Marketing Environment Principles of Marketing

MARKETING ENVIRONMENT: DEFINITION, TYPES, IMPORTANCE AND FEATURES

DEFINITION OF MARKETING ENVIRONMENT

“The marketing environment refers to all those internal and external factors and
forces, which directly or indirectly influence the organization’s decisions related to
marketing activities and plans.”

The sale of an organization depends on its marketing activities, which in turn depends on the
marketing environment. The marketing environment consists of forces that are beyond the
control of an organization but influences its marketing activities. The marketing environment
is dynamic in nature. Therefore, an organization needs to keep itself updated to modify its
marketing activities as per the requirement of the marketing environment.

Any change in marketing environment brings threats and opportunities for the organization.
An analysis of these changes is essential for the survival of the organization in the long run.
So marketers continue to modify their strategies and plans accordingly.

TYPES OF MARKETING ENVIRONMENT

The marketing environment is classified into major two types.

1. Internal Environment
2. External Environment
i. Micro Environment or Micro External Environment
ii. Macro Environment or Macro External Environment

Marketing
Environment

Internal Environment External Environment

OR OR
Controllable Factors Uncontrollable Factors

Micro
Environment

Macro
Environment

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1. Internal Environment:
In internal environment, there are such factors and forces
which affect the marketing plans of an organization from within the organization. These
forces are within the control of an organization so they are called controllable forces or
factors. The Company’s Internal Environment consists of the Top Management, Departments
like Finance, R& D, Marketing, Purchasing, Manufacturing, Accounting etc. All of them need
to work at tandem and in an amicable and synchronized manner in order to attain the goals
of the marketing organization and maximize profits.

The internal environment is company-specific and includes the 5M framework and

organizational culture. The 5Ms of marketing (sometimes also called the 5M framework) is a
marketing / management model that defines the elements of a marketing strategy that must
be addressed in order to be successful. The five elements (sometimes known as the
organization’s assets) include Minds, Minutes, Machinery, Materials and Money.

Let’s take a closer look at each of these factors:

i. Minds (Staffing or People): This “M” might well be considered the most important
factor because its people who make sure the rest of the 4 Ms are utilized in a
productive manner to achieve the goals of the organization. This includes the
employees, labour, knowledge, skills, experience, training and motivation of the
marketing team. Having the right minds with the necessary skills and attitude is crucial
for effective marketing.

ii. Minutes (Time): Time is another valuable asset. We’ve all heard the saying that time
is money and this is true within the marketing arena. For example, in formulating and
implementing a new strategy, marketing needs to assess factors such as whether
existing production processes are as efficient and effective as they can be the length
of time it takes the organization to introduce a new product to the market and how
responsive the organization is to competitive pressures.

iii. Machinery (Equipment): Machinery refers to the equipments, technology,

infrastructure and physical assets like tools and plants that are used to process
materials into finished or semi-finished products.

iv. Materials (Production): Materials consist of the inputs needed to produce goods and
services.

v. Money (Finance): Money refers to the budget and financial resources available to the
business for marketing and other business related activities. Money is a very critical
resource because it’s used to acquire or hire all other resources. This includes: budget
for marketing and advertisement.

Organizational Culture: Organizational culture is comprised of the shared values, attitudes,

expectations, norms, practices and company policies that guide the actions of all within the
company. Think about organizational culture as “the way we do things around here,” and the
culture can help or hinder an organization. For example, a good culture embodies positive
traits that lead to improved performance and profit. On the other hand, a dysfunctional
culture that’s toxic and/or inefficient can hinder even the most successful organization.

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2. External Environment:
In external environment, there are such factors and forces
which affect the marketing plans of an organization from outside of the organization. These
forces are not within the control of an organization. External factors include government,
technological, economic, social and competitive forces.

