The market environment is a marketing term and refers to factors and forces that affect a firm’s ability to build and maintain successful relationships with customers.
Three levels of the environment are – [a] Micro (internal) environment – small forces within the company that affect its ability to serve its customers, [b] Meso environment – the industry in which a company operates and [c] Macro (national) environment – larger societal forces that affect the micro environment.
The marketing environment surrounds and impacts upon the organization. There are three key elements to the marketing environment which are the internal environment, the micro environment and the macro environment. Marketers build both internal and external relationships.
1. Meaning of Marketing Environment 2. Types of Marketing Environment 3. Factors 4. Influence of Environment 5. Methods to Combat the Challenges Posed by Environment 6. The Marketer and the Environment 7. The Dimension of the Environment 8. Approaches 9. Marketing Environment in India.
Marketing Environment: Meaning, Factors, Methods, Dimensions, Importance and Approaches
- Meaning of Market Environment
- Marketing Environmental Factors
- Marketing Environment Analysis
- Influence of Environment on Marketing
- Methods to Combat the Challenges Posed by Environment
- The Marketer and the Environment
- The Dimension of the Environment
- Approaches to the Marketing Environment
- Marketing Environment in India
Marketing Environment – Meaning
The term market refers to the aggregate of all demand for a particular product or service, arising from the aggregate of all consumers, existing and potential, for the product. But the market for products is not homogeneous but too heterogeneous. This is due to the consumers, who constitute the market and vary widely in their characteristics, who constitute the market for a given product is not totally homogenous characteristics, it facilitates the effective tapping of the market.
Diversity in the product market may be due to differences in buying habits, ways in which the product is used, motives for buying and other related factors. Moreover, no buyers are identical in all respects. However, large groups of potential buyers have certain characteristics of distinctive significance to marketing and each such group constitutes a market segment. By grouping consumers, distribution, pricing, promotion and other marketing programmes can be effectively framed for these segments. Market segmentation is gaining importance in this context.
The marketing environment consists of the following three major factors:
1. Micro-factors within the firm
2. Meso-factors within the same industry
3. Macro-factors related to economy, social, cultural aspects etc.
To sum up, it will be appropriate to say that “The marketing environment is a sum total of factors, elements and forces that impact an organization and develop its ability to build and maintain successful relationships with customers. There are basically three levels of the environment.”
Three levels of the environment are:
1. Micro environment – it is mostly the internal environment, which is nothing but a small force within the company that affect its ability to serve its customers.
2. Meso environment – this is the environment which operates between the micro and macro environment. At times there is an overlapping between the two environments, therefore, many researchers include it in micro environment.
3. Macro environment – this is usually the external environment, which is larger societal force that affects the micro environment
Marketing environment is the cumulative form of the factors that encapsulate within themselves, the ability of a firm to connect with the consumers and also the potency of the product as a growth driver to the firm.
Marketers must be equipped with trends and changes which brings hurdles as well as opportunities. With the help of tools like market research and market intelligence, they must gather all the latest information and know how about the changes and alteration in environment. By carefully examining the environment, marketers can adopt their strategies to meet new market place challenges and opportunities.
The market environment is a marketing term and refers to factors and forces that affect a firm’s ability to build and maintain successful relationships with customers. Three levels of the environment are – [a] Micro (internal) environment – small forces within the company that affect its ability to serve its customers, [b] Meso environment – the industry in which a company operates and [c] Macro (national) environment – larger societal forces that affect the micro environment.
The marketing environment surrounds and impacts upon the organization. There are three key elements to the marketing environment which are the internal environment, the micro environment and the macro environment. Marketers build both internal and external relationships.
Marketing Environment – 2 Major Factors: Internal Controllable Factors and External Uncontrollable Factors
Factor # 1. Internal Controllable Factors/Micro Environmental Factors:
The internal factors that affect the marketing environment can be controlled by the company, and hence are known as internal controllable factors. These factors are within the total system of the organisation and the management can adjust them as and when required.
These internal controllable factors are:
i. The Company:
The marketing organisation of a company is only a part of the entire business organisation. The business organisation consists of other departments like production, finance, personnel etc., as well. In addition a company includes a top management which lays down the policies and procedures to be followed by the various departments. All these have a direct impact on the success of the marketing operations. Understanding of the marketing plans by these forces as well as proper co-ordination at different levels by the marketing manager is a must for success.
