Marketing Environment

Topic 2
CHAPTER 4
Marketing Environment and Analysis
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Learning Outcomes
At the end of this chapter, you should be able to:
1. Discuss the external environment of marketing and explain how it affects a

firm.
2. Describe the social factors that affect marketing.
3. Explain the importance to marketing managers of current demographic trends.
4. Identify consumer and marketer reactions to the state of the economy.
5. Identify the impact of technology on a firm.
6. Discuss the political and legal environment of marketing.
7. Explain the basics of foreign and domestic competition.
8. Discuss the internal environment of marketing and explain how it affects a

firm.
4-1 The Marketing Environment
The Marketing Environment
• What is Marketing Environment?
• The marketing environment is an entire set of events,
circumstances, and objects that have an impact on the marketing
practices of an organisation.
• Several environmental factors have a direct impact on the
organisation’s marketing operations and decision-making ability.
• For instance, A car tire manufacturer’s marketing environment
can consist of external factors such as import-export laws, tax
systems, technological changes, etc., and the internal
environment such as competitors, marketing intermediaries,
suppliers, the company itself, etc.
Copyright ©2014 by Pearson Education
includes the actors and forces

outside marketing that affect
marketing management’s ability to
build and maintain successful
relationships with customers
By carefully studying the
environment, marketers can adapt
their strategies to meet new
marketplace challenges and
opportunities.
1. Macroenvironment (External) 2. Microenvironment (Internal)

 Uncontrollable  within the control
1. Social factors 1. Company
2. Demographic 2. Suppliers
3. Ethnic Markets 3. Marketing Intermediaries
4. Economic factors 4. Competitors
5. Political and legal factors 5. Publics
6. Competitive factors 6. Customers

4-1 The External Marketing
Environment
• Perhaps the most important decisions a marketing
manager must make relate to the creation of the
marketing mix (4Ps).
− A marketing mix is the unique combination of product, place
(distribution), promotion, and price strategies.
− The marketing mix is under the firm’s control and is designed
to appeal to a specific group of potential buyers, or target
market.
 Target market – a group of people or organizations for which an
organization designs, implements, and maintains a marketing
mix intended to meet the needs of that group, resulting in
mutually satisfying exchanges
Environment
• Although managers can control the marketing mix,
they cannot control elements in the external
environment that continually mold and reshape the
target market.
− Instead, managers react to changes in the
external environment and attempt to create a
more effective marketing mix in order to satisfy
customers and remain competitive.
Environment
Understanding the External
Environment
• Environmental scanning
− is a process in which a team of
specialists continually collects and
evaluates environmental
information in order to identify
future market opportunities and
threats.
Environment
a. UNDERSTAND CURRENT CUSTOMERS AND
DESIRES OF POTENTIAL CUSTOMERS
• Knowledge of customer needs and desires, by age
segment, helps companies:
i. Save promotional funds
ii. Retain existing customers
iii. Acquire new customers
Environment
b. UNDERSTAND HOW CONSUMER DECISIONS ARE MADE
IN A RAPIDLY CHANGING ENVIRONMENT
• Successful firms realize that creating value for the customer is

the key to larger profits and market share.
• A rapidly changing business environment and continually

evolving technology make understanding customer decision
making critical to long-run success.
• Today, companies must operate in an environment that is

becoming more demographically diverse, with customer
needs and expectations becoming more individualized, and
the requirement of ethnic groups more distinct.
Environment
c. IDENTIFY THE MOST VALUABLE CUSTOMERS AND
UNDERSTAND THEIR NEEDS
• Often, 20 percent of a firm’s customers produce 80 percent

of the firm’s revenue. An organization must understand
what drives that loyalty and then take steps to ensure that
those drivers are maintained and enhanced.
d. UNDERSTAND THE COMPETITION
• Successful firms know their competitors and attempt to

forecast those competitors’ future moves.
• Competitors threaten a firm’s market share, its profitability,

and its very existence.
Knowledge Check 1
The goal of environmental scanning is to:
a. identify internal strengths and weaknesses.
b. determine which of the four Ps to focus on.
c. identify future market opportunities and
threats.
d. try to control elements in the external
environment that continually mold and
reshape the target market.


