PRINCIPLES OF MARKETING

MANAGEMENT

BY: MR. MANGENI DAVID

Chapter 2: Marketing Environment
Chapter outline
2.0 Introduction
2.1 Need and Importance of Environmental Analysis
2.2 Types of marketing environments
2.2.1 Internal Environment of the Organization
2.2.2 External Environment
2.3 Methods of Analysis – SWOT, PESTEL
2.0 Introduction
The marketing environment is the interface between the
organization and the outside world and the company has to balance
internal capabilities and resources with the opportunities offered
externally.
 Marketing environment consists of the factors and forces that
affect a company's capability to operate effectively in providing
products and services to its customers.

 Marketing managers must stay aware of the marketing environment

to maintain success and tackle any threats or opportunities that
may affect their work.
2.1 Need and Importance of Environmental Analysis
Why is a marketing environment important?
A marketing environment is vast and diverse, consisting of
controllable and uncontrollable factors. A good grasp of your
marketing environment helps to:
1. Identify opportunities: Understanding your marketing environment
helps you notice and take advantage of market opportunities before
losing your edge. For example, say your marketing team sees an uptick
in digital buying over in-shop sales.
You may decide to allocate more resources to your online
marketing funnel to drive more sales.
2. Identify threats: Studying your marketing environment alerts you
to potential threats which may affect your marketing activities. For
example, a market leader could diversify their product portfolio to
compete with your organization. Foreknowledge of this can help you
restrategize your marketing efforts to maintain and grow your market
share.
3. Manage changes: Paying attention to the marketing environment
also helps manage changes and maintain growth in a dynamic
economy. Marketing managers can forecast and determine timely
marketing campaign strategies by monitoring their marketing
environment.
4. Helps in tapping useful resources:
Business enterprises depend upon the environment as a source of
input or resources (such as raw materials, water, labor, machines,
finance, etc.) and as outlets for their output (goods and services).

The business managers must design the policies that allow the
enterprise to get the resources so that they can convert them into
outputs that the consumers desire.

All these can be done very effectively by understanding what the

environment has to offer.
5. Helps in better reputation or building corporate image:
An understanding of the business environment helps business
managers to make realistic plans and policies, and also ensure
their effective implementation.

Consequently, the business environment will surely achieve its goals

smoothly and consistently, and this fact also generates a feeling
amongst the people that the business is sensitive to its environment,
and as a result, the reputation gets enhanced.
6. Help in continuous learning and improving performance:
Rapid changes in technology, instant global competitors, more
demanding customers, low brand loyalty, division and subdivision
of markets are just a few of the images that describe the present
business environment, and the future of the business environment is
closely associated with what is happening in the environment, so
the business environment that continuously monitors the
environment, and adopts suitable ways of action based on their
environment learning experience will be the one to succeed in the
market for a longer period.
FEATURES OF A BUSINESS ENVIRONMENT
Features of a marketing environment
The features of a marketing environment are typically:
i) Dynamic: The factors that affect marketing environments constantly
change over time. These could be technological advancements,
industry regulations, or even customer tastes.
ii) Relative: Marketing environments are relative and unique to each
organization. A specific product from your company may sell quicker
in the U.S. than in Europe because of distinctions in the marketing
environment.
iii) Uncertain: Market forces are unpredictable. Even with constant
study, you may face unexpected threats or opportunities in your
marketing operations. Adept marketers must be able to learn, pivot,
and strategize quickly to achieve their goals.
iv) Complex: The many internal and external forces in a marketing
environment make it complex, with various essential moving parts.
For example, you must coordinate your team’s ability and resources
with stakeholder expectations, customer satisfaction, and other
ethical and environmental concerns.
v) Totality of external forces: Business environment is the sum total
of all the forces and factors external to a business firm.
vi).Specific and general forces: Business environment includes both
specific and general forces. Specific forces include investors,
competitors, customers etc. who influence business firm directly while
general forces include social, political, economic, legal and
technological conditions, which affect a business, firm indirectly.
vii).Inter-relatedness: Different elements or parts of a business
environment are closely interrelated. For example, increased
awareness for health care has raised the demand for healthy oil free
food and healthy lifestyle.
Benefits of monitoring your marketing environment
 The marketing environment is continuously evolving. Your team
may bring in new members, customer tastes and needs change.
 Monitoring your marketing environments empowers your business
to make strategic marketing decisions before it’s too late. Other
benefits of tracking your marketing environment include:
 Being more prepared for micro- or macro-environmental changes —
you work from a place of power when you have
data that positions your business marketing for success
 Gaining useful, qualitative information about your marketing
environment, which helps develop successful marketing campaign
strategies
 A better understanding of your customers' needs, resulting in a
more satisfactory product or service
 Having the correct information to create marketing campaigns that
do not cross legal and regulatory policies
 More effective budgeting and allocation of marketing resources
 The ability to recognize potential threats within your marketing
environment and prepare good marketing strategies in time
 The ability to identify and leverage opportunities before your
competitors
 Improving any weaknesses in your organization's marketing setup,
processes, and operations
 Leveraging your unique strengths to build company reputation and
successful marketing campaigns
2.2 Types of marketing environments
There are two significant types of marketing environments:
1. Internal marketing environments
External marketing environments

