Marketing Chapter-4 "Marketing Environment"

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Marketing Environment

Firms are affected by lots of different things, a firm's marketing environment is made up of all of the things that affect the way it operates. Some of the factor's in a firm's marketing environment can be controlled by the firm but some are uncontrollable. Firms need to understand their marketing environment so that they can
make the most of positive factors and manage the impact of negative factors. A firm's marketing environment can be split into three parts: internal environment, macro environment and micro environment.
According to Philip Kotler, “A company’s marketing environment consists of the internal factors & forces, which affect the company’s ability to develop & maintain successful transactions & relationships with the company’s target customers”.

The Environmental Factors may be classified as:

  • Internal Factor
  • External Factor 

1) Internal Environmental Factors

A Company’s marketing system is influenced by its capabilities regarding production, financial & other factors. Hence, the marketing management/manager must take into consideration these departments before finalizing marketing decisions. The Research & Development Department, the Personnel Department, the Accounting Department also have an impact on the Marketing Department. It is the responsibility of a manager to company-ordinate all department by setting up unified objectives.

2) External Environmental  Factors 

Types of External Environmental:

  • External Micro Factors 
  • External Macro Factors

External Micro Factors:

1. Suppliers They are the people who provide necessary resources needed to produce goods & services. Policies of the suppliers have a significant influence over the marketing manager’s decisions because, it is laborers, etc. A company must build cordial & long-term relationship with suppliers.
2. Marketing Intermediaries - They are the people who assist the flow of products from the producers to the consumers; they include wholesalers, retailers, agents, etc. These people create place & time utility. A company must select an effective chain of middlemen, so as to make the goods reach the market in time. The middlemen give necessary information to the manufacturers about the market. If a company does not satisfy the middlemen, they neglect its products & may push the competitor’s product.
3. Consumers - The main aim of production is to meet the demands of the consumers. Hence, the consumers are the center point of all marketing activities. If they are not taken into consideration, before taking the decisions, the company is bound to fail in achieving its objectives. A company’s marketing strategy is influenced by its target consumer. Eg: If a manufacturer wants to sell to the wholesaler, he may directly sell to them, if he wants to sell to another manufacturer, he may sell through his agent or if he wants to sell to ultimate consumer he may sell through wholesalers or retailers. Hence each type of consumer has a unique feature, which influences a company’s marketing decision.
4. Competitors - A prudent marketing manager has to be in constant touch regarding the information relating to the competitor’s strategies. He has to identify his competitor’s strategies, build his plans to overtake them in the market to attract competitor’s consumers towards his products. 
Any company faces three types of competition:
  • Brand Competition - It is a competition between various companies producing similar products. Eg: The competition between BPL & Videcon companies.
  • The Product Form Competition - It is a competition between companies manufacturing products, which are substitutes to each other Eg: Competition between coffee & Tea.
  • The Desire Competition - It is the competition with all other companies to attract consumers towards the company. Eg: The competition between the manufacturers of TV sets & all other companies manufacturing various products like automobiles, washing machines, etc.
Hence, to understand the competitive situation, a company must understand the nature of market & the nature of customers. Nature of the market may be as follows:
  • Perfect Market
  • Oligopoly
  • Monopoly
  • Monopolistic Market
  • Duopoly
5Public - A Company’s obligation is not only to meet the requirements of its customers, but also to satisfy the various groups. A public is defined as “any group that has an actual or potential ability to achieve its objectives”. The significance of the influence of the public on the company can be understood by the fact that almost all companies maintain a public relation department. A positive interaction with the public increase its goodwill irrespective of the nature of the public. A company has to maintain cordial relation with all groups, public may or may not be interested in the company, but the company must be interested in the views of the public.

Common types of Publics are

  • Press - This is one of the most important group, which may make or break a company. It includes journalists, radio, television, etc. Press people are often referred to as unwelcome public. A marketing manager must always strive to get a positive coverage from the press people.
  • Financial Public - These are the institutions, which supply money to the company. Eg: Banks, insurance companies, stock exchange, etc. A company cannot work without the assistance of these institutions. It has to give necessary information to these public whenever demanded to ensure that timely finance is supplied.
  • Government -Politicians often interfere in the business for the welfare of the society & for other reasons. A prudent manager has to maintain good relation with all politicians irrespective of their party affiliations. If any law is to be passed, which is against the interest of the company, he may get their support to stop that law from being passed in the parliament or legislature.
  • General Public -This includes organisations such as consumer councils, environmentalists, etc. as the present day concept of marketing deals with social welfare, a company must satisfy these groups to be successful.

