Chapter Two

The Marketing Environment

Marketers need to be good at building relationships with customers, others in the company, and
External partners. To do this effectively, they must understand the major environmental forces
that surround all of these relationships. A company’s Marketing Environmental consists of the
actors and forces outside marketing that affect marketing management’s ability to build and
maintain successful relationships with target customers. Successful companies know the vital
importance of constantly watching and adapting to the changing environment.
As we move into the twenty first century, both consumers and marketers wonder what the future
will bring. The environment continues to change rapidly. More than any other in the company,
marketers must be the trend trackers and opportunity seekers. All though every manager in an
organization needs to observe the outside environment, marketers have two special aptitudes.
They have disciplined methods marketing intelligence and marketing research for collecting
information about the marketing environment. They also spend more time in the customer and
competitor environments. By carefully studying the environment, marketers adapt their strategies
to meet new market place challenges and opportunities. The marketing environment is made up
of a macro environment and a micro environment. The macro environment consists of the larger
societal forces that affect the microenvironment demographic, economic, natural, technological,
political, and cultural forces. The microenvironment consists of the actors close to the company
that affect its ability to service its customers- the Company, suppliers, marketing intermediaries,
customer markets, competitors and publics.
2.1. THE COMPANY’S MACRO ENVIRONMENT
The company and all of the other actors operate in a larger macro environment of forces that
shape opportunities and pose threats to company. The figure below shows the six major forces in
the company’s macro environment. In the remaining sections of this unit, we examine these
forces and show how they affect marketing plans.

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A. Demographic Environment
Demographic tell marketers who current and potential customers are; where they are; and how
many are likely to buy what the marketer is selling. Demography is the study of human
population in terms of size, density, location, age, gender, race, occupation and other statistics.
The demographics 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. It now totals
more than 6.1 billion by the year 2030. Changes in the world demographic environment have
major implications for business. For example, consider China. Twenty five years ago, to curb its
skyrocketing population, the Chinese government passed regulations limiting families to one
child each. As a result, Chinese children known as “little emperors and empresses” are being
showered with attention and luxuries under what’s known as “six pocket syndrome” As many as
six adults two parents and four doting grandparents may be including the whims of each child.
Parents in the average Beijing household now spend about 40 percent of their income on their
cherished only child. Among other things, this trend has created huge market opportunities for
B. Economic Environment
Marketers require buying power as well as people. The Economic Environment consists of
factors that affect consumer purchasing power and spending patterns. Nations vary greatly in
their levels and distribution of income. Some countries have subsistence economies they
consume most of their own agricultural and industrial output. These countries offer few market
opportunities. The other extreme are industrial economies which constitute rich markets for
many different kinds of goods. Marketers must pay close attention to major trends and consumer
spending patterns both across and within their world markets. Following are some of the major
economic trends:
Changes in Income: GDP, Per Capita Income, Disposable Income and so on are economic
variables that may describe a nation’s aggregate favorable or unfavorable nature of the economy.
Individual’s purchasing power is relied on such general truths. These economic variables are
taken as misleading figures for there might be a large amount of money shifting towards one
group, rich people. So, it is advisable to refer to market segment’s income rather than nation
wide margin of earning.

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Growth and Recession: These two economic variables affect the marketing environment
differently. An increase in the capacity of an economy to produce goods and services, Compared
from one period of time to another. Economic growth attracts many companies even from highly
developed countries. Ethiopia can be a role model; growth at double digit is a blistering
phenomenon which attracts large number of multinational companies. Recession is a significant
decline in activity spread across the economy, lasting longer than a few months. It is visible in
industrial production, Employment, real income and wholesale retail trade. The technical
indicator of recession is two consecutive quarters of negative economic growth as measured by a
country’s gross domestic products (GDP).
Changing consumer spending patterns: Consumers at different income levels have different
spending patterns. Ernest Engel, who studied how people shifted their spending as their income
rose, noted some of these differences over a century ago. He found that as family income rises,
the percentage spent on food declines, the percentage spent on housing remains about constant (
except for such utilities as gas, electricity, and public services, which decrease), and both the
percentage spent on most other categories and that devoted to savings increase. Changes in major
economic variables such as income, cost of living, interest rates, savings and borrowing patterns
have a large impact on the market place. Companies watch these variables by using economic
forecasting. Businesses do not have to be wiped out by an economic downturn or caught short in
boom. With adequate warning, they can take advantage of changes in the economic environment.
C. Natural Environment
The natural environment involves the natural resources that are need as inputs by marketers or
that are affected by marketing activities. In many cities around the world, air and water pollution
have reached dangerous levels. World concern continues to amount about the possibilities of
global warming, and may environmentalists fear that we soon will be buried on our own trash.
Marketers should be aware of several trends in the natural environment. The first involves
growing shortages of raw materials. Air and water may seem to be infinite resources, but some
groups see long run dangers. Air pollution chokes many of the world’s large cities and water
shortages are already a big problem in some parts of the world. Renewable resources, such as
oil, coal, and various minerals, pose a serious problem. Firms making products that require these
scarce resources face large cost increases, even if the materials do remain available.