This factor includes marketing agents, distributors, wholesalers, retailers etc. who aid the company in the distribution of its products and services. They are considered as internal factor as they aid the business of the company. In fact, without them the distribution of the product will not take place and hence business itself will come to a standstill. Their success depends upon the success of the firm and as such they can most definitely be treated as internal to the firm. Hence clear understanding and communication with them on all matters related to their activity is very essential.
The employees are the most important factors which contribute to the success of any plan. The management should make a continuous study about the attitude and willingness of the employees in achieving the goals of the organisation.
When you talk about the staff as a controllable internal factor what is referred to is the staff of the entire company and not just the staff of the marketing department. A well-motivated staff with the right kind of attitude will definitely add to the success of the firm and take it along the correct path.
However dissent amongst the employees and non-cooperation even from one section or department, may lead to a major upset in the working of the organisation. The burden of ensuring a proper motivational environment to the staff lies with the management and the management’s policy on recruitment, training and development of the staff. With proper control, right attitude and correct policies, the management can definitely control this very major factor.
The marketing environment of a business organisation is affected not only by internal factors but also by external one. These external factors can be divided into two. Those factors which the organisation or management can control to a certain extent and those which are totally uncontrollable.
Let us review the external controllable factors first:
Different kinds of customers exist for different products.
Depending upon the market in which they operate, customers can be classified as:
(a) Customers operating in the consumer market – These are basically individual customers and institutional customers, who buy products for consumption. The institutions include schools, colleges, hospitals, temples and other organisations.
(b) Customers operating in the industrial market – These include those individuals, companies and organisations, who purchase products and services needed to manufacture other products and services.
(c) Customers operating in a resellers market – These customers are those who buy the goods and services for resale at a profit.
(d) Customers operating in the international market – Today with globalisation, liberalisation and privatisation being the norm, markets have widened and we have more and more business taking place across the borders of the nation. Thus we have customers that purchase goods and services for export. We also have customers who import from other countries.
Customers can also be classified on the basis of their gender, age and characteristics. However, any way in which you classify customers, the fact remains that this is a very dynamic factor as no two human beings behave in the same way, even in the same given set of circumstances.
This is a very important external factor, as the success of an organisation depends upon the number of people that patronise its products. With the right kind of approach this very volatile and dynamic factor can be controlled to quite an extent.
In India not so long ago we followed a system of a protected economy. The fall out of this system was that a number of products enjoyed a monopoly in the market. For example, Bajaj Scooters had a virtual monopoly in the market for a number of years.
However with the opening up of the economy this situation has undergone a drastic change and now a number of two wheelers are vying with each other for attention of the customers. Today in the two wheeler market itself you have a number of companies like Hero-Honda, Yamaha, Suzuki, Kinetic Honda etc.
The same is the state for many other products. Be it a consumer product, an industrial product or a consumer durable or non-durable product. It cannot escape competition. Not only does competition exist, but it is of a cut-throat nature. (Thus the business scenario today is such that if a business has to survive and prosper it has to keep a tab on what its competition is doing. The competition has to be constantly monitored, so that the business and marketing strategies can be altered at the right time and markets can be successfully captured and loyal customers maintained.
Just as one company monitors its competitors so also the competitors monitor the other companies in the same industry. Thus, there is a constant scenario of keeping check on each other. Here a company may instigate an action which will compel the competition to come up with a corresponding action of its own.
In this way one competitor can catch the reaction of another competitor in a particular way. And hence it is said that competition is an external factor that may be controllable, at least to some extent. For e.g. a price cut policy adopted by Pepsi will result in a similar or comparable price cut by Coca-Cola.
When we talk of external environmental factors we cannot ignore the Public at large. The public in the case of a company is any individual or group that has some relationship/impact on the ability of the company to achieve its objectives.
The public actions and reactions to the activities of the company are important, as the company operates in a society, and the public has got the ability or potential to facilitate or hinder the working of the company/organisation. It is because of this that today almost all organisations have a public relations officer, exclusively for building up relations with the public at large, and seeing to it that the company enjoys a good public image.
Suppliers include all those individual and firms that supply the raw materials and other goods required in the manufacturing process by a company/organisation/firm. The marketing managers should keep a constant watch over the price trend and availability of the products needed.
