CHAPTER 2

MARKETING ENVIRONMENT

CONTENTS
I. Definition of marketing environment II. Classification of marketing environment Micro environment & Macro environment Internal & External environment Local & International marketing III. Analysis of marketing environment

I. MARKETING ENVIRONMENT?
Marketing Environment?

The actors and forces outside marketing that affect marketing managements ability to build and maintain successful relationships with the target market Philip Kotler

BUSINESS ENVIRONMENT

Firm

Micro Environment

Macro Environment

II. Classification of marketing environment

Micro & macro environment Internal & external environment Local & international environment

2.1. MICRO ENVIRONMENT

Micro Environment?

The actors close to the company that affect its ability to serve its customers the company, suppliers, marketing intermediaries, customers, competitors, & publics Philip Kotler

MICRO ENVIRONMENT FORCES

People who buy the goods & services many types of consumers, (business markets, end users, government markets & international markets) Other organizations offering or potentially offering rival products or services. Each firm must consider its own size & industry position compared to those of its competitors These firms provide companies with their resources (materials, machines, tools)

Customers

Competitors

Suppliers

Micro Environment

Distributors
Help the company to promote, sell and distribute Its goods to final buyers (resellers, physical distribution firms, service agencies)

Publics
Any group that has an actual or potential interest or impact on an organisations ability to achieve its objectives

Company
Marketing management takes other company groups into account-groups like top management, finance, R&D, purchasing,

2.2. MACRO ENVIRONMENT

Macro-environment?

Philip Kotler

The larger societal forces that affect the microenvironment demographic, economic, natural, technological, political, and cultural forces

Macro environment Forces

Demographic Political-Legal Economic

Technological Natural

Socio-Cultural

2.2.1. Population and Demographics

Size Growth rate Age distribution Ethnic mix Educational levels

Household patterns Regional characteristics Movement

Demographic trends
Demographic trends are highly reliable for the short and intermediate run. A) The main demographic force that marketers monitor is population because people make up markets. B) Marketers are keenly interested in the: 1) Size and growth rate of populations in cities, regions, and nations. 2) Age distribution and ethnic mix. 3) Educational levels. 4) Household patterns. 5) Regional characteristics and movements.

Worldwide Population Growth

The worlds population is showing explosive growth: The United Nations estimated the worlds population to be 6.8 billion in 2009 and the world's population is expected to reach 9 billion by 2050. A) The population explosion has been a source of major concern. B) Explosive population growth has major implications for business. C) A growing population does not mean growing markets unless these markets have sufficient purchasing power.

Population Age Mix

A) National populations vary in their age mix. B) There is a global trend toward an aging population.
C) A population can be subdivided into six age groups: 1) Preschool 2) School-age children 3) Teens 4) Young adults age 25 to 40 5) Middle-aged adults age 40 to 65 6) Older adults age 65 and up D) For marketers, the most populous age groups shape the marketing environment.

Ethnic and Other Markets

Countries vary in ethnic and racial makeup. A) Ethnic groups have certain specific wants and buying habits. B) Marketers must be careful not to overgeneralize about ethnic groups. C) Within each ethnic group are consumers who are quite different from each other.

Educational Groups
A) The population in any society falls into five educational groups: 1) Illiterates. 2) High school dropouts. 3) High school degrees. 4) College degrees. 5) Professional degrees.

Household Patterns
A) The traditional household consists of a husband, wife, and children (sometimes grandparents). B) In the United States today, one out of eight households is "diverse or nontraditional and includes: 1) Single live-alones. 2) Adult live-togethers of one or both sexes. 3) Single-parent families. 4) Childless married couples. 5) Empty-nesters.

Household Patterns
C) Each group has a distinctive set of needs and buying habits. D) Marketers must increasingly consider the special needs of nontraditional households, because they are now growing more rapidly than traditional households E) Single does not necessarily mean alone, friends are the new family. F) Neo tribes of twenty-somethings living communally. G) This emphasis on friendship can influence marketers in everything from whom they target to how they craft their marketing messages. H) The gay market is a particularly lucrative segment.

Geographical Shifts in Population

This is a period of great migratory movements between and within countries. Forward-looking companies and entrepreneurs are taking advantage of the growth in immigrant populations and marketing wares specifically to these new members of the population. A) Within countries, population movement occurs as people migrate from rural to urban areas, and then to suburban areas. B) Location makes a difference in goods and service preferences. C) There are also regional differences. D) Suburban growth and a disdain for commuting has helped those business that cater to the growing SOHO (small officehome office) segment. E) Marketers also look at where consumers are flocking.

