COMPONENTS OF MARKETING ENVIRONMENT
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What does Marketing Environment depend on?
It depends upon the force that directly or indirectly influence an organisation's capability to undertake its business as well as the trading forces operating in a marketplace over which a business has no direct control, but which shape the manner in which the business functions and is able to satisfy its customers.
Is it not just the external environment that controls the marketing of a business?
The environment external to the firm constitutes a large part of the marketing environment, but it is not the whole of the environment, as there exists an internal environment that constitutes the factors internal to the firm which affect the marketing operation.
COMPONENTS OF THE MARKETING ENVIRONMENT :
(1) Internal Environment:
It mainly depends upon the forces and actors inside the firm that affect the marketing operation. It composed of internal stakeholders and the other functional areas with the business organisation.
(2) External Environment:
It consists of
(a) Macro Environment influenced by broad forces which shape the character of opportunities and threats.
What does Marketing Environment depend on?
It depends upon the force that directly or indirectly influence an organisation's capability to undertake its business as well as the trading forces operating in a marketplace over which a business has no direct control, but which shape the manner in which the business functions and is able to satisfy its customers.
Is it not just the external environment that controls the marketing of a business?
The environment external to the firm constitutes a large part of the marketing environment, but it is not the whole of the environment, as there exists an internal environment that constitutes the factors internal to the firm which affect the marketing operation.
COMPONENTS OF THE MARKETING ENVIRONMENT :
(1) Internal Environment:
It mainly depends upon the forces and actors inside the firm that affect the marketing operation. It composed of internal stakeholders and the other functional areas with the business organisation.
(2) External Environment:
It consists of
(a) Macro Environment influenced by broad forces which shape the character of opportunities and threats.
(b) Micro Environment which is nothing but the immediate environment of the business firm, whose elements have a direct effects on the execution of the processes inside the firm.
MARKETING ENVIRONMENT : A DETAILED STUDY
The Micro-Environment:
This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. Micro tends to suggest small, but this can be misleading. In this context, micro describes the relationship between firms and the driving forces that control this relationship. It is a more local relationship, and the firm may exercise a degree of influence.
The Macro-Environment:
This includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology.
The internal environment.
All factors that are internal to the organization are known as the 'internal environment'. They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery, Materials and Markets. The internal environment is as important for managing change as the external. As marketers we call the process of managing internal change 'internal marketing.'
Essentially we use marketing approaches to aid communication and change management.
The external environment can be audited in more detail using other approaches such as SWOT Analysis, Michael Porter's Five Forces Analysis or PEST Analysis.
The micro-environment
The term micro-environment denotes those elements over which the marketing firm has control or which it can use in order to gain information that will better help it in its marketing operations. In other words, these are elements that can be manipulated, or used to glean information, in order to provide fuller satisfaction to the company’s customers. The objective of marketing philosophy is to make profits through satisfying customers. This is accomplished through the manipulation of the variables over which a company has control in such a way as to optimise this objective. The variables are what Neil Borden has termed ‘the marketing mix’ which is a combination of all the ‘ingredients’ in a ‘recipe’ that is designed to prove most attractive to customers. In this case the ingredients are individual elements that marketing can manipulate into the most appropriate mix. E Jerome McCarthy further dubbed the variables that the company can control in order to reach its target market the ‘four Ps’. Each of these is discussed in detail in later chapters, but a brief discussion now follows upon each of these elements of the marketing mix together with an explanation of how they fit into the overall notion of marketing.
The ‘four Ps’ and the marketing mix
The ‘four Ps’ stands for:
1. Product
2. Price
3. Place and
4. Promotion
Product and price are obvious, but perhaps place and promotion need more explanation.
Place, it is felt, might better be termed ‘placement’ because it comprises two distinct elements. The first element is channels of distribution that is the outlets and methods through which a company’s goods or services are sold. Thus a channel can be certain types of retail outlet or it can be salespeople selling a company’s industrial products through say a channel which comprises buyers in the chemical industry. The other part of place refers to logistics that relates to the physical warehousing and transportation of goods from the manufacturer to the end customer. Thus, placement might be a better descriptor as it refers to the placing of goods or services from the supplier to the customer. In fact, place has its own individual ‘mix’ which is termed the ‘distribution mix’.
Promotion also has its individual ‘mix’ that is called the ‘promotional mix’. This comprises advertising, selling and sales promotion. In fact promotion is a misnomer, because in advertising agency circles the mention of promotion usually means ‘sales promotion’. Some writers are now separating selling away from promotion and calling it ‘people’ because it is too important an element of marketing to be lumped in with promotion, although in reality it is still promotion (through word of mouth). This fifth P (people) are those who contact customers on a regular basis with the objective of ultimately gaining orders and these people comprise the salesforce. We can thus see that selling is a component part of overall marketing. There are two more Ps for service marketing, but these are dealt with later.