They should locate suppliers well known for their good quality and reliability and establish and maintain good relations with them. In addition to this it is always beneficial to maintain multiple sources of supply as it is not good to keep all your eggs in one basket.
Suppliers are external factor, which if good relations are maintained will result in a smooth flow of inputs required for production. However a breakdown of relations with them or a break down in the supply will result in a halt in the production process and hence definite efforts have to be made to see that this does not happen.
Thus, even though the above mentioned factors or forces form a part of the external environment to the company, with the right kind of policy, strategy, attitude and human relation techniques they can be made to operate in a way that is beneficial for our organisation and hence it is said that they are controllable, to a certain extent at least.
The following are the factors of the external environment that are uncontrollable by the firm and the management.
i. Demographic Environment/Demographic Factor:
Demographics are the quantity and characteristics of the people, especially in relation to their age, where they live, how much money they have and what they spend it on. Thus demographic factors relate to the characteristics of the population of a country. Various characteristics such as age distribution, sex distribution, racial, caste, ethnic, religious and class distribution, density of population, urban rural population characteristics etc., determine the demand of the population for various goods and services.
Thus the demographic factors have to be taken into account by a company while planning its marketing strategies so as to capture a large market share. If a demographic analysis reveals that in a particular society the women outnumber men then the demand for ladies products will be more and the company will have to formulate its strategies accordingly. In India, today if you look around, you will see more and more working women.
This has resulted in the introduction of time saving appliances like washing machines, vacuum cleaners, microwave ovens etc. Similarly in a society where the birth rate and death rate are low, such a society will have a large section of old people and this segment of population is attracted more by safety than any other feature. Thus, the company will have to take this into account when deciding upon features of its products. This will have to be borne in mind by the manufacturer. A society in which the birth rate is high will concentrate on baby products.
An understanding of the demographic factors helps a manufacturer in deciding upon, an optimum marketing mix. It also helps him to decide whether to enter a particular market segment or not, For example, today 85% of the Indian market is a young market consisting of people up to the age of 44 years. Thus if you look around most of the products are targeted at the youth. You see the mushrooming of fast food joints, long queues in front of Pizza hut and McDonalds. Fancy bikes and readymade clothes are the motto of the day.
Demographic factors differ from country to country and from time to time. As these factors determine the nature and extent of demand they need to be carefully studied and analysed.
Basically all these factors are interrelated. The economic environment affects the sociological environment and vice versa. The work culture of Japan, a part of its social environment results in high productivity, a part of the economic environment. Similarly political and economic environment are also related. Political stability makes a way for business expansion and growth, also allows an entrepreneur to take risks and invest money. The cultural environment also affects the sociological and economic environment.
For e.g. a culture that stresses on education will lead to the formation of a society of enlightened people willing to work hard and will result in the economic development of the society. However an educationally backward society, like the gulf countries had to import man power from other countries in order to progress. Thus all these factors are interrelated and a change in one affects the others.
The economic growth of a company increases the real income available to the people. This results in more purchasing power in the hands of the people which is a boon to marketing. However the purchasing power differs from region to region and is a function of current income, inflation rate, saving habit, credit facility and prices. Factors such as inflation, shortages etc. will result into a price rise and less savings by the people. This will result into a lesser purchasing power and higher debts.
The marketing manager has to analyse and keep constant watch over the economic scene of the country, the real income of the people, the additional employment opportunities, the consumer expenditure trends, the consumption pattern, the life styles etc.
Changes in the major economic variables have a direct impact on the marketing scene, and hence the marketing manager should be aware of these changes as and when they take place. Information about these changes are available from various sources in a country like India and the marketing manager or the company itself need not carry out economic forecasting themselves.
The political environment of a country affects its marketing system to a great extent. It is the government that regulates the business activity as it is the custodian of the nation. A democratic form of government will lead to a less controlled marketing system whereas, an autocratic or Marxist based political system will lead to a marketing system which is controlled and dictated by the state. A government or political system that follows the formula of a mixed economy will lead to marketing system that is partially controlled by the state or government.
Whatever be the political system in which the marketer operates, all marketing decisions are to be based on the policies that are determined by the government, and within the legal framework provided by the ruling political party. In fact, what is to be produced, how much, of what quality, for whom, when and at what cost and at what price are to be determined by the policies of the government.
