Week 3:

Understanding marketing
environment

EFIMM0148 – Operations and

Marketing Management

Dr Rushana Khusainova
 Learning outcomes
• Describe the environmental forces that affect the company’s
ability to serve its customers.
• Explain the key changes in Political, Economic, Social,
Technological, Legislative and Ecological trends.
• Identify key external and internal forces that impact
organisations.
• Discuss how companies can react to the marketing
environment.
 Environment Scanning

External Forces External/Internal

(Macro) Forces (Micro)
• Forces largely outside the control of an • Organisations have some degree of
organization influence over the forces
• Affects all organisations (although • Some organisations will have more
disproportionally) influence than others.

• “Outward facing” • “Inward facing”

• E.g. PESTLE • E.g. Porter’s Five Forces (P5F)

Ecological Political

Legislative Economic

Technological Social

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 PESTLE

Environmental Political

Legislative Economic

Technological Social
 PESTLE

Ecological Political

Legislative Economic

Technological Social
 Political and Legislative

• Political and legislative forces are closely related.

• Legislation (or lack of) generally reflective of the political outlook of the country
and any point in time.

• However Government policy does not mean too much without a legislative
power to enforce it
 Political

Government stability:
• Influence investment
• Policy changes
• Increased/relaxed regulation and taxes
https://www.theglobaleconomy.com/rankings/wb_political_stability/

Government consumer protection:

• Purity of food products
• Product standards (e.g. non-flammable children’s toys)
 Legislative

Government regulatory force:

• Restrictions on marketing (e.g. cigarettes)
• Restrictions/relaxation on sales (alcohol to minors / cannabis now legal in Canada)
• Taxation on items or ingredients

Non-Government regulatory force:

• Monitor its own industry (e.g. drinkaware)

Pro-competitive legislation:
• Competition and Markets Authority
• In the UK, the Competition & Markets Authority (CMA) can investigate potential
monopolies
• Morrisons forced to sell stores as it bought Safeway group
• BAA forced to sell 3 airports to maintain control of Heathrow
• Differs between countries
 PESTLE

Ecological Political

Legislative Economic

Technological Social
 Macro consumer economic factors

Affects organization’s ability to generate profits:

• Helps determine the profit pool available for the category (and hence brand)
• Gives an idea of budgets and constrains on return on investment

External economic factors will affect consumer spending:

• GDP
• Inflation rates
• Consumer confidence index
• Credit availability and rates

External economic factors will affect organization spending spending:

• Interest rates (if any loans are required for business set up)
• Exchange rates (if importing/exporting materials or products)
 Macro consumer economic factors

• Affects organisation’s ability to generate

profits.
• Influences marketing strategy and tactics
being deployed.
• Marketers need to know the market’s Spending Buying
buying power and how this relates to the patterns power
willingness to spend. Also, the consumer
spending patterns will help give
marketers information of how the market
may be trending economically and
product specifically.
Willingess
• Helps marketers decide if economic to spend
conditions are right for market
investment (e.g. product launch)
 Buying Power

• Depends on…
• Resources consumers need/choose to purchase (goods,
services, financial holdings)
• State of the market’s economy

• Buying power is directly influenced by economic

factors
• Inflation rates negatively impact buying power
• Interest negatively rates affect credit based buying power
• Interest positively affect savings based income buying
power
• Buying power can be defined as income, credit or
wealth
 Buying Power (Income)
Gross Disposable
income income
Taxes
National
insurance
Disposable Income: Post tax.
Income: Money after Split between spending and
wages, pension, saving
investments. Ready source of buying
power.
Divided into spend on
Important as total disposable
taxes, living costs, goods income is reflective of
and services market’s revenue pool.
Unequal distribution Directly affected by wage
amongst consumers levels, unemployment rate,
interest rate.
Discretionary
income
Mortgage/rent
Bills
Subsistence
Discretionary Income:
Post subsistence.
Biggest impact on larger
value and more luxury
purchases e.g. cars,
holidays, furniture,
appliances, education.
 Buying Power (Credit and Wealth)
Credit allows immediate purchase.
Though at a cost of future purchase
power.
Since the financial crash (2008) credit
increasingly more difficult to obtain.
Credit scoring agencies
Interest rates and level of down
payments impact credit
Marketers use credit tactics to persuade
purchases of large value goods, through
offering low interest or interest free
deals.
Wealth: Accumulation of past income,
natural resources and financial
resources.
Cash, jewellery, financial investments,
property, antiques
High wealth does not imply high income
(e.g. stately homes)
High income does not imply high wealth
(e.g. high overheads/living costs)
Though usually both are related.
Important to marketers as it usually
increases buying power through direct
purchasing ability, using it to increase
income, gaining credit.
 Buying Power (Credit and Wealth)
Credit allows immediate purchase.
Though at a cost of future purchase
power.
Since the financial crash (2008) credit
increasingly more difficult to obtain.
Credit scoring agencies
Interest rates and level of down
payments impact credit
Marketers use credit tactics to persuade
purchases of large value goods, through
offering low interest or interest free
deals.
Wealth: Accumulation of past income,
natural resources and financial
resources.
Cash, jewellery, financial investments,
property, antiques
High wealth does not imply high income
(e.g. stately homes)
High income does not imply high wealth
(e.g. high overheads/living costs)
Though usually both are related.
Important to marketers as it usually
increases buying power through direct
purchasing ability, using it to increase
income, gaining credit.
 Willingness to spend

