Concept Of Marketing Environment Commerce Essay

This module gives an introduction to Business environment in which the firm operates. It includes understanding different environments like the Macro environment, micro environment and internal environment. Thorough understandings of these concepts are important for understanding the opportunities, threats, finding weaknesses of the organization as well as its strengths. This knowledge helps the firms to fore plan and makes effective decisions.

Introduction to Marketing Strategy

Introduction

This lesson introduces the role and importance of Marketing Strategy to an organization. When you have finished this lesson you should be able to:

Explain the concept of marketing environment

Identify the macro environmental factors that affect the organizational policies.

Identify the micro environmental factors that affect the organizational policies.

Identify the internal environmental factors.

Explain SWOT analysis

Concept of Marketing Environment

The market environment refers to the environment that the business operates in, which includes factors and forces that affect the firm’s policies and strategies.

There are two levels of market environment.

Internal and external environment, the external environment can be further divided into Macro and Micro environment.

(For reference only)

External Environment: The external environment consists of macro and micro environments.

Macro environment: The macro environment consists of much larger and broader influences (which impact the micro environment), such as :

Demographic environment

Economic environment

Natural environment

Technological environment

Culture

political environment

Micro Environment: The micro environment is made of individuals and organizations associated with the company and would directly impact the decisions of the company. It consists of :

Company itself

Suppliers

Marketing Intermediaries

customers

Competition

Public

Internal Environment: Internal environment consists of elements within the organization such as:

Employees

Management

Company policies

Organizational culture

Organizational structure

Company image

Experience and expertise

Operational efficiency

Operational capacity

Brand awareness

Market share

Financial capacity

Patents and trade secrets

Exclusive contracts

For an organization to analyse the overall environment in which it operates, environmental scanning becomes necessary.

Environmental scanning is a process of monitoring, evaluating, and transmitting of information from the external and internal environment to concerned people within the organization. (Kazmi, 2008).Environmental scanning would help gather, analyse, and transmit information for strategic purposes.

Environmental scanning is carried out by organizations to find out its competencies, weaknesses as well as the opportunities and threats existing in the environment, which is termed as the SWOT Analysis

SWOT Analysis: The analysis of the environment in which business operates is referred to as a SWOT analysis. The SWOT analysis aids to find information helpful in matching the firm’s competencies to the competitive environments. It has a major role in strategy formulation.

Internal environmental scanning of the firm helps the firm find its:

Strengths (S)

Weaknesses (W)

External environment scanning can help firms find:

Opportunities (O)

Threats (T)

Environmental scanning is important for every organization due to the following reasons:

The environment in which a firm operates is dynamic in nature, scanning becomes necessary to keep track of the changes happening in it. An environmental scan reveals the elements that constitute threats and opportunities available to the firms. It also helps keep the firm informed about competitor’s activities so that appropriate strategies can be developed on that basis. It is an important tool which gives necessary resource for formulation of marketing strategies.

(for reference only)

As already discussed the external environment can be categorised into Macro and Micro environment.

Example: SWOT Analysis of Walmart

Strengths – Walmart has become the largest retailer in the US, and perhaps the world. It’s huge buying volumes and negotiating style keeps its cost low, which allows them to keep their prices low. People will travel a pretty long distance to shop there. It has invested heavily in software technology to keep tight controls on its operations.

Weaknesses – Small local businesses often can’t compete with Walmart, and go out of business, which often alienates the small local business community. Walmart has been sued for unfair labor practices as well. These and other issues tarnish Walmart’s image, especially for those who are directly impacted.

Opportunities – Growing markets outside the US offers a great opportunity to continue its growth.

Threats – Being number one in its market, some of Walmart’s proven strategies are being imitated, to various degrees, by other large retailers. This will likely make the market for the “big box” retailers more competitive over time.

Macro environmental Analysis

Macro environmental analysis scans the macro factors that influence the organization. The macro environmental analysis is also termed as Pest analysis

PESTLE Analysis: PEST stands for Political, Economic, Social-cultural, Technological, Legal & Environmental analysis. It is composes of the macro-environmental factors used in the environmental scanning for developing strategic management. It is a critical strategic technique used for understanding market growth or decline, business position, potential and direction for the organizations operations.

