Unit Two The Dynamic Marketing Environment

2.1 Introductory Concepts

As it has been indicated, marketers operate in an increasing connected world. They must be good at
customer relationship management and partner relationship management in order to connect effectively
with customers, others in the company, and external partners. To get these done effectively and
efficiently, the firm should understand / identify the major environmental forces that surround all these
relationships.

Philip Kotler coined in his book principles of marketing that marketing environment consists of the actors
and forces outside marketing that affects marketing management’s ability to build and maintain
successful relationships with target customer. The tenable fact is the marketing environment in general
offers both opportunities and threats. As a result, more than any other group in the company, marketers
must be the friend trackers and opportunity seekers.

Although every manager in an organization needs to observe the outside environment, marketers have
two special aptitudes. They have disciplined methods-Marketing intelligence and marketing research for
collecting information about the marketing environment. They also spend more time in the customer and
competitors environments.(Kotler and Armstrong, Principles of Marketing, 2004, 10th Ed.)

The point is, careful analysis and study of these environmental forces enables the marketers to marketing
strategies to meet new marketing trends, challenges and opportunities.

The marketing environment we have been discussing consists of a microenvironment and a

microenvironment. The microenvironment includes actors close to the company that affect its ability to
serve its customers the company, suppliers, marketing intermediaries, customer markets, competitors, and
publics. The macro environment consists of the larger societal force that influences the
microenvironment-demographic, economic, natural, technological, political and legal, and cultural forces.

2.2 Environmental Monitoring

Environmental monitoring – also called environmental scanning- is the process of:-

(1) Gathering information regarding a company’s external environment.

(2) Analyzing it, and

(3) Forecasting the impact of whatever trends the analysis suggests.

The term environment, as indicated has a much broader sense. The organization operates with in an
external environment that it cannot control. At the same time, there are marketing and non- marketing
resources within the organization that generally can be controlled by executives.

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Successful marketing depends largely on a company’s ability to manage its marketing programs with in
its environment. To do this, a firm’s marketing executives must determine what makes up the firm’s
environment and then monitor it in a systematic, ongoing fashion. They must be alert to spot
environmental trends that could be opportunities or problems for their organization. Then the marketing
executives must be able to respond to these trends with the resources they control.

Core point is how important is environmental monitoring to business success? In a word very. One study
of about 100 large companies concluded, “Firms having advanced systems to monitor events in the
external environment exhibited higher growth and greater profitability than firms that did not have such
systems.” (Etzel, Walker, and Stanton, Marketing; 1997, 11th ed)

2.3 Macro-environment

The company and all of the other actors operate in a larger macro environment of forces that shape
opportunities and pose threats to the company. It is called macro influence because the elements in it
affect all firms.

The following external forces have considerable influence on any organization’s marketing opportunities
and activities. Therefore, they are macro environmental forces:

Economic
conditions

Demographics

Company’s

Marketing Natural forces

Program
Social cultural
forces

Political & Technology

legal forces

Fig.2.1 Marketing macro-environment.

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A change in one of the elements / of components / of can cause changes in one or more of the others.
Hence, they are interrelated. One thing they have in common, as explained by Etzel, walker, and Stanton,
is that they are dynamic forces that is, they are subjected to change and at an increasing rate!

These forces are largely uncontrollable by management; but they are not totally uncontrollable. A
company may be able to influence its external environment to some extent. For example, in international
marketing a company can improve its competitive position by joint venture with a foreign firm that makes
a complementary product.

A company may influence its political-legal environment as well by lobbying or by contributing to a

legislator’s campaign fund. On the technological aspect, new-product research and development can
strengthen a firm’s competitive position. For instance, the Merck pharmaceutical company enjoyed a
block buster success with two new products, Vasotec for treating high blood pressure and Mevacor for
reducing cholesterol levels. At the same time, Merck’s own technology became an external completive
force that affected other pharmaceutical companies.