4.2 EXTERNAL ENVIRONMENT
4-2 EXTERNAL ENVIRONMENT FACTORS
4.2.1 Social Factors
4.2.2 Demographic Factors
4.2.3 Economic Factors
4.2.4 Technology and Innovation
4.2.5 Political and Legal Factors
4.2.6 Competitive Factors
• Social factors
• Social factors are the things that affect the habits
and spending of customers. These include:
demographics. lifestyles. tastes and trends.
• look at trends such as lifestyle factors, cultural
norms and expectations such as career attitudes
and work-life balance. It also concerns itself with
consumer tastes and buying habits as well as
population demographics.
• Social factors influence:
− The products people buy
− The prices paid for products
− The effectiveness of specific
promotions
− How, where, and when people
expect to purchase products
• A person’s values are key determinants of:

− What is important and not important
− What actions to take or not to take
− How one behaves in social situations
• People typically form values through

interaction with family, friends, and other
influencers such as teachers, religious
leaders, and politicians.
• Values influence our buying habits.
The relationship between marketing and society

and its culture
Influences of the society and its culture that bring
about changes in attitudes, beliefs, norms,
customs and lifestyles
Their general behavior including their purchasing
behavior is influenced by social conditioning
For Example
• Halal Food – Recent Issue of sausage

• Consumer tastes may be different
• Language can be a problem in marketing
communication
• Advertisement
• Branding
Mohamad Zainol Abidin Adam.
COLLEGE OF BUSINESS. UUM BPMM6013:
Marketing
Management 20
• U.S. consumers rank the

characteristics of product quality
as:
1. Reliability
2. Durability
3. Easy maintenance
4. Ease of use
5. A trusted brand name
6. A low price
The Growth of Component Lifestyles

• Component lifestyles – the practice
of choosing goods and services that
meet one’s diverse needs and
interests rather than conforming to a
single, traditional lifestyle
• Component lifestyles increase the
complexity of consumers’ buying
habits.
How Social Media Have Changed Our Behavior
• Social media are web-based and mobile

technologies that allow the creation and
exchange of user-generated content.
• Social media have changed the way we:

− Communicate
− Keep track of others
− Browse for products and services
− Make purchases
• Online reviews play an increasingly important

role in consumer behavior, as more Americans
opt to purchase items online.
HOW FIRMS USE SOCIAL MEDIA
• With social networking, consumers can reach many people at

once with their views—and can respond to brands and events in
real time.
• In turn, marketers can use social media to engage customers in

their products and services.
− Social media enable firms to create conversations with
customers and establish meaningful connections.
• Internet social media networks can improve employee

communication across roles, functions, and geographies,
especially in large complex organizations.
• Videos posted on social media are becoming

the new normal for marketing a brand.
− Marketers know that four times as many
consumers would prefer to watch a video about a
product than read about it.
− Over half of marketers worldwide say that video
content, compared to all other types of content,
results in the best return on investment (R O I).
• Marketers will continue to make social media

a priority.
• Demography – the study of people’s

vital statistics, such as age, race and
ethnicity, and location
• Demographic characteristics are
strongly related to consumer buying
behavior in the marketplace.
Refers to the size, distribution and
Growth rate of groups of people
(Population) with different
characteristics
Population make up markets and

relates to purchasing behavior
/power. Different people show
different purchasing behavior
Examples of the Demographic

Environment are
• Population
• Ethnic Markets
BPMM6013:
Marketing
Management 28
Population
• People are directly or indirectly the basis of
all markets, making the population the most
basic statistic in marketing.
GROWTH OF THE SINGLE POPULATION
• Singles account for 17.7 percent of all
Malaysian adults.
• Predictions are that 53.2% Malaysians now
in their twenties will never wed.
• Age groups present opportunities to focus
on a section of the population and offer
opportunities for marketers.
− These groups are called:
 Tweens
 Teens
 Millennials (or Generation Y)
 Generation X
 Baby Boomers
− Each cohort has its own needs, values, and
consumption patterns.
TWEENS
• Malaysian tweens (ages 10 to 14) represents
7.9% population or approximately 2.4 million.
• Because of their high spending power, this
age group is very attractive to many markets.
− Marketers have targeted a broad array of products
and services at tweens.
• Tweens are largely influenced by social

media and the Internet.
GENERATION Z
• Generation Z – people born between 19 95

and 2010
• With growing biracial and underrepresented

populations, Generation Z embraces
multiculturalism as a touchstone of who they
are.
• Generation Z ers are a more cautious class;

they steer away from risky behaviors and
toward more sensible careers and choices.
• About 3.6 million members of Generation Z are now

adults and are starting to enter the Malaysia workforce.
− Generation Z ers entering the workforce tend to be
competitive and pragmatic.
• The oldest Generation Z ers are more interested in

making work a central part of their lives and are more
willing to work overtime than most Millennials.
• Generation Z ers are expected to account for about 40

percent of all consumers by 2020.
• Generation Z ers rely on social media when shopping

and also make more purchases online.
MILLENNIALS
• Millennials – people born between 19 79 and 19 94
• There are 7.3 million Millennials (or Generation Y ers) in Malaysia.
• Millennials are currently in two different stages of the life cycle.