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A second environmental trend is increased pollution. Industry will almost always damage the
quality of the natural environment. Consider the disposal of chemical and nuclear wastes, the
dangerous mercury levels in the ocean, the quantity of chemical pollutants in the soil and food
supply; and the littering of the environment with non-biodegradable bottles, Plastics, and other
packaging materials.
A third trend is increased government intervention in natural resource management. The
Governments of different countries vary in their concern and efforts to promote a clean
environment. Some like the German government vigorously pursue environmental quality.
Others, especially many poorer nations, do little about pollution, largely because they lack the
needed funds or political will.
Even the richer nations lack the vast funds and political harmony needs to mount a worldwide
Environmental effort. The general hope is that companies around the world will accept more
social responsibility and that less expensive devices can be found to control and reduce
pollution. Concern for the natural environment has spawned the so-called green movement.
Today, enlightened companies go beyond what government regulations dictate. They are
developing environmentally sustainable strategies and practices in an effort to create a world
economy that the planet can support indefinitely. They are responding to consumer demands
with ecologically safer products, recyclable or biodegradable packaging, better pollution control,
and more energy-efficient operations. Some organizations run a pollution prevention pays
program that has led to a substantial reduction in pollution and costs. Others use a special
software package to choose the least harmful materials, cut hazardous waste, reduce energy use,
and improve product recycling in its operations. Still others eliminated polystyrene cartons and
now use smaller, recyclable paper wrappings and napkins.
D. Technological Environment
The technological environment is perhaps the most dramatic forces now shaping our destiny.
Technology has released such wonders as antibiotics, organ transplants, laptop computers and
the Internet. It also has released such horrors as nuclear missiles, chemical weapons and assault
rifles. It has released such mixed blessings as the automobile, television and credit cards. Our
attitude towards technology depends on whether we are more impressed with its wonders or its
blunders.

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New technologies create new markets and opportunities. However, every new technology
replaces an older technology. Transistors hurt the vacuum-tube industry, Xerography hurt the
carbon paper business, the auto hurt the railroads and compact disks hurt phonograph records.
When old industries fought or ignored new technologies, their business declined. Thus,
marketers should watch the technological environment closely. Companies that don’t keep up
with technological change soon will find their products outdated. They will miss new product
and market opportunities. The marketer should monitor the following trends in technology: the
pace of change, the opportunities for innovation, and increased regulation.
Accelerating Pace of the Technological Change: many of today’s common products were not
available 40 years ago. For example, personal computers, digital wristwatches, radio recorders or
fax machines were not available some decades ago. More ideas are being worked on; the time
lag between new ideas and their successful implementation is decreasing rapidly; and the timer
between introduction and peak production is shortening considerably. Ninety percent of all the
scientists whoever lived are alive today, and technology feeds upon itself.
The advent of personal computers and fax machines has made it possible for people to
telecommute that is, work at home instead of traveling to offices that may be 30 or more minutes
away. Some hope that this trend will reduce auto pollution, bring the family closer together, and
create more home centered entertainment and activity. It will also have substantial impact on
shopping behavior and marketing performance.
Unlimited Opportunities for Innovation: Scientist today working on a starting range of new
technologies that will revolutionize products and production processes. Some of the most
exciting work is being done in biotechnology, solid-state electronics, robotics and materials
sciences, Researchers are working on AIDS cures, happiness pills, painkillers, totally safe
contraceptives and nonfattening foods. They are designing robots for firefighting, underwater
exploration and home nursing. In addition, scientists also work on fantasy products, such as
small flying cars, three dimensional television, and space colonies. The Challenge in each case is
not only technical but also commercial-to develop affordable versions of these products.
Increased Regulation of Technological Change: as products become more complex, the public
needs to know that these are safe. Consequently, government agencies powers to investigate and
ban potentially unsafe products have been expanded. Safety and health regulations have also
increased in the areas of food, automobiles, clothing, electrical appliances and construction