External environment is further classified into two types, Micro External Environment and
Macro External Environment.

i. Micro Environment:
Micro environment refers to the environment, which is closely linked to the organization and
directly affects organizational activities at smaller level. It can be divided into supply side and
demand side environment. Supply side environment includes the suppliers, marketing
intermediaries and competitors who offer raw materials or supply products. On the other
hand, demand side environment includes customers who consume products.

Let us discuss the micro environment forces in the following points:

a. Suppliers: It provides raw material to produce goods and services. Suppliers can
influence the profit of an organization because the price of raw material determines the final
price of the product. Organizations need to monitor suppliers on a regular basis to know the
supply shortages and change in the price of inputs.

b. Customers: Customers buy the product of the organization for final consumption. The
main goal of an organization is customer satisfaction. The organization undertakes the
research and development activities to analyze the needs of customers and manufacture
products according to those needs.

c. Competitors: It helps an organization to differentiate its product to maintain position in the

market. Competition refers to a situation where various organizations offer similar products
and try to gain market share by adopting different marketing strategies.

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d. Marketing Intermediaries: It helps organizations in establishing a link with customers.

They help in promoting, selling, and distributing products.
Marketing intermediaries include the following:

 Resellers: It purchases the products from the organizations and sells to the
customers. Examples of resellers are wholesalers and retailers.

 Distribution Centers: It helps organizations to store the goods. A warehouse is an

example of distribution center.
 Marketing Agencies: It promotes the organization’s products by making the
customers aware about benefits of products. An advertising agency is an example of
marketing agency.

 Financial Intermediaries: It provides finance for the business transactions. Examples

of financial intermediaries are banks, credit organizations and insurance
organizations.

ii. Macro Environment:

Macro environment involves a set of environmental forces and factors that is beyond the
control of an organization. These factors influence the organizational activities to a significant
extent. Obviously, marketers can’t ignore what’s going on in the external environment. One
of the tools used by companies to assess the environment in which they are operating is a
PESTEL analysis.

PESTEL is an acronym for Political, Economic, Social, Technological, Environmental and

Legal factors that provide marketers with a comprehensive view of the whole environment
from multiple angles.

Let us discuss these factors in details:

Political Factors: P stands for Political. It covers all of the political factors that can affect
your business. The political stability or instability in a country determines the direction of
business in a country. The favourable and flexible business policies can boost the business
environment.
Every organization should take care of the fact that marketing activities should not harm the
political and legal environment prevailing in a country. The political and legal environment
has a serious impact on the economic environment of a country.

The political factors deal with such:

 Political Stability
 International Relations
 Labor Laws
 Trade Policies
 Tax Policy
 Fiscal and Monetary Policies
 Trade Restrictions & Reform
 Tariffs
 Safety Regulations

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Economic Factors: E stands for Economic. The economic environment significantly

affects a business's organizational operations and business activities in a country. Economic
environment affects the organization’s costs structure and customer’s purchasing power. The
purchasing power of a customer depends on the current income, prices of the product,
savings, and credit availability.

For example, equipment prices and maintenance costs increase with inflation and interest
rates increment. Also, with a rise in the currency exchange rate, the duty on imports of raw
materials increases, ultimately leading to a rise in the product price. The economy directly
impacts the growth and performance of the industry. The end consumer's financial state is
also essential. An affordable and quality production puts a base of a successful business; we
can achieve it only when the economic factor is carefully analyzed.

Some of the economic factors are as follows:

a. Inflation: It influences the customer’s purchasing power and demand for different
products. For example, higher petrol prices lead to a fall in demand for cars, bikes and
other commodities as well.

b. Interest Rates: It determines the borrowing activities of the organization. For

example, increase in interest rates for loan may lead organizations to cut their
important business activities.

c. Unemployment: It leads to a no income state, which affects the purchasing power

of an individual.

d. Customer Income: It regulates the buying behavior of a customer. The change in

the customer’s income leads to changed spending patterns for the products, such as
food and clothing.

e. Monetary and Fiscal Policy: It affects all the organizations. The monetary policy
stabilizes the economy by controlling the interest rates and money supply in an
economy; whereas, fiscal policy regulates the government spending in various areas
by collecting the revenue from the citizens by taxing their income.