2.3.1 Demographic environment

Demography is the study of human populations in terms of size, density, location, age, gender, race,
occupation, growth and other statistics. Because people constitute markets, demographics are of special
interest to marketing executives. The characteristics in this environment are important to marketers
because they are closely related to the demand for many products. Change in demographics signal the rise
of new markets and the elimination of others. They help us anticipate the needs and wants of the
population.

The world population is growing at an explosive rate. It was more than 8.2 billion in 2004 and will exceed
7.9 billion by the year 2025. The world’s large and highly diverse population poses both opportunities
and challenges.

As Philip Kotler and Gary Armstrong explains on the book Principles of Marketing, if we reduced the
world to a village of 1000 people representative of the world’s populations the following would be our
reality.

 Our village would have 520 females and 430 males, including 330 children and 60 people
over age 65, 10 college graduates, and 335 illiterate adults.

 We would have 52 North Americans, 55 Russians, 84 Latin Americans, 95 Europeans, 124

Africans, and 584 Asians.

 Communication would be difficult: 165 of us would speak Mandarin, 85 English, 83 Hindi,

64 Spanish, 58 Russian and 37 Arabic. The other half of us would speak one of more than
5000 other languages.

 Among us we’d have 329 Christians, 178 Moslems, 32 Hindus, 60 Buddhists, 3 Jews, 167
nonreligious, 45 atheists, and 86 others.

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  Only 200 of the 1000 people would control 73% of our village’s wealth another 200 would
receive only 2% of the wealth. Seventy people would own cars. One would have a computer,
and that computer probably would not be connected to the internet only 70 of us would own a
car.

The explosive population growth has major implications for business. A growing population means
growing human needs to satisfy. Depending on the purchasing power, it may also mean growing market
opportunities. As a best example, to curb its skyrocketing population, the Chinese governmental has
passed regulations limiting families’ one child each. As a result, Chinese children are spoiled and fussed
over as never before. Chinese children are being showered with everything from candy to computers.
Parents in the average household spend about 40% of their income on their cherished only child. This
trend has encouraged toy companies to enter the Chinese market.

To summarize, marketers keep close track of demographic trends and developments in their markets, both
at home and abroad. They need to track changing age and family structures, geographic population shifts,
educational characteristics, and population diversity.

2.3.2 Economic Environment

People alone do not make a market. They must have money to spend and be willing to spend it.
Consequently, the economic environment is a significant force that affects the marketing activities of just
about any organization. The environment consists of factors that affect consumer purchasing power and
spending patterns.

A marketing program is affected especially by such economic factors as the current and anticipated stage
of the business cycle, inflation, unemployment, interest rates, and income. Changes in major economic
variables have a significant impact on the market place. People spend, save, invest and try to create
personal wealth with differing amounts of money. How people deal with their money is important to
marketers. Trends in the economic environment show an emphasis on global income distribution issues,
low savings and high debt, and changing consumer-expenditure patterns. If you consider access to
telephones, clothes washers, dryers, microwaves, etc., there is little visible difference between the poor
and nonpoor. Indeed, recent figures indicate that the affluent are shopping at discount stores, having
adopted some of the shopping habits of those with less income. Therefore, marketers must pay close
attention to major trends and consumer spending pattern both across and within their world market.

Following are some of the major economic trends:

a) Stage of the business cycle: today we think business cycle as it goes through three stages: Prosperity,
recession, and recovery then returning full cycle to the prosperity. Marketing executive’s needs to know
which stage of the business cycle the economy currently is in, because a company’s marketing programs
usually must be changed from one stage of the business cycle to another.

Prosperity: is a period of economic growth. During this stage, organizations tend to expand their
marketing programs as they add new products and inter new markets.