External Macro Environment:

These are the factors/forces on which the company has no control. Hence, it has to frame its policies within the limits set by these forces:
1) Demography - It is defined as the statistical study of the human population & its distribution. This is one of the most influencing factors because it deals with the people who form the market. A company should study the population, its distribution, age composition, etc before deciding the marketing strategies. Each group of population behaves differently depending upon various factors such as age, status, etc. if these factors are considered, a company can produce only those products which suits the requirement of the consumers. In this regard, it is said that “to understand the market you must understand its demography”.
2) Economic Environment - A company can successfully sell its products only when people have enough money to spend. The economic environment affects a consumer’s purchasing behavior either by increasing his disposable income or by reducing it. Eg: During the time of inflation, the value of money comes down. Hence, it is difficult for them to purchase more products. Income of the consumer must also be taken into account. Eg: In a market where both husband & wife work, their purchasing power will be more. Hence, companies may sell their products quite easily.
3) Physical Environment or Natural Forces  A company has to adopt its policies within the limits set by nature. A man can improve the nature but cannot find an alternative for it.
Nature offers resources, but in a limited manner. A product manager utilizes it efficiently. Companies must find the best combination of production for the sake of efficient utilization of the available resources. Otherwise, they may face acute shortage of resources. Eg: Petroleum products, power, water, etc.
4) Technological Factors - From customer’s point of view, improvement in technology means improvement in the standard of living. In this regard, it is said that “Technologies shape a Person’s Life”.
Every new invention builds a new market & a new group of customers. A new technology improves our lifestyle & at the same time creates many problems. Eg: Invention of various consumer comforts like washing machines, mixers, etc have resulted in improving our lifestyle but it has created severe problems like power shortage.
Eg: Introduction to automobiles has improved transportation but it has resulted in the problems like air & noise pollution, increased accidents, etc. In simple words, following are the impacts of technological factors on the market:
  • They create new wants
  • They create new industries
  • They may destroy old industries
  • They may increase the cost of Research & Development.
5) Social & Cultural Factors - Most of us purchase because of the influence of social & cultural factors. The lifestyle, values, believes, etc are determined among other things by the society in which we live. Each society has its own culture. Culture is a combination of various factors which are transferred from older generations & which are acquired. Our behaviour is guided by our culture, family, educational institutions, languages, etc. The society is a combination of various groups with different cultures & subcultures. Each society has its own behavior. A marketing manager must study the society in which he operates. Consumer’s attitude is also affected by their society within a society, there will be various small groups, each having its own culture. Eg: In India, we have different cultural groups such as Assamese, Punjabis, Kashmiris, etc. The marketing manager should take note of these differences before finalizing the marketing strategies. Culture changes over a period of time. He must try to anticipate the changes new marketing opportunities.

Factors affecting External Macro environment are following

Factors affecting organisation in Macro environment are known as PESTLE.

1) Political - These factors determine the extent to which a government may influence the economy or a certain industry. For example a government may impose a new tax or duty due to which entire revenue generating structures of organizations might change. Political factors include tax policies, Fiscal policy, trade tariffs etc. that a government may levy around the fiscal year and it may affect the business environment (economic environment) to a great extent.
2) Economic - These factors are determinants of an economy’s performance that directly impacts a company and have resonating long term effects. For example a rise in the inflation rate of any economy would affect the way companies’ price their products and services. Adding to that, it would affect the purchasing power of a consumer and change demand/supply models for that economy. Economic factors include inflation rate, interest rates, foreign exchange rates, economic growth patterns etc. It also accounts for the FDI (foreign direct investment) depending on certain specific industries who’re undergoing this analysis.
3) Social - These factors affect the social environment of the market, and gauge determinants like cultural trends, demographics, population analytic etc. An example for this can be buying trends for Western countries like the US where there is high demand during the Holiday season.
4) Technological - These factors pertain to innovations in technology that may affect the operations of the industry and the market favorably or unfavorably. This refers to automation, research and development and the amount of technological awareness that a market possesses.
5) Legal - These factors have both external and internal sides. There are certain laws that affect the business environment in a certain country while there are certain policies that companies maintain for themselves. Legal analysis takes into account both of these angles and then charts out the strategies in light of these legislation. For example, consumer laws, safety standards, labor laws etc.
6) Environmental - These factors include all those that determined by the surrounding environment. This aspect of the PESTLE is crucial for certain industries particularly for example tourism, farming, agriculture etc. Factors of a business environmental analysis include but are not limited to climate, weather, geographical location, global changes in climate, environmental offsets etc.