Chapter 3: Analyzing the Market Environment

- Fewer older population in Western Europe

Major environmental forces (cultural, natural, technological, political, economic, and demographic) can:
- Create market opportunities, pose threats, and help companies build profitable relationships
with customers and also engage them
**It is vital for companies to understand the environment of the market in which it operates.

Real Life Situation 1: Kellogg’s (world’s largest cereal maker)

- Changes in culture, lifestyle, and also other environmental factors have changed the way people
have breakfast and Kellogg’s has had a difficult time adapting to these changes.
- They are important in the American breakfast experience and even include mascots in ads
- They have capitalized on environmental trends and shifts and they have even led them
- However, over time, they have failed to adapt to changes in consumer’s lifestyles:
o They prefer quicker breakfasts
o Healthier options  organic, non-GMO, low carb vs. Kellogg which contains a lot of
sugar
 Consequently, they released healthier cereal options, reduced sugar levels, and
offered non-GMO and gluten-free cereals.
 Bought Kashi (which helped increase sales from $25 million to $600 million in
over a decade). Kashi has lost its focused and therefore, it is trivial to restore
Kashi’s credibility and adapt to consumers’ healthy lifestyles.
- This poses a real-life example of how as consumers change, companies must change with them
or they risk their survival. Companies must change as their markets change.

Marketing environment: the actors and forces of marketing that affects management’s ability to be able
to build and maintain successful relationships with target consumers.

- Marketers must study environmental shifts and they must be opportunity seekers. They should
be engaged in marketing research and marketing intelligence in order to develop insights about
the marketing environment.

5Cs framework:
- Customers: for whom the company aims to deliver value. MICRO
- Collaborators: who work with the company to create and delivery value. MICRO
- Competitors who want to satisfy the same need. MICRO
- Company or SBU responsible for the market offering. MICRO
o Kraft divides by product
o L’Oreal 4 main divisions
- Context in which the other factors operate. MACRO

Microeconomic environment: the actors close to the company that affect its ability to engage and serve
its customers –the company, suppliers, marketing intermediaries, competitors, consumer markets, and
publics.
It is vital for marketers build relationships with all of the groups mentioned (part of the value delivery
network). These other players may have an effect on your ability to deliver a product.
Macroeconomic environment: large societal forces that affect the microenvironment –demographic,
cultural, natural, economic, technological, and political forces.

Microenvironment

Company: It is important for all of the areas of the company (finance, management, accounting, R & D,
and operations) to work together in order to increase customer value. The 4ps (price, product,
promotion, place) are affected by all of these groups.
“Marketing is far too important to be left to the marketing environment.”

Suppliers: provide resources that the firm uses to produce its goods and services.
- Marketing should be aware of supply availability and prices. A shortage, delay, or natural
disaster can lead to an increase in prices which lead to more expensive products and can harm
the company’s sales volume.
- It is important to build relationships with suppliers and to establish a sense of teamwork.
- Important link in creating customer value.

Ex: Chipotle – no carnitas. Suppliers couldn’t produce meats; they sent a letter in which they took a
stand against conventional farming. Also, at the time carnitas was a small percentage of Chipotle.

Marketing intermediaries: firms that help the company sell, promote, and distribute its products to final
buyers (its offering to customers)
- Financial intermediaries: credit companies, insurance companies, banks, and other businesses
that help finance transactions and also insure against the risk associated with the buying and
selling of goods.
- Marketing Service Agencies: advertising agencies, media forms, marketing consulting firm, and
marketing research firms that help the company target and promote its products to the right
market.
- Physical distribution firms: help the company stock and move goods from their point of origin
to their destinations.
- Resellers
It is key to optimize the performance the entire system – they are partners rather than just channels.

Ex: Rubbermaid and Walmart – Reseller power. Walmart did not like that they wanted to sell prices so
they moved their products to less desirable areas. Rubbermaid’s value was wiped out by approx. 50%
due to this Walmart “squeeze.”

Competitors: The marketing concept states that for a company to be successful they must deliver
customer value and satisfaction better than their competitors. The idea is for a company to have a
strategic advantage by positioning their offerings strongly against their competitors in the mindset of
their targeted consumers. Strategies vary on each firm. Competitors provide target consumers with
alternatives to the company’s offering.
- Brand competition: competitors offer similar products that compete for consumer choice
- Product competition: competition for different products that attempt to satisfy the same
wants/needs
- Competition for discretionary income (income left after a consumer pays for necessities).
Publics: any group that has an actual or potential impact or interest in the organization’s ability to meet
its objectives. (Create marketing plans for particular publics)

- Financial publics: stockholders, banks, and insurance analysts.

- Media publics: magazines, tv, etc.
- Government publics: include the company’s lawyers that can advice on the truth of advertising
and media safety.
- Citizen-action publics: environmental groups, minority groups, and consumer organizations that
stay in touch with consumers and citizens.
- Local public: surrounding neighborhood and community (non-profit foundation example)
- General Public: anyone that can affect the purchases of a company’s goods and activities – the
idea is to create a good image of the company in order to increase profits. The public’s attitude
to the companies goods and activities.
- Internal Public: include workforce, volunteers, board of directors, and managers. Use
newsletters in order to motivate them and inspire them; a positive way of acting can lead to
spillover effects to other publics.

