UNIT 2 MARKETING ENVIRONMENT ANALYSIS

Objectives
The objectives of this unit are to:

● appreciate the vital role and impact of environmental analysis on the business
● understand the macro forces of marketing environment and their significance
● identifying the elements of micro environment within the firm
● ascertain the new Indian consumer in the vibrant marketing environment
● know the meaning, scope and procedure of conducting marketing research

Structure
2.1 Introduction
2.2 Changing Role and Impact of Marketing Environment
2.3 Demographic environment
2.4 Economic environment
2.5 Socio-cultural environment
2.6 Natural environment
2.7 Technological environment
2.8 Political-Legal environment
2.9 Micro Marketing environment
2.10 New Indian consumer in vibrant marketing environment
2.11 Marketing research
2.12 Meaning and scope of marketing research
2.13 Marketing research procedure
2.14 Marketing research in India
2.15 Summary
2.16 Key-Words
2.17 Self-Assessment Questions
2.18 Further Readings

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2.1 INTRODUCTION

Human beings and all other living creatures live and survive in certain environs suitable and
conducive for their existence and would also adjust and accommodate from time to time
according to the prevailing climate and weather conditions at a given place or location.
Businesses are no exception in this regard. Every business should indentify and consider the
most conducive environment both external as well as internal factors that should enable them
to run the business in the most profitable manner with customer at its core for growth,
development and sustainability.
Marketing is conducted outside the four walls of the company. Thus it becomes even more
mandatory for initiating a thorough analysis of the marketing environment of a firm in which
it operates. Which is aimed at identifying changes, trends, opportunities and threats if any?
This is also known as environmental scanning. In other words, scanning of marketing
environment helps to identify the strengths and weaknesses of a company, and opportunities
and threats posed by the external environment. The strengths and weaknesses of a firm imply
its internal abilities and limitations.
You might be thinking that such analysis would simply tell you what could go wrong;
however, it can do much more. As a marketer, you cannot control any of the major forces, but
the environmental scanning would enable your company to review and revise and to respond
and adjust its decisions in tune with the unmet needs and changing trends. Marketing
organisations miss many opportunities by foregoing environmental analysis.
As a marketer, you must monitor six macro factors/forces which are external to the firm per
se. They include demographic, economic, socio-cultural, natural, technological, and political-
legal. We will take you through these critical factors/forces that play a key role in nurturing
the business in general and marketing effort in specific. Each of these factors does influence
each other on the overall scheme of things.
The marketing environment is the combination of the microenvironment and macro
environment.
According to Philip Kotler, “A company’s marketing environment consists of the internal
factors and forces, which affect the company’s ability to develop and maintain successful
transactions and relationships with the company’s target customers”.
According to Pride &Ferrell, “The marketing environment consists of external forces that
directly or indirectly influence an organization’s acquisition of inputs and generation of
outputs”.

2.2 CHANGING ROLE AND IMPACT OF MARKETING ENVIRONMENT

“We are watching the dinosaurs die, but we don’t know what will take their place,”
commented Lester Thurow, an economist once at MIT.

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Let us try and understand the above statement with the following example. Until the 1990s,
the Indian telecommunications was the domain of the Department of Telecommunications
under the Union government which provided basic telephony. The telecom sector had
witnessed drastic changes with the opening of the economy. With the onset of Liberalisation,
Privatization and Globalisation (LPG) coupled with the technological breakthroughs brought
new players in the private sector of the telecom space into the market with new brands of
telecom products and services.
With the creation of the Telecom Regulatory Authority of India (TRAI) as a regulator in the
country, the Bharat Sanchar Nigam Limited (BSNL) has been created as a full-fledged
company to take competition head-on. As a result, now the Indian customer has more brand
options to choose from; mobile phones became common man’s products; the prices of
telecom services have been slashed; and in the process, the landline phone became the
example of a dinosaur in the Indian corporate world! This exemplifies the diminishing role
of the government-owned BSNL in the telecom industry which had invested heavily in the
landline phone technology thereby not being able to respond to the drastic changes that
were taking place in the external environment.
Therefore, it is essential for marketing organisations to learn how to predict, understand, and
adapt to the changes in the dynamic environment through appropriate marketing decisions in
terms of product, pricing, placing, and promotion or marketing communications mix.
By the turn of the second decade of the 21st century, it is apparent that organisations started
facing unprecedented challenges in marketing to cope with global competition, technological
revolution, turbulent markets, and escalating customer aspirations for a better quality of life,
ever-growing inflation, climate change, and sudden health calamity triggered by the outbreak
of COVID-19 pandemic across the globe.
Among the challenges so mentioned above let us take COVID-19 as an example which had
affected the entire universe despite the virus being invisible to the naked eye. Corona virus
had impacted our lives irrespective of caste creed religion race etc. Thus impacting and
destabilising normal human life with fear and agony is one side of its existence. The other
side of the pandemic due to the virus is an increase in the area of digital consumption among
customers in every arena from streaming entertainment to online purchases. As a result, the
magnitude of digital marketing has increased manifold to reach out to both new and existing
customers. This has led to the adoption of increased digital marketing campaigns/promotions
to enhance and speed up sales.
The CRITEO report on COVID-19 Impact on India reveals that 40% of marketers attributed
the pandemic to the accelerated digital transformation of their business processes. One in
every two marketers increased their digital marketing spends during the pandemic despite
revenue losses. 55% of marketers confirmed that they made significant changes to their
marketing strategies during the pandemic. They also planned to allocate more spends on
social media, content marketing, paid video and retail websites/apps advertising. That means

