CHAPTER-2: MARKETING ENVIRONMENT

Learning objectives of this chapter are: ·        Meaning and Scope of Marketing Environment ·        Micro and Macro Environmental Forces ·        Marketing Environment in Nepal and its impact on marketing activities

Chapter Preview: In this chapter, we will begin digging deeper into the first step of the marketing process-understanding the marketplace and customers' needs and wants. You will see how marketing operates in a complex and changing environment later in this chapter. There are two major environmental forces, called micro and macro environment that affect the company’s ability to engage customers and build customer relationships. To develop effective marketing strategies, a company must first understand the environment in which marketing operates.

Ø  Meaning and Concept of Marketing Environment

Environment refers to the situations, surroundings, atmosphere, and circumstances within which business activities are conducted. Marketing environment can be defined as a set of internal and external factors or forces that influence the performance and operation of firms’ marketing activities. It is very important for firms to understand their marketing environment so that they can grab the opportunities and cope with the threats. Firms must constantly watch and adapt to the changing environment or lead those changes if possible. By carefully analyzing the environment, marketers can adapt their strategies to meet new marketplace opportunities and challenges.

Marketing environment can be categorized into two groups. One is Micro-environment and another is Macro environment. We will look at each of them later in this chapter. For now, let’s look at how different authors and scholars have defined marketing environment differently. Some of the popular definitions are given below:

According to Philip Kotler and Gray Armstrong-“A company’s marketing environment consists of the factors and forces outside marketing that affect marketing management’s ability to build and maintain a successful relationship with target customers.”

According to Robbins and Coulter- “Environment refers to institutions or forces that affect the organization’s performance.”

In short, marketing environment thus refers to a set of micro forces (company, suppliers, intermediaries, customers, competitors, public) and macro forces (Demographic, Political-legal, economic, socio-cultural, technological, and natural) that affect the performance and operation of firms’ marketing activities. Some of the major features of marketing environment are as follows:

·        Marketing environment is dynamic and complex. So it is very difficult for firms to predict or change with marketing environment.

·        Marketing environment provides strengths and weaknesses from internal analysis and opportunities and threats from external analysis.

·        Marketing environment consists of both- controllable or uncontrollable factors which affect the performance and operations of firms’ marketing activities.

·        Marketing environment helps the firms in making marketing decisions by providing information from markets, and build a good relation with target customers.

Ø  Scope of Marketing Environment

The scope of marketing environment refers to such areas where marketing activities can be performed. The scope of marketing environment consists of the following major points:

1.     Customers: Marketing does not exist without customers. Customer buying behaviors are greatly affected by environment. Thus, the customer is considered as the scope of marketing environment.

2.     Marketing Organizations: Business organizations, service providing companies, and public companies are marketing organizations. These organizations directly or indirectly affect the marketing decisions so that they come under the scope of marketing environment.

3.  Internal and External Forces: Marketing environment consists of internal forces such as company, suppliers, intermediaries, customers, competitors, and publics and external forces such as demographic, political-legal, economic, socio-cultural, technological and natural factors. These factors also influence the marketing environment so that they come under the scope of marketing environment.

4.   Marketing Mix (4ps): The major elements of marketing such as product, price, place and promotion also come under the scope of marketing as they affect the marketing decisions in the firms.

5.   Stakeholders: Stakeholders are those bodies or parties who remain outside but close to the firms such as customers, suppliers, wholesalers, retailers, agents, labor unions and publics. They also affect the marketing decisions so they must be taken under the scope of marketing environment.

Ø  Classification of Marketing Environment: Micro and Macro Environment

Marketing environment can be classified into two categories, i.e. Micro and Macro environment. Micro environment refers to a set of internal forces and conditions of the organization which influence the marketing activities. The area of micro-environment is within the territory of the organization itself, which consist of organizational activities, scope, and stakeholder. It provides strength and weakness to marketing. On the other hand, Macro environment refers to the set of external condition and forces of the organizations that influence the performance and outcomes of marketing. It provides opportunities and threat to marketing. It is out of the control of the organization.

Fig.: Classification of Marketing Environment

(a)    Micro Environment: Company, Suppliers, Marketing Intermediaries, Customers, Competitors, and Publics

Micro environment refers to a set of close factors and forces to the company that affect its ability to serve its customers. A company alone cannot build successful relations with customers so it requires building relationships with other close associates such as suppliers, marketing intermediaries, competitors, customers and publics, which combine to make up the company’s overall success.

