Chapter Two

The Marketing Environment

Previewing the Concepts
• Describe the environmental forces that
affect the company’s ability to serve its
customers.
• Explain how changes in the demographic
and economic environments affect
marketing decisions.
• Identify the major trends in the firm’s
natural and technological environments.
• Explain the key changes in the political and
cultural environments.
• Discuss how companies can react to the
marketing environment.
 What are the Common marketing
problems?
• How can we identify and choose
profitable market segments?
• How can differentiate our offer from our
competition?
• How should we react to competitors?
• How can we satisfy our customers and
build brand loyalty?
• How can we measure the effectiveness
of an ad campaign?
• What is Environment?
• What is marketing Environment?

• What is the need of knowing

marketing environment?
• What are the marketing
environmental elements?

• What is the importance of the

external environment to marketing
decision-making?
• No business operates in a vacuum.
 Decisions are made within a context of
• Competition,
• Customer characteristics,
• Behaviour of suppliers and distributors, and
• Of course within a legislative and social
framework.
 Some environmental factors are easily
controlled by managers within the firm.

 Others cannot be changed and must

therefore be accommodated in decision-
making.
 Marketing
Environment
• The marketing environment consists of actors
and forces outside the organization that affect
management’s ability to build and maintain
relationships with target customers.
• It Comprised of actors and forces affecting
marketing management’s ability to develop and
maintain successful relationships with its target
customers.
• External Environment offers both
opportunities and threats.
• Internal Environment offers both strengths
and weaknesses.
• Marketing intelligence and research used
to collect information about the environment.
 Components of Marketing
Environment
• Includes the following.
1. Task (mediating environment)
- Actors close to the company that affect its
ability to serve its customers.
- Organisations and individuals who directly or
indirectly affect the activities of a company .
2. Macroenvironment: larger forces that affect the
microenvironment.
• Considered to be beyond the control of the organization.
• PEST Analysis, (Political-legal, economic, socio-cultural and
technological)
 3. Company’s Internal Environment: (Intra
organizational environment)
– Areas inside a company.
– Affects the marketing department’s
planning strategies.
– All departments must “think
consumer” and work together to
provide superior customer value and
satisfaction.
Another way of classifying the
marketing environment
Marketing Internal
Environme environment
nt External
 The Company
• With marketing taking the lead, all departments—from
manufacturing and finance to legal and human
resources—share the responsibility for
understanding customer needs and creating
customer value.
Components of Marketing
Environment
Demographic

Cultural Publics Economic

Suppliers

Company
Customers
Competitors
Political Natural
Intermediaries

Technological
Actors in the
Microenvironment
• Marketing success requires building
relationships with
 Other company departments,
 Suppliers,
 Marketing intermediaries,
 Competitors,
 Various publics, and
 Customers, which combine to make up
the
company’s value delivery network.
1. Suppliers:
– Provide resources
needed to produce
goods and services.
– Important link in the
“value delivery
system.”
– Most marketers treat
suppliers like
partners.
2. Marketing Intermediaries:
– Help the company to promote, sell, and
distribute its goods to final buyers.
– Partnering with Intermediaries
• Resellers
• Physical distribution firms
• Marketing services agencies
• Financial intermediaries
 Marketing Intermediaries
• Resellers- Reselling goods and services at a profit.

• 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.

• 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.
3. Customers:
– Five types of markets
that purchase a
company’s goods and
services
– A company might target
any or all Markets
 Consumer market
 Business market
 Reseller market
 Government market
 International market
 Consist of individuals and
 households that buy goods and
Consumer market services for personal
consumption.
 Buy goods and services for
Business market further processing or use in
their production processes

Buy goods and services to resell

 Reseller market at a profit.
Consist of government agencies that
buy goods and services to produce
 Government
public services or transfer the goods
market and services to others who need
them.
Consist of these buyers in other
 International countries, including customers,
producers, resellers, and
market governments
4. Competitors:
– Those who serve a target market with
products and services that are viewed
by consumers as being reasonable
substitutes.

– Company must gain strategic advantage

against these organizations.
 Competitors
• Marketers also must gain strategic advantage by
positioning their offerings strongly against
competitors’ offerings in the minds of consumers.

• Each firm should consider its own size and industry

position compared to those of its competitors.

V.
S
5. Publics:
– Group that has an interest in or impact
on an organization's ability to achieve its
Types of Publics
objectives.
Financi • Influences the company’s ability to obtain funds
al • Banks, investment analysts, and stockholders
publics are the major financial publics.

• This group includes neighborhood residents and

Local community organizations.
• Large companies usually create departments
Publics
and programs that deal with local community
issues and provide community support.