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marketers must be aware of these regulations when proposing, developing, and launching new
products.
E. Political and Legal Environment
Marketing decisions are strongly affected by developments in the political and legal
environment. This environment is composed of laws, government agencies, and pressure groups
that influence and limit various organizations and individuals. Legislation regulating business:
business legislation has three main purposes; to protect companies from unfair competition,
to protect consumers from unfair business practices and to protect the interest of society
from unbridled business behavior. A major purpose of business legislation and enforcement is
to charge businesses with the social costs created by their products or production processes.
Legislation affecting businesses has steadily increased over the years. Several countries have
been active in establishing a new framework of laws covering competitive behavior, product
standards, product reliability and commercial transactions. And other countries are passing laws
to promote and regulate an open market economy.
Marketers must have a good working knowledge of the major laws protecting competition,
consumers, and society. Companies generally establish legal review procedures and promulgate
ethical standards to guide their marketing managers. As more and more business takes place in
cyberspace, marketers must establish new parameters for dong business ethically.
Growth of Special Interest Groups: the number and power of special interest groups have
increased over the past three decades. Political action committees lobby government officials and
pressure business executives to pay more attention to consumer rights, women’s rights, senior
citizen rights, and minority rights. Many companies have established public affairs departments
to deal with these groups and issues. An important force affecting business is the consumerist
movement- an organized movement of citizens and government to strengthen the rights and
powers of buyers in relation to sellers. Clearly, new laws and growing numbers of pressure
groups have put more restraints on marketers. Marketers have to clear their plans with the
company’s legal, public relations, public affairs and consumer- affairs departments.
F. Cultural Environment
The cultural environment is made up of institutions and other forces that affect a society’s basic
values, perceptions, preferences, and behaviors. People grow up in a particular society that

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shapes their basic beliefs and values. They absorb a worldview that defines their relationships
with others. The following cultural characteristics can affect marketing decision making.
Persistence of cultural Values
People in a given society hold many beliefs and values. Their core beliefs and values have a high
degree of persistence. These beliefs shape more specific attitudes and behaviors found in
everyday life. Core beliefs and values are passed on from parents to children and are reinforced
by schools, churches, business, and government. Secondary beliefs and values are more open to
change. Believing in marriage is a core belief; believing that people should et married early in
life is secondary belief. Marketers have some chance of changing secondary values but little
chance of changing core values. For example, family- planning marketers could argue more
effectively that people should get married later than that they should not get married at all.
Although core values are fairly persistent, cultural swing do take place. Consider the impact of
popular music groups, movie personalities, and other celebrities on young people’s hair styling
and clothing norms. Marketers want to predict cultural shifts in order to spot new opportunities
or threats.
2.2. The Company’s Microenvironment
Marketing Managements job is to build relationship with customers by creating customer value
and satisfaction. However, marketing managers cannot do this alone. Marketing success will
require building relationships with other parties, which combine to make up the company’s value
delivery network.
The Company
In designing marketing plans, marketing management takes other company group into account
groups such as top management, finance, research and development / R and D/ , purchasing,
operation, and accounting. All these inter related groups form the internal environment. Top
management sets the company’s mission, objectives, broader strategies and policies. Marketing
managers make decision within the strategies and plans made by top management. Marketing
managers must also work closely with the other company departments. Finance is concerned
with finding and using funds to carry out the marketing plans. The R and D department focuses
on designing safe and attractive products, whereas an operation is responsible for producing and
distributing the desired quality and quantity of products. Accounting has to measure revenues
and costs to help marketing know how it is achieving its objectives. Together, all of these

