Yardstick International College

End of
Chapter Two
Chapter 1
Marketing Environment

Instructor:
Dr. Muhammed Kassaw [PhD]
 Marketing Environment
1. Introduction
2. The External Environment
2.1 Macro Environment
2.2 Micro Environment
3. Internal Environment
3.1 Internal Environment Components
 Discussion question
1. List and explain about the marketing
external environment with example and
how to manage it?
2. List and explain about the marketing
internal environment with practical
example?
 2. Types of Environment
The Environment can generally be divided into:
1.1 External-Environmental
1 Macro (General)
2 Micro (Task or Industry)
1.2 Internal Environment.

External
A.1 Macro Environment A.2 Micro

Internal
Environment

Organization
 1.1 The External Environment
• External environment: everything outside
an organization’s boundaries that might
affect it.
• The uncontrollable environment.
• Constitutes the opportunities (O) and
threats (T).
• External analysis often is termed as
PEST analysis.
• Political • Social
• Economic • Technological
 Opportunities
• OPPORTUNITY is a chance for organization’s
growth or progress due to a favorable
circumstances in the business environment.
• Possible Opportunities examples:
 Emerging customer needs
 Quality Improvements
 Expanding global markets
 Vertical Integration
Threats
• THREAT is a factor in a company’s external
environment that poses a danger to its
well-being.
• Possible Threats examples:
 New entry by competitors
 Changing demographics/shifting demand
 Emergence of cheaper technologies
 Regulatory requirements
Macro-Environment

Macro-Environment
1. Political
5. Demographic
2. Economic
6. Natural
3. Socio-cultural
4. Technological

Micro-Environment

Organization
 The Macro-Environment
1. Political-Legal Environment
• The political environment includes the
nature of relationship between various
areas of government and the
organization.
• Factors of politics include governmental
stability, ideology, international
relations, tax, incentives, etc.
 The Macro-Environment

 Political-Legal Environment
 Governments develop wide range of laws and
regulations that affect organizations:
• Protect organizations from each other (antitrust).
• Protecting consumers (users) from unfair
business practices.
• Protecting interests of society against
unrestrained business behavior.
• Increased emphasis on ethics and socially
responsible actions.
• Regulates relationship between employers and
employees (Labor relations)
 The Macro-Environment
2. Economic Environment
 The economic factors includes
the business cycle, inflation,
interest rate, and income
distribution affect organizations
significantly.
1.Business cycle is the measure of the
economy rise and fall cyclically.

Peak

Prosperity Recession

Depression

Recovery
Trough

TEBEK
 Economic Environment
1.Business cycle is the measure of the economy
rise and fall cyclically.
• Prosperity: is the period of economic growth, high
employment and high income.
• Strategy is to expand organizational performance
and activities such as produce more, introduce
new products, enter new market.
• Recession: is a period of retrenchment for
consumers and business.
• Consumers are discouraged, scared and angry which
has an implication for organizational operations .
 Economic Environment

 Depression: is the period of economic

stagnation, where unemployment is high,
income is low and spending is low
 Recovery: is the movement of the economy
upwards towards from recession to
prosperity. Where employment rises, income
increases
 An organization needs to operate its system
quite differently during each economic
stage.
 Economic Environment

2. Inflation: Inflation is a rise in price levels. When

prices rise faster than personal incomes,
customer buying power declines
3. Interest Rate: When interest rate are high,
consumers hold back long term purchases
such as housing.
4. Income Distribution: different segment of
people and countries have different economic
levels that affect transaction and exchange
dealings-percapita, disposable income etc.
 3. Socio-cultural Environment
The Socio-cultural Factors: refers to attitude,
beliefs and values of people, of the society in
which organizations operates.
 An organization which is insensitive to culture,
may end up in dealing with goods or services
that are undesirable, unacceptable and
misunderstood by the culture.
 Firms make grave mistakes if they lack
awareness of the culture of their environment.
 Socio-cultural Environment

Culture Affects:
• Perception • Touching
• Language and • Food and eating
meaning of words habits
• Greetings • Body language
• Contact • Exposure
 4. Technological Environment
• Technological breakthroughs can affect
organizations in three ways.
 Start and operate entirely new industries, as
computers and robots have done
 Virtually destroy or cripple existing
industries, for example video crippled movie
industries.
 Stimulate demand by improving consumer
life standard and provide additional life by
saving time
• Advance in technology in communications now,
permit transact business from almost any
location at any time of the day through the
 5. Demographic Environment
 It is the study of population in
terms of age, sex, race,
occupation, location and other
statistics.