The producers and marketers have to work within the concessions and limits set by the political forces. Thus government policies have to be studied and interpreted before having individual policies and strategies in case of marketing units.
The social and cultural environment plays a major role in deciding or at least influencing the wants and needs of the people. This is because the consumers being social and rational animals their life-style is deeply influenced by the social and cultural make up. The social and cultural traditions influence the taste of the consumer, because their attitude to life and their life style patterns depend upon these. The social and cultural, influences shape the beliefs and values of people.
The attitude, faith belief and psyche of a person is influenced and moulded by family as well as society’s social and cultural considerations. The core cultural and social values which are got from the family and reinforced in school are formed on solid considerations and do not change with time and place, whereas other cultural and social values which are not so important, and are not hard formed, but form a part of the total environment tend to fluctuate occasionally.
It goes without saying that the alert marketer cannot afford to neglect or underestimate these aspects. The needs, wants, desires, hopes and aspirations of the consumers can be understood in totality only if the marketer has a thorough knowledge of the sociological and cultural influences on his customers.
Science and technology is always changing. This changing face of science and technology has an impact on the marketing environment. New technology means new ideas, new products, new manufacturing systems and processes and new marketing efforts. In the last 20 years technological changes have been taking place at a faster pace than earlier on.
Be it the field of science, medicine, entertainment, communication, travel or office equipment all these have witnessed great changes brought about by new and different technology. Be it any field one can see the changes in the products and services offered and these changes have changed the life style of the consumers.
A point to be understood here is that technological developments may affect the firm’s raw material, packaging, products and services. For example, technological changes in packaging and plastic industry have brought in new packages in the form of tetrapacks, pet bottles, cellophane etc. This has definitely reduced the cost of packaging, besides making the package attractive and easier to carry and transport.
Likewise containerised movement of goods, deep freezers, trawlers fitted with deep freezers etc. have affected the operations of all firms including those involved in the seafood industry. Today perishable goods too can be transported in a safe manner. Developments in Information Technology have also affected the firms competitive position.
However technological change has its own cost and investment in research and development. A lot of expenditure has to be incurred and this is the major reason why the pace of technological development is slow in developing countries.
It should also be borne in mind that technological changes have brought about an artificial demand and a quicker or faster obsolescence of products. Technological changes lead to a shortening of the product life cycle and create a new set of customer expectations as well. What happens is that products shoot to meteoric growth and then quickly slip into their decline phase.
Electronics is one such product group. However not all sectors of the economy are equally susceptible to technological changes. Some like the electronic sector experience more volatile changes while others like coal, textiles and primary ferrous metals are much more stable industries in any economy.
Advance indicators of technological developments are available through trade journals and other industry magazines. The marketers should definitely keep updated with the technological changes taking place in order to maintain the competitive strength of their organisation.
In recent years there is increasing concern as to whether the natural resources are being irrevocably damaged by industrial activity. It has been pointed out that industrial activity is not only polluting the water and earth but is depleting the forests. In fact because of industrial – activity the earth is in danger from bio-non degradable material like plastic. This has led to the formation of various groups of environmentalists.
No government can afford to remain a silent spectator to environmental degradation and pollution. The governments are trying to monitor environmentally damaging activity and take corrective actions as and when they can. However the efforts of the government to protect the environment often run counter to the attempts to generate more employment opportunities and increased economic growth. The marketers and managers must be alert and open to all those regulatory developments that are aimed at conserving the environment and preventing the earth from environmental degradation.
In a nut shell it can be said that changes in all the above factors/forces keep taking place every moment of time and the marketer cannot afford to miss these minute yet far-reaching influences while designing and implementing the marketing strategy for the success of his firm and the benefit and prosperity of society at large. This is because the enterprise is an open adoptive system that works in the environment. It does not exist independent of the environment. It has an interaction and interdependence with the various environmental forces.
The marketing strategy hovers around the four P’s namely Product, Price, Promotion and Place. All these four aspects are governed by the above forces. As these forces continue to develop and change they determine the changing requirements for the efficient and effective marketing plans, strategies and policies.
Hence whatever the modern marketer has to decide he has to do so taking into account these changing forces and act accordingly. He has control over the four P’s but not over these external forces. And hence if he has to be successful he has to be on red alert so as to adapt to these forces as and when required.