2.2.1 Internal Environment of the Organization

Internal Environment: this refers to all factors that are internal to the
organization. They are called the five Ms, which are Men, money,
machinery, materials and markets.

These are important for managing change and we call the process of
managing internal change internal marketing. These are:
1) Men: these are human resources of the company, both men &
women, along with their different skills, experiences and capabilities.
2) Money: these are financial resources/wealth of the company. It may
include physical assets, cash in banks and bonds etc.
3) Machinery: this includes the equipment that are used in the
organization e.g. computers, tools etc it can also be a combination of
processes, systems.
4) Materials: this refers to the inputs or raw materials to be used by the
company so as to produce goods/services.
5) Markets: this refers to consumers/customers of the company's
products/services These should be attractive to consumers in terms of
value.
 Micro-environment( Immediate external)
This refers to influences that affect the company's daily operation
directly and tend to be specific to a company.

Micro describes the relationship between companies and the driving

forces that control this relationship. It is a more local relationship and
the company may exercise a degree of control for example :
suppliers, stakeholders, consumers and customers, distributors,
competitors.
2.2.2 External Environment
This refers to the wider influences that affect the company and are
outside the direct control of the company. This environment is
continuously changing and the company needs to be flexible to adapt.
 All businesses operate within an environment which directly or
indirectly affects the way in which they function.
 The responsibility of identifying the significant changes in the
environment is with the marketing department.
1. Political and regulatory environmental forces;
Governments have a great influence on the character of the general
business environment through their policies and the resultant
legislation.
Marketing organizations need to maintain good relations with elected
political officials for several reasons. When political officials are well
disposed towards particular firms or industries, they are less. Likely to
create or enforce laws and regulations unfavorable to these companies.

Political, legal and regulatory environmental forces affect marketing

decisions in variety of ways as below;
2. Technological forces
The technological environment is a fast changing one, with far
reaching effects on organizations and their products.
Technological advances can affect the materials, components and
products and the processes by which products are made,
administration and distribution systems, products marketing and the
interface between the organization and the customers.
3. The Legal environment
All organizations operate under a government-controlled environment.
Sometimes there are conflicts between different laws and unnecessary
restrictions that are detrimental to businesses.
All organizations must conform to the country's general legal
principles and government policies so as to stay in business.
4. Economic, physical and competitive forces
 The economic environment provides the basis against which
marketing activities take place.
 Marketing focuses on consumers but the organization cannot be
successful unless consumers have got effective purchasing power so
as to purchase whatever is produced.
 The purchasing power depends on consumer demand and spending
behavior like;
i) Taxation: taxes may be direct or indirect Direct taxation such as
income tax, NSSF, PAYE etc reduce the amount of money or
disposable income that households have available to spend on
goods/services that organizations provide.
ii) Government spending: Governments like any other organizations
are purchasers of goods & services but on a large scale. Governments
invest in defence, road construction, civil engineering projects, social
and health services and many other areas.
iii) Interest rates: government economic policy affects interest rates,
which has an impact on both consumers and businesses.
For many consumers, the most serious effect of a rise in interest rates
is on their monthly loans and mortgages repayments.
5. Natural Environment
Marketing manager should respond to physical environment, which
includes the natural environment. Most societies are concerned about
the use of natural resources.
The concern about interference with nature also affects marketing
practices. This is because the products are made and there packages
comes from the natural resources e.g. cotton clothes
 6. Socio - Cultural Environment
This refers to a set of rules, values, ideas and attitudes that are
transmitted from one generation to next. The societies in which people
grow shape their culture. Organizations must understand the socio-
cultural environment since these factors influence the customer's needs
and wants. The basic differences in language, income levels, spending
habits, culture, women's role in society and religion are important.
7,Demographic factors: this includes the study of measurable
aspects of the population structures and profiles which refers to
factors such as age, gender, occupation, location, birthrate and life
expectancy e.g. if the birth rate is falling in a particular geographic
market, then the marketer might interpret this to mean that that
people are having children later in life when they are better
established economically.
This also means that the parents have much more money to spend
per child.
2.3 Methods of Analysis – SWOT, PESTEL
Marketing environmental analysis includes all the factors outside
marketing that affect the ability of a business to build and maintain
successful relationships with the customers.