Tadele B
 Demographic Trends Examples
Changing Age Structure
Population is getting older

Changing Family Structure

Marrying later, fewer children,
working women, and nonfamily households

Geographic Shifts
Moving to the Cities and suburbs (MSA’s)

Increased Education
Increased college attendance
and white-collar workers

Growing Ethnic and Racial Diversity

Caucasian, African-American,
Hispanic & Asian (In US for example)
 Natural Environment
• Changing Roles of Governments: Governments make different
regulations on the exploitation and use of natural resources
• Shortages of raw materials: Staples such as air, water, and
wood products have been seriously damaged and non-
renewable such as oil, coal, and various minerals have been
seriously depleted .
• Increased pollution : Industrial damage to the environment is
very serious. Far-sighted companies are becoming
“environmentally friendly” and are producing
environmentally safe and recyclable or biodegradable goods.
• Increased cost of energy: the cost of energy used by
organization is increasing consistently.
 External Environment
Michael Porter’s Five Forces
Industry Competition
Model

TEBEK
 Industry Competition
• Marketing need to understand how
competition affect sustained level of
profitability.
• Porter’s Model of Industry Competition,
Is a major tool for Strategic Marketing
Management which is commonly
known as Porter’s Five Forces
• provides a framework for analyzing the
influence of the forces on the industry to
determine the industry’s profitability and
competitiveness
 Elements of Industry – The Five Forces Model

New
Entrants

Threat of New Entrants

Bargaining Industry Bargaining

Power of Competitors Power of
Suppliers Buyers
Suppliers Buyers
Intensity of
Rivalry

Threat of Substitutes

Substitutes
1. Intensity of Rivalry
• The industry is less attractive if:
Industry • Numerous competitors, none
Competitors
dominant
• Stable or declining market
Intensity of • High investment/large capacity
Rivalry
increments
• Low product differentiation
• Low switching costs
• Competing for small pie
 2. Potential New Market Entrants
The easier to jump in, the less
attractive. Less barrier to enter. Conditions
that make the industry less attractive include:
Threat of New Entrants

• Low economies of scale and

Entrants

learning effects
New

• Low capital intensity

• Low product differentiation
• Gaining distribution outlets is easy
 3. Supplier Power
The industry is less attractive if:
• Suppliers are concentrated or
Bargaining organized
Power of
Suppliers • Substitute prices are high
• Providing critical component/
Suppliers
large value added
• High switching costs exist
 4. Buyer Power
The industry is less attractive if:
• Buyers are few or organized
• Your product is undifferentiated
• Switching costs are low
Bargaining
• Buyer profits are low & your product is a Power of
Buyers
large percentage of buyer’s total costs
• Your product isn’t all that critical to Buyers
buyer
 5. Threat of Substitutes product
The industry is less attractive if:
Numerous potential substitutes
• Numerous current substitutes
Threat of Substitutes

• Buyer propensity to substitute

Substitutes

• Relative price performance of

substitutes
• Switching cost
Substitute doesn’t mean another brand, but
another product type. (Tea for Coffee)
 2 The Micro-environment
• The micro-environment (Task) are
those parties that have direct
impact and influence on the
organization.
• They include: customers,
competitors, publics,
intermediaries, suppliers,
regulators
 The Micro-environment

Suppliers
Customers

Micro- Publics
Competitors Environment

Intermediaries Regulators

Organization
 The Micro-environment
• Competitors: an organization that
competes with other organizations by
adding competitive advantage through
adding greater customer value.
Competitors can be opportunities as well
as threats
• Customers: whoever pays money to
acquire an organization’s products or
services.
• Suppliers: organizations that provide
resources for other organizations
 The Micro-environment
• Publics: Affect organizations in many
ways which include financial publics,
media publics, internal publics.
• Regulators: a unit that has the potential
to control, legislate, or influence an
organization’s policies and practices.
(Example Ministry of Labor and Social
affairs)
• Intermediaries: Those who act in
between, distributors, agents etc.
 The Internal Environment

 Internal environment: the conditions and

forces within an organization.
 They are controllable.
 It determines strengths (S) and
weaknesses (W) of Org (ST).
 Organization’s
Internal Environment

Owners Structure
Board of Directors Culture
Employees Facilities
Guidelines Functional units
Strategies
 The Internal Environment
• Owner: someone who has legal property
rights to a business.
• Board of directors: governing body elected
by a corporation’s stockholders and charged
with overseeing the general management of
the firm.
• Employees: those employed by the
organization (management and non
management).
• Guidelines: Policies, Strategies, Mission,
Vision: Guide for actions
 The Internal Environment

• Physical work environment: the firm’s

facilities (building, space, equipments
etc.).
• Culture: the set of values, beliefs,
behaviors, customs, and attitudes that
helps the members of the
organization understand what it
stands for, how it does things, and
what it considers important.
End