The proximate Macro-Environment
The term macro-environment denotes all forces and agencies external to the marketing firm itself. Some of these forces and agencies will be closer to the operation of the firm than others, e.g. a firm’s suppliers, agents, distributors and other distributive intermediaries and competing firms. These ‘closer’ external constituents are often collectively referred to as the firm’s proximate macro-environment to distinguish them from the wider external forces found, for example, in the legal, cultural, economic and technological sub-environments.
This consists of people, organizations and forces within the firm’s immediate external environment. Of particular importance to marketing firms are the sub-environments of suppliers, competitors and distributors (intermediaries). These sub-environments can each have a significant effect upon the marketing firm.
The Supplier Environment
This consists of other business firms or individuals who provide the marketing firm with raw materials, product constituents, services or, in the case of retailing firms, possibly the finished goods themselves. Firms, whether they be retailers or manufacturers, will often depend on numerous suppliers. The buyer/supplier relationship is one of mutual economic interdependence, both parties relying on the other for their commercial well-being. Although both parties are seeking stability and security from their relationship, factors in the supplier environment are subject to change, such as industrial disputes which will affect delivery of materials to the buying company, or a sudden increase in raw material prices which forces suppliers to raise their prices. Whatever the product or service being purchased by the marketing firm, unexpected developments in the supplier environment can have an immediate and potentially serious effect on the firm’s commercial operations. Because of this, marketing management, by means of the marketing intelligence component of its marketing information system, should continually monitor changes and potential changes in the supplier environment and have contingency plans ready to deal with potentially adverse developments.
The distributive environment
Much reliance is placed on marketing intermediaries such as wholesalers, factors, agents and distributors to ensure that their products reach the final consumer. To a casual observer, it may seem that the conventional method of distribution in any particular industry is relatively static. This is because changes in the distributive environment occur relatively slowly, and there is therefore a danger of marketing firms failing to appreciate the commercial significance of cumulative change. Existing channels may be declining in popularity over time, while new channels may be developing unnoticed by the marketing firm. Nowhere has this ‘creeping’ change been more apparent over recent years in the UK and other parts of the world than in the retailing of fast moving consumer goods (fmcg). In the 1960s well over half of all fmcg retail trade was accounted for in the independent sector plus a further large proportion to the Co-operative Societies. Nowadays, the sector represented by the larger food multiples has well in excess of this proportion.
The Competitive Environment
Management must be alert to the potential threat of other companies marketing similar and substitute product whether they are of domestic or foreign origin. In some industries there may be numerous world-wide manufacturers posing a potential competitive threat and in others there may only be a few. Whatever the type, size and composition of the industry, it is essential that marketing management has a full understanding of competitive forces. Companies need to establish exactly who their competitors are and the benefits they are offering to the market. Armed with this knowledge, the company will have a greater opportunity to compete effectively.
The wider Macro-Environment
Changes in the wider macro-environment may not be as close to the marketing firm’s day-to-day operations, but they are just as important. The main factors making up these wider macro-environmental forces fall into four groups.
1. Political and legal factors
2. Economic factors
3. Social and cultural factors
4. Technological factors
(Often referred to as the ‘PEST’ factors in the marketing analytical context, a useful aide-memoire, although in some texts it is sometimes referred to as ‘STEP’). To this is sometimes added ‘Competitive factors’ and although ‘PEST’ analysis relates to a specific organisation ‘Competitive factors’ tend to be subsumed under ‘Economic factors’. Such a PEST analysis means listing all possible points that may affect the organisation under review under each of the P.E.S.T. headings. Recently, some texts have added ‘L’ (standing for legal) and ‘E’ (standing for environmental) to this classification, making the acronym ‘PESTLE’. Even more recently, some writers have incorporated yet another ‘E’ (standing for ecological) with the new acronym ‘STEEPLE’.
The Political and Legal Environment
To many companies, domestic political considerations are likely to be of prime concern. However, firms involved in international operations are faced with the additional dimension of international political developments. Many firms export and may have joint ventures or subsidiary companies abroad. In many countries, particularly those in the so-called ‘Third World’ or more latterly termed ‘Developing Nations’, the domestic political and economic situation is usually less stable than in the UK. Marketing firms operating in such volatile conditions clearly have to monitor the local political situation very carefully.
Many of the legal, economic and social developments, in our own society and in others, are the direct result of political decisions put into practice, for example the privatization of state industries or the control of inflation.
In summary, whatever industry the marketing firm is involved in, changes in the political and legal environments at both the domestic and international levels can affect the company and therefore needs to be fully understood.
The Economic Environment
Economic factors are of concern to marketing firms because they are likely to influence, among other things, demand, costs, prices and profits. These economic factors are largely outside the control of the individual firm, but their effects on individual enterprises can be profound. Political and economic forces are often strongly related. A much quoted example in this context is the ‘oil crisis’ caused by the Middle East War in 1973 which produced economic shock waves throughout the Western world, resulting in dramatically increased crude oil prices. This, in turn increased energy costs as well as the cost of many oil-based raw materials such as plastics and synthetic fibres. This contributed significantly to a world economic recession, and it all serves to demonstrate how dramatic economic change can upset the traditional structures and balances in the world business environment.