− The youngest members of Generation Y have entered young adulthood.
− The oldest Generation Y ers have started their careers, and many have
become parents for the first time.
• Domestic partnerships are much more common than among older

cohort groups.
• By 2025, Millennials will have a collective spending power of RM1

trillion.
• Generation Y ers are more idealistic and eager to please,

and they want to do their jobs well.
− Yet staying at one company for a lifelong career is not high on
the list.
• A majority of Millennials see success as more about being

“happy” and less about “material prosperity.”
• When asked to identify activities they actively engage in to

make themselves happier, the activities that received the
most responses were spending time with family and friends
and helping others.
• While Millennials still prefer to rent in urban centers, those

who want to own a home are mostly moving to the suburbs.
• About two-thirds of Millennials use the Internet

frequently.
• Roughly the same percentage say they often / all

the time spend time with family and have face-to-
face conversations.
• Millennials’ ambivalence about technology, and

their hunger to experience “real” connections as
well as digital ones, means that marketers must
offer not just digital content but live events or
opportunities for people to touch, talk, and
connect in person as well.
GENERATION X
• Generation X – people born between 19 65 and 19 78
• Generation X consists of 6.7 million Malaysia
consumers.
• Generation X ers often spent more time without adult
support and guidance than any other age cohort.
− This experience made them independent, resilient, and
adaptable.
• Generation X ers have higher average incomes than

their Millennial and Baby Boomer counterparts.
• Over half of Generation X ers plan to keep working
during their normal retirement years.
• With regards to purchases and purchase decision
making, Generation X ers:
− Tend to be frugal and seek value when making purchases
− Place a high value on education and knowledge and tend
to do a significant amount of research before making a
major purchase
 Thus, marketers need to provide a lot of accurate information
about their products—particularly about why their goods or
services are a great value.
− Tend not to be overly concerned with fashion
BABY BOOMERS
• Baby Boomers – people born between 19 46
and 19 64
• The size of the Baby Boom cohort group is
decreasing in size.
• Baby Boomers’ current incomes are relatively
low because many have retired; however, they
accumulated a substantial amount of wealth
over their working years.
• With regards to purchases and purchase decision

making, Baby Boomers:
− Believe that price and quality are very important when
making purchase decisions
− Tend to be influenced more by traditional advertising, sales
reps, and word-of-mouth recommendations than other
groups
− Tend to use laptops and tablets more often than
smartphones when conducting product research
− Make fewer product purchases online than do some other
cohorts
• Marketers targeting Baby Boomers must:

− Avoid the perception that Baby Boomers are old
− Avoid words such as “senior,” “elderly,” and
“aged”
− Target Baby Boomers based on their lifestyles,
purchase behaviors, and core values, such as
healthy eating, exercise, and family
− Simplify instructions for product assembly and
use
related to the production of

goods and services and
income levels
affects the purchasing

power (the ability to buy)
• Disposable income
better market opportunities if

the economy provides
sufficient purchasing power
• More products can be offered

Marketing
Management 43
• Three economic areas of

greatest concern to most
marketers are:
1. Consumers’ incomes
2. Inflation
3. Recession
Consumers’ Incomes
• For four years in a row, through 2019, Americans have seen their
household incomes rise.
• U.S. employers are boosting benefits faster than wages, which gives them
more flexibility to cut back total compensation in case the economy goes
into a recession.
− Because of the growth in benefits and wages, the poverty rate in America has
fallen.
• In late 2018, the U.S. unemployment rate hit 3.7 percent, the lowest rate
since 19 69.
− One reason for the low rate, other than a booming economy, is that Baby
Boomers are retiring at an increasing rate, leaving fewer to work.
• Education is a primary determinant of a person’s earning potential.