• Carries news, features, and editorial opinion.

Media
• It includes newspapers, magazines, television
publics stations, and blogs and other Internet media.

• Management must take government

Govern developments into account.
ment • Marketers must often consult the company’s
Publics lawyers on issues of product safety, truth in
 • A company’s marketing decisions may be
questioned by consumer organizations,
Citizen- environmental groups, minority groups,
action and others.
• Its public relations department can help it
publics
stay in touch with consumer and citizen
groups.

Internal This group includes workers, managers,

publics volunteers, and the board of directors.

• A company needs to be concerned about the

general public’s attitude toward its products and
General
activities.
public • The public’s image of the company affects its
buying.

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 The Macroenvironment

• The company and all of the other

actors operate in a larger
macroenvironment of forces that
shape opportunities and pose
threats to the company.

• Can not be controlled.

The Company’s
Macroenvironment
 The Company’s Macroenvironment
• The Demographic Environment:
– The study of human populations in terms of size,
density, location, age, gender, race,
occupation, and other statistics.
– Consistently Monitors population.
– The world population is showing explosive growth.
– Demographic environment is important because it
involves people, and people make up
markets.

– Marketers track changing age and family

structures, geographic population shifts,
educational characteristics, and population
diversity.
Key U.S. Demographic
trends
Changing
ChangingAge
AgeStructure
Structure
Population
Populationis
isgetting
gettingolder
older

Changing
ChangingFamily
FamilyStructure
Structure
Marrying
Marryinglater,
later,fewer
fewerchildren,
children,
working
workingwomen,
women,and
andnonfamily
nonfamilyhouseholds
households

Geographic
GeographicShifts
Shifts
Moving
Movingto
tothe
theSunbelt
Sunbeltand
andsuburbans
suburbans

Increased
IncreasedEducation
Education
Increased
Increasedcollege
collegeattendance
attendance
and
andwhite-collar
white-collarworkers
workers
Growing
GrowingEthnic
Ethnicand
andRacial
RacialDiversity
Diversity
73%
73%Caucasian,
Caucasian,12%
12%African-American,
African-American,
10%
10%Hispanic
Hispanic&&3.4%
3.4%Asian
Asian
 The Seven U.S. Generations
Generational marketing is important in segmenting people by
lifestyle of life state instead of age.
More people are:
• Divorcing or separating
• Choosing not to marry
• Choosing to marrying later
• Marrying without intending to have children
• Increased number of working women

• Stay-at-home dads
• Growth in United States West and South and decline in
Midwest and Northeast
• Moving from rural to metropolitan areas
• Changes in where people work like Telecommuting.
 Changes in the workforce
– More educated More
Professional
– More white collar Population

 Increased diversity
Markets are becoming more diverse
– International
– National
Includes:
– Ethnicity
– Disabled
– And others.
 Geographic Shifts Population
 The shift in where people live has also caused a shift in where they
work.
 For example, the migration toward metropolitan and suburban areas
has resulted in a rapid increase in the number of people who
“telecommute”—work at home or in a remote office and
conduct their business by phone or the Internet.

 This trend, in turn, has created a booming SOHO (small

office/home office) market.
 Economic Environment

Economic
Economic Changes
Changes
Development
Development in
in Income
Income
Key
Key
Economic
Economic
Concerns
Concerns for
for
Marketers
Marketers

Changes
Changes
in
in Consumer
Consumer
Spending
Spending
Patterns
Patterns
 Economic Environment
 Consists of factors that affect
consumer purchasing power and
spending
• Industrial patterns.
economies are richer
markets • Income
• Subsistence economies consume Distribution
most of their own agriculture and – Upper class
industrial output and offer few – Middle class
market opportunities. – Working class
– Underclass
• In between are developing
economies that can offer outstanding
marketing opportunities for the right
kinds of products.
 Economic Environment
 Changes in income

 Value marketing involves ways to offer financially

cautious buyers greater value—the right combination of
quality and service at a fair price.
 Changes in Consumer
Spending
• In turn, value marketing has become the
watchword for many marketers.
• Marketers in all industries are looking for ways to offer
today’s more financially frugal buyers greater
value—just the right combination of product quality
and good service at a fair price.
 Income Distribution
• Marketers should pay attention to
income distribution as well as
income levels.
• Over the past several decades, the rich
have grown richer, the middle class
has shrunk, and the poor have
remained poor.
 Natural Environment
• Involves the natural
resources that are
needed as inputs
by marketers or that
are affected by
marketing
activities.
Factors Impacting the Natural
Environment

Shortages of Raw Materials

Increased Pollution

Increased Government Intervention

Environmentally Sustainable Strategies

Environmental Responsibility

The environmental sustainability is

developing strategies and practices that create a
world economy that the planet can support
indefinitely.