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the pandemic compelled many marketing organisations to revisit their approach towards their
marketing effort.
This unit will specially focus on the understanding and analysis of the marketing environment
in which the firm operates from the Indian context.
The beginning of environmental analysis commences with a Marketing Information System
(MIS) department/arm should be in place within the organisation. The role of MIS is to
assess the information needs of managers, develop the needed information, and distribute that
information in a timely manner. The outputs or reports emanating from the MIS can be
classified into periodic reports, triggered reports, demand reports, and specialised databases
etc. In recent times, data warehousing and data mining are concepts that gained popularity in
relation to processing, storing, unearthing and utilising information. Quite often companies
require information for solving a specific marketing problem. Marketing research reports and
information does offer the needed information. Marketing research not only creates
marketing information but also uses it as its input. The importance of marketing research and
its linkage with environmental analysis thus becomes obvious and is discussed at the end of
this unit.
In the beginning we made a mention that every business whether small, medium or large
and irrespective of the nature of their businesses should judiciously scan and monitor six
macro factors/forces of external environment which are mentioned below:

THE MACRO ENVIROMENT OF MARKETING: Includes the following

• Demographic factors
• Economic factors
• Socio-cultural factors
• Natural factors
• Technological factors
• Political-legal factors

2.3 DEMOGRAPHIC ENVIRONMENT

Demography is a study of the population. People constitute the markets. Therefore, marketers
are interested to understand the changing composition of people in terms of size and rate of
growth in different regions, cities, towns, and rural areas. They want to know the age
distribution of people, educational levels, and household patterns. Composition of the
workforce, occupation-wise, and religious background of people is also an important part of
the demographic environment.

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The following statistics provide some interesting perspectives about the demographic
characteristics of the world from a macro angle:

If the world were a village of 100 people:

● 60 people would be Asian, 15 would be African, 11 would be European, nine would be

South American, and five would be North American.
● 12 people speak Chinese language, five speak Spanish/English, three speak
Arabic/Hindi/Bengali/Portuguese, two Russian/Japanese, and the remaining 62 people
speak different other languages.
● 33 people would be Christians, 22 would be Muslims, 14 would be Hindus, seven
would be Buddhists, 12 would be non-religious, and 12 would have faith in other
religions.
● 17 people would be illiterate, 26 people would be under 14 years of age, and eight
people would be above 65. The number of males and females would be equal.
● 51 people live in urban areas and 49 in rural areas. 78 people would have access to
electricity and 22 do not have. 13 people would not have access to safe drinking water.
● 75 people would have cell phones, 30 would be active Internet users, and 22 would be
owning or sharing a computer.
● 48 people would live on less than $2 US dollars per day. One out of two children
would live in poverty.
Source: 1. https://m.timesofindia.com/india/what-india-would-be-like-if-only-100-people-lived-in-the-
country/amp_articleshow/59437987.cms

2. https://www.google.com/search?q=Population+of+India+by+religion

3. https://www.google.com/amp/s/www.buzzfeed.com/amphtml/shayanroy/if-india-had-100-people

The above statistics would offer some vital and insightful information to marketers to pursue
in their decision making process.
From a marketing perspective, India is the second-largest market in the world, next to China.
India is projected to surpass China to become the world’s most populous country by 2024. By
2030, the country is expected to be home to more than 1.5 billion people; India’s population
is expected to reach 1.7 billion by 2050.
With regard to the age composition, India has more than 50% of its population below the age
of 25. Two out of three Indians are below the age of 35. The average age of an Indian was 29
years in 2020; it was 37 for China and 48 for Japan.
India has more than 2,000 ethnic groups. More than 19,500 languages are spoken in India as
mother tongues. There are 121 languages that are spoken by 10,000 or more people in the
country. The life expectancy for India in 2021 is 69.96 years.

