Marketing Environment

Marketing Environment concerns the influences or variables of the external and internal
environment of a firm that controls the marketing management’s capability to construct and
preserve the flourishing relationships with the consumer. An assortment of environmental forces
affects a company’s marketing arrangement. A few of them are governable while others are
unmanageable. It is the task of the marketing manager to modify the company’s policies together
with the shifting environment. Macro and micro environment comprise the structure of the
marketing environment.
Marketing activities do not take place in a vacuum, isolated from all external forces. In fact all
marketing operations are conducted in a highly complex, dynamic and changing environment.

According to Philip Kotler, “A company’s marketing environment consists of the factors and
forces outside marketing that affect management’s ability to build and maintain successful
relationships with target customers”.
The marketing environment offers both opportunities and threats. Successful companies know the
vital importance of constantly watching and adapting to the changing environment. A company’s
marketers take the major responsibility for identifying significant changes in the environment.

First, the environment can be considered in terms of those elements that affect all firms within the
industry (the macro environment), as opposed to those elements that affect only the individual firm
(the micro environment). In general, the macro environment is difficult to influence or control,
whereas the micro environment is much more within the firm’s control.
The environment can also be classified as internal or external. The internal environment comprises
those factors that operate within the firm (the corporate culture and history, staff behavior and
attitudes, the firm’s capabilities) and the external environment comprises those elements that
operate outside the firm (competition, government, customers).
Environment scanning is a constant, important activity of successful companies. This process
includes gathering, filtering and analyzing information related to the marketing environment. It
also includes monitoring the changes taking place in the environment and forecasting future status
of each factor.
Such analysis helps to spot opportunities and threats in the environment, and pinpoints the ones
that are specifically relevant to the company. The company’s marketing people have the
responsibility for scanning and identifying significant changes or trends in the marketing
environment.
Marketing Environment- consists of the actors and forces outside marketing that affect marketing
management’s ability to develop and maintain successful relationships with its target customers
Types of the marketing environment:

❖ Micro environment - forces close to the company that affect its ability to serve its customers

❖ Macro environment - larger societal forces that affect the whole macro environment.

1. Micro-environment:

The micro-environment of the company consists of various forces in its immediate environment
that affects its ability to operate effectively in its chosen markets.
This includes the following:

(a) The company

(b) Company’s Suppliers

(c) Marketing Intermediaries

(d) Customers

(e) Competitors

(f) Public

The Company: In designing marketing plans, marketing management takes other company
groups into account – Finance, Research and Development, Purchasing, Manufacturing,
Accounting, Top Management etc. Marketing manager must also work closely with other company
departments. Finance in concerned with funds and using funds to carry out the marketing plans.

The R&D Department focuses on designing safe and attractive product. Purchasing Department is
concerned with supplies of materials whereas manufacturing is responsible for producing the
desired quality and quantity of products. Accounts department has to measure revenues and costs
to help marketing know-how. Together, all of these departments have impact on the marketing
plans and action.
Internal Environment (Within the Co.):

The marketing management, in formulating plans, takes the other groups into account:

Top Management, Finance, R&D, Manufacturing, Purchasing, Sales Promotion, Advertisement

etc.
Company’s Suppliers: Suppliers provide the resources needed by the company to product its
goods and services. They are important links in the company’s overall customer “value delivery
system”. Supplier developments can seriously affect marketing.
Marketing managers must watch supply availability – supply shortages or delays, labor strikes and
other events can cost sales in the short run and damage customer satisfaction in the long run.
Marketing Managers also monitor the price trends of their key inputs. Rising supply costs may
force price increases that can harm the company’s sales volume.
Marketing Intermediaries: Intermediaries or distribution channel members often provide a
valuable link between an organization and its customers. Large-scale manufacturing firms usually
find it difficult to deal with each one of their final customers individually in the target markets. So
they chose intermediaries to sell their products.