1.      Company: In designing marketing plans, marketing management takes other departments of the company into account—departments such as top management, finance, research and development (R&D), purchasing, operations, human resources, and accounting. All of these interrelated groups or departments form the internal environment. Top management sets the company’s mission, objectives, broad strategies, and policies. These broader strategies, plans, and policies of the company are affected by marketing and other departments. Therefore, marketing department should consider and coordinate with all these departments as a part of responsibilities for setting the company’s goals and understanding customers’ needs, wants and demands.

2.      Suppliers: Suppliers provide the necessary materials and other resources to the company to produce its goods and services. As suppliers greatly affect marketing, it is taken as an important element of micro marketing environment. Marketing managers must reduce supply problems such as delays, shortages, and rising supply costs, etc. in order to ensure timely supply and cost-effectiveness while serving customers. Thus, most marketers today treat their suppliers as partners in creating and delivering customer value.

3.      Marketing Intermediaries: Marketing intermediaries help the company to promote, sell and distribute its products from the place of production to the place of consumption. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries.

·      Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers that buy and resell the merchandise.

·        Physical distribution firms help the company stock and move goods from their points of origin to their destinations.

·       Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets.

·      Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods.

Thus, today’s marketing managers must realize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products. For example, Apple has hundreds of Its own retail locations throughout the world for using the services of authorized resellers who help the firm sell its products all over the world.

4.      Customers: Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery network is to engage target customers and create strong relationships with them. The company might target any or all of five types of customer markets. Consumer markets consist of individuals and households that buy goods and services for personal consumption. Business markets buy goods and services for further processing or use in their production processes, whereas reseller markets buy goods and services to resell at a profit. Government markets consist of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them. Finally, international markets consist of these buyers in other countries, including consumers, producers, resellers, and governments. Each market type has special characteristics that call for careful study by the seller.

5.  Competitors: The marketing concept states that, to be successful, a company must provide greater customer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. No single competitive marketing strategy is best for all companies. Each firm should consider its own size and industry position compared with those of its competitors. Large firms with dominant positions in an industry can use certain strategies that smaller firms cannot afford. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rates of return than large firms enjoy.

6.     Publics: The Company’s marketing environment also includes various publics. A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. We can identify seven types of publics:

·     Financial publics: This group influences the company’s ability to obtain funds. Banks, investment analysts, and stockholders are the major financial publics.

·   Media publics: This group carries news, features, editorial opinions, and other content. It includes television stations, newspapers, magazines, and blogs and other social media.

·    Government publics: Management must take government developments into account. Marketers must often consult the company’s lawyers on issues of product safety, truth in advertising, and other matters.

·       Citizen-action publics: A company’s marketing decisions may be questioned by consumer organizations, environmental groups, minority groups, and others. Its public relations department can help it stay in touch with consumer and citizen groups.

·     Internal publics: This group includes workers, managers, volunteers, and the board of directors. Large companies use newsletters and other means to inform and motivate their internal publics. When employees feel good about the companies they work for, this positive attitude spills over to the external publics.

·       General public: A company needs to be concerned about the general public’s attitude toward its products and activities. The public’s image of the company affects its buying behavior.

·      Local publics: This group includes local community residents and organizations. Large companies usually work to become responsible members of the local communities in which they operate.

(b)   Macro Environment: Demographic, political-legal, economic, socio-cultural, technological and natural environment

Macro environment refers to a set of external or larger factors or forces that affect company’s microenvironments as well as the performance and operations of its company’s marketing activities.

1.      Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets. The world population is growing at an explosive rate. The world’s large and highly diverse populations pose both opportunity and challenges. Changes in demographics mean changes in markets and marketing strategies so that marketers should keep a close eye on demographic trends and developments in their markets.

·       Population size and growth rate: Population size and its growth rate can affect the markets and marketing activities. Higher the population size and its growth rate, higher will be the challenges and opportunities, and larger will be the size of markets. So population size and growth rate both affect the marketing decisions. According to the 2011 U.S. Census Bureau, the total population of the world was 7,185,447,700. Similarly, the population size of Nepal is 26.4 million and the growth rate is 1.35% according to the census of 2068 B.S.

·        Age mix: Age mix is also one of the important demographic factors that affect marketing decisions. It seems that people having the ages of 14 to 65 years remain very active in working and they have higher purchasing power whereas people below 14 years and above 65 years usually remain inactive in working and have less purchasing power.

·       Urbanization and migration: When people migrate from rural areas or villages to urban areas, from one country to another country, and so on, then markets also migrate with them. They also adopt new urban lifestyle and begin to demand for products or services suitable for modern lifestyles. So the process of urbanization and migration also directly affects the marketing activities and decisions.