Social or Socio-Cultural Factors: S stands for Social. Socio-cultural environment

comprises forces, such as society’s basic values, cultural norms, attitudes, perception, and
behavior. These forces help in determining that what type of products customers prefer, what
influences the purchase attitude or decision, which brand they prefer and at what time they
buy the products.

The socio-cultural environment explains the characteristics of the society in which the
organization exists. The analysis of socio-cultural environment helps an organization in
identifying the threats and opportunities in an organization.

The demographic analysis also comes under the socio-cultural environment. Demography
means study of population so demographic environment is the scientific study of human
population in terms of elements, such as age, gender, education, occupation, income, and
location etc.

For example, the lifestyles of people are changing day-by-day. Now, the women are
perceived as an active earning member of the family.

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The social factors are as follows:

 Cultural Norms and Attitudes

 Perceptions
 Behaviors
 Education Level
 Population Growth
 Age Distribution
 Income Levels of People
 Health Consciousness

Technological Factors: T stands for Technology. Technology contributes to the

economic growth of a country. It has become an indispensable part of our lives.
Organizations that fail to track ongoing technological changes find it difficult to survive in
today’s competitive environment. Technology acts as a rapidly changing force, which creates
new opportunities for the marketers to acquire the market share. Marketers with the help of
technology can create and deliver products matching the life style of customers. Thus,
marketers should observe the changing trends in technology.

Following points explain the technological trends that affect the marketing environment:

a. Pace of Technological Change: It leads to product obsolescence at a rapid pace.

If the pace of technological change is very rapid then organizations need to modify
their products as and when required.

On the other hand, if the technology is not changing at a rapid pace then there is no
need for the organization to bring constant changes in the product.

b. Research and Development: It helps in increasing growth opportunities for an

organization. Many organizations have developed a separate team for R&D to bring
innovation in its products.
Pharmaceutical organizations, cell phone companies, etc. have started putting greater
force in R&D and these efforts have led to great opportunities in global market.

c. Increased Regulation: It refers to government guidelines to ban unsafe products.

Marketers should be aware of these regulations to prevent violation.

Environmental Factors: E stands for Environmental. Environment consists of natural

resources, which are needed as raw materials to manufacture products by the organization.
The marketing activities affect these natural resources, such as depletion of ozone layer due
to the use of chemicals. The corrosion of the natural environment is increasing day-by-day
and is becoming a global problem.

Following natural factors affect the marketing activities of an organization in a great way:

a. Natural Resources: It serves as raw material for manufacturing various products.

Every organization consumes natural resources for the production of its products.
Organizations are realizing the problem of depletion of resources and trying best to
use these resources judiciously. Thus, some organizations have indulged in de-
marketing their products.

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b. Weather: It leads to opportunities or threats for the organizations. For example, in

summer, demand for water coolers, air conditioners, cotton clothes, and water
increases while in winter, the demand for woolen clothes and room heaters rises. The
marketing environment is greatly influenced by the weather conditions of a country.

c. Pollution: It includes air, water, and noise pollution, which lead to environmental
degradation. Now-a-days, organizations tend to promote environment friendly
products through its marketing activities. For example, the organizations promote the
usage of jute and paper bags instead of plastic bags.

Legal factors: L stands for Legal. Legal factors are also part of PESTLE analysis and
have equal impacts on the business as the other factors have. Legal factors include
legislation, quotas, taxation, resources and some rules and regulations of a state. These
factors also affect the company's rules and regulations regarding how much time workers will
work and how they will get their salaries.

It is crucial for an organization to know what is legal and allowed within the territories of the
country they operate. They also must be aware of any possible change in laws or legislation
in the country and its impact on industry operations.

Some of the legal factors are as under.