• High buying power usually means a higher willingness to buy.

• However, other factors influence this
• These may be product specific, person specific or spending in
general

Absolute price: It Satisfaction : Does it Social: Is the product

costs £10. Is it worth meet the consumer’s being marketed in an
the money psychological need ethical way? (e.g. high fat
vs. (functional - e.g. products not targeted at
Relative price: quenches thirst; and children)
Competition costs informational – e.g. Is the product made
£9.50. Is it worth the my peer group drink sustainable (minimises
extra this brand) on use plastic)
Meets consumer’s belief
(Vegan based products)

Future expectations: Employment; family; economy; prices; interest rates; future price changes; Brexit
 Consumer Spending Patterns

• As well as willingness to spend marketers must also know

how consumers spend

Comprehensive spending patterns:

Product specific spending patterns:
% of a household income allotted to
Actual monetary value of products
spending against general classes of
within a general product class.
services or goods.
Generally available from government
Data generally available from
publication (ONS) and sources such as
government publications (e.g. Office
Euromonitor or Mintel reports.
for National Statistics or www.gov.uk)
Marketers require these as it helps to
Marketers require this to assess the
show general category trends and how
general economic trends and health of
this may affect their own brands. Note
market place and how to deploy the
it does not show any causal
marketing mix.
information (e.g. price changes,
Trends usually can be modelled from
advertising spend, social media activity
macro economic variables (e.g.
etc.)
inflation, GDP).
https://www.ons.gov.uk/
 Economic market growth cycle

Prosperity Recession

High buying power Increasing unemployment

Low unemployment Pessimism leads to reduced
High income spending
Low inflation Value conscious leads to functional
Expand the marketing mix based product consumption
Intensify promotions Increase in DIY
Expand distribution Core product awareness

Recovery Depression
High unemployment
Low income
Unemployment falls Lack of market confidence
Confidence grows
Government monetary policies
Spending increases
Reduced government spending
Challenge to forecast recovery Risk of underspend vs competitors
(speed and level) Risk of overspend and less effective
marketing
 Competitive structure of the marketplace
Monopoly:
No close substitutes
Controls product supply
Easy to erect barriers to
competition
e.g. train companies
Increase footfall.
Increase appropriate occasions
Monopolistic competition:
Many competitors exist
Marketers try and create
differentiated offering vs
competition.
Full MM strategy required.
e.g. Car industry, food, drinks
Oligopoly:
Supply of large proportion of
product
High barriers to entry
Large set up costs
Increase loyalty
Switch from main competitors
Perfect competition:
Opposite of monopoly
No control over price, supply,
market entry.
Unrealistic in Western world.
(Maybe war time rationing)
 PESTLE

Ecological Political

Legislative Economic

Technological Social
 Social

The structure and dynamics of individuals, groups and the issues that engage
them. Demographic, cultural, environmental.