·        Gender: Gender of people also affects marketing decisions. Buying behavior of male and female could be different so markets or products available for them also differ. If there are higher numbers of female in the markets then female-related products are likely to be sold than male, and vice-versa.

·    Occupation: Occupation is a regular activity that people perform for a living. Purchasing capacity and buying behavior would be different as per occupations. Occupations such as Labor, Accountant, Doctor, Engineer and Professor have different purchasing power and behavior.

2.      Political-legal Environment

Political-legal environment includes laws, government policies, government agencies and pressure groups that influence or limit various organizations and individuals in a given society. These political-legal factors also strongly affect marketing decisions.

·       Laws: Law is the system of rules which a particular country or community recognizes as regulating the actions of its members which it may enforce by the imposition of penalties. It also includes business laws that prevent unfair business practices, unfair competition and protect consumer rights. These laws are likely to affect the marketing decisions as they ensure the quality or standards of products or services and protection of fair import, export, patent right, trademark and copyright and dealing of foreign currencies and so on. Nepal also has protected consumers’ rights as per the Consumer Protection Act 1997.

·     Government Policies: Various government policies such as trade policy, industrial policy, privatization policy, environment policy, foreign investment policy, taxation policy, foreign currency policy affect the marketing decisions. Government policies should be stable and favorable to business organizations so that more and more foreign companies invest in Nepal. However, it is unfortunate for Nepal not being able to do so.

·   Government Agencies: Government agencies are administrative units of government with specific responsibilities. These agencies can be established by national, regional or local governments that often work closely with and report to one or more departments or ministries. These agencies provide license, fix quotas, loan, pledge as guarantor, and provide relief to industries.

·        Pressure Groups: Marketing decisions are also affected by pressure groups. Consumers’ associations, environment protection group, anti-child labor group, women right group etc. are some pressure groups. They usually raise voice for the group interests and give pressure to government or concerned bodies.

3.      Economic Environment

Economic environment includes economic factors that affect consumer purchasing power and spending patterns. The economic environment consists of the following economic factors that all influence the marketing decisions.

·        Income distribution: Marketers should pay attention to income distribution and income levels because of people of developed countries like America, Japan, Britain, etc. have higher wealth and high per capita income whereas people of developing countries like Nepal, Bhutan, Bangladesh and Afghanistan have less wealth and low per capita income. People with higher incomes tend to spend more than people with lower incomes. 

·        Income and purchasing power: It is true that people with high income and wealth have higher purchasing power whereas people with low income and or low wealth have less purchasing power. Therefore, consumers’ income and purchasing power are also important factors affecting the marketing decisions of any firms.

·        Credit availability: The availability of the credit facility also influences the marketing activities as it affects the purchasing power of consumers. If there is the availability of a credit facility, people tend to buy more products, and involve in marketing activities and vice-versa. For instance, credit cards, debit cards, auto loan and house loan of finance companies and banks are likely to increase the purchasing power of consumers.

·      Inflation and exchange rate: Inflation rate is the rate of general increase or change in prices (as indicated by a price index) calculated on a monthly or annual basis. When the inflation rate goes up, there is a decline in the purchasing power of money and vice-versa. Similarly, the exchange rate is the value of one currency for the purpose of conversion to another. For example, the dollar’s exchange rate tells you how much a dollar is worth in a foreign currency and vice versa. If it decreases, it adversely affects the global marketing activities.

·    Business cycle (recession, growth, decline, and recovery): A business cycle indicates the health or economic conditions of the economy over a particular period. Thus, the business cycle clearly reflects the people economic conditions and their purchasing power within a country. For instance, people with growth phase tend to have higher income and wealth so they tend to buy expensive products whereas people with recession/decline phase tend to have lower income and wealth so they tend to buy cheap products.

·     Economic systems, Policies, and Conditions: Economic system can be a free market economy, centrally planned economy and mixed economy. Likewise, economic policies such as monetary policy, fiscal policy, industrial policy and taxation policy, and economic conditions such as inflation, recession, prosperity, and recovery both affect the successful operation of marketing decisions. Regional economic groupings such as SAFTA, NAFTA, SAARC, ASIAN and EU also likely to influence the marketing activities.  

4.      Socio-cultural Environment

Socio-cultural environment includes institutions and other forces that affect a society’s basic attitudes, beliefs, values, perceptions, languages, religions and so on. People grow up in a particular society that shapes their basic beliefs and values, and their relationship with others. The following socio-cultural characteristics can affect marketing decision making.

·      Attitudes: An attitude is an expression of favor or disfavor towards people, objects or things. It can be negative or positive. People’s attitudes are affected by their educations, languages, cultures, beliefs, etc. Looking as a whole, Nepalese attitudes towards time, work, and changes are not satisfactory. A positive attitude is favorable for marketing activities.