Recession: is a period of retrenchment for consumers and businesses we tighter our economic belts.
People can become discouraged, scared, and angry. Naturally, these feelings affect their buying behavior,

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which, in turn, has major marketing implications for companies, often leading to economic losses. In a
recession, consumers cut back on eating our and entertainment outside the home. As a result, firms
catering to these needs face serious marketing challenges.

For some companies, though, a recession can present profitable marketing opportunities. For example,
during the recession in 1991, Campbell soup spotted a trend away from the more expensive, ready-to-
serve soups and towards lower-priced cook-at-home products. The result, it becomes the first new soup
since 1935 to be among the top 10 Campbell best sellers.

Recovery: is period when the economy is moving from recession to prosperity. The marketer’s challenge
is to determine how quickly prosperity will return and to what level. As unemployment declines and
disposable income increases, companies expand their marketing efforts to improve sales and profits.

Inflation: is a rise in the prices of goods and services. When prices rise at a faster rate than personal
incomes, consumer-buying power declines. Many countries today are affected by extremely high rates of
inflection – increases of 20, 30, or 50 percent yearly.

Inflation rates affect government policies, consumer psychology, and also marketing programs. For
instance, during periods of high inflation, consumers spend less as their buying power declines. At the
same time, they may overspend today for feat that prices will be higher tomorrow. In turn, severe
inflation presents real challenges in managing a marketing program especially in determining the size of
price increases.

Surprisingly, periods of low inflation – sometimes termed disinflation also present challenges for
marketers. In particular, it is very difficult for firms to raise prices because of consumer resistance. As a
result, they need to cut their costs or else profits will evaporate. To do so, companies must take such steps
as redesigning products to pare production costs and cutting back on coupons and other promotions that
in effect lower prices.

b) Interest rates: it another external economic factor that influences marketing programs. When interest
rates are high, for instance, consumers tend not to make long-term purchases such as housing.

Marketers sometimes offer below-market interest rates (a form of price cut) as a promotional device to
increase business. Auto manufacturers used this tactic extensively in the late 1980s and early 1990s.

2.3.3 Competitive Environment

Adopting the marketing concept mean that an organization must provide greater customer value than its
competitors.Three levels of competition exist.
1. Direct competitors are firms competing for the same customers with the similar products (ex. grocery
stores).
2. Competition exists between products that can be substituted for one another (ex. margarine for butter).
3. Competition exists among all organizations that compete for the consumer's purchasing power (ex.
entertainment).

2.3.4 Technological Environment

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Technology has tremendous impact on our life-styles, our consumption patterns, and our economic well-
being. The technological environment refers to new technologies, which create new technologies, which
create new product and market opportunities. Just think of the effects of technological development such
as the airplane, plastics, television, computers, antibiotics, lasers, and of course video games. Except
perhaps for the airplane, all these technologies reached their major markets in your life lifetime.

Consider some of the technological break troughs that are expanding our horizons as we near a new
century. It is hard to grasp the fantastic possibilities in many fields ranging from pharmaceuticals to
miniature electronics. For example, small handled computers allow salespeople to place orders directly
from customer’s location.

Technological breakthrough can affect markets in three ways:

 by starting entirely new industries, as compilers lasers, and robots have done
 By radically altering, or virtually destroying existing industries. When it first came out,
television crippled the radio and movie industries. And computers all but replaced type writers
 By stimulating markets and industries not related to the new technology. New home appliances
and microwavable foods give people additional time in which to engage in other activities.

Advance in technology; also affect how marketing is carried out. For example, break through in
communications now permit people and organizations to transact business from almost any location at
any time of the day.

In general, technological developments are the most manageable uncontrollable force faced by marketers
organizations needs to be aware of new technologies in order to turn these advance in to opportunities and
a competitive edge. Here we should also note that technology is mixed blessings in solve ways. New
technology may improve our lives in one area while creating environmental and social problems in other
areas. The automobile makes life great in some ways, but it also creates traffic jams and air pollution. A
part from this, technological changes have forced organizations to quickly adapt their plan in terms of
how they develop, price, distribute, and promote their products.