• Researchers need to Understand local culture

• (especially if operating a global brand)
• Ensure cultures from one markets are suitable for markets
• Ensure brand names are suitable for different languages
• Ensure brand communication is suitable in different language

• Researchers need to understand what local cultures deem as good behaviour

• Researchers need to understand any demographic differences in culture
• Understand any social trends which are influencing consumer choice
 Ensure local culture fits with the research and
offering
There are differences in how cultures view good and bad behavior. Ensure your
research these which may affect your research brief
Mores: Customs with strong moral overtones, often with taboos (e.g.
cannibalism, incest)
Custom: Tends to be handed own from generation to generation that controls
behavior
Convention: Everyday life conduct, “correct” manner as to conduct yourself
(shouting on a train)

….A Hindu, Brit, Spaniard, American and Japanese go to a dinner party…

Leaves 15% tip
Hungry as not used (convention)
Hindu is offended to to be eating as late
be served steak as 8pm (custom)
(Mores)

Why give more

Wondering why money for doing
they are eating as their job?
early as 8pm (convention)
(custom)
 PESTLE

Ecological Political

Legislative Economic

Technological Social
 Ecological

Impact on the environment ever present in the media, social media

Proving to be a stronger driver of consumer choice and demand

Carlsberg’s sustainable multi-can packaging (2018)

Sustainable products
• Constructed from sustainable material
• Packaged sensibly and recyclable/compostable

Energy conservation
• Finite world resource
• Car industry moving towards electric vehicles
• Deforestation (trees absorb CO2 gas and stabilize land
slopes)

Global warming
• Drive to reduce CO2 through emission decrease https://youtu.be/EVNrKD1Rc-k
• Ban on chlorofluorocarbons (CFC)
• Government targets
 PESTLE

Political
Ecological

Legislative Economic

Technological
Social
 Technological

“Technology is the application of knowledge and tools to solve problems and perform tasks
more efficiently”
(Knight and Dimmler, 1989)

Benefits in all aspects to consumer, society and organisation

Production Material Development

• CAD: increase speed vs paper; Accept/ reject new design • Low calorie sweeteners in drinks industry.
model through mathematical models • Unleaded petrol
• CAM: Robots incredible efficient at doing a task over and over • Microchips
without boredom or fatigue. • Packaging: lightweight plastics to keep
costs down
• JIT processes:. supermarket supplied controlled to minimize
waste/costs
• Website selling: Direct to consumer

Communication
• Telecommunication is unrecognisable since even 1990
• Facebook is younger than anyone in this room, however has 2.25bn active users in 2018 Q2
(world population is 7.5bn) (Statista, 2018)
• Circa 500bn tweets sent per year (internetlivestats.com)
 Implications to Marketing

Potential Benefits Potential Challenges

Marketing and customer: Customer and marketer
Increased computational power of More information available to research products
• Price comparison
computers. • Ethical issues
• More consumer data • eWord of Mouth/blogs
• Better understanding of consumer needs • Ability to co-create brand image online
• More targeted products and marketing • Through reviews, viral blogs etc.

Increased use of online panel data

• Survey data cheaper and quicker
• More extensive scope of consumers
• In-bed analytics: Software is able to summarise
results

Use of internet marketing

• Easier and cheaper to reach consumers
• Non geographic or temporal
• Can be adapted to meet the needs of the
consumer on their device
Tech in 2030
https://www.youtube.com/watch?v=AuVHftBiDVw
Reasonable predictions
https://www.youtube.com/watch?v=qStTIX86mhE
Less reasonable predictions
https://www.youtube.com/watch?v=WW-zkrKMs7I
 Porter’s Five Forces 01/02/2024

• The forces operating at the industry level is a means of looking for competitive advantage for the firm.
• Sources of pinch points for the organisation versus competition or via procurement.
• Five forces are identified.
• Each can be influenced to a degree, depending on the organisation’s internal capabilities and resources

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 Competitive Rivalry
New
entrants

Important to know who the competitive products are Power of

suppliers
Competitiv
e rivalry
Power of
buyers

within the industry

• What are the brands Threat of
substitutes

• Who owns the brands (i.e. do they have a large

portfolio and hence high power base)
• What are their sales volume and market share
• What are their brand offerings/strategy
• What price points do they operate at

Type of competition: Balanced (similar size companies

likely to be more fierce) than if there are large and small
companies.

Market growth. A growing market means sales can

increase whilst maintaining market share. Stagnant or
declining market means sales growth only from
competitor steal
 New Entrants
New
entrants

Power of Competitiv Power of

suppliers e rivalry buyers

Economies of scale: Threat of

substitutes

• Established companies with significant customer base will be able to procure

cheaper materials
Capital cost of entry:
• Industry dependent. Is there a need for large machinery/manufacturing
accommodation? Or tech based low cost capital
Access to distribution channels:
• Strength of intermediaries and hence bargaining power.
• Existing contracts with established companies
First to the market:
• Companies first to the market can establish a consumer connection. Harder
for competition to gain access to that market (e.g. Red Bull and Vodka mid
nineties)
• This gives cost advantages independent of the organization size
 New Entrants
New
entrants