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An Example of India’s Young Customers
India has a relatively younger population compared to many countries. A survey on The Next
Normal: The Rise of the Contactless Economy conducted by the Data Sciences Division of
the advertising agency, Dentsu India in metros and cities in 2021 highlights some of the
following:

● Seven out of 10 young consumers were ready to buy a less-known brand with a
preference for local brands in categories of Fast Moving Consumer Goods (FMCG),
personal and home care, health products and apparel.

● Millennial (aged 25-39 years) and Gen Z (aged 5-25 years) audiences lean towards
local, socially and environmentally sustainable choices.

● The young customers prefer products that use organic and ayurvedic ingredients in the
personal care category.

● A vast majority of them want to spend a higher amount on sanitisation and immunity
products due to the impact of the COVID-19 pandemic.

● As a result, they prefer brands such as Dabur Chyawanprash, Revital, Patanjali, and
Himalaya Vitamins.

● Lockdowns and restrictions fuelled the online economy. For example, in the banking
sector, about 60% of transactions of customers were fulfilled via virtual wallets, 23%
via credit and debit cards and the rest via cash.

● Digital payments platform Google Pay enjoys the lion’s share of online payments,
followed by Paytm.

● Groceries and snacks witnessed a threefold rise in online deliveries. Food delivery is
largely online.

● Apparel, footwear and jewellery purchases are largely offline.

2.4 ECONOMIC ENVIRONMENT

Marketers should keep track of and monitor the purchasing capacity of their customers. The
purchasing patterns and power of people depends on factors such as their income, savings,
inflation, and availability of credit etc.
The economic reforms adopted in 1991 are applauded for the high economic growth seen
during 1991-2011 and substantial reduction of poverty from 2005 to 2015. However, the
Indian economy was failing to generate sustainable livelihoods for the workforce.

Table 1 gives an overview of some of the major changes that took place in India’s economic
front between 1991 and 2021. Out of 510 million of the workforce in India, a vast majority of
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them are working in the private, informal sector. About 65% of India’s population in 1991
depended on agriculture for livelihood; however, in 2021, the agricultural sector provided
livelihood only for 40% of people. The share of services in GDP rose to 54.27% in 2021 from
43.2% in 1991.

Table 1: Major Changes in Indian Economy between 1991 and 2021

1991 2021
March March
GDP in current prices (crore Rs) 5,86,212 1,18,74,000
Share of agriculture in GDP (%) 31.6 16.38
Share of services in GDP (%) 43.2 54.27
Share of industries in GDP (%) 25.2 29.35
Total foreign exchange reserves (billion $) 5.8 592.89
Imports (crore Rs) 32,558 29, 09,827
Exports (crore Rs) 43,198 21,51,771
Gross fiscal deficit (crore Rs) 44,632 18, 48,655
Union government’s loans (crore Rs) 4, 27,397 1, 14,39,492
No. of reporting banks 276 222
No. of bank branches 60,220 1,58,386
Savings in bank deposits (crore Rs) 56,902 43,50,746
Bank interest on deposits (%) 11-14 3-6
Stock market capitalisation (Rs lakh crore) 5.74 405.25
Source : Compiled from different sources.

COVID-19: Impact on the Indian Economy:

The Coronavirus pandemic affected the Indian economy severely. The following points
highlight the immediate impact of COVID on the economy:

● Largest GDP contraction

● Sharp rise in unemployment

● Stress on supply chains

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● Decrease in government income

● The collapse of the tourism and hospitality industry

● Reduced consumer activity

As a result, major companies in India such as Larsen & Toubro, Bharat Forge, Ultra Tech
Cement, Grasim Industries, Aditya Birla Group, BHEL and TATA Motors temporarily
reduced operations significantly.
Here are five sectors that have been hit the hardest by the second wave of COVID-19,
according to India Today (April 30, 2021):

Hospitality Sector: This sector includes many businesses like restaurants, hostels, services
apartments, pubs and bars. The consequence will be a massive spike in unemployment.

Tourism Sector: The hospitality sector is interlinked to the tourism sector. The tourism and
travel sector that employs millions of Indians contributes nearly 7% of India’s GDP. It
comprises hotels, home stays, holiday homes, motels and boarding and lodging etc this is
likely to have a shocking impact on households’ incomes as the result will be rise in
unemployment status.

Aviation and Travel Sector: Aviation, Railways, State Transports and other private
transport operators and establishments experienced a 50% reduction in the first two waves.
People were scared to step out of their homes. Till people gain the confidence to opt for such
services, the outlook for the travel and transport sector does look bleak.

Automobile Sector: Since automobiles are discretionary products, vehicle sales largely
depend on consumer sentiments. The demand for non-essential products continued to fall
further.

Real Estate and Construction Sector: As a large number of migrant/guest workers left
urban/cities areas, it hit both housing and construction projects. Construction sites were
operating with roughly half the strength. Builders were also facing material shortages due to
the restrictions imposed during pandemic.