2.2.2. Economic Environment

$ Purchasing Power

$ Income Distribution $ Savings Rate $ Debt $ Credit Availability

Purchasing Power
A) Markets require purchasing power as well as people. B) The available purchasing power in an economy depends upon: 1) Current income. 2) Prices (including economic growth rate, inflation). 3) Savings (including interest rate). 4) Debt. 5) Credit availability. C) Marketers must pay careful attention to trends affecting purchasing power because they can have a strong impact on business, especially for companies whose products are geared to high-income and price-sensitive consumers.

Income Distribution
A) In a global economy, marketers need to pay attention to the shifting income distribution in countries around the world, particularly in countries where affluence levels are rising. B) Marketers often distinguish countries with five different income-distribution patterns: 1) Very low incomes. 2) Mostly low incomes. 3) Very low, very high incomes. 4) Low, medium, high incomes. 5) Mostly medium incomes. D) Over the past three decades in the United States, the rich have grown richer, the middle class has shrunk, and the poor have remained poor.

Savings, Debt, and Credit Availability

Consumer expenditures are affected by: 1) Savings. 2) Debt. 3) Credit availability.

2.2.3. Social-Cultural Environment

Purchasing power is directed toward certain goods and services and away from others according to peoples tastes and preferences. A) Society shapes the beliefs, values, and norms that largely define these tastes and preferences.

2.2.3. Social-Cultural Environment

B) People absorb a worldview that defines their relationships to themselves, others, organizations, society, nature, and to the universe. 1) Views of themselves, people vary in the relative emphasis they place on self-gratification. 2) View of others, people are concerned about the homeless, crime and victims, and other social problems. 3) Views of organizations, people vary in their attitudes toward corporations, government agencies, trade unions, and other organizations. 4) Views of society, people vary in their attitudes toward their society. 5) View of nature, people vary in their attitudes toward nature. 6) View of the universe, people vary in their beliefs about the origin of the universe and their place in it.

2.2.3. Social-Cultural Environment

C) Some other cultural characteristics of interest to marketers: 1) The persistence of core cultural values: The people living in a particular society hold many core beliefs and values that tend to persist. a) Core beliefs and values are passed on from parents to children and are reinforced by major social institutions. b) Secondary beliefs and values are more open to change. c) Marketers have some chance of changing secondary values but little chance of changing core values. 2) The existence of subcultures. 3) Shifts of values through time. Shifts of Secondary Cultural Values Through Time: Although core values are fairly persistent, cultural swings take place.

2.2.4. Natural Environment

Shortage of raw materials Increased energy costs Anti-pollution pressures Governmental protections

2.2.5. Technological Environment

Pace of change
Opportunities for innovation Varying R&D budgets Increased regulation of change

2.2.5. Technological Environment

A) One of the most dramatic forces shaping peoples lives is technology. B) Every new technology is a force for creative destruction. C) The economys growth rate is affected by how many major new technologies are discovered. D) New technologies also create major long-run consequences that are not always foreseeable. E) The marketer should monitor the following trends in technology: 1) Pace of change. 2) Opportunities for innovation. 3) Varying R&D budgets. 4) Increased regulation.

2.2.5. Technological Environment

E1. Accelerating Pace of Change - Many of todays common products were not available 40 years ago. - The time between the appearance of new ideas and their successful implementation is narrowing. So is the time between introduction and peak production. E2. Unlimited Opportunities for Innovations - Scientists today are working on a startling range of new technologies that will revolutionize products and production processes. - Companies are already harnessing the power of virtual reality (VR) , the combination of technologies that allows users to experience threedimensional, computer-generated environments through sound, sight, and touch.

2.2.5. Technological Environment

E3. Varying R&D Budgets - A growing portion of the U.S. R&D expenditures are going into the development side of R&D. Many companies are content to put their money into copying competitors products and making minor feature and style improvements. E4. Increased Regulation of Technological Change - As products become more complex, the public needs to be assured of their safety. Government agencies powers to investigate and ban potentially unsafe products have been expanded. Marketers must be aware of these regulations when proposing, developing, and launching new products.

2.2.6. Political-Legal Environment

Increase in business legislation Relationship with other countries Growth of special interest groups

Political stability

2.2.6. Political-Legal Environment

Increase in Business Legislation
A) Business legislation has three main purposes: 1) To protect companies from unfair competition. 2) To protect consumers from unfair business practices. 3) To protect the interests of society from unbridled business behavior. B) A major purpose of business legislation and enforcement is to charge businesses with the social costs created by their products or production processes. C) Legislation affecting business has increased steadily over the years.

