 also must gain strategic advantage by positioning
their offerings strongly against competitor’s
offerings in the minds of consumers.
 provide better customer satisfaction than
competitors do.
 consider its own size and industry position
compared to those of its competitors.

No single marketing strategy is best for all companies.

p. 15
 Micro Environment: Competitors

Three types of competitors are:

 Brand Competitors - Market similar products to same

customers at similar prices, e.g., pharmaceutical products

 Category Competitors - Market different products that solve

same problem or satisfy same basic customer need, e.g.,
stationary products, software service etc

 Total Budget Competitors - Other competitors for the

disposable income of the customer

Benefit Provided:
Brand Category Generic
Competitors Competitors Competitors

Self Study
p. 16
 Micro Environment: Publics

A public is any group that has an actual or potential interest

in or impact on an organization’s ability to achieve its
objectives.
There are seven types of publics:

 Financial publics influence

the company’s ability to Financial Media
public public
obtain funds. Banks,
investment houses, and
stockholders are the major Government Citizen action Local
financial publics. public public public

 Media publics carry news,

features, and editorial General Internal
public public
option. Newspapers, magazines,
and radio-television stations are
included in this group. Fig: Different types of publics
p. 17
 Micro Environment: Publics

 Government publics take government developments into

account. Marketers often consult company’s lawyers on
issues of product safety, advertising truth & other matters.

 Citizen action public - company’s marketing decisions may

be questioned by consumer organizations, environmental
groups, minority groups and others.

 Local publics, include neighborhood residents and

community organizations. Large company usually appoints
a community relations officer to deal with the community,
attend meetings and contribute to worthwhile causes.

 General public - company needs to be concerned about the

general public’s attitude toward its products and activities.

 Internal public, includes workers, managers, volunteers,

and board of directors. When employees feel good about their
company, this positive attitude spills over to external publics.
p. 18
 Macro Environment

The company and all of the other actors operate in a

larger macro-environment of forces that shape
opportunities and pose threats to the company.

Six major forces in the company’s macro-environment are:

1. Demographic environmental,

2. Economic forces, DE

3. Natural issues, EF
CF
4. Technological issue, Macro
Environment
5. Political forces, and
PF NI
6. Cultural forces.

p. 19
TI
 Macro Environment: Demography

 Demography is the study of human populations in terms

of size, density, location, age, gender, race, occupation
and other statistics.

 Demographic environment is of major interest to

marketers because it involves people, and people make
up markets.

 The world population is growing at an explosive rate. It

now totals more than 6 billion and will exceed 7.9 billion
by the year 2025. A growing population means growing
human needs to satisfy.
 Exam: People in SSWD (single, separated, widowed, divorced) group
need smaller apartments, & food packed in smaller size.
p. 20
 Macro Environment: Demography

Two main factors involved are:

1. Migration, and
2. Diversity

Migration: People are frequently migrating from less

developed region (less comfortable) to
comparatively much developed (comfortable)
region.

Exam: In Bangladesh, most poor people tend to shift in

Dhaka city for a work.

Reason: The garments industry offers work for women and

children. Men are engaged in different works, at least
they pull rickshaw, pull non-powered cars etc.
p. 21
 Macro Environment: Demography

Americans are a mobile people with about 12 million US

households (more than one out of every ten) moving each year.

Such population are of interest to marketers because people

in different regions buy differently.

Diversity: Please see two countries. Japan, where almost

everyone is Japanese.
The united States, with people from virtually all
nations.

USA has often been called a ‘melting pot’ in which

diverse groups from any nations and cultures
have melted into a single, more homogeneous
whole, seems to become a Salad Bowl.
p. 22
 Macro Environment: Demography

Exam: The US population is:

72 percent White,
13 percent African Americans
11 percent Hispanic
3 percent Asian
1 percent native (Eskimos and Aleuts)

The US-Asian population also has grown rapidly in

recent years and now totals about 3 percent of the
population.

During the next half century, the proportions of

both Hispanic and Asians will more than double.