Marketing intermediaries include resellers, physical distribution firms, marketing service agencies,
and financial intermediaries. They help the company to promote, sell, and distribute its goods to
final buyers. Resellers are distribution channel firms that help the company to find customers for
goods. These include whole-sellers and retailers who buy and resell merchandise. Selecting and
working with resellers is not easy. These organizations frequently have enough power to dictate
terms or even shut the manufacturer out of large markets.
Physical distribution: Firms help the company to stock and move goods from their points of
origin to their destinations. Working with warehouse and transportation firms, a company must
determine the best ways to store and ship goods, and safety marketing services agencies are the
marketing research firms, advertising agencies, media firms, and marketing consulting firms that
help the company target and promote its products to the right markets.
Customers: Consumer markets consist of individuals and households that they buy goods and
services for personal consumption. Business markets buy goods and services for further processing
or for use in their production process, whereas reseller markets buy goods and services to resell at
a profit.

Government markets are made up of government agencies that buy goods and services to produce
public services or transfer the goods and services to others who need them. Finally, international
markets consist of the buyers in other countries, including consumers, producers, resellers and
governments. Each market type has special characteristics that call for careful study by the seller.
Competitors: No single competitive marketing strategy is best for all companies. The company’s
marketing system is surrounded and affected by a host of competitors. Each firm should consider
its own size and industry position compared to those of its competitors. These competitors have to
be identified, monitored and out maneuvered to gain and maintain customer loyalty.
Industry and competition constitute a major component of the micro-environment. Development
of marketing plans and strategy is based on knowledge about competitors’ activities. Competitive
advantage also depends on understanding the status, strength and weakness of competitors in the
market.
Large firms with dominant positions in an industry can use certain strategies that smaller firms
cannot afford. But being large is not enough. There are winning strategies for large firms, but there
are also losing ones. And small firms can develop strategies that give them better rate of return
than large firms enjoy.

Public: General public do take interest in the business undertaking. The company has a duty to
satisfy the people at large along with competitors and the consumers. A public is defined as “any
group that has an actual or potential interest in or impact on a company’s ability to achieve its
objectives.

Public relations is certainly a broad marketing operation which must be fully taken care of
Goodwill, favorable reactions, donations and hidden potential fixture buyers are a few of the
responses which a company expects from the public. Kotler in this regard has viewed that
“companies must put their primary energy into effectively managing their relationships with their
customers, distributors, and the suppliers, their overall success will be affected by how other
publics in the society view their activity. Companies would be wise to spend time monitoring all
their public’s understanding their needs and opinions and dealing with them constructively”.
Every company is surrounded by seven types of public, as shown below:

1. Financial—banks, stock-brokers, financial institutions.

2. Media—Newspaper, magazines, TV.

3. Government—Government departments.

4. Citizen—Consumer Organizations; environment groups.

5. Local—neighborhood residents, community groups.

6. General—General Public, public opinions.

7. Internal—Workers, officers, Board of Directors

Macro Environment:

The macro-environment consists of broader forces that not only affect the company and the
industry, but also other factors in the micro-environment.
The components of a macro-environment are:

(a) Demographic Environment

(b) Economic Environment
(c) Physical Environment
(d) Technological Environment
(e) Political Environment
(f) Legal Environment
(g) Social and Cultural Environment

A. Demographic Environment: Demography is the study of population characteristics that are

used to describe consumers. Demographics tell marketers who are the current and potential
customers, where are they, how many are likely to buy and what the market is selling. Demography
is the study of human populations in terms of size, density, location, age, sex, race, occupation and
other statistics.
Marketers are keenly interested in studying the demography ethnic mix, educational level and
standard of living of different cities, regions and nations because changes in demographic
characteristics have a bearing on the way people live, spend their money and consume.
For example, one of the demographic characteristic is the size of family. With the number of small
families increasing in India, the demand for smaller houses and household items has increased
significantly. Similarly, the number of children in a family has reduced significantly over the years.
So, per child spending in a family has increased significantly.
Income: Income determines purchasing power and status. Higher the income, higher is the
purchasing power. Though education and occupation shapes one’s tastes and preferences, income
provides the means to acquire that.
Life-style: It is the pattern of living expressed through their activities, interests and opinion. Life-
style is affected by other factors of demography as well. Life-style affects a lot on the purchase
decision and brand preferences.
Sex: Gender has always remained a very important factor for distinction. There are many
companies which produce products and services separately for male and female.
Education: Education implies the status. Education also determines the income and occupation.
With increase in education, the information is wider with the customers and hence their purchase
decision process is also different. So the marketers group people on the basis of education.
Social Class: It is defined as the hierarchical division of the society into relatively distinct and
homogeneous groups whose members have similar attitudes, values and lifestyle.
Occupation: This is very strongly associated with income and education. The type of work one
does and the tastes of individuals influence one’s values, life-style etc. Media preferences, hobbies
and shopping patterns are also influenced by occupational class.
Age: Demographic variables help in distinguishing buyers, that is, people having homogenous
needs according to their specific wants, preferences and usages. For instance, teenagers usually
have similar needs. Therefore, marketers develop products to target specific age groups.
The youth are being targeted through advertisements and promotional campaigns, stores are being
designed with ‘youthful’ features, youth events are being sponsored, and even new technology is
developed with their tastes in mind.

