Chapter 3:Marketing Environment

Marketing environment is divided in to two parts i.e. macro and

microenvironment. The micro part includes the factors having impact directly
on the firm and its activities in relation to a particular market in which it
operates, whereas the macro environment is concerned with broad trends and
patterns in the society as a whole, which affects the markets at large

Learning objectives:
- Features of the business environment that influences marketing strategy
- The impact of external environment on the firm
- Social factors affecting the market
- The gender trends and its importance to marketers
- Technological trends and its impact on the firm
- Impact of political and legal environment on marketing
-
Marketing environment analysis is the process of gathering, filtering and
analyzing information relating to the marketing environment.

- Involved in the process is the task of monitoring the changes taking

place in the environment and forecasting the future position in respect
of each of the factors.

- The analysis spots the opportunities and threats in the

environment, and pinpoints the ones that are specifically relevant
to the firm.

Marketing environment is divided in to two broad categories-

microenvironment or task environment that is specific to the given business,
and macro environment or broad environment specific to the overall industry.
Micro Environment – Factors that an organization has direct control over
Macro Environment – Factors on which organization has no control at all.
Micro Environment
These are the internal forces close to the company and have a direct impact
on the organization strategy. It influences the organization directly. It
describes the relationship between the firms and the driving forces that control
their relationship. It is more local relationship and the firm may exercise a
degree of influence.
The Company: constitutes the internal environment of the organisation,
which consists of men, money, materials and machinery. If marketing has to
function well it has to coordinate the activities with all the other members /
departments involved in the organization as they have a great impact on its
functioning.

The major departments which make up the company consists of, marketing,
finance, research & development, purchasing, manufacturing, accounting and
others. Top management formulates the organization’s missions, vision and
values. The marketing plans have to be in co-ordination with those plans and
need to be approved by the top management in order to be implemented.
The function of the finance department is to find out the sources and uses of
funds and in order to carry out the plans marketing requires funds so it has to
co-ordinate the activities with the finance department.

Research & development is involved in developing the new products giving

life to new ideas so the marketing department, if, finds any changes in the
tastes of the consumers and identifies new needs coming up, have to
communicate it to the R&D dept. and co-ordinate the process to get what is
required by its customers.

To manage the supply and demand of the product there is a need to co-ordinate
the activities between the production and the marketing department. Hence
we can say that the Internal Marketing is very essential for the smooth
functioning of the marketing activities in the company and they all have the
impact on the working of marketing.

Suppliers: The suppliers form a very important link between the company and
customers and their value delivery network. They constitute one of the five
forces shaping competition in any industry (see Porter’s 5 Force Model). They
have their own bargaining power in the industry; they influence the costs of
raw materials and other inputs to a firm, and hence the profits a firm can take
home. It is in this context that the trade –off between integrating vs.
outsourcing of supplies assumes importance for a firm because this has
implications on the cost as well as quality fronts. Suppliers also keep
introducing frequent changes in their products, processes and business
practices. Sometimes, suppliers suddenly become direct competitors to a firm,
by themselves becoming end products manufacturers. Obviously, the firm has
to closely monitor the supplier environment

For Example – Let us take air conditioners. Compressors are the major
component and they account for 65 percent of the end price, so the
suppliers of the compressors have a major influence in this industry. In
India major domestic suppliers for compressors are Kirloskar, Carrier
Aircon, SIEL and Tecunisch India. Carrier Aircon as a larger producer
of compressors has been enjoying the major influence in the industry.

Marketing Intermediaries: Also constitute an important component of the

value delivery network of the company. It consists of the sources that are
involved in promoting, selling and distributing its goods to the final buyers.
Marketing intermediaries include – resellers, physical distributors, marketing
Service agencies and financial intermediaries.
Resellers include wholesalers and retailers who buy and resell the products.
They deal in various brand of the same product, hence it is very important for
the company to maintain the good relations with the resellers in order to
motivate them to promote their brand.