Marketing Environment – SWOT Analysis, PEST Analysis and PESTEL Five Force Analysis
For gaining a competitive edge, every business has to ensure that it follows some marketing tools that can help business, immensely in an external market environment.
1. SWOT Analysis:
SWOT stands for strengths, weaknesses, opportunities and threats. It is very important to know the strength of the business so that the business can be leveraged in a tough marketing environment. For example, if a business has to take decisions relating to location, new product/service to launch there should be a complete assessment of strengths and a full focus should be on those strengths.
These are the key factors that all teams should analyze while planning on marketing goals. Once management is aware of the SWOT of the business as such and the team responsible for taking decisions, undoubtedly, the business would perform with more effectiveness.
2. PEST Analysis:
PEST refers to Political, Economic, and Socio cultural and Technological factors that may have significant influence on the business plans of a firm. Therefore, every business must carry out research and do proper analysis as to how each of these factors affects chances of success. This is true especially in countries where there is a huge demographic diversity of culture. What appeals to one community, may not appeal to others. So, the PEST factors have to be given importance.
3. PESTEL Five Force Analysis:
Similar to the PEST tool, five force analyses is another method to ensure that, the business is prepared for all the risks. Five force analyses focus on a single objective of SBU or strategic business unit. The five forces that affect a business are Threats of entry, the power of buyers, the power of suppliers, the threats of substitute and Competitive rivalry. The last factor is at the helm of all five forces. All other factors vary and are controlled depending on how deep the competitive rivalry is.
Analyzing the environment is an integral part of a business strategy. Marketing has grown to be complex with time, and success can only be achieved by proper research and benefiting from the positives of the marketing environment.
Marketing Environment – Top 12 Influences of Environment on Marketing: Change in Tax Law, Technological Changes, Political Changes, Social Changes and a Few Others
Environment greatly influences marketing. The impact is phenomenal and can even affect the very survival of the business. To cite some examples,
1. Changes in tax laws – Introduction of MAT by Shri P. Chidambaram, the, then finance minister, compelled the companies to rethink on their strategies with respect to tax area.
2. Technology changes, which are rapid, sometimes force companies to go out of market. Several mobile handsets, televisions, washing machines have disappeared from market as they could not keep pace with the changes in technology.
3. Political uncertainties, change in leadership etc., affect corporate in a big way. In past there have been examples of Enron, Reliance group to cite in this area, TATA group etc., who faced political pressures.
4. Social changes, such as growing literacy rate and consumer awareness etc. Also collectively force a company to upgrade itself to the new demands. Now there are far too many cases filed in the consumer’s courts.
5. Change in fashion trends also has an impact on marketing environment. These changes are very rapid in case of women, from long kurtas to short and back to long ones. This affected the readymade garment industry in a big way.
6. Industrial revolution, labour unrest, demand for bigger economic benefits, greatly affect the decision making of the marketing decisions.
7. Growing competition, heavy advertising, introduction of competing products with better features, impact marketing strategies.
8. Traditions, norms and values in any society also are a part of environment, which influence the marketing decisions. For example Mc Donnels cannot sell beef burgers in India.
9. Changing market scenario in terms of money market impacts the organisation.
10. Any abolition/introduction of any Act in force compels an entity to do rescheduling, where ever those legal changes affect.
11. Advent of multinational companies or foreign products, forces the local businesses to rethink and restructure their products. To take an example – TV Channel ‘Zindgi’ has promoted all Pakistani Serials. These have forced the Indian Serial makers to revamp as the viewership of the Channel has immensely grown.
12. Demonetization of higher value currency – in the recent move of the Government to tender rupees 500/- & rupees 1000/- currency as not valid currency, has also led many marketers to change their strategy.
Marketing Environment – Methods to Combat the Challenges Posed by Environment
Environment poses threats to the very existence & survival of the organizations, therefore, adequate measures must be taken to beat the bottle necks created by the ever changing and volatile environment.
Following are some of the methods which help in meeting with the challenges posed by environment:
1. Keeping Abreast of Competitor’s Actions – It is important to know what the opponents are doing and are likely to do. Every business owner needs to gather information about competitors. If a competitor has lowered prices in the peak season, the company needs to have appropriate response to this tactic.