B. Economic Environment:

Economic environment is the most significant component of the marketing environment. It affects
the success of a business organization as well as its survival. The economic policy of the
Government, needless to say, has a very great impact on business. Some categories of business are
favorably affected by the Government policy, some adversely affected while some others remain
unaffected. The economic system is a very important determinant of the scope of private business
and is therefore a very important external constraint on business.

The economical environmental forces can be studied under the following categories:

(i) General Economic Conditions:

General Economic Conditions in a country are influenced by various factors. They are:

 Agricultural trends
 Industrial output trends
 Per capita income trends
 Pattern of income distribution
 Pattern of savings and expenditures
 Price levels
 Employment trends
 Impact of Government policy
 Economic systems.
(ii) Industrial Conditions:

Economic environment of a country is influenced by the prevalent industrial conditions as well as

industrial policies of a country.
A marketer needs to pay attention to the following aspects:

 Market growth
 Demand patterns of the industry
 Its stage in product life cycle.

(iii) Supply sources for production:

Supply sources required for production determines inputs which are available required for
production.
They are:

 Land
 Labour
 Capital
 Machinery and equipment etc.

Economic environment describes the overall economic situation in a country and helps in analysis
GNP per capita rate of economic growth, inflation rate, unemployment problems etc.

C. Physical Environment:

The physical environment or natural environment involves the natural resources that are needed
as inputs by marketers or those that are affected by marketing activities. Environmental concerns
have grown steadily in recent years. Marketers should be aware of trends like shortages of raw
materials, increased pollution, and increased governmental intervention in natural resources
management. Companies will have to understand their environmental responsibility and commit
themselves to the ‘green movement’.
Potential shortages of certain raw materials, for examples, oil, coal, minerals, unstable cost of
energy, increased levels of pollution; changing role of Government in environment protection are
a few of the dangers the world is facing on physical environment forces. Other aspects of the
natural environment which may increasingly affect marketing include the availability and cost of
raw materials, energy and other resources, particularly if those resources and energy come from
non-renewable sources.
D. Technological Environment:

The technological environment is the most dramatic force now facing our destiny. Technological
discoveries and developments create opportunities and threats in the market. The marketer should
watch the trends in technology. The biggest impact that the society has been undergoing in the last
few years is the technological advancement, product changes and its effects on consumers.
Technology has brought innumerable changes in human lives, be it in the field of science,
medicine, entertainment, communication, and travel or office equipment. Name any field, and one
can see changes in product or efficiency and faster services.
Instead of moving into the new technologies, many old industries fought or ignored them and their
business declined. Yet it is the essence of market capitalism to be dynamic and tolerate the creative
destructiveness of technology as the price of progress.
Technology essentially refers to our level of knowledge about ‘how things are done’. That
understands this aspect of the marketing environment is much more than simply being familiar
with the latest hi-tech innovations. Technology affects not only the type of products available but
also the ways in which people organize their lives and the ways in which goods and services can
be marketed.
Ex: Computer-aided design (CAD) and computer-aided manufacturer (CAM)

E. Political Environment:

The political environment consists of factors related to the management of public affairs and their
impact on the business of an organization. Political environment has a close relationship with the
economic system and the economic policy. Some Governments specify certain standards for the
products including packaging.
Some other Governments prohibit the marketing of certain products. In most nations, promotional
activities are subject to various types of controls. India is a democratic country having a stable
political system where the Government plays an active role as a planner, promoter and regulator
of economic activity.
Businessmen, therefore, are conscious of the political environment that their organization faces.
Most Governmental decisions related to business are based on political considerations in line with
the political philosophy following by the ruling party at the Centre and the State level.
Substantial number of laws has been enacted to regulate business and marketing to protect
companies from each other, to protect consumers from unfair trade practices, to protect the larger
interests of society against unbridled business behavior. Changing Government agency
enforcement and growth of public interest groups also bring in threats and challenges.