 Copyright and Patent Laws

 Business Laws
 Health and Safety laws
 Trade Policies
 Tax Policies
 Import / Export Laws
 Regulatory Bodies
 Consumer Protection Laws

IMPORTANCE OF MARKETING ENVIRONMENT

The study of marketing environment is essential for the success of an organization. The
discussion of importance of marketing environment is as follows:

1. Identification of Opportunities: It helps an organization in exploiting the chances or

prospects for its own benefit. For example, if an organization finds out that customers
appreciate its products as compared to competitors’ products then it might encash this
opportunity by giving discounts on its products to boost sale.

2. Identification of Threats: It gives warning signals to organizations to take the required

steps before it is too late. For example, if an organization comes to know that a foreign
multinational is entering into the industry then it can overcome this threat by adopting
strategies, such as reducing the product’s prices or carrying out aggressive promotional
strategies.

3. Managing Changes: It helps in coping with the dynamic marketing environment. If an

organization wishes to survive in the long run then it has to adapt to the changes occurring in
the marketing environment.

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FEATURES OF MARKETING ENVIRONMENT:

Today’s marketing environment is characterized by numerous features, which are mentioned
as follows:

Specific and General Forces: It refers to different forces that affect the marketing
environment. Specific forces include those forces, which directly affect the activities of the
organization.

Examples of specific forces are customers and investors. General forces are those forces,
which indirectly affect the organization. Examples of general forces are social, political, legal,
and technological factors.

Complexity: It implies that a marketing environment includes number of factors, conditions,

and influences. The interaction among all these elements makes the marketing environment
complex in nature.

Vibrancy: Vibrancy implies the dynamic nature of the marketing environment. A large
number of forces outline the marketing environment, which does not remain stable and
changes over time. Marketers may have the ability to control some of the forces; however,
they fail to control all the forces. However, understanding the vibrant nature of marketing
environment may give an opportunity to marketers to gain edge over competitors.

Uncertainty: It implies that market forces are unpredictable in nature. Every marketer tries to
predict market forces to make strategies and update their plans. It may be difficult to predict
some of the changes, which occurs frequently. For example, customer tastes for clothes
change frequently. Thus, fashion industry suffers a great uncertainty. The fashion may live
for few days or may be years.

Relativity: It explains the reasons for differences in demand in different countries. The
product demand of any particular industry, organization, or product may vary depending
upon the country, region, or culture. For example, Shalwar Qameez is a traditional dress of
people of Pakistan, thus, it is always in demand. However, in any other western country the
demand of Shalwar Qameez may be zero.

NEED FOR ANALYZING THE MARKETING ENVIRONMENT

The business environment is not static. It is continuously changing with fast speed. The
marketing environmental analysis will help the marketer to:

i. Become well acquainted with the changes in the environment.

ii. Gain qualitative information about the business environment; which will help him to
develop strategies in order to cope with ever changing environment.
iii. Conduct marketing analysis in order to understand the markets needs and wants so
as to modify its products to satisfy these market requirements.
iv. Decide on matters related to Government-legal-regulatory policies in a particular
country so as to formulate its strategies successfully amidst these policies.
v. Allocate its resources effectively and diversify either into a new market segment or
totally into a new business which is outside the scope of its existing business.
vi. Identify the threats from the environment in terms of new competitors, price wars,
competitor’s new products or services, etc.; and prepare its strategies on the basis of
that.

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vii. Identify the opportunities in the environment and exploit these opportunities to firm’s
advantage. These opportunities can be in terms of emergence of new markets;
mergers, joint ventures, or alliances; market vacuum occurred due to exit of a
competitor, etc.
viii. Identify its weaknesses such as lower quality of goods or services; lack of marketing
expertise; or lack of unique products and services; and prepare strategies to convert
its weaknesses into strengths.
ix. Identify its strengths and fully exploit them in firm’s advantage. These strengths can
be in terms of marketing expertise, superior product quality or services, or giving
unique innovative products or services.

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