2. Good management of Resources – resources are scarce and finance in particular, therefore, small businesses have to prioritize expenditure and other resources where they will have the strongest positive impact on sales. The challenge in this allocation process is that the business owner may not be certain about the likely effectiveness of a new marketing tactic
3. Dealing with Competitive Disadvantages – In the short run, the challenge is to create a marketing message that emphasizes on the strengths of the company so the competitive disadvantage may not adversely affect the business. Many times the companies make an effort to make their weakness their strength.
4. Listening to the voice of the Customer – It is important to use the interactions with the customers as an opportunity to learn about what customers really want or need. Every conversation provides chances to gather information that can help the business operation to be closely aligned with the customer preferences. Therefore, these days most of the outlets have a register where they request the customer to share the experience with respect to every aspect of the sale process.
5. Advertising – the business cannot afford to just hope that customers find it on their own. Accordingly, sufficient advertising has to be dome to attract customer to the product.
6. Predicting for adapting – managers with high conceptual and analytical skills forecast and predict on the basis of the scenario, and adapt to the changing environment well in advance.
7. Carry out smoothing process – this aspect is very important as the sales are not uniform throughout the year. There is a need for levelling the sales by attracting the customer towards business even during lean season. To take an example, during the ‘Navratras’ all food outlets anticipate small sales, so they offer the food that can be eaten during fasting period, for improving sales.
8. Technological advancement – there is a constant need to upgrade technology, in this rapidly changing technology world. If companies are not able to keep pace with the changing technology, they will have to be out of business. Particularly, in the electronic items, this change is most rapid.
9. Entering into business restructuring – rather than closing down due to fund shortage or fierce competition, it is wiser to enter into a merger, a take-over, a joint venture or an acquisition for survival. By doing so, the strength of the company increases and it becomes capable of competition. For example, Lakme entered into ajoint venture with Hindustan Lever to sell its cosmetics.
10. Strengthening distribution net-work – all companies have this strong desire to reach out to all customers. A company which has a strong distribution network is always successful and has an edge over other companies. This is the precise reason that companies are trying to indulge in rural marketing. For example, the rupees five Maggie packet or the same price small cold drink is marketed in rural areas targeting those customers.
11. Indulging in diversification – keeping ‘all eggs in one basket’ is never a good proposition. Therefore, the companies prefer to diversify in different areas to play safe. Tatas, Birlas and the Reliance groups are the best examples of immense diversification.
12. Back ward and forward integration – another method of playing safe is to integrate with the supplying agency or with the selling agent. Both back ward and forward integration result in improved profitability for the company.
13. Image building of the company – if the company concentrates on building its reputation or image, then it is able to sell any product in present or any future product as all products get associated with good quality due to good image. For example when Tata manufactures anything from soap to a car, it is assumed to be of higher quality.
14. Maintaining transparency – it is always beneficial for any business to maintain transparency with the Government, Shareholders, Customers and everyone connected with it. It helps in image building of the company as well. Today companies have the mission to be transparent to avoid any doubts about its business.
To sum up, it is extremely important to understand the general environment, which surrounds the organization and is a pre requisite for strategy formulation. It enables the firm to proactively strategies, in time for best results for the organization’s success.
Marketing Environment – The Marketer and the Environment
Marketing as a function is basically all about matching the offerings of the organisation to the outside world, in particular, the marketplace. Not surprisingly, many functions within marketing, such as selling, product development and market research, concern themselves with issues, problems and opportunities outside the organisation, and focus on responding to outside events and circumstances.
Indeed, Kotler identifies in this external role the need for marketers to develop an ‘outside-in’ perspective, an ability to work on external cues and stimuli to the profit of the whole organisation. Another marketing writer of note, John Howard, emphasises the strategic role of marketing as ‘the function by which the firm responds to changes in its environment’.
Response and sensitivity to the environment remains one of the acid-test indicators of success or failure in business in general, and in marketing in particular. The annals of business history and new product development are littered with instances of companies that have lost touch with their markets, misinterpreted or ignored tell-tale signs of change, or become blinded by previous successes and driven by some corporate inertia.
Theodore Levitt’s example of the US railroads, and the case of the ill-fated C5 electric car. While other examples will be developed later in the text, readers might find it instructive to examine a company report, or columnist commentaries on company results, and consider the significant influence on company performance that environmental issues may wield.