2.5 SOCIO-CULTURAL ENVIRONMENT

Socio-cultural environment is composed of culture, social class, traditions, beliefs, values and
lifestyles of the people in a given society etc.
(Unit-4 of this course will give you an exhaustive and deeper understanding of the these
variables)
In Indian culture some of our cultural values are deep-rooted. They are known as core values.
For example, believing that children should get an education is a core value. It is not easy to
change the core values. The secondary values are subject to change. For example, believing
that the children should get education from expensive schools located in posh areas is a
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secondary value. The marketers try to influence such secondary values of their target
customers to some extent through marketing efforts.

Activity 1

1. Try and identify any five core values along with the secondary values of people in your
location /city/district/town/village etc as per your observation.

Core Values Secondary Values

a.------------------------------------------------------------------------------------------
b.-------------------------------------------------------------------------------------------
c.-------------------------------------------------------------------------------------------
d.-------------------------------------------------------------------------------------------
e.--------------------------------------------------------------------------------------------
Social class is an important concept and every society is composed of different social classes.
It is determined by the type of income, residential location, and type of occupation and so on.
Each social class normally exhibits a specific pattern of behaviour and lifestyle.
We all know that India is known for its diversity in terms of religions, languages, traditions
and customs. Such a variety is reflected in the way people behave, their food habits, clothing
and their choices of goods and services etc. Indian society in general is known for having a
strong family system. However, in recent times, many changes took place in the cultural
arena due to the impact of media, growing exposure to western lifestyles, the popularity of
the new media (also known as social media), growing urbanisation, and the globalised world.
Women’s education, employment opportunities in emerging industries, growth of services
sector, and ever-expanding segment of middle class led to major cultural shifts or swings.
The marketers look for such cultural shifts while conducting an environmental analysis. This
would enable them to trace out the marketing opportunities or threats impacting their
business.
Despite the impact of globalisation, western lifestyles and such factors, some Indian
companies tried to appeal to the customers by intelligently using cultural or ethnic aspects.
Robin Blue liquid from Reckitt & Benckiser offers a blue tinge to white clothes. Himalaya
products meant for personal care and healthcare are positioned based on Ayurveda, a
traditional and alternative system of medicine. Parachute hair oil brand has several variants
which includes “hot oil”. It contains herbs that provide heat when the oil is applied. Quaker
Oats brand’s timing of entry was in tune with the health and fitness culture sweeping
urbanites. Hindustan Unilever repositioned its bath soap Lifebuoy with family imagery. Lux
brand is associated with celebrities; Hamam brand built around the family. The changing
socio-cultural milieu provides many cues for the marketers in India to harness business
opportunities.

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2.6 NATURAL ENVIRONMENT

The environmental analysis must also involve the study of natural resources, ecology and
climatic conditions in a state/country where the company operates. Corporate
environmentalism calls for the integration of environmental issues into the firm’s strategic
marketing. Such environmental issues include:

● Availability of raw materials is critical to the functioning of a firm

● Cost and price structure of raw materials

● Availability and cost of energy

● Environmental pollution, protection of wildlife, and ocean life

● Environmental regulations and the role of environmental activists

● Impact of climate change on the firm and ecological balance

India is known for its rich natural resources like iron, coal, minerals, rivers, ocean wealth and
good rainfall. Industrial production in the country has grown by more than 50-fold over the
past century. The Central Pollution Control Board (CPCB) identified 17 categories of most
polluting industries that cause environmental degradation leading to health hazards About
77% of the industries contribute to water pollution while 15% to air pollution and the
remaining 8% to both air and water pollution.
According to a report published in DownToEarth (June 6, 2019), both surface and
groundwater resources are under stress in India. There has been a 136% increase in the
number of Grossly Polluting Industries (GPI) between 2011 and 2018. Around 84% of GPIs
were located in four states: Uttar Pradesh (1,079), Haryana (638), Andhra Pradesh (193), and
Gujarat (178). GPIS are industrial units that discharge more than one lakh litres of
wastewater and/or hazardous chemicals into the rivers. They include pulp and paper mills,
distilleries, sugar mills, and textile units.
According to the National Mission for Clean Ganga (NMCG), the industrial pockets in the
catchments of Ramganga and Kali tributaries and in Kanpur city are significant sources of
industrial pollution. The major contributors are tanneries in Kanpur; and distilleries, paper
mills and sugar mills in the Kosi, Ramganga and Kali river catchments. Amongst these, the
sugar industry is the key violator. Several sugar mills in the region were asked to close down
until they meet all the pollution control norms specified by CPCB. This is only an example
that underscores the importance of being ethical and legal while conducting business
activities.

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