Such population shifts interest marketers because people

in different regions buy differently. Also Americans have
been moving from rural to metropolitan areas continuously.
p. 23
 Macro Environment: Demography

Therefore, more people are:

• Divorcing or separating
• Choosing not to marry
• Choosing to marry later
• Marrying without intending to have children
• Increased number of working women
• Stay-at-home dads

Bangladesh Issue:
• Living in: Rural 72%, Urban 21%, Semi-urban 7%
• People: about 57% of population is below 25 years of age
• Birth rate: High population growth rate- 1.57%
• Religion: mostly Muslim, with about 10% from other religions
• Literacy: 47.9%, 15+ year old literacy rate increased 12% in 10 yrs.
• Family: Trend of nuclear families in urban areas.
• Population density: highest population density in the world
• Facilities: most public facilities are in urban area, i.e., internet.
p. 24
 Macro Environment: Demography
People make up the market, the basis for any market:

Baby &  Pre- and early adolescents, age upto 12

Tweens  View TV ads as “just advertising”

Teens  Spend approximately 72 hours per week tuned in

electronically
 View shopping as a social sport
 Adapting online shopping

Generation  Born between 1979 and later

Y  Surpassed population of baby boomers in 2010
 Two Stages: 1) Just passed teenage,
2) On careers and started families.
 Gen Y found to be: inquisitive, quick shoppers, opinionated,
diverse, multi-taskers, good time managers, environmentally aware.

Generation  Born between 1965 and 1978

X  Independent, tough, adaptable, cautious, and
skeptical
 Max buying capability, home owner, ought to goal
 Avid buyers of the latest technology and recreation
p. 25
 Macro Environment: Economic

 Economic environment consists of factors that affect

consumer purchasing power and spending patterns.

 Marketers need to consider the state of a trading

economy in the short and long-terms.

 Some countries have subsistence economics – they

consume most of their agricultural and industrial output
e.g. India. These countries offer few market
opportunities.

 Marketers must pay close attention to major trends and

consumer spending patterns both across & their markets.

 Industrial economies are richer markets

p. 26
 Macro Environment: Economic

The marketers should have to look at:

•Interest rates,

•The level of inflation employment level per capita,

•Long-term prospects for the economy GDP per capita.

Also on:
 Changes in income

 Value marketing, involves

ways to offer financially
careful buyers greater value
- right combination of quality
and service at a fair price

p. 27
 Macro Environment: Economic

Economic situation changes in consumer spending patterns

Ernst Engel: ‘Engel’s law’

As income rises:
• The percentage spent on food declines

• The percentage spent on housing remains constant

• The percentage spent on savings increases

Bangladesh Issue:

 GDP 6.7%
 Inflation ~10%
 Exchange Rate BDT 82 per USD
 Steady economic performance despite global slowdown.

p. 28
 Macro Environment: Natural

Natural environment involves the natural resources that

are needed as inputs by marketers or that are affected
by marketing activities.

Marketing trends:
 Shortages of raw materials
 Increased pollution
 Increase government intervention
 Environmentally sustainable strategies

Marketing Issues:

1. First issue involves growing shortage of raw materials. Air

and water seem to be infinite resources, but some non-
renewable resources, such as oil, coal etc. are limited.
p. 29
 Macro Environment: Natural

2. The second issue is increasing pollution. Industry will

almost always damage the quality of the natural
environment. Consider the disposal of chemical and
nuclear wastes, the dangerous mercury level in the
ocean, etc.

3. A third issue is increased governmental intervention in

natural resource management. The governments of
different countries vary in their concern and efforts to
promote a clean environment. Example: In Germany,
government vigorously pursue environmental quality.
Otherwise, many poor nations, like Bangladesh, do little
about pollution.

4. Environmentally sustainable strategies

p. 30
 Macro Environment: Natural

Example:  Arong, a famous show-piece and ready-made

garment selling division;
 Kumudini, as like as Arong
- eliminated polystyrene and polyethylene
carton and shopping bags and now uses
smaller, recyclable paper wrappings and
napkins.

 Bata, a worldwide shoe manufacturing company

uses such type of cartons in place of
polyethylene bags.

 McDonald’s eliminated polystyrene cartons and

now uses smaller, recyclable, biodegradable
paper wrapping and napkins
p. 31
 Macro Environment: Technology

Technological environment is perhaps the most

dramatic forces that create new technologies,
creating new product and market opportunities.

Examples:
 New antibiotics (saving lives),
 Organ transplants (Enhancing lives),
 Notebook computers (making easy life),
 Cell phone & Internet (easy communication).

Marketing stimulating innovation are:

 Build scenarios
 Enlist the Web
 Talk to early adopters
 Use marketing research
 Create an innovative environment
 Cater to entrepreneurs
p. 32
 Macro Environment: Technology

The technological environment changes rapidly. Example:

Abraham Lincoln did not know about automobiles, air phones,

radios, or the electric light.

Woodrow Wilson did not know about television, aerosol cans,

automatic dishwashers, room air-
conditioners, antibiotics or computers.

Franklin D. Roosevelt did not know about Xerography, synthetic

detergents, tape recorders, birth control
pills, or earth satellites.