Expected retaliation: Power of Competitiv Power of

• What will established companies do? How far will they go to suppliers e rivalry buyers

protect their market place? Threat of

substitutes

• Quash competition?
• Welcome category expansion?
Effects of globalization:
• Large global organisations can import technology, techniques, channels to
markets.
• GlaxoSmithKline and Pfizer pharmaceuticals merge in 2009 to share research
costs (average drug costs $1.3Bn for research/development/patent)
Patent protection:
• Cross over to PESTLE (Legislation). How close is the new product entry vs. any
patent granted?
Differentiation:
• Is the offering sufficiently differentiated by the consumers? Or does it offer a
different price point?
 Power of Buyers
New
entrants

Buyer power is high when there are few large players and
Power of Competitiv Power of
proportionally many suppliers (e.g. game consoles) suppliers e rivalry buyers

• Many suppliers, three main buyers Threat of

substitutes

Risk on internalisation of the service

• E.g. Tesco set up their own credit card operation in 2012,
instead of using VISA

Backward integration risk by the buyer.

• Ford created subsidiaries to create rubber, metal and glass to re-
risk price fluctuations in the market or to avoid suppliers
increasing prices
If the component price is relatively high, risk of buyers shopping
around.
What proportion of revenue is accounted for by single
buyers?
• Assess risk of losing a key customer
• Is the time spent working on a client proportional to
the client revenue/perceived future revenue
 Power of Suppliers
New
entrants

What power do suppliers have within the Power of

suppliers
Competitiv
e rivalry
Power of
buyers

marketplace? Buyer power is high when there are

few suppliers (e.g. airline industry) Threat of
substitutes

Low buyer fragmentation High buyer fragmentation

Depends of fragmentation of buyers Lower power of supplier Higher power of supplier

High cost of switching suppliers

• Specialist services/knowledge/product
• New or specific infrastructure required

Powerful brand (e.g. Intel inside)

Manufacturer acquires the supplier (can
reduce selling costs)
• Clearly drinks acquires Powerful Water
Human factor
• I like/dislike working with her/him
• New staff prefer suppliers they have used previously
 Threat of Substitutes
New
entrants

Power of Competitiv Power of

Most products can be substituted for other offerings, suppliers e rivalry buyers

not necessarily in the same category. Threat of

substitutes

Product-for-product: (e.g. Phone, Camera, Music

player, computer)

Need based: Doing the same thing, better. An

accounting system does end of month accounts much
quicker

Generic substitution: Do I buy a new car, new

kitchen, mega-holiday?

Go without: Give up smoking, alcohol, meat. Various

diet plans (Atkins was a real threat to carbohydrate
based food in the naughties).
Competition vs Substitution

BMW – German Car Brand. Let’s think of a model.

Competing with Audi
Competition vs Substitution

BMW – German Car Brand. Let’s think of a model.

Competing with Audi

But there are other car makes BMW is competing with..

Competing within share of car brands
Competition vs Substitution

BMW – German Car Brand. Let’s think of a model.

Competing with Audi

But there are other car makes BMW is competing with..

Competing within share of luxury car brands

But there are other car categories available, such as

electric cars or another category - vans.
Competing within share of cars
Competition vs Substitution

BMW – German Car Brand. Let’s think of a model.

Competing with Audi

But there are other car makes BMW is competing with..

Competing within share of luxury car brands

But there are other car categories available, such as

electric cars or another category - vans.
Competing within share of cars

There are other means of transport they are competing with

Competing within share of means of transport
Competition vs Substitution

BMW – German Car Brand. Let’s think of a model.

Competing with Audi

But there are other car makes BMW is competing with..

Competing within share of luxury car brands

But there are other car categories available, such as

electric cars or another category - vans.
Competing within share of cars

There are other means of transport they are competing with

Competing within share of means of transport

But there are other ways of spending your money

Competing within share of holidaymaking?
 Main references

• Chapter 4 Baines, P. et al. (2019) Marketing. Fifth edn. United Kingdom:

Oxford University Press..

• Chapter 3 Dibb, S. et al. (2019) Marketing concepts and strategies. 8Th edition
/ edn. Australia: Cengage.

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Your questions and key
takeaways
 Main references

• Chapter 1 Baines, P. et al. (2019) Marketing. Fifth edn.

United Kingdom: Oxford University Press..

• Chapter 7/8 Dibb, S. et al. (2019) Marketing concepts

and strategies. 8Th edition / edn. Australia: Cengage.

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