2.3.5 Social and Cultural Forces

The task facing marketing executives is becoming more complex because our socio-cultural patterns –
life-styles, values, beliefs – are changing much more quickly than they use to on top of this, socio-cultural
forces are the most difficult uncontrollable variables to predict. The social and cultural environment is
made up to forces that affect society’s basic values, perceptions, preferences, and behaviors. In U.S, for
example, values and beliefs include equality, achievement, youthfulness, efficiency, practicality, self-
actualization, freedom, humanitarianism, mastery over the environment, patriotism, individualisms,
religious and moral orientation, progress, materialism, social interaction, conformity, coverage, and
acceptance of responsibility. Here are a few changes in social and cultural forces that have significant
marketing implications:

a) Changing Gender Roles: For many reasons, mostly notably the increasing number of two-income
households, female roles related to families, jobs recreation, and buying behavior are changing
dramatically. For example, more men now shop for groceries, cook food, while more women arrange for
auto maintenance, higher involvement in different social activities. Further still, a growing number of

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“house husbands” stay at home and assume primary responsibilities for child care and homemaking while
their wives work full-time.

One of the most dramatic shifts in our society and culture has been the changing role of women .Now a
days more and more women are working outside home. This development has certainly changed
traditional buying patterns in households and has stimulated the demand for such products as day-care
centers and nursery schools.

Recognizing women’s changing roles and growing economic power, may companies have developed new
or altered marketing programs to reach the market of adult females. Nike and Avis created entirely new
advertising campaigns to better reach women. And smith and Wesson added lady smith, a line of
handguns designed especially to fit women’s hands.

Changing gender roles have affected men as well. Some men are doing more shopping and housework
only because it’s demanded of them, while other men hold more favorable attitudes toward the shift in
gender roles. Marketers should be aware that these two groups of men buy different items and shop
indifferent ways.

b) A premium on Time: Currently most people are working longer hours than their parents did. A
substantial number of people also consider it necessary to be involved in activities such as continuing
education, personal fitness, and various kinds of professional or civic endeavors. As a result, many people
have little time for normal household, family, and leisure activities. Time short people seek to gain more
free time, if possible, and maximize the benefits of whatever free time they have. From a marketing stand
point, this means many people, especially two income households, with more income but less time are
more willing to pay for convenience.

c) Physical Fitness and Health: Most demographic and economic segments of our society seem to
reflect an increased interest in physical fitness and health. Furthermore, the public is constantly made
aware of the relationship between diet, on one hand, and heart disease and caner, on the other.
Consequently, a large number of consumers have become more interested in diets for weight loss; foods,
low in salt, additives, and cholesterol, and foods high in vitamins, minerals, and fiber content. Companies
need to recognize and respond to the public’s growing interest in health. Thus it is not surprising that
most supermarkets now stock an assortment of health foods.

2.3.6 Political and Legal Forces

Marketing decisions are strongly affected by developments in the political and legal environment.
Organizations must operate with in a frame work of governmental regulation and legislation. Government
relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of
industries.

The political environment consists of laws, government agencies, and pressure groups that influence or
limit various organization and individuals in a given society. (Kotler and Armstrong, 2004). The political
and legal forces on marketing can be grouped in to the following four categories.

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a) Monetary and fiscal polices: Marketing efforts are affected by the level of government spending, the
money supply, and tax legislation.

b) Social legislation and regulations: Legislation affecting the environment – antipollution lows, for
example and regulations set by the environmental protection agency fall into this category.

c) Governmental relationships with industries: Here we find subsidies in agriculture, shipbuilding,

passenger rail transportation, and other industries, tariffs and import quotas also affect specific industries.
Government deregulation continues to have an effect on financial institutions and on the
telecommunications and transportation (airline, rail, and trucking) industries.

d) Legislation related specifically to marketing: Marketing executives do not have to be lawyers, but
they were passed, their main provisions, and current grand rules set by the courts and regulatory agencies
for administering them. The discussion of political and legal forces affecting marketing has dealt
essentially with the activities of the federal government. However, there are also strong political and legal
influences at the state and local levels. For instance, many firms’ marketing programs are affected by
zoning requirements, interest-rate regulations, state and local taxes, prohibitions against unsubstantiated
environmental claims, and laws affecting door-to-door selling. All of these have been put in place by
numerous states and municipalities.