Physical distribution firms are the one who are involved in storing the
companies’ products and moving them to the place of sale. Marketing service
agencies consists of marketing research firms, media firms, advertising
agencies that promote the companies’ product to the target market and give
information to them. Financial intermediaries constitutes, insurance
companies, banks, credit companies who insure and take the risk associated
with the products / services.

Customers: We know that a successful business strategy involves designing

products and marketing programmes that incorporate attributes which provide
value to consumers. Only by studying, demand and customer-related factors
firm can carry out their business/ marketing planning effectively. Next, the
marketer needs to study various types of customer markets. They are (refer to
Philip Kotler-Market)
 Consumer markets, which comprises of individuals who purchase goods/
services for personal consumption.
Business markets, buy for further processing.
Reseller market buys to resell at a profit.

Government markets buy the goods and services to provide it to the people
who need it. Each market is different and the marketing approach towards
every market will be different, so the marketer needs to understand the market
that it is catering to, which has an impact on its strategies. Only by keeping a
track of what the customers want one can grab the opportunities emerging in
the environment. That is why we give a great importance to consumer analysis
as a part of survey.

Competitors: To be successful, apart from meeting the needs and wants of the
target markets the marketer needs to provide the products better than its
competitors. They have to answer the question what benefit can the
organisation offer which is better than their competitors? So they need to
constantly keep track of competitor’s strategies and change as and when
required. Ex: Maruti Vs Tata Indica.

Public: These are various groups of individuals who have actual or potential
interest in the working of the organisation and some how affect it’s working.
The various publics include financial public, which influences the company’s
ability to obtain funds that is if the company does not maintain good relations
with the banks or other financial institutions it may face the problems in the
long run.

Media Public: The positive or adverse media attention on an organization’s

product or services can in some cases make or break an organisation. Then
there is a General public, it consists of people who may or may not be
consuming the organization’s product or services but form some attitude
towards the company or its products, so the company needs to be concerned
about those who may talk about their company also.

Macro Environment: Includes all factors that can influence an

organisation but that are out of their direct control. It consists of larger
societal forces that affect the companies’ microenvironment. It is
continuously changing and the company needs to be flexible to adapt.
 Demographic environment: Demography means the study of human
population in terms of size, growth rate, gender, age distribution, race,
occupation, literacy levels and other statistics. This study is very important to
be done by a marketer as his whole business depends on the people.

As a Matter of fact, several factors relating to population, like size, growth,

age, religious composition and literacy levels composition of workforce,
households patterns, regional or geographical characteristics, migration of the
population need to be studied, as they all are part of the demographic
environment. While most people will be aware that India has a huge
population, what is less commonly known is that it has a comparatively young
population.

Demographic environment
involves
1.size &growth rate of population
2.age distribution & education
level.
3.household patterns.
4.regional characters

Indian income groups. (Households in millions).

This information is very helpful for the business to analyse the most attractive
segments, find out the potential growth in each segment and frame out their
product mix strategies.
Economic Environment: The marketing managers need to keep track of the
economic environment, as it affects the buying power and spending patterns
of consumers. While studying the economic environment three economic
areas that are of greatest concern to most marketers are the distribution of
income, inflation and recession. All businesses are affected by economical
factors nationally and globally. Whether an economy is in boom, recession or
recovery will affect consumer behavior. A booming economy is characterized
by certain variables such as low unemployment, and high disposable income
of the consumers. At this time the organisations have to be able to keep up
with increased demand if they are to increase turnover. An economy, which
is in recession, is characterized by high unemployment and low confidence.
The spending is low because of high unemployment. Businesses face a tough
time, as consumers will not spend because of low disposable income.
Organisations start cutting back on costs that is labour, advertising etc. They
try to improve existing products and introduce new ones that would help the
manufacturers reduce production hours, waste and material costs. In this
period there would be the demand for the products that offer economy and
efficiency and offer value.