At first sight it may seem difficult to see how companies cannot but spot the environmental issues that affect their performance. After all, the environment is all about us, literally staring us in the face! Unfortunately, companies all too often become preoccupied with their day-to-day problems, and hard-pressed managers become engrossed in priorities and deadlines more squarely within their responsibility than perhaps marginal changes outside.
This is possibly one of the key difficulties with the external environment – it is outside the hubbub of today’s business problems, and, excepting the rare instances of sudden change, it tends to present an all too comforting picture of at best gradual change; sudden changes are exceptional and, in any case, cannot be missed!
The norm is generally a picture of incremental change over an extended period of time. It is this ‘norm’ that can prove deceptively dangerous, as the following commentary by Charlotte Villiers demonstrates –
To look at British industry today is to be reminded of one simple, if rather brutal, analogy that top managers should take to heart – if you put a frog into a pan of cold water and turn on the heat, the frog will happily sit there without noticing the water is getting hot. The result, inevitably, is one boiled, dead frog. But if you drop a frog into some warm water, the frog realises immediately that it is too hot and jumps straight back out again.
The moral of this tale is simply that people do not notice incremental change going on around them until it is too late. Like the doomed frog, many businesses fail to notice what is happening in their environment until their fate is sealed.
Marketing Environment – The Dimensions of the Environment
In examining the environment in more detail, a basic model will be presented of different dimensions or levels of the environment, each more complex, distant and all-embracing than the previous one. A useful analogy would be to view the marketing environment as a series of subsets within sets, within an ultimate or universal set – the inner subsets are more accessible and familiar to the marketer, the outer sets more indistinct and vague, like a distant landscape.
Predictably, it is the more distant and complex dimensions of the wider environment that occasion most concern and problems among marketers, and therefore warrant more detailed coverage.
However, the nearer reaches of the marketing environment, levels 1-3, are important elements of the everyday setting of marketing – Kotler refers to these collectively as the company’s microenvironment.
Whether organised as a separate department or not, the marketing function operates within an organisational context, and is most effective when well-managed, planned and resourced. Within marketing itself, sub-functions such as sales, advertising, research and promotion need to be coordinated to produce effective results.
The marketing function must integrate with other functions such as production, engineering, purchasing, accounting and personnel. Close working relationships between marketing and functions such as R&D and production will be critical to key ventures such as new product innovation, and will generally affect everyday performance indicators such as customer service.
Within this ‘inner environment’, therefore, a wider role for marketing will be to communicate company-wide the market’s requirements and their implications – an aspect of internal marketing. Marketers should be able to assess the organisation’s strengths and limitations in major functional specialisms, since important policy issues such as product development and competitive strategy will depend heavily on the commercial exploitation of comparative advantage.
Such internal ‘audits’ of relative strengths and weaknesses will often be routinely made in problem solving and planning, and will commonly be combined with information on the external situation, trends and events.
Many companies begin operations within one clearly defined market and develop, through market penetration, by servicing the market more efficiently and knowledgeably. Later growth, however, may depend on finding or developing new markets, and learning to service new types of customer with differing requirements.
For other companies, multimarket operations may be entered into from the outset, as a conscious policy decision. A simplified view of the types of market that a company might choose to service.
Although most of the terms used are self-explanatory, it is important to note that requirements may differ greatly between the market types, e.g. consumer markets usually involve many more customers, buying for various personal requirements, while industrial markets will involve a smaller number of professional buyers, sourcing for commercial reasons.
Intermediary markets involve reseller organisations such as retailers, wholesalers and brokers, selling on to other buyers at a profit. The term ‘institutional markets’ denotes buyers within institutions such as schools, hospitals, dedicated associations and organisations (e.g. the Church), local authorities and central government. Buyers in such markets may operate through strict rules and procedures and by well- documented plans.
Clearly, the market environment within which a company chooses to operate will vary greatly according to market type. Even if specialising in one market, the company would need to conduct regular research and feedback exercises in order to monitor market changes and turning-points.
Last but not least, the competitors a company faces will vary according to the choice of market, or even the corner or sector of the market that it services – competitors are as much part of the market environment as customers.
As the term implies, a company operates within the context of a network of interest groups, each of which has a particular relationship with the organisation, and often conflicting interests and motivations. The stakeholder system for a hypothetical company operating within the prescription medicines field.