John F. Kennedy did not know about personal computers, CD

players, VCRs, or the World Wide Web.

Barak Obama ?? every new technology replaces an older

technology; old industries are fighting to
survive, adapting new technologies… .
p. 33
 Macro Environment: Political

Marketing decisions are strongly affected by developments in

the political environments, that consists of laws, government
agencies and pressure groups that influence and limit various
organizations and individuals in a given society.

The political arena has a huge influence upon the regulation

of businesses, and the spending power of consumers and
other businesses. Therefore, considering issues:

 Stability in the political environment;

 Government policy and laws on rules & regulations, tax;
 Government's position on marketing ethics;
 Government's policy on the total economy;
 Government’s view on culture and religion;
 Trading agreements between governments such as EU,

p. 34
SAFTA, NAFTA, ASEAN, or others?
 Macro Environment: Political

Political and legal environment of marketing:

Laws and regulations on technology

 New technology
 Society
 Businesses
 Consumers

State or regional laws

 Legislation affects marketing varies state by state

Oregon: limits utility advertising to 0.5 percent of net income.
California: bans fats in restaurants and bakeries.
Regulatory agencies

 Consumer product safety commission

 Federal trade commission
 Food & Drug administration
p. 35
 Macro Environment: Culture

The cultural environment is made up of institutions and other

forces that affect a society’s basic values, perceptions,
preferences and behaviors.

The major cultural values of a society are expressed:

 people’s view of themselves and others,
 views of organizations,
 society,
 nature, and
 the universe.

Some people seek personal pleasure, wanting fun, change,

and escape.
Other seek self-realization through religion, recreation, or the
avoid pursuit of careers of other life goals.

Example: International Lux soap has four colorful and natural contaminations
p. 36
 Evaluation of Environmental Analysis

SWOT analysis:
SWOT analysis is a tool for auditing an organization and its
environment. It is the first stage of planning and helps
marketers to focus on key issues.

SWOT stands for strengths, weaknesses, opportunities, and

threats. Strengths and weaknesses are internal factors.

Once key issues have been identified, they feed into

marketing objectives.

It can be used in conjunction with other tools for audit and

analysis, such as PEST analysis and Porter's Five-Forces
analysis.

It is a very popular tool with marketing students because it

p. 37 is quick and easy to learn.

 Environmental Analysis: SWOT

SWOT analysis:

A strength could be:

 Your specialist marketing expertise,
 A new, innovative product or service,
 Location of business,
 Quality processes and procedures,
 Any other aspect of business that adds value to
product or service.

A weakness could be:

 Lack of marketing expertise,
 Undifferentiated products or services (i.e. in
relation to competitors),
 Location of business,
 Poor quality goods or services,
 Damaged reputation.
p. 38
 Environmental Analysis: SWOT

SWOT analysis:
An opportunity could be:
 A developing market such as the internet,
 Mergers, joint ventures or strategic alliances,
 Moving into new market segments that offer
improved profits,
 A new international market,
 A market vacated by an ineffective competitor.

A threat could be:

 A new competitor in home market,
 Price wars with competitors,
 Competitor has a new, innovative product or service,
 Competitors have superior access to channels of
distribution,
 Taxation is introduced on product or service.

p. 39 Opportunities and threats are external factors.

 Environmental Analysis: PEST

PEST analysis:

Org's marketing environment is made up from:

Political 1. The internal environment e.g. staff (or internal
customers), office technology, wages and finance, etc.
Economic
2. The micro-environment e.g. our external customers,
Socio-cultural agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces,
Technological Economic forces, Socio-cultural forces, and Technological forces.

These are known as PEST factors.

The economic factor holds the followings- Recapping

 Interest rates, slide 27

 The level of inflation employment level per capita,

 Long-term prospects for the economy Gross Domestic
Product (GDP) per capita, and so on.
p. 40
 Environmental Analysis: PEST

Political Environment:

The political environment answers the following questions-

 How stable is the political environment?

 Will government policy influence laws that regulate
or tax on business?
 What is the government's position on marketing
ethics?
 What is the government's policy on the economy?
 Does the government have a view on culture and
religion?
 Is the government involved in trading agreements
such as EU, NAFTA, ASEAN, or others?

p. 41
 Environmental Analysis: PEST

Socio-Cultural Environment:

Social and cultural env. influences on business vary from

country to country. Factors include:

 What is the dominant religion?