McDonald’s has made a substantial commitment to

the so-called “green movement.”
Technological
Environment
• Most dramatic force
now shaping our
destiny.
• Forces that create
new product and
market
opportunities.
• Safety of new
product always a
concern.
 Technological Environment
• Changes rapidly.
• Creates new markets
and opportunities.
• Challenge is to make
practical, affordable
products.
• Safety regulations
result in higher
research costs and
longer time between
conceptualization and
introduction of product.
Technological Environment
Rapid
Rapid Pace
Pace of
of High
High R
R&&DD
Change
Change Budgets
Budgets

Issues
Issues in
in the
the Technological
Technological
Environment
Environment

Focus
Focus on
on Minor
Minor Increased
Increased
Improvements
Improvements Regulation
Regulation
Examples of Technological Advances

Production
Marketing
• Computer aided • Market research
design (CAD)
• Databases
• Computer aided
manufacturing • Advertising media
(CAM) • Online ordering
• Quality assurance/ • Sales force
control (QA) support
• Materials handling
 Political Environment

Includes Laws,
Increasing Legislation
Government
Agencies, and
Pressure
Changing Government
Groups that Agency Enforcement
Influence or Limit
Various
Organizations Increased Emphasis on Ethics
and Individuals In & Socially Responsible Actions
a Given Society.
 Legislation Regulating Business
• Business legislation has been enacted
for a number of reasons:
– Protect companies from each other
– Protect consumers from unfair business
practices
– Protect the interests of society against
unrestrained business behavior.
 Increased Emphasis on Ethics and
Socially Responsible Actions
• Socially Responsible Behavior:
– Enlightened companies encourage their managers
to look beyond what the regulatory system allows
and simply “do the right thing.”
– These socially responsible firms actively seek out
ways to protect the long-run interests of their
consumers and the environment.
• Cause-Related Marketing:
– Cause-related marketing has become a
primary form of corporate giving. It lets
companies “do well by doing good” by linking
purchases of the company’s products or
services with benefiting worthwhile causes or
charitable organizations.
– It has some controversy. Critics worry that
cause-related marketing is more a strategy
for selling than a strategy for giving ─
that “cause related” marketing is really
“cause-exploitative” marketing.
 Cultural Environment
• Culture is the learned and shared way of
thinking and acting among a group of people
or society.
• Consists of the institutions and other forces
that affect a society’s basic values,
perceptions, preferences, and behaviors.
 Cultural Environment
• Core beliefs and values are persistent
and passed on from parents to
children and are reinforced by schools,
churches, business, and government.

• Secondary beliefs and values are

more open to change and include
people’s views of themselves, others,
organizations, society, nature, and the
universe.
 The Persistence of Cultural
• People in a givenValues
society hold many beliefs
and values. Their core beliefs and values have
a high degree of persistence.
• Secondary beliefs and values are more open
to change. Believing in marriage is a core
belief; believing that people should get
married early in life is a secondary belief.
• Marketers have some chance of changing
secondary values but little chance of
changing core values.
What is Sustainable marketing?

 Is the establishment, maintenance,

and enhancement of customer
relationships so that the objectives
of the parties involved are met
without compromising the ability of
future generations to achieve their
own objectives.
 Environmental
Scanning
• What is environmental scanning?
• How to analyze all these types of
environments in a systematic manner?

 Environmental Scanning is the

collection and evaluation of information
from the wider marketing environment that
might affect the organisation and its
strategic marketing activities.

 Base for strategic marketing of an

organization.
 The algorithm of the
environmental scanning
Identify Potentially relevant Environmental
Changes

Monitor: Determine Nature, Direction, Rate of

Change, and Magnitude of forces

Forecast Probability of impact and timing of

potential consequences

Develop and implement strategic responses

• The environment can be audited in more
detail by using the following.
 SWOT Analysis,
 Michael Porter's Five Forces Analysis or
 PEST Analysis.

PEST Analysis of Macroenvironment.

P- Political Factors
E- Economic Factors
S- Sociocultural Factors
T- Technological Factors
Analyzing the environment - Five Forces
Analysis
SWOT Analysis
• SWOT is an abbreviation for Strengths,
Weaknesses, Opportunities and Threats
• SWOT analysis is an important tool for
auditing the overall strategic
position of a business and its
environment.
• SWOT analysis is a tool for auditing an
organization and its marketing
environment.
• It is the first stage of planning and help
Responding to the Marketing
Environment
• Environmental Management Perspective
•Taking a proactive approach to
managing the environment by taking
aggressive (rather than reactive) actions
to affect the publics and forces in the
marketing environment.
•This can be done by:
– Hiring lobbyists
– Running “advertorials”
– Pressing lawsuits
– Filing complaints
– Forming agreements to control channels
 STRATEGIC MARKETING
INTRODUCTION
 In its strategic role, marketing focuses on a
business’s intentions in a market and the
means and timing of realizing those intentions.