By conducting a marketing environmental analysis, a business can

identify strengths and opportunities and reduce weaknesses and
threats.

PESTLE analysis is a tool for analyzing the external environment.

 PESTLE analysis consists of 7 categories of global factors:
political, economic, social, technological, demographic, legal
and environmental.

 These factors can create opportunities as well as threats that can

affect any business sector to some extent.

 Business analysis models are useful tools and techniques that can
help you understand your organizational environment and think
more strategically about your business.
Dozens of generic techniques are available, but some are used more
frequently than others do. These include:
 SWOT (strengths, weaknesses, opportunities, threats) analysis
 Porter's Five Forces framework
SWOT analysis
SWOT analysis is one of the most popular strategic analysis models.
It involves looking at the strengths and weaknesses of your
business capabilities, and any opportunities and threats to your
business.
Once you identify these, you can assess how to:
 Capitalize on your strengths
 Minimize the effects of your weaknesses
 Make the most of any opportunities
 Reduce the impact of any threats

A SWOT analysis gives you a better insight into your internal and
external business environment. However, it does not always
priorities the results, which can lead to an improper strategic action.
One way to make better use of the SWOT framework is to consider
the customer's perspective when making strategic plans and
decisions.
Porter's Five Forces Model
Rather than viewing competition narrowly as rivalry among
existing competitors, his first force, Porter expanded the concept to
include four others: the bargaining power of suppliers and buyers,
the threat of new entrants, and the threat of substitute products or
services. Let's take these in turn.
1. Competitive Rivals
Porter's first force is what we usually mean when discussing
business competition. We think of Pepsi and Coca-Cola for soft
drinks, Apple and Samsung for smartphones, Nike and Adidas for
sneakers, and Ford and General Motors for autos.
Several factors contribute to the intensity of competitive rivalry in
an industry:
i) The number of competitors: The more competitors in an
industry, the more fierce the rivalry, each fighting for scraps of
market share.
ii) Industry growth: In an expanding industry, competition is
usually less dramatic because the market is growing so fast that
competitors have little need to fight for customers.
iii) Similarities in what's offered: When the products or services
in a market are awfully similar, competition tends to be intense
because customers can easily switch.
iv) Exit barriers: When it's difficult or costly for companies to
leave the industry due to specialized assets, contractual obligations,
or emotional attachment, they may choose to stay and compete,
even if the market's prospects grow dimmer by the day.
v) Fixed costs: Porter notes that if an industry has high fixed costs,
companies have a "strong temptation" to cut prices rather than slow
production when demand slackens. Paper and aluminum
manufacturing are two good examples that Porter gives.1
2. Potential for New Entrants in an Industry
Industries where new firms can enter more easily almost always
have lower profit margins, and the firms involved each have less
market share.
Here are factors in measuring how much new entrants threaten an
industry:
i) Economies of scale: Industries where large-scale production
leads to lower costs face less of a threat from new entrants. New
firms would need to achieve a similar size to compete on price,
which might be difficult or costly.
ii) Product differentiation: When existing firms have strong brand
identities or customer loyalty, it's harder for new entrants to gain
market share, reducing the threat of entry.
Capital requirements: High startup costs for equipment, facilities,
etc., can deter new entrants. For example, starting a car
manufacturing business requires significant investment, so until
Tesla Inc.'s (TSLA) growth in the early 2010s, Americans from the
1950s could have named the major U.S. car brands of the early
2000s.
Access to distribution channels: If existing firms control the
distribution channels—retail stores, online platforms, cable
infrastructure, etc.—then new entrants would need to find a way to
replicate that structure while competing with the established firms