As can be seen, changes in world economic forces are potentially highly significant to marketing firms, particularly those engaged in international marketing. However, an understanding of economic changes and forces in the domestic economy is also of vital importance as such forces have the most immediate impact.
One such factor is a high level of unemployment, which decreases the effective demand for many luxury consumer goods, adversely affecting the demand for the industrial machinery required to produce such goods. Other domestic economic variables are the rate of inflation and the level of domestic interest rates, which affect the potential return from new investments and can inhibit the adoption and diffusion of new technologies. In addition to these more indirect factors, competitive firms can also pose a threat to the marketing company so their activities should be closely monitored.
It is therefore vital that marketing firms continually monitor the economic environment at both domestic and world levels. Economic changes pose a set of opportunities and threats, and by understanding and carefully monitoring the economic environment, firms should be in a position to guard against potential threats and to capitalize on opportunities.
The Sociocultural Environment
This is perhaps the most difficult element of the macro-environment to evaluate, manifesting itself in changing tastes, purchasing behaviour and changing priorities. The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs.
Core cultural values are those firmly established within a society and are therefore difficult to change. They are perpetuated through family, the church, education and the institutions of society and act as relatively fixed parameters within which marketing firms are forced to operate. Secondary cultural values, however, tend to be less strong and therefore more likely to undergo change. Generally, social change is preceded by changes over time in a society’s secondary cultural values, for example the change in social attitude towards credit. As recently as the 1960s, personal credit, or hire purchase as is sometimes known, was generally frowned upon and people having such arrangements tended not to discuss it in public. Today, offering instant credit has become an integral part of marketing, with many of us regularly using credit cards and store accounts. Indeed, for many people it is often the availability and terms of credit offered that are major factors in deciding to purchase a particular product.
Marketing firms have also had to respond to changes in attitude towards health, for example, in the food industry people are now questioning the desirability of including artificial preservatives, colourings and other chemicals in the food they eat. The decline in the popularity of smoking is a classic example of how changes in social attitudes have posed a significant threat to an industry, forcing tobacco manufacturers to diversify out of tobacco products and into new areas of growth.
Changes in attitudes towards working women have led to an increase in demand for convenience foods, ‘one-stop’ shopping and the widespread adoption of such time-saving devices as microwave cookers. Marketing firms have had to react to these changes. In addition, changes in moral attitudes from the individualism of the ‘permissive society’ of the 1960s and early 1970s to the present emphasis on health, economic security and more stable relationships, are all contributory factors to a dynamically changing socio-cultural environment that must be considered by companies when planning for the future.
This is perhaps the most difficult element of the macro-environment to evaluate, manifesting itself in changing tastes, purchasing behaviour and changing priorities. The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs.
Core cultural values are those firmly established within a society and are therefore difficult to change. They are perpetuated through family, the church, education and the institutions of society and act as relatively fixed parameters within which marketing firms are forced to operate. Secondary cultural values, however, tend to be less strong and therefore more likely to undergo change. Generally, social change is preceded by changes over time in a society’s secondary cultural values, for example the change in social attitude towards credit. As recently as the 1960s, personal credit, or hire purchase as is sometimes known, was generally frowned upon and people having such arrangements tended not to discuss it in public. Today, offering instant credit has become an integral part of marketing, with many of us regularly using credit cards and store accounts. Indeed, for many people it is often the availability and terms of credit offered that are major factors in deciding to purchase a particular product.
Marketing firms have also had to respond to changes in attitude towards health, for example, in the food industry people are now questioning the desirability of including artificial preservatives, colourings and other chemicals in the food they eat. The decline in the popularity of smoking is a classic example of how changes in social attitudes have posed a significant threat to an industry, forcing tobacco manufacturers to diversify out of tobacco products and into new areas of growth.
Changes in attitudes towards working women have led to an increase in demand for convenience foods, ‘one-stop’ shopping and the widespread adoption of such time-saving devices as microwave cookers. Marketing firms have had to react to these changes. In addition, changes in moral attitudes from the individualism of the ‘permissive society’ of the 1960s and early 1970s to the present emphasis on health, economic security and more stable relationships, are all contributory factors to a dynamically changing socio-cultural environment that must be considered by companies when planning for the future.
The Technological Environment
Technology is a major macro-environmental variable which has influenced the development of many of the products we take for granted today, for example, television, calculators, video recorders and desk-top computers. Marketing firms themselves play a part in technological progress, many having their own research department or sponsoring research through universities and other institutions, thus playing a part in innovating new developments and new applications.
Technology is a major macro-environmental variable which has influenced the development of many of the products we take for granted today, for example, television, calculators, video recorders and desk-top computers. Marketing firms themselves play a part in technological progress, many having their own research department or sponsoring research through universities and other institutions, thus playing a part in innovating new developments and new applications.