F. Legal Environment:

Marketing decisions are strongly affected by laws pertaining to competition, price-setting,

distribution arrangement, advertising etc. It is necessary for a marketer to understand the legal
environment of the country and the jurisdiction of its courts.
The following laws affected business in India:

 Indian Contract Act 1872

 Factories Act 1948
 Minimum Wages Act 1948
 Essential Commodities Act 1955
 Securities Contracts Regulation Act 1956 (SEBI Act)
 The Companies Act 1956
 Trade and Merchandise Act 1958
 Monopolies and Restrictive Trade Practice Act 1969
 The water (Prevention and Control of Pollution) Act 1974
 The Air (Prevention and Control of Pollution) Act 1981
 Sick Industrial Companies (Special Provisions) Act 1985
 Environment Protection Act 1986
 Consumer Protection Act 1986
 Securities and Exchange Board of India Act 1992
 Different Taxation Laws.

G. Social and Cultural Environment:

Socio-cultural forces refer to the attitudes, beliefs, norms, values, lifestyles of individuals in a
society. These forces can change the market dynamics and marketers can face both opportunities
and threats from them. Some of the important factors and influences operating in the social
environment are the buying and consumption habits of people, their languages, beliefs and values,
customs and traditions, tastes and preferences, education and all factors that affect the business.
Understanding consumer needs is central to any marketing activity and those needs will often be
heavily influenced by social and cultural factors. These cover a range of values, beliefs, attitudes
and customs which characterize societies or social groups. Changes in lifestyle of people affect the
marketing environment.
As health problems in people have increased because of significant changes in their lifestyle, they
have become concerned about their food. They prefer to eat low fat, low or no cholesterol food.
This is especially true for people above 40 years. To a great extent, social forces determine what
customers buy, how they buy, where they buy, when they buy, and how they use the products.In
India, social environment is continuously changing. One of the most profound social changes in
recent years is the large number of women entering the job market. They have also created or
greatly expended the demand for a wide range of products and services necessitated by their
absence from the home. There is a lot of change in quality-of-lifestyles and people are willing to
have many durable consumer goods like TV. fridge, washing machines etc. even when they cannot
afford them because of their availability on hire-purchase or installment basis.
Culture influences every aspect of marketing. Marketing decisions are based on recognition of
needs and wants of the customer, a function of customer perceptions. These help in understanding
of lifestyles and behavior patterns as they have grown in the society’s culture in which the
individual has been groomed. Thus a person’s perspective is generated, groomed and conditioned
by culture.

Marketing activities do not take place in a vacuum, isolated from all external forces. In fact all
marketing operations are conducted in a highly complex, dynamic and changing environment.
According to Philip Kotler, “A company’s marketing environment consists of the factors and
forces outside marketing that affect management’s ability to build and maintain successful
relationships with target customers”.