Customers: most important group in the company’s microenvironment; target consumers and create
profitable relationships with them.
Consumers are a type of customer; if you change customers everything changes.
- Consumer markets: buy goods and services for personal satisfaction (individuals and
households)
- (B2B) Business markets: buy goods and services for production processes
- Government markets: buy goods and services for public services or to transfer them to people
that need them
o Can operate domestically and internationally
- Reseller markets: buy goods and services to sell them and gain profit from them.
- International markets: include buyers in other countries, including consumers, producers,
resellers, and governments.

Macroenvironment

Cultural: marketers want to be socially responsible citizens in their communities (TOMS)

Demography: the study of human populations in terms of their size, age, location, occupation, gender,
race and other statistics.

- It involves people and people make up markets therefore it is vital

- It poses both market opportunities and challenges due to increased diversity.

Age pyramids: show age distribution in a society. (Goal: have a strong base of young people to support
workforce)
The most important demographic trend is the changing age structure; falling birthrates and increasing
life expectancies – US population is becoming older.

1. Baby Boomers: 74 million people that were born in the years following WWII (1946) and 1964.
a. Oldest group 50s, 60s, and retiremoent
b. 22% of population, 70% of disposable income
 c. It is a mistake to thing that little attention should be paid to them or that they are
phasing out.
d. Boomers have become more active – they want to conserve their young lifestyles as
they age.
e. Wealthiest generation in history (42% of consumer spending/strong targets for financial
services – hold about half of the nation’s financial assets)
f. Buy products that deal with aging and are also in the lucrative market.

2. Generation X: 55 million people born between 1965-1980s and they are known as the “birth
dearth” following baby boom.
a. Smaller than baby boomers and millennials, overlooked many times
b. Prefer quality over quantity and they are more receptive to ads that focus on
convention and tradition. Less materialistic.
c. Face economic pressures; spend carefully.
d. Were the most educated/middle-aged
e. Increased parental divorced / more employed mothers / latchkey kids (afterschool)
f. 29% of income

3. Millennials/Gen Y/Echo Boomers: 75 million people born between 1981 and 1997. Children of
baby boomers.
a. Includes teens and young adults
b. Comfort with digital tech
c. Look for authenticity and opportunities to shape their own brand experiences
d. $600 million purchasing power expected to hit $1.4 trillion
e. Ethnically diverse

4. Generation Z: Individuals born between 1997-2016 and they involve kids, tweens, and teens.
a. 80 million people
b. Digitally involved in that and in social media
c. $43-143 billion purchasing power of their own, $333 billion family influence
d. They want to live actual brand experiences – it is shown that many tweens and teens
research products before actually buying them. Short attention spans
e. Online shopping
f. Creating brands that specifically target them (Justice and Gap Kids for example)
g. Fewer veterans
h. Uncertain economic prospects because of the Great Recession

Generational marketing:
- It is important to be careful not to turn off one generation by creating a product or sending a
message to another generation.
- Defining people by their age can be less effective than by their culture, lifestyle, life stage, and
values that they seek in a product.

Changing American Family: The makeup of the American household is changing. (Modern Family)
- Increase in non-traditional families as opposed to traditional ones – design marketing strategies
to meet these new needs and buying habits.
- Number of working women have increased
- Evolving diversity (same sex couples and interracial); be inclusive.
 - Ex: Southwest Airlines reached out to American Asians by creating an about the San Francisco
Chinese New Year Festival  lead to cheerful nods by the community.
- Gays and Lesbians (LGBT Community)
o Marketing ads and products that attract these new groups
o Viacom’s MTV Networks: offer a TV network for gays and lesbians and their friends and
families.
- Targeting adults with disabilities (making those with and without disabilities seem as one)

Life event marketing (divorce, new parents, new movers)

Ex: Target: could predict when someone was pregnant – Target couldn’t let know how much they knew
– mixed pregnancy and other items together. Habits matter.

There have been a great deal of migratory movements and between and within countries. US residents
move a lot but it is slowing  general shift to sunbelt states, suburbs, micropolitan areas. Marketers are
courting increasing numbers of telecommuters. People in different regions buy differently.

People are becoming more educated and high-collar; job growth has increased for professional workers
and decreased for people with manufacturing jobs. As people become more educated this affects what
and how they buy. This leads to increase demand for quality products, books, travel, etc.

- More empty-nesters, single professionals, and couples who delay having children
- Time and resources to spare
- Increase pet ownership in 63% of US households – The Pet Economy $41 billion/year
o Increases in pet pampering services

Successful marketers diversify their marketing programs and they take advantage of the opportunities of
growing market segments.