·     Beliefs: Belief is a state of the mind in which a person thinks something to be the truth with or without there being empirical evidence to prove that something is true with factual certainty. It is a mental representation of an attitude positively oriented towards the likelihood of something being true. Beliefs of the person or society also affect marketing decisions. For example, the Nepalese people believe in fate, and they assume that success or failure depends on the wish of God. Likewise, almost Nepalese do not buy new clothes on Monday.

·       Values: Cultural values are the degree of importance and lasting beliefs or ideals shared by the members of a culture about what is good or bad and desirable or undesirable. It may differ from groups to groups within a culture. Values are most complex so that they also greatly influence marketing decisions.

·        Perception: Perception is the ability to see, hear, or become aware of something through the senses. It may be different and very difficult to understand so that it also affects marketing activities.

·        Languages: Language is the medium of communication, either in the form of written or spoken words. It is a deep-rooted force of cultural environment. In Nepal, there are many languages such as Nepali, Maithili, Bhojpuri, Newari, Gurung, and English. It also directly or indirectly affects marketing activities.

·       Religions:  Religion is a particular system of faith and worship. It is also a deep-rooted force of cultural environment that affects the marketing mix. There are Hindu, Boudha, Muslim, Christian, etc. religions in Nepal.

5.      Technological Environment

Technological environment refers to forces that create new technologies, new products and new market opportunities. It is one of the most dramatic forces now shaping the marketing activities. The subcomponents of the technological environment are discussed briefly as follows.

·        Level of Technology: The level of technology can be labor intensive and capital intensive. If human labor is used for the operation of the business then it is called labor intensive whereas when automatic, digital or robotized technology is used then it is called capital intensive. Thus, appropriate technology should be adopted in the production process.

·       Pace of technology: Technology is dynamic. The pace of technological change is very fast. Marketers should always adopt new and cost effective technology for producing and delivering goods and services to its customers. Products obsolete, new improvements, new products, and big market opportunities are the results of technological change.

·   Technology transfer: Technology transfer is the transfer of new technology from the originator to a secondary user, especially from developed to developing countries in an attempt to boost up economies. It can be through globalization, projects, trade, technological assistance, and so on. The new technology is transferred in Nepal by the following ways:

i)       Direct import of new technology

ii)     Opening new branches of multinational companies

iii)    Hand-over the management of business organizations to foreign firms or persons

iv)    Sending manpower to foreign countries for study and training

v)     Inviting foreign technicians by industries.

·     Research and development (R&D): Research and development plays an important role in modern marketing for developing marketing activities, new products and innovations. Appropriate R & D budget should be allocated for doing all these activities.

6.      Natural Environment

Natural environment involves the physical environment and natural resources that are needed as inputs by marketers or that are affected by marketing activities. At the most basic level, unexpected happening in the physical environment- anything from weather to natural disasters- can affect companies and their marketing strategies. Although companies cannot prevent such natural occurrences, they should prepare for dealing with them.

·       Environmental trends: Environmental concerns such as shortage of raw materials, increased pollution, and increased government interventions in managing resources have become a major concern in the world. These environmental trends or concerns have to be followed by marketing organizations for future environmental sustainability so they also influence the marketing activities and decisions.

·     Natural resources: Natural resources are materials or substances occurring in nature which can be exploited for economic gains such as raw materials, mines, lands, climate, forests, etc. These elements play a pivotal role in marketing decisions.

·     Climate and topography: Climate is weather conditions or atmospheric conditions of a particular area. Climate can be hot, mild and cold. For example, the climate of Terai is hot so consumers of Terai demand cotton clothes and cold drinks whereas climate of Jumla is cold so consumers of Jumla demand woolen clothes and hot drinks. Similarly, topographic conditions or earth surfaces such as mountains, hills and plain lands play important roles in transportation and distribution of products and services. Thus, climate and topography directly affect the demand and supply of marketing activities.

Ø  Importance of Analyzing Marketing Environment (Impacts of Environment on Marketing Activities)

The company management has to plan and strategize its marketing operations depending on the factors that have a positive impact on its operations and some that affect it in a negative manner. Analyzing marketing environment can provide the following benefits to its company.

1)    Essential for planning: It is necessary for the management of the company to understand the Importance of Marketing Environment astutely as it helps in the planning of the business operations such as planning the nature and features of the new products and services to be launched in the market. It also helps in the planning of various marketing and promotional strategies so as to match the offerings of the company to the current Marketing environment.