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departments have an impact on the marketing department’s plans and actions. Under the
marketing concept all of these must “think customers’’. They should work in harmony to provide
superior customer value and satisfaction.
Suppliers
Suppliers form an important link in the company’s overall customer value delivery system. They
provide the resources needed by the company to produce its goods and services. Supplier
problems can seriously affect marketing. Marketing managers must watch supply availability
supply shortages and delays, labor strikes, and other events can cost sales in the short-run and
damage customer satisfaction in the long run. Marketing managers also damage customer
satisfaction in the long run. Marketing managers also monitor the price trends of their key inputs.
Rising supply costs may force price increases that can harm the company’s sales volume. Most
marketers today treat their suppliers as partners in creating and delivering customer value.
Marketing Intermediaries
Marketing intermediaries help the company to promote, sell and distribute its goods to final
buyers. They include resellers, physical distribution firms, marketing service agencies, and
financial intermediaries.
Resellers - are distribution channel firms that help the company to find customers or make sales
to them. These include wholesalers and retailers who buy and sell merchandise. Selecting and
partnering with resellers is not easy. No longer do manufacturers have many small, independent
resellers from which to choose.
Physical Distribution firms - help the company to stock and move goods from their points of
origin to their distribution. Working with warehouse and transportation firms, a company must
determine the best ways to store and ships goods, balancing factors such as cost, delivering,
speed and safety.
Marketing Service Agencies - are the marketing research firms, advertising agencies, media
firms, and marketing consulting firms that help the company to target and promote its products to
the customer. When the company decides to use one of these agencies, it must choose carefully
because these firms vary in creativity, quality, service, and price.
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. Most firms and customers depend on financial intermediaries to finance

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their transactions. Like suppliers marketing intermediaries form an important component of the
company’s overall value delivery system. In its quest to create satisfying customer relationships,
the company must do more than just optimize its own performance. It must partner effectively
with marketing intermediaries to optimize the performance of the entire system.
Customer
The company needs to study five types of customer markets closely
- Consumer Markets - consist of individuals and households that buy goods and services for
- Business markets - buy goods and services for further processing or for use in their production
process.
- Reseller markets- buy goods and services to resell at profit
- Government market- is made up of government agencies that buy goods and services to
produce public service or transfer the goods and services to others who need them.
- International markets--- consists 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.
Competitors
The marketing concept states that to be successful, a company must provide greater customer
value and satisfaction than its competitors too. 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 a
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.
Public
The companies 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.

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- Financial publics- influence the company’s ability to obtain funds. Banks, investment houses,
and stockholders are the major financial publics.
- Media publics-carry news, features, and editorial opinion. They include newspapers,
magazines, and radio and television stations.
- Government Publics-management must take government developments into account.
Marketers must consult the company’s lawyers on issues of product safety, truth in adverting,
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.
- Local Publics-include neighborhood residents and community organizations. Large companies
usually appoint a community relations officer to deal with community, attend meetings, answer
questions, and contribute to worthwhile causes.
- General public-A company needs to be concerned about the general public’s attitude towards
its products and activities. The public image of the company affects its buying.
- Internal Publics- include workers, managers, volunteers, and the board of directors. Large
companies use newsletters and other of directors. Large companies use newsletters and other
means to inform and motivate their internal publics. When employees feel good about their
company, this positive attitude spills over the external publics.
A company can prepare marketing plans for these major publics as well as its customers markets.
Suppose the company wants a specific response from a particular public, such as goodwill,
favorable word of mouth, or donations of time or money. The company would have to design an
offer to this public what is attractive enough to produce the desired response.
2.3. Responding to the Marketing Environment
Someone once observed “there are three kinds of companies: those who make things happen,
those who watch things happen, and those who wonder what has happened.” Many companies
view the marketing environment as an uncontrollable element to which they must react and
adapt. They passively accept the marketing environment and do not try to change it. They
analyze the environmental forces and design strategies that will help the company avoid the
threats and take advantage of the opportunities the environment provides.

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Other companies take a proactive stance toward the marketing environment. Rather than simply
watching and reacting, these firms tale aggressive actions to affect the publics and forces in their
marketing environment. Such companies hire lobbyists to influence legislation affecting their
industries and stage media events to gain favorable press coverage. They run advertorials (ads
expressing editorial points of view) to shape public opinion. They press law suits and file
complaints with regulators to keep competitors in line, and they form contractual agreements to
better control their distribution channels. Marketing management cannot always control
environmental forces. In many cases, it must settle for simply watching and reacting to the
environment. For example would have little success trying to influence geographic population
shifts, the economic environment or major cultural values. But whenever possible, smart
marketing managers will take a proactive rather than reactive approach to the marketing
environment.

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