Economic environment: economic factors that affect consumer’s purchasing power parity and their
spending patterns.
- Consumers are trying to buy less and find more value in what they buy – value marketing
- Even luxury brands have emphasized that they have good quality and have begun to sell more
affordable products
- Income inequality increasing: the rich are becoming richer, the middle class is smaller, the poor
remain poor.
- Companies tailor marketing offers to different markets (from more to less affluent)
- Other factors that affect the economic environment are: saving and borrowing patterns, income,
standards of living, and interest rates.
- Marketers should watch the economy and take advantage of opportunities – they no longer
have to be wiped during a economic downturn or caught short in a boom.
- Changes in spending habits

Natural environment: the physical environment and natural resources that are used as inputs by
marketers or are affected by marketing activities. (Natural environment: green movement)
- Cold weather (florists decrease, winter clothing increase)
- Even though marketers can’t prevent natural occurrences, they can be prepared for dealing with
them.
 - Environmental Sustainability
o Water and air pollution – water shortages
o Shortage of raw materials: Renewable resources, forests and food, have been wiped
out. Non-renewable resources, minerals, coal, and oil are becoming more scarce.
Companies that depend on these scarce resources to make products have seen
increases in price even though these products are widely available.
- Climate change/ Pollution: Increase in industry has led to more pollution.
- Increased government intervention in natural resource management – the governments
involvement in trying to create a clean environment vary across countries (poor countries ex).

Environmental Sustainability: developing strategies and practices that create a world economy that the
planet can support indefinitely.
Meeting present needs will ensuring that future generations will be able to meet their needs. Examples
of companies:
- Biodegradable packaging
- Recycling products and components
- Better pollution controls
- More energy-efficient operations
Ex: Chipotle: it is very hard for companies to be socially responsible and at the same time grow and
make profits; however, Chipotle handles this very well.

Technological economy: forces that create new technologies and allow for the creation of new products
and market opportunities. (Danger of obsolescence due to rapid change)
- 3rd Industrial Revolution
- Most dramatic force shaping our lives
- RFID technology to track products and costumers in the distribution channel.
- New technologies often replace new ones
o Digital downloads and streaming have replaced CD and DVD players
- Old industries that fail to adapt to new technology will not survive.
- Empower consumers (can give reviews)/social networks
Government agencies investigate products that they feel are not safe; this leads to high research costs.
Consequently, marketers should be aware of these regulations when applying for new technology and
creating new products.

Political environment: laws, government agencies, and pressure groups that influence or limit various
organizations and individuals in a given society.
- Well-conceived regulation can encourage competition and lead to fair trade of goods and
services.
- Public policy to guide commerce.
- Almost every marketing activity is subject to laws and regulations, such as:
o Competition
o Trade-fair practices
o Packaging and distribution
o Truth in advertising
o Environmental protection
o Pricing
o Product Safety
 - Business legislation has been enacted for three main reasons:
o Protect businesses against each other – laws are passed to prevent unfair competition.
o Protect consumers from business practices: without regulation they may create shoddy
products, mislead consumers in advertising, invade consumer privacy, and deceive
consumers
o Protect society’s interests: making sure that firms take responsibility for the social costs
of their production and products.

Marketing activities face: increasing legislation (drug ads), changing government agency enforcement,
increased emphasis on ethics and social responsibility (Cause-related marketing  primary form of
corporate giving.)

Social responsibility has become more important as companies have become more involved in
worthwhile causes and charitable organizations. However, there exists the controversy that this may be
more of a strategy for selling rather giving.

Cultural environment: institutions and other forces that affect society’s behaviors, preferences,
perceptions, and basic values.
- Core values: values and beliefs passed from parents to children and reinforced by businesses,
schools, religious organizations, and governments. (Ex: Belief in marriage)
- Secondary values: values and beliefs that are more open to change. (Ex: Marriage earlier in life)

Marketers want to be able to predict cultural shifts to be able to predict opportunities and threats.
- Themselves: Self-realization and self-expression
- Others: Digital age  has connected people more, but also people can be together and “alone
together” (using their screens not interacting)
o Technology can have a negative effect on companies since consumers can make bad
company reviews go viral. Companies have created teams of specialists that handle
unsatisfied customers and online comments. By doing this, the company can work in a
proactive way in order to ensure that these comments do not damage the company and
can even turn them into positive experiences. (Monitoring and responding to
uncontrollable events)
- Organizations: People are willing to work in organizations and expect them to work on society.
There has been a sharp decrease in confidence and loyalty in political and business American
organizations; marketers must find new ways to ensure consumer and employee confidence and
loyalty.
- Society: People’s orientation to their society influences their attitudes and consumption trends
in the marketplace.
- Nature: People vary their attitudes of the natural world (it is finite and fragile can be easily
spoiled and damaged by humans) – increase in healthy consumers, target them!
- Universe: Religious conviction has decreased and people focus more on spirituality – this affects
the TV shows they watch and the products and services that they buy.

Rather than simply watching and reacting to the marketing environment (accept the marketing
environment and do not try to change it), firms can take a more proactive approach (develop strategies
to change the market). They can affect publics and other forces and by taking action they can overcome
many uncontrollable environmental events; however, there are many that they can’t and they just have
to watch and react to the environment. When possible they should focus on a proactive (ads, lobbying,
lawsuits, filling complaints w/ regulators) rather than reactive approach.