2)   Understanding Needs and requirements of Customers: The next on the list of the Importance of Marketing Environment is the firm gets to understand the exact needs and requirements of its existing as well as prospective customers. The various factors of marketing environment such as political influences, advancements in the realms of technology, increase in the market share of the competitor’s brands, and change in the government rules and policies have an effect on the tastes and preferences of the customers. Hence, giving Importance to the Marketing Environment helps the company to retain its loyal customers and attract new customers as well.

3)       Keeping a check on threats: Giving attention to the Importance of Marketing Environment, the company is able to keep a thorough check on the factors that can have a negative impact on its business operations and act as an obstacle in its trajectory of growth and success. The brand has to keep an eye on the threatening factors such as growing competition in the market, price variations, evolving tastes of the customers, and other socio-economic factors.

4)    Grabbing the market opportunities: There are various and fruitful opportunities as well as that come along the way of business with the threats and with a dedicated attention to the Importance of Marketing Environment, the management is able to catapult and harp on opportunities such as technological advancements and change in the government rules and regulations that work in the benefit of the company and its business operations and provides impetus in attaining the desired goals and objectives.

5)      Understanding new trends and competition: It is necessary for the company to understand, tap, and embrace the new trends that are ruling the market in order to stay relevant and consistent amidst the changing dynamics. The company is able to survive and thrive in the competitive market by keeping a detailed eye on the competitors by checking and understanding that what are the features and nature of their offerings, levels of customer service experience provided by them, marketing and promotional strategies, steps opted to retain the customers such as loyalty programs, discount offers, and more along with their pricing strategy; the company is able to plan its offering and the marketing strategies that have higher value than that of the competition to gain the advantage in the market.

6)       Helping in building marketing strategies, plans and policies: Paying the required concentration to the Importance of Marketing Environment helps the company to plan and build various business strategies such as deciding on the nature and unique attributes of the offerings, have competitive pricing, and working on the channel partner and distribution network amongst others along with planning the marketing strategies such as selecting the potent mix of marketing platforms such as television, radio, print, social media, outdoor hoardings, digital marketing, events, trade shows, and participation in various exhibitions amongst others.

7)   Innovation: The company is able to come up with the innovative line of products and services to its customers as per the modern and technological advancements, positive impact on the business with the fruitful government policies, relaxing norms on the tax procedures, and other such external factors that help carve a distinctive identity in the marketplace amidst the tough and ever growing competition.

Review Questions

Brief Answer Questions:

1.      Define Marketing Environment. Why do marketing firms need to understand their marketing environments? Give any two reasons.

2.      Differentiate internal environment and external environment?

3.      Mention the six micro-environmental forces that affect the company’s ability to serve its customers?

4.      Why should marketers pay close attention to the political environment? Give two reasons.

5.      Mention four factors of economic environment.

Short Answer Questions (Discussion Questions)

1.      What is marketing environment? How do technological factors affect the marketing program of a company? Explain briefly.

2.      Describe the socio-cultural environment of marketing and its effect in the design of the marketing mix.

3.   Why does it necessary for a company to analyze its marketing environment? Briefly explain any five reasons.

4.     What do you understand by micro-environment and macro environment? How do economic factors affect the marketing mix? Explain.

5.      Describe the major factors of internal/micro environment that affect the firms’ marketing activities?

Comprehensive Answer Questions (Critical Thinking Questions)

1.      Define Marketing Environment. What are the micro and macro environmental factors that affect the firms’ marketing activities?

2.      If you are hired as a marketing manager in one of the leading companies in your local area. Your key role is to analyze the marketing environment and submit a report based on your findings. How would you analyze the marketing environment using SWOT analysis? Why SWOT analysis is important for marketing managers for analyzing the marketing environment.

3.      Walmart Company is considering starting up its new branch in Nepal. As you know, Walmart is one of the leading retail supermarkets in the world. Make an external analysis (Opportunities and Threats) that tells the company owner whether setting up a new branch in Nepal is profitable or not.

4.      In 1965, more than 40 percent of American adults were smokers. That percentage has now fallen to less than 18 percent. Tobacco companies have dealt with this threat by developing new markets overseas and also developing an alternative nicotine products such as electronic cigarettes (e-cigarettes).

a)     According to above information, how did American Tobacco companies deal with the potential threats posed by American adult smokers?

b)     What could be the threats and opportunities to the Tobacco companies for introducing alternative nicotine products such as e-cigarettes in the US markets?

c)      Is it profitable for Nepalese Tabacco companies to introduce e-cigarette now in Nepal? What would you suggest to Nepalese Tobacco companies for this technology and Why?

THANK YOU!