Composition of the macro environment is as follows:

(for reference only)

There is certain additional factor other than PESTLE, which are included in the macro environment such as demographic environment.

Demographic Environment: Demographic environment consists of the following elements which has a huge impact on the organizations operations:

Population growth worldwide: The huge population growth that is seen over the few decades has been an area of concern; the population growth has led to exhaustion of scarce world resources such as fuel, food and natural resources. The other reason for concern is that the population growth is seen generally in those countries which are the lesser developed countries or as called the low income countries who cannot afford to support this kind of population growth.

High population growth can have significant implications on the business. Population growth is beneficial for businesses only where this kind of growth is backed with the purchasing power.

For example: India and China – Both these countries have high population growth and are the countries having the highest population in the world. Whereas Chinese government has a strict one child policy, which has led to a decrease in their population, in India no such policy exists. The “one child policy” in china has led to one child in a family, which has led to excessive pampering of these children by their family members. Here we can see that even with a high population the purchasing power is high. As the children in china are pampered with toys and other children’s products, the toy stores and other kids related products manufactures find a lot of potential in entering the Chinese market to capitalise on the existing opportunity.

Whereas in India the increase in population has not seen an increase in the overall purchasing power of the economy, hence the potential for such type of goods is less.

Population Age groups – Different countries have different composition of age groups. Population age groups can be sub-divided into

Pre-school

School going children

Teenagers

Young adults – 25 to 40

Middle aged – 40 to 65

Elderly – 65 and above

The composition of age group of the society determines the kind of products that would dominate the production and market. For example a country has an aging population would have demand for products that would be required for middle aged and elderly population, where as a country with a young population will have potential for children products and products for youngsters.

Multi-culture market:

The business policies and strategies would be different for different cultural and ethnic groups existing in the society.

Education based groups

The different kinds of education groups that exist will again determine what kind of products would be demanded in the market.

Consumption patterns

Household and consumption patterns differ in different societies.

Migration and mobility of population

Migration of population from one region to another has led to a multi-cultural environment. Where in some countries you can see a mix of different nationals and in others you will find only natives. The business policies and strategies will vary accordingly.

All these factors have led to a fragmentation of the market. Businesses have now started to concentrate on smaller markets than mass markets on the basis of these differentiations in population.

Economic environment

Economic factors would be economic growth, interest rates, exchange rates, distribution of wealth and income and inflation rate. These factors have major impacts on how businesses operate and make decisions.

Distribution of wealth and income: The distribution of wealth in the society also determines the consumption pattern of that society. Countries where there is equal distribution of income the consumption level and standard of living of people will be higher. Countries where distribution of income is unequal, the standard of living will be low. The type of products demanded in these societies would also differ. Where the standard of living is high, more of luxury and comfort goods will be demanded.

Financial policies: Financial policies also have a huge impact on the consumption pattern of the consumers. Availability of good credit facilities and a well set up credit system leads to a higher consumption level.

Natural environment

The natural resources which are scarce in nature, needs to be conserved, industries have to be careful how these resources are used. New substitutes for these scarce resources need to be found so that they are sustained.

There has been an increase in fuel costs and energy which is used for production. The firm has to keep a close watch on how the energy prices would have effect on its profits.

Another cause of concern is the pollution that industrial activities have brought about. The global warming that has become a major global concern. Companies who take this as an opportunity by opting in for pollution control programs such as recycling would be ones who benefit.

There are also several governmental regulations on environmental control which needs to be adhered to by every organization. Organizations need to support the governmental effort rather than opposing it.

Technological environment

Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine entry barriers, minimum efficient production level and influence outsourcing decisions.

Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Technological advancement has brought about products into the market which was never dreamt of a few decades back.

Increased budgets for R&D have led to increased scope for innovations in the market. Another major issues faced by organizations today are Health and safety issues; there are several regulations in regards to health and safety which organizations needs to adhere to. These entire factors have substantial influence in the strategies and policies of organizations.

Political environment

Political environment would consist of the government of the economy, that is how and to the extent of government intervention exists in the economy. It includes factors such as tax policy, labour law, environmental law, trade restrictions, tariffs, and political stability.