 The strategic role of marketing is quite

different from marketing management.

 Marketing in its new role, a new term—

strategic marketing

3-58
Cont’d
 Within a given environment, marketing
strategy deals essentially with the interplay of
three forces known as the strategic three Cs:
the customer, the competition, and the
corporation.

 A good marketing strategy should be

characterized by (a) a clear market definition;
(b) a good match between corporate strengths
and the needs of the market; and (c) superior
performance, relative to the competition is the
key success factors of the business.
3-59
 STRATEGIC MARKETING PLANNING
 A strategic market plan gives direction to a
firm's efforts and better enables it to
understand the dimensions of marketing
research, consumer analysis, and product,
distribution, promotion, and price planning.
• Strategic marketing process including the
development
 SWOT Analysis
 Mission Statement
 Organizational Goals
 Corporate Strategy
 Marketing strategy 3-60
 Cont’d
 The strategic market plan is not a marketing
plan; it is a plan of all aspects of an
organizations strategy in the market place.
 A marketing plan deals primarily with
implementing the market strategy as it relates
to target market(s) and the marketing mix.

 A Strategic marketing plan is an outline of the

methods and resources required to achieve
organizational goals within a specific target
market(s).
 All functional areas must include marketing
and must be coordinated to reach
3-61
 Cont’d
Brief description of contents of the
marketing plan
1. Executive Summary and Table of
Contents
The marketing plan begins with a brief synopsis
of the key points and major
recommendations. The Table of Contents
follows the executive summary.

2. Environmental Analysis (also known as

Situation Analysis)
It provides information about the firm's current
situation with regard to the current marketing
3-62
3. SWOT Analysis
 A company has to Cont’d
understand its internal
Strengths and Weaknesses and also be
cognizant of external opportunities and threats.

 To do a SWOT analysis correctly, you must

know about your competition and the industry.

After the SWOT analysis is complete, a

company has to build on the strengths that it
has, do everything possible to eliminate or
correct weaknesses, take advantage of
opportunities, and do what it takes to minimize
or avoid threats.
3-63
 Cont’d
4. Marketing Objectives
Based on the SWOT analysis, the organization's
major objectives are stated.

This makes it clear to all what the organization

is trying to accomplish through its marketing
plan.

Objectives are in terms of such factors as

market share, profitability, and/or sales volume.
Other factors to be considered include
innovation (introduce five new products),
image, distribution, etc.
3-64
5. Marketing Strategies Cont’d
A marketing strategy has two key components:
a target market and a marketing mix to satisfy
the target market.
A good marketing strategy enables a firm to
achieve its objectives.

A firm will succeed if it can use its strategy to

achieve an advantage over the competition.
A successful product offers either a quality
advantage and/or price advantage over
competing brands.
How the product or service will be positioned is
3-65
 Cont’d
6. Marketing Implementation/Action
Program
 This section describes the actual
marketing programs that will be
undertaken in order to implement the
marketing strategy.

Some issues that must be discussed

include what specific actions must be
taken? Who will do it? When is it going
to be done? How much will it cost? 3-66
 Cont’d
7. Evaluation and Control
 The organization can determine whether the
marketing plan is actually working.
 Can be done on a monthly or quarterly basis.

 Provide benchmarks to assess how well the

plan accomplished its goals.
 Measurement of programs to evaluate
progress toward organizational goals.
 If the marketing plan is not working, it is very
important for the organization to be able to
pinpoint the cause as soon as possible and
have a contingency plan. 3-67
 Winning markets through market
oriented strategies
 It is more important to do what is
strategically right than what is
immediately profitable.

 Given that a particular company wants to

pursue a particular market or market segment,
it needs to develop a differentiating and
positioning strategy for that target market.

 It will need to define how it differ from it’s

significant competitors and how it wants to
come across to its buyers.
3-68
 Once the company decides on it’s product
positioning, it now has to undertake the
difficult work of new-product development,
testing and launching.

 Marketing Strategy comprise the broad

principles by which marketing management
expects to achieve its business and
marketing objectives in a target market.

 It consists of basic decisions on marketing

expenditures and marketing mix elements.

3-69
THANK YOU
FOR YOUR
ATTENTION!!
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