Purchasing Power
• Purchasing power – a comparison of income versus the relative cost

of a standard set of goods and services in different geographic areas
• Another way to think of purchasing power is income minus the cost of

living (i.e., expenses).
− In general, a cost-of-living index takes into account housing, food and
groceries, transportation, utilities, health care, and miscellaneous
expenses such as clothing, services, and entertainment.
• Purchasing power varies substantially from state to state.
• When income is high relative to the cost of living, people have more
discretionary income.
− That means they have more money to spend on nonessential items (in
other words, on wants rather than needs).
Inflation
• Inflation – a measure of the decrease in the value of
money, expressed as the percentage reduction in
value since the previous year
− Thus, in simple terms, an inflation rate of 5 percent means
that you can expect that, on average, prices have risen by
about 5 percent since the previous year.
• Often, periods of economic growth stimulate inflation.

• When inflation is ultra-high, it is referred to as
“hyperinflation.”
Recession
• Recession – a period of economic activity
characterized by negative growth, which reduces
demand for goods and services
• More precisely, a recession is defined as
occurring when the gross domestic product (G D
P)—the total market value of all final goods and
services produced during a period of time—falls
for two consecutive quarters.
related to innovations that affect the

development of new products
Technology affects operation and

product lifestyles and
consumption patterns
provide opportunities for new

products development
For example …….

Marketing
Management 50
• Technological success is based on

innovation, and innovation requires
imagination and risk taking.
Existing businesses often have difficulty adjusting and competing with disruptive (game-changing) technologies.
McKinsey and Company, a global consulting firm, recognizes four stages that an existing firm may go through when
faced with a disruptive technology.
1. Signals Amidst 2. Change 3. The Inevitable 4. Adapting to

the Noise Takes Hold Transformation the New Normal
• A new technology • The core • The future is • The disruption

comes on the technology and pounding at the has reached the
market but is yet economic factors door. point at which
to be disruptive. of the disruptive companies must
force are accept the fact
validated. that the industry
has
fundamentally
changed.
Research
• Basic research – pure research that aims to confirm an
existing theory or to learn more about a concept or
phenomenon
• Applied research – research that attempts to develop new or
improved products
• The United States became a global leader in research and
development
(R & D) spending in the twentieth century.
− Expenditures continue to rise with funding primarily by business, the
federal government, and institutions of higher education.
Stimulating Innovation
• Companies attempting to innovate
often limit their searches to areas they
are already familiar with.
− This can help lead to incremental
progress but rarely leads to a dramatic
breakthrough.
• The cost of basic research has

continued to grow.
• Business needs government regulation to protect
innovators of new technology, the interests of society in
general, one business from another, and consumers.
• In turn, government needs business because the
marketplace generates taxes that support public efforts to
educate our youth, pave our roads, protect our shores, and
the like.
• Every aspect of the marketing mix is subject to laws and
restrictions.
− It is the duty of marketing managers or their legal assistants to
understand these laws and conform to them, because failure to
comply with regulations can have major consequences for a firm.
Federal Legislation
Competitive
environment
Consumer privacy
Marketing Pricing
Laws
Advertising and
promotion
State and Local Laws
• Legislation that affects marketing varies from state by

state.
Regulatory Agencies
• The four federal agencies most directly and actively

involved in marketing affairs are:
1. Ministry of Domestic Trade and Cost of Living
2. Malaysia Competition Commission (MyCC)
3. Advertising Standards Malaysia (ASA)
4. Consumer Tribunal to
• The competitive environment encompasses:

− The number of competitors a firm must face
− The relative size of the competitors
− The degree of interdependence within the
industry
Competition for Market Share and Profits
• As U.S. population growth slows, technology rapidly
changes, global competition increases, costs rise, and
available resources tighten, firms find that they must work
harder to maintain their profits and market share,
regardless of the form of the competitive market.
• One study found that only 13 percent of U.S. consumers
were fully brand loyal.
Global Competition
• Many foreign competitors consider the United States to be
a ripe target market.
4.3 INTERNAL ENVIRONMENT


4.3 INTERNAL ENVIRONMENT FACTORS
4.3.1 Company
4.3.2 Suppliers
4.3.3 Marketing Intermediaries
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3 Internal Environment (1 of 8)
• Internal or Microenvironment consists of the actors close to the company that

affect its ability to serve its customers—the company, suppliers, marketing
intermediaries, customer markets, competitors, and the public.
Source: Kotler & Armstrong (2021)
4.3 EXTERNAL ENVIRONMENT FACTORS
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3.1 The Company
The Company
In designing marketing plans, marketing management takes other company groups into
account.
• Top management
• Finance
• Research and development (R&D)
• Information technology
• Purchasing
• Operations
• Human resources
• Accounting
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3.2 The Suppliers
Suppliers
• Provide the resources to produce goods and services
• Treat as partners to provide customer value
Suppliers: Giant furniture retailer