Government agencies affect marketing in two other ways. First, they are an important source of
information needed for effective marketing. In this case, instead of the telling marketing executives what
they must do or cannot do, the government help them as a source of published marketing information in
the country. Second, government agencies are significant buyers of products.

2.4 Micro Marketing environment

It consists of the forces close to the marketing activity that affects its ability to serve its customers. A
company’s micro environment consists of such forces which are very proximate to it. These factors also
exert their influence on the company’s marketing and the company in turn can influence these factors. A
company has to understand this and tactfully use the situation to the best to serve its own interests of
effective marketing.

The following are the important factors in a company’s micro environment:

i. The company
ii. Suppliers
iii. Marketing intermediaries
iv. Customers
v. Competitors
vi. Publics

i. The Company:

To achieve the task of the marketing, the marketing department needs the co-operation of various other
company departments. The finance department is concerned with finding and using funds to carry out the
marketing plan. The R&D department designs safe and attractive products according to the market
requirements.

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The purchasing department buys the appropriate materials. The manufacturing department manufactures
the goods according to the market requirements. The accounting department has to maintain accounts of
all the events in the business.

Therefore, all these departments within the company exert a very strong influence on the company and its
marketing.

ii. Suppliers:

Suppliers are the businesses and individuals who provide raw materials to a company to be converted into
finished goods. Suppliers determine the quality of the products a company makes through the supply of
goods. Suppliers must supply quality goods, on time, at reasonable prices and on favorable terms and
conditions. Moreover, the cost of the products of the company largely depends on the cost at which the
raw materials are supplied to the company.

Therefore, suppliers exert a very strong influence on the company and its marketing.

iii. Marketing Intermediaries:

Marketing intermediaries enable the company to sell and physically distribute the goods throughout the
market. They include several individuals and organizations.

Transport organizations enable the physical distribution of the goods. Wholesalers and retailers sell the
goods of the company. Marketing servicing agents are also very essential such as banks, insurance
companies, clearing and forwarding agencies.

Therefore, marketing intermediaries exert a very strong influence on the company and its marketing.

iv. Customers:

The ultimate success of marketing depends on the customers. Customers include individuals, firms,
governments, other companies, importers etc. The marketing’s aim should be to find customers, develop
customers, serve them well and retain them. Customers are the ones who sustain the company. If
customers do not buy the products of a company, there is no way any company can survive, let alone
succeed.

Therefore, customers exert a very strong influence on the company and its marketing.

v. Competitors:

Every business should deliver greater satisfaction to its customers than its competitors do. Therefore,
every company has to understand its competitors. This is important for a company to maintain or improve
its position within the market. If a business is unaware of its competitors’ moves, it will find it very
difficult to outsmart its competitors.

Therefore, competitors exert a very strong influence on the company and its marketing.

vi. Publics:

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A public, in this context means any group which can impact an organization’s ability to achieve its
objectives.

The following are such publics:

(a) Finance institutions which provide finance to a company.

(b) Media which can create a positive or negative image about the company in the minds of the general
public.
(c) Government which decides the success of a company through its policies and its legislations.
(d) Citizen action groups which can question several actions of the company.
(e) Local groups which can raise objections on account of environmental and other issues.
(f) General public whose attitude towards the company is very important.
(g) Internal groups such as the employees, managers, the board of directors etc. can decide the success of
the company through their co-operation.

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