2.2.6. Political-Legal Environment

Increase in Business Legislation D) The United States has many laws on its books covering such issues as: 1) Competition. 2) Product safety and liability. 3) Fair trade and credit practices. 4) Packaging and labeling. E) Several countries have gone further than the United States in passing strong consumer protection legislation. F) Marketers must have a good working knowledge of the major laws protecting competition, consumers, and society.

2.2.6. Political-Legal Environment

Relationship with other countries A) In 1991: diplomatic and economic relations with ASEAN member states and also with most countries of Western Europe and Asia's Far East. B) Re-establishment of full diplomatic ties with China in 1991. A land border demarcation agreement concluded by the two nations in 1999. C) President Bill Clintons announcement of diplomatic relations normalization with the Socialist Republic of Vietnam on July 11, 1995 (after a 20-year hiatus of severed ties). A Bilateral Trade Agreement which is signed between the US and Vietnam in July 2000 went into force in December 2001. D) Member of the WTO in November 2006.

2.2.6. Political-Legal Environment

Political stability A) Socio-political stability keeps investors and attract tourists (eg. The political stability of Vietnam lies in the strength of its single ruling political party, the Communist Party of Vietnam - CPV). Growth of special interest groups A) interest group: any association of individuals or organizations, usually formally organized, that, on the basis of one or more shared concerns, attempts to influence public policy in its favour. B) All interest groups share a desire to affect government policy to benefit themselves or their cause. (e.g., government subsidies for farmers, policy to improve air quality). C) Interest groups exist at all levels of government national, state, provincial, and local and increasingly they have occupied an important role in international affairs.

III. ENVIRONMENTAL ANALYSIS

3.1. Internal environment analysis (Company analysis) 3.2. External environment analysis

3.1. Internal environment analysis

Internal environment of an organization comprises of controlable factors.
Companys Technology

Companys culture

Finance

Human Resources

3.2. External environment analysis

Macro Environment
Political legal environment Economic environment Social-cultural environment Technological environment Natural environment Competitive environment

Uncontrolable factors that affect the whole micro environment and firms in the long term

Model of M.E.Porters Five Competitive Forces

Threats of new entrants

Suppliers

Competitor Rivals Customers

Substitutes

Number of potential new entrants depends on...

High Profit margin Attractive future growth opportunities in the market Low Entry barriers (investment, technology, legal) Competition is limited Feasibility of gaining an equivalent (or better) competitive advantage over the existing firms serving the market

Power (Ability to change prices) of customers/suppliers depends on

Number of customers (suppliers) Ability to coordinate of customers and suppliers Number of purchased products and value; buying frequency Cost to switch to other supplier

Competitor Analysis
Identifying competitors
Identifying competitors objectives

Identifying competitors strategies

Assessing competitors Strengths and weaknesses

Estimate competitors Reaction pattern

Selecting competitors To attack/avoid

Identifying competitors
Direct competitors Indirect competitors

Other companies offering a similar Other companies satisfying the s product and service to the same customer needs in different ways customers at a similar price

Company

Direct competitors

Indirect competitors

Major sources of new competition

Companies competing in related product markets Companies with related technologies Companies targeting similar customer groups

Marketing strategies of competitors

1. Current product strategy employed by primary competitors: A.................................................................................................. .... B .................................................................................................... .. C .................................................................................................... .. 2. Current price strategy employed by primary competitors: A.................................................................................................. .... B .................................................................................................... .. C .................................................................................................... .. 3. Current distribution strategy employed by primary competitors:

Strengths and weaknesses of competitors

Type of product:................................

Strengths
Competitor A

Weaknesses

Competitor B

Competitor C

Areas of evaluation of competitors strengths and weaknesses

Sales volume, market share and market position in segment served Level of customer satisfaction Business approach (price, quality, service, speed...) Financial performance Financial resources Cost position relative to key competitors Relative product quality Product portfolio Methods of distribution Marketing strategies and effectiveness Management capability & other capabilities

Thing to remember! Marketing Managers Framework

Cultural and Social environment
Political and Legal environment Natural environment Resources and Objectives of firm

C
Economic and Technological environment

Competitive environment

Uncontrollable variables

Controllable variables

Managers Must Recognize the Influence of Environmental Forces on Marketing by Anticipating, Reacting, and Adapting to External Forces

Environmental opportunities

Marketing Decision making

Environmental constraints