IKEA doesn’t just buy from its
suppliers. It involves them deeply
in the process of delivering the
trendy but simple and affordable
home furnishings to create a
better everyday life for its
customers.
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
Marketing Intermediaries Partnering with
intermediaries: Coca-Cola
Marketing intermediaries provides its retail partners
are firms that help the with much more than just
company to promote, sell, soft drinks. It also pledges
and distribute its goods to powerful marketing support.
final buyers.
Marketing Intermediaries
• Resellers
• Physical distribution firms
• Marketing services agencies
• Financial intermediaries
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3.4 The Competitors
Competitors
Firms must gain strategic advantage

by positioning their offerings strongly
against competitors’ offerings in the
minds of consumers.
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3.5 Publics
Publics Publics: P&G has a long history of
Any group that has an actual or giving back to its local publics. The
potential interest in or impact on an Tide Loads of Hope program brings
organization’s ability to achieve its “hope not just soap” in the form of
objectives free mobile laundry services to
people in communities facing natural
• Financial publics disasters.
• Media publics
• Government publics
• Citizen-action publics
• Local publics
• General public
• Internal publics
4.3.1 Company
4.3.2 Suppliers
4.3.4 Competitors
4.3.5 Publics
4.3.6 Customers
4.3.6 Customers
Customers
• Consumer markets
• Business markets
• Reseller markets
• Government markets
• International markets
Responding to the Marketing
Environment
• Views on Responding
UNCONTROLLABL PROACTIVE REACTIVE

E
Environment
Views on Responding
Uncontrollable
• React and adapt to forces
in the environment

Environment
Views on Responding
Proactive
• Aggressive actions to affect
forces in the environment

Environment
Views on Responding
Reactive
i.Watching
ii.and reacting to forces in
the environment

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Topic 2

1. Discuss the external environment of marketing and explain how it affects a

2. Describe the social factors that affect marketing.

3. Explain the importance to marketing managers of current demographic trends.

4. Identify consumer and marketer reactions to the state of the economy.

5. Identify the impact of technology on a firm.

6. Discuss the political and legal environment of marketing.

7. Explain the basics of foreign and domestic competition.

8. Discuss the internal environment of marketing and explain how it affects a

includes the actors and forces

1. Macroenvironment (External) 2. Microenvironment (Internal)

Copyright ©2014 by Pearson Education

• Successful firms realize that creating value for the customer is

• A rapidly changing business environment and continually

• Today, companies must operate in an environment that is

• Often, 20 percent of a firm’s customers produce 80 percent

d. UNDERSTAND THE COMPETITION

• Successful firms know their competitors and attempt to

• Competitors threaten a firm’s market share, its profitability,

1. Macroenvironment (External) 2. Microenvironment (Internal)

Copyright ©2014 by Pearson Education

• A person’s values are key determinants of:

• People typically form values through

The relationship between marketing and society

• Halal Food – Recent Issue of sausage

• U.S. consumers rank the

The Growth of Component Lifestyles

• Social media are web-based and mobile

• Social media have changed the way we:

• Online reviews play an increasingly important

HOW FIRMS USE SOCIAL MEDIA

• With social networking, consumers can reach many people at

• In turn, marketers can use social media to engage customers in

• Internet social media networks can improve employee

• Videos posted on social media are becoming

• Marketers will continue to make social media

• Demography – the study of people’s

Population make up markets and

Examples of the Demographic

• Tweens are largely influenced by social

• Generation Z – people born between 19 95

• With growing biracial and underrepresented

• Generation Z ers are a more cautious class;

• About 3.6 million members of Generation Z are now

• The oldest Generation Z ers are more interested in

• Generation Z ers are expected to account for about 40

• Generation Z ers rely on social media when shopping

• Millennials – people born between 19 79 and 19 94

• There are 7.3 million Millennials (or Generation Y ers) in Malaysia.

• Millennials are currently in two different stages of the life cycle.

• Domestic partnerships are much more common than among older

• By 2025, Millennials will have a collective spending power of RM1

• Generation Y ers are more idealistic and eager to please,

• A majority of Millennials see success as more about being

• When asked to identify activities they actively engage in to

• While Millennials still prefer to rent in urban centers, those

• About two-thirds of Millennials use the Internet

• Roughly the same percentage say they often / all

• Millennials’ ambivalence about technology, and