Environment analysis

The marketing environment offers both opportunities and threats. Successful companies know the
vital importance of constantly watching and adapting to the changing environment. A company’s
marketers take the major responsibility for identifying significant changes in the environment.
More than any other groups in the company, marketers must be the trend 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 collection of information about the marketing environment.
They also spend time in the customer and competitor environment. By conducting systematic
environmental scanning, marketers are able to revise and adapt marketing strategies to meet new
challenges and opportunities in the market place.
Marketing as a function is basically all about matching the offerings of the organization to the
outside world, in particular, the market-place. Not surprisingly, many functions within marketing,
such as selling, product development and market research, concern themselves with issues,
problems and opportunities outside the organization, and focus on responding to outside events
and circumstances. Kotler identifies in this external role the need for marketers to develop an
‘outside- in’ perspective, an ability to work on external cues and stimuli to the profit of the whole
organization.
Environment scanning is a constant, important activity of successful companies. This process
includes gathering, filtering and analyzing information related to the marketing environment. It
also includes monitoring the changes taking place in the environment and forecasting future status
of each factor.
Such analysis helps to spot opportunities and threats in the environment, and pinpoints the ones
that are specifically relevant to the company. The company’s marketing people have the
responsibility for scanning and identifying significant changes or trends in the marketing
environment.
As we know that marketing research and marketing intelligence system are the methods used by
companies for environment scanning and gathering vital information about changes. Customers’
behavior and competitors’ activities are also important factors to be watched in the environment.
Successful companies know the vital importance of constantly scanning and adapting to the
changing environment. The environment continues to change at a rapid pace.

Importance of Environment Analysis:

The following are the benefits of environment analysis:

1. It helps in marketing analysis.

2. It can assess the impact of opportunities and threats on the business.

3. It facilitates the company to increase general awareness of environmental changes.

4. It is possible to develop effective marketing strategies on the basis of analysis.

5. It helps to capitalize the opportunities rather than losing out to competitors.

6. It facilitates to understand the elements of the environment.

7. It helps to develop best strategies, in the light of analyzing “what is going around the company”.

Need for Environment analysis:

Environmental analysis attempts to give an extensive insight as to the current market conditions
as well as of impact of external factors that are uncontrollable by the marketers. These variables
play an important role in convincing potential customers regarding changes in market trends,
market conditions etc.
Facilitating the corporation’s strategic response to the changes taking place in environmental
factors is the ultimate purpose of environment analysis. The firm has to come up with alternative
programmers and strategies in line with environmental realities. This is possible only with proper
environment analysis.
It helps strategic response by highlighting opportunities, the pursuit of which will help the firm to
attain its objectives. It helps to assess the attractiveness and probability position of these
opportunities, and helps to prepare a shortlist of those which are relevant to the firm and which
can be pursued by it

Techniques used in environment analysis

1. SWOT Analysis

It is a technique of environment analysis which evaluates organisation’s strengths and weaknesses,

environmental opportunities and threats and helps to formulate strategies and achieve objectives
by:
1. Exploiting organizational strengths,

2. Exploiting environmental opportunities,

3. Minimizing and correcting the weaknesses

4. Minimizing environmental threats.

SWOT analysis compares organization’s strengths and weaknesses (company profile) with
external threats and opportunities (environmental analysis). “A company profile depicts the
quantity and quality of a company’s principal resources and skills. It seeks to determine the firm’s
performance capabilities on the basis of its existing and accessible resources and skills” and
“environmental analysis is the systematic assessment of information about the firm’s external
environment during the strategic planning process to identify strategic opportunities for the
company as well as major threats, problems, or other possible impediments.”

2. ETOP

ETOP means environmental threat and opportunity profile. It is a technique of environment

analysis where organizations make a profile of their external environment. It analyses information
about environmental threats and opportunities and their impact on strategic planning process.
It helps to identify strategic opportunities for the company. Environmental opportunities indicate
new lines of business and threats restrain them from entering into new business lines. A firm that
wants to manufacture shoes, for example, will prepare an ETOP to analyze demand for shoes in
the market, purchasing power of consumers, gender composition of market (male-female ratio),
government regulations, technology used etc. On analyzing the environment, if it finds there is
demand for shoes, it will venture into this business.

3. Management Information System (MIS):

MIS is “a formal method of making available to management the accurate and timely information
necessary to facilitate the decision-•making process and enable the organization’s planning,
control and operational functions to be carried out effectively.”
MIS provides timely, accurate, concise, complete and relevant information based on computer
technology about present and future environmental changes. It facilitates decision-making process
and helps in making decisions based on future environment
 4. PESTLE
PESTLE analysis consists of various factors that affect the business
environment. Each letter in the acronym signifies a set of factors. These factors
can affect every industry directly or indirectly
The letters in PESTLE, also called PESTEL, denote the following things:

 Political factors
 Economic factors
 Social factors
 Technological factors
 Legal factors
 Environmental factor