on price, a tricky proposition.
Regulations: Licenses, safety standards, and other regulatory
standards can create barriers, making it too ungainly or costly for
new firms to enter the market. Examples would include those
looking to build new hotels in downtown areas or supply power to a
region.
Switching costs: If it's costly or difficult for customers to switch
from existing firms to new entrants, the threat of entry is lower.
3. Supplier Power
Suppliers are powerful when they are the only source of something
important that a firm needs, can differentiate their product, or have
strong brands.1 When the power of suppliers in an industry is high,
this raises costs or otherwise limits the resources a firm needs. Here
are some factors used to measure the supplier power of an industry:
The number of suppliers: When few firms can give a company
something it needs to stay in business, each has greater negotiating
power. They can raise prices or reduce quality without fear of losing
business.
Uniqueness: If a supplier provides a unique product or it's not easy
to find a substitute, it is more dominant. Businesses can't easily
switch to another supplier.
Switching costs: If it's costly or time-consuming to switch
suppliers, then they have more power. Businesses are less likely to
switch, even if prices increase.
Forward integration: If suppliers can move into the buyer's
industry, they have more power. They already have access to the
necessary supplies, making it difficult for their former buyers to
Industry importance: Some sectors are tightly intertwined, such
as automotive suppliers and the major auto companies or the
semiconductor and tech industries, which can balance the power
between the suppliers and those in the sector. This is because the
supplier needs these buyers to do well so that it can, too. When a
supplier can just as easily sell its products elsewhere, that gives it a
great deal more power.
4. Customer Power
When customers have more strength, they can exert pressure on
businesses to provide better products or services at lower prices.
This force intensifies under certain conditions:
The number of buyers: The fewer the buyers, the more they have
power.
Purchase size: Just like you head off to the big box stores to buy in
bulk for a cheaper per-unit cost on whatever now fills up your
garage, major retail chains like Walmart Inc. (WMT) buy in large
volumes and can negotiate better terms and discounts.
Switching costs: In industries like telecommunications, where it's
easy for consumers to switch providers, companies such as Verizon
Communications, Inc. (VZ) and AT&T Inc. (T) have to offer
competitive terms.
Price sensitivity: In the fast-fashion industry, where customers are
highly price-sensitive, brands must keep their prices low to attract
cost-conscious consumers.
Informed buyers: In many sectors, the customers are savvy, know
the competitive terrain well, and thus can negotiate better prices.
Porter chose the metaphor of forces because they aren't static, so
business must constantly adjust their strategies as forces in an
industry change.
5. Threat of Substitutes
When customers can find substitutes for a sector's services, that's a
major threat to the companies in that industry.2 Here are some ways
that this threat can be magnified:
Relative price performance: If the cost of a substitute is lower and
its performance is comparable or better, customers are likely to
switch to the substitute. For instance, streaming services like Netflix
became a substitute for traditional cable TV, providing a lower price
that soon threatened the cable industry.
Customer willingness to go elsewhere: The threat is high if buyers
find it easy to switch to a substitute. For example, in the early
2010s, customers found switching from taxis to ride-sharing apps
like Uber or Lyft cheaper and easier.
The sense that products are similar: If buyers perceive that there
are few differences between your product and a substitute, even if
there are, they may be more likely to switch.
Availability of close substitutes: Though this sounds the same as
the last bullet point, you have to strategize differently around it.
There are times when potential substitutes are very different from a
company's products but consumers still treat them as the same. But
in other cases, there are genuinely similar products in the market
and the threat of substitutes is high, such as between brand-name
and generic medications.

END