Certainly part of this stakeholder system will be the participants in the company’s value chain. The concept of the value chain, originated by Harvard Professor Michael Porter, models the vertical supply-market system within which a company seeks to fine- tune its performance in the interest of adding customer value and furthering corporate objectives. More detailed comment will be made on value chain analysis.
It should be stressed that the stakeholder system is a negotiated environment in which company relationships with different parties have to be carefully cultivated and managed. The company effectively has a series of publics – customers, shareholders, suppliers, employers, community bodies, etc. with which it must maintain contact and ensure mutually productive relations.
The marketing significance of this is that the state of these relationships can exert a powerful influence on success criteria such as brand image, product, acceptability, customer service, trade relations and company reputation.
Marketing Environment – Approaches
Marketing environment can be responded in two ways. With reactive marketing, you view environmental forces as uncontrollable and simply try to adjust to them. With proactive marketing, however, you take steps to change the marketing environment and make it more conducive to your activities.
Consider how the two approaches differ. Confronted with new legislation banning some of their products, reactive marketers might abandon those offerings and concentrate on developing new products in unregulated areas. The proactive marketer facing the same external threat would probably join an industry coalition to lobby Congress and raise public support for the industry’s point of view.
Neither the reactive nor the proactive approach is inherently better. Depending on organisational goals, ethical and legal constraints, and other circumstances, an organisation might choose the proactive approach in some cases and the reactive approach in others.
This doesn’t imply, however, that you always have a choice. Sometimes you are affected by a sudden change in the marketing environment and you are left with no alternative but to react. Study as you might, you can’t always predict the behaviour of nature, governments, competitors, or customers. But every little bit helps. By understanding the nature of your marketing environment and by playing an active role in your industry, you stand less chance of being at the mercy of outside forces.
All marketers, whether they’re more reactive or proactive, face controllable and uncontrollable environmental elements. Controllable elements are those internal factors over which marketers have a high degree of control, specifically their own pricing, promotion, distribution, and product selection.
Uncontrollable elements are external factors such as – currency exchange rates, consumer tastes, and political shifts. You might be able to influence these factors, but you cannot control them.
Marketing Environment in India: Vast Domestic Market, Predominance of the Urban Sector, Seller’s Market
The marketing environment of India is unique. Consumer markets in India are diverse in terms of rural and urban segments, vast in terms of qualitative and quantitative aspects of the products and services and challenging in terms of marketing skills.
1. Vast Domestic Market:
India has a large potential market because of a vast population only next to China. At present there are more than 120 crores of people in India which is more than 3 times the population of USA and 11 times that of UK and 6 times that of Japan. A large population is a boon to the marketers If each individual drinks only one cup of tea per day, it would mean an annual demand for at least half a million tonnes of milk, a million tonnes of tea and 3 million tonnes of sugar.
But the actual market is not as large as the size of population suggests due to the low purchasing power of the people. Nearly 25% of the people are still living below the poverty line.
However, over the years the demand for all products has been increasing for the following reasons:
(a) High rate of population growth,
(b) Slowly rising standards of living, as evident from the increase in per capital income from the level of Rs. 1,630 in 1980-81 to Rs. 54,527 in 2010-11.
(c) Removal of barriers of distance. More extensive use of faster and more efficient means of communications, and
(d) The extension of the average life span.
The scope for further increase of consumption is also vast because India’s present consumption level of many important commodities is still much low compared to the levels reached in the developed countries.
2. Predominance of the Urban Sector:
Although more than 80% of the population lives in rural areas, the market for consumer goods and industrial products is predominantly urban. The rural sector is more than four times as big as the urban, accounts for the sale of only 59% of silk clothing, 55% of books and stationery, 53% of total soap, 53% of woollen clothing, 46% of biscuits and confectionary and 42% of cigarettes. However, rural market in India has been growing rapidly due to the increased income of the peasants, consequent of the green revolution.
3. Seller’s Market:
India is a shortage economy. Indian market is a sellers’ market partly due to restricted supply and partly due to large demand. Whatever is produced is sold with little or no effort. There is little need for promotional activities, development has created a situation in which selling has not become a major problem.
Internal competition has been to some extent reduced because of the system of industrial licensing which has restricted the number of enterprises producing any commodity. On the other hand external competition has been stifled by import control and the high rate of customs duty. The market for commodities as a result, has become somewhat sheltered and marketing effort has not consequently become very vigorous.