Facts of Indian economic environment – it has been witnessing good growth

in recent years i.e. 6% plus on an average. The year 1998-99 saw the growth
rate moving up to 6.8% from 5% in1997-98. It grew by approximately 6% in
1999-2000.Indian’s percapita income however continues to be at a decreasing
end. In 1999-2000 the industrial growth rate was approximately 6-6.5%. The
indicator of the growth of an economy is from the capital market. The capital
markets in India grew during the 1980’s onwards which further went up in the
first half of the 1990’s during which the liberalization was in the boom. Then
there was some sluggishness in the later half of the 1990’s. The main point is
that India’s corporate sector, which for a long time depended on external
borrowings and the depreciation provisions for its capital formation have
started mobilizing large funds for investments through the capital markets.
Thus the FDI started flowing in to the country.
 Natural Environment: The inputs needed by the businesses to carry out
their production and various activities are available in nature. The natural
resources, ecology, climate etc. in the country, constitutes the natural
environment. Business depends on the natural resources for raw materials, so
the firms need to keep track of the availability of raw materials and if there is
going to be any shortage in the future. As the technology develops it causes
lot of environmental threats like increased pollution and damaging the
environment.

Ecology: Firms are also concerned with ecology. In modern times, all
societies are very much concerned about ecology, especially about issues like
environmental pollution, protection of wild life and ocean wealth. And,
governments are becoming active bargainers in environmental regulations and
to what extent these factors will affect their business prospects. They also need
to know the role of environmental activists in the region.

Climate: This is another aspect of the natural environment that is of interest

to a business firm. Firms with products whose demand depends on climate,
and firms depending on climate –dependent raw materials will be particularly
concerned with this factor. These firms have to study the climate in depth and
decide their production locations and marketing territories appropriately. In
the case of India, the country is rich in natural resources like iron, coal, rare
minerals, ocean wealth, etc. The country also receives good rainfall and has a
strong network of rivers. As regards climate, the tropical climate in the
country generally favours agriculture and industry. In the matter of energy in
recent years costs are constantly on rise.
India is currently faced with a number of environmental issues including:
deforestation, overgrazing, desertification, air pollution, water pollution, and
overstraining of natural resources due to its huge and rapidly growing
population. To safeguard, the government started intervening in these issues,
so now the firm needs to be aware of dimensions of environmental regulations
and to what extent these factors will affect their business prospects.

Technological environment exercises considerable influence on

business. Technology is understood as the systematic application of scientific
or other organized knowledge to practical tasks. It is through business that
technology reaches people. Technology changes fast and to keep pace with it,
businessmen should be ever alert to adopt changed technology in their
businesses.

Political environment refers to the influence exerted by the three

political institutions, viz., legislature, executive and the judiciary in shaping,
directing, developing and controlling business activities. The legislature
decides on a particular course of action; the executive, also called the
government, implements whatever was decided by the Parliament and the
judiciary functions as the watchdog in order to ensure that both the legislature
and the executive function in public interest and within the boundaries of the
Constitution. A stable and dynamic political environment is indispensable for
business growth.

Yet another environmental factor, which is fast emerging as the force

to reckon with, is the global or international environment. Thanks to
liberalization, Indian companies are forced to view business issues from a
global perspective. Business responses and managerial practices must be fine-
tuned to survive in the global environment. A manager must understand that
safe and protected markets are no more there; that the world is becoming small
in size thanks to advanced means of transport and communication facilities;
that learning of foreign languages is a necessity; that acquiring familiarity
with strange and changing currencies is a must; that facing political and legal
uncertainties is inevitable; and that adapting their products to different
customer needs and tastes would only help companies survive amidst intense
competition.

Social and cultural environment refers to the influence exercised by

certain factors, which are beyond the company’s gate. Such factors include
people’s attitude to work and wealth; role of family, marriage, religion and
education; ethical issues and social responsiveness of business. Social and
cultural environment is highly relevant for a business unit as the variety of
goods it produces, the type of employees it gets and its obligation to society
depend on the cultural milieu in which the firm operates. Thus, business is the
product of the technological, political legal, economic, social-cultural, global
and natural factors amidst which if functions.