 What are attitudes to foreign products and services?
 Does language impact upon the diffusion of products
onto markets?
 How much time do consumers have for leisure?
 What are the roles of men and women within society?
 How long are the population living?
 Are the older generations wealthy?
 Does the population have a strong/weak opinion on
green issues?

p. 42
 Environmental Analysis: PEST

Technological Environment:
Technology is vital for competitive advantage, and is a major
driver of globalization. Consider the following points:

 Does technology allow for products and services to be

made more cheaply and to a better standard of
quality?
 Do technologies offer consumers and businesses more
innovative products and services such as internet
banking, new generation mobile telephones, etc.?
 How is distribution changed by new technologies e.g.
books via the Internet, flight tickets, auctions, etc?
 Does technology offer companies a new way to
communicate with consumers e.g. banners, customer

p. 43
relationship management (CRM), etc.?
 Evaluation of Environmental Analysis

Michael Porter's Five Forces Analysis

Five forces analysis, is similar to other tools for environmental

audit, such as PEST analysis, but tends to focus on the single,
stand alone, business or SBU (Strategic Business Unit) rather
than a single product or range of products.

Threat of
Five forces looks at five key
entry
areas namely the
1. Threat of entry, Power of Power of
buyers suppliers
2. The power of buyers,
3. The power of suppliers,
4. The threat of substitutes, Competitive
Threat of
5. Competitive rivalry. substitutes rivalry

p. 44
 Environmental Analysis: Five Forces

The threat of entry.

Benefits associated with bulk purchasing in economies scale.

 High or low cost of entry e.g. how much will it cost for latest technology?
 Ease of access to distribution channels e.g. do competitors have
the distribution channels hemmed up?
 Cost advantages e.g. personal contacts or knowledge that larger companies
do - will competitors retaliate?
 Government action e.g. will new laws are introduced that will weaken our
competitive position? How important is differentiation e.g. champagne brands.

The power of buyers

 There is a few, large players in a market e.g. large grocery chains.
 There are a large number of undifferentiated, small
suppliers e.g. small farming businesses supplying the large grocery chains.
 The cost of switching between suppliers is low e.g. from one
fleet supplier of trucks to another.
p. 45
 Environmental Analysis: Five Forces

The power of suppliers

Power of suppliers tends to be a reversal of power of buyers.
 Where the switching costs are high e.g. switching from one
software supplier to another.
 Power is high where brand is powerful e.g. Microsoft, Pizza Hut.
 Possibility of supplier integrating forward.
 Customers are fragmented (not in clusters) so that they
have little bargaining power e.g. Gas/Petrol stations in remote places.
Threat of substitutes

Where there is product-for-product substitution e.g. email for fax,

where there is substitution, better toothpaste reduces the need for dentists.
 Where there is generic substitution, e.g., CD, DVD and flash drive.
 Could always do without e.g. cigarettes.
Competitive Rivalry
This is to be high where entry is likely, there is a threat of substitute
products, suppliers & buyers in the market attempt to control.
p. 46
 Evaluation of Environmental Analysis

Diffenbach has identified three distinct stages in the evolution

of corporate environmental analysis:

1. Appreciation stage, starts from emergence of books and

articles that argue the looking beyond the short term and
for considering wider implications of economic, social and
political, technological factors that make up business envt.

2. Analysis stage, involves finding reliable sources of data,

compiling and examining data, develop and discuss trends,
developments and key relationships.

3. Application stage, very real attempts are made to monitor

the environment, assess the implications for change and
incorporate staff evaluations into strategy and plans.
p. 47
 Evaluation of Environmental Analysis

Three approaches to scanning (with these being characterized by an

increasing degree of structure, systemization, sophistication and resource intensity):

Irregular systems, predominate with a poorly developed

planning culture and focusing upon responding to
environmentally generated crises. The net effect is that is
simply placed finding solutions to short-term problems, with
little attention paid to identifying and assessing the impact.

Periodic models, represent a general development of the

irregular system and are more systematic, resource
intensive and sophisticated. The environment is reviewed
regularly and a longer-term perspective is developed.

Continuous models, represent a further development and

involve focusing upon business envt generally and upon the
long term as opposed to short-term and specific issues.
p. 48
 Evaluation of Environmental Analysis

Continuous env. analysis is based on 3 basic premises:

1. The determinants of success are dictated by the
business environment;
2. The firm’s response to environmental change therefore
represents a fundamental strategic choice;
3. A knowledge of the business environment must precede
the acquisition of any degree of control over it.

The barriers associated with continuous env analysis are:

➡ Poorly structured ➡ Qualitative in nature
➡ Opinion based ➡ Poorly quantified
➡ Ambiguous in its definitions ➡ Likely to change.
➡ Available only on an irregular basis
➡ Often provided by unofficial sources
➡ Based on an insecure methodology
p. 49