Bargaining power of special interest group: These are groups of people who have interest in the activities of the firm, such as consumer rights, women’s rights, senior citizen’s rights, minority rights etc.

Example of Nestle

Nestles business policies in the less developed countries have been criticised widely throughout the world, especially in the United Kingdom and other countries in Europe, there is an ongoing boycott on Nestle Products.

Though Nestle products are available in the market for sale, it’s sales volume and market share is well below expectations. Specifically its Baby products like Baby milk range, Baby food supplements and other products for babies are least demanded. The boycott of Nestle products has led to an increase in the market share of its competitors, namely Cow & Gate,

Socio-cultural environment

Social-cultural factors include the cultural aspects, career attitudes and emphasis on safety etc. Changes in the social set up and culture have significant influence on the demand for products and services and how an organization operates.

Cultural values

Sub cultures

Shifts in cultures

Micro Environmental Analysis

The micro environment consists of factors that are close to the organization and has a direct effect on its operations.

Company itself: This would include the internal environment of the organization. (We will cover this part in the next topic)

Supplier: The suppliers of the organization are the agencies and organization who supply resources for production purposes. The supply of raw materials, labour, electricity, equipment, fuel etc. would be done by these organizations. Developing a good supply environment is very important for an organization. Having the availability of resources as required keeps the production going. For this purpose, there have been significant efforts in the recent years to develop a sophisticated supply chain by organizations. The policies of organizations and their suppliers are getting integrated more and more. Organizations now, try to develop a backward integration with their suppliers. This ensures that the supply of materials and function of the organizations go smoothly.

Marketing Intermediaries: They are the organizations that support the firm in selling, distributing and promoting the products and services to customers. Intermediaries help create place utility for the products. All the intermediaries associated with the firm would be collectively called channels of distribution. Channels of distribution can be of various levels and can include a number of intermediaries like distributors, agents, dealers, retailers. Designing and managing marketing channels is not an easy task, it requires a lot of effort from the organizations path. The organization has to know how to manage and keep all the intermediaries satisfied for the smooth functioning of the channels.

Customers: Customers are the most integral aspect of the external environment. Most of the organizations activities and functions are directed towards satisfying the customer’s needs and requirements.

There can be following type of consumers in the market:

Consumer markets -would be individuals and households

Industrial markets – industries who purchase products for production purposes

Resellers market – organizations that buy goods and services in order to resell them at a certain profit

Government and non-profit markets – buy goods and services for producing public services

International markets – includes foreign buyers, producers, resellers etc.

Competitors: Competitors are those organizations that produce similar products as yours and compete with you for the market share. The competitors have to be identified, monitored and competed with to maintain your market share.

The competitors strategies and policies have significant impact on the organizations own strategies and policies, hence a close monitoring of the competitors policies and activities are eminent.

Public: Would be a group of people who have an interest in the operations of the organization and also would have an impact on the organizations decisions and policies.

Every organization has to face certain publics:

Financial institutions

Media

Government

Action groups

General public

Internal public

(for reference only)

Internal Environment

Internal environmental scanning is the process of assessing the organizations strengths and weaknesses. It is through this process that organizations competencies and competitive advantages can be identified.

Every organization will have some areas where it will be strong and other where it would be weak. It is the first step towards locating and developing its core competencies so as to survive in the business.

The elements under internal environment are:

Employees

Management

Company policies

Organizational culture

Organizational structure

Company image

Experience and expertise

Operational efficiency

Operational capacity

Brand awareness

Market share

Financial capacity

Patents and trade secrets

Exclusive contracts

(Source: http://www.netmba.com/strategy/swot/)

Through internal scanning, organizations try to size up its competitive strengths.

Strengths of the firm can be as follows:

Patents

Brands names

Good reputation

Cost advantages

Access to resources

Established distribution networks

The Weaknesses of the firm can be as follows:

Weak brand names

Lower quality of product

High cost structure

An internal environmental scan involves looking at the present capabilities of the organization (infrastructure, hardware, personnel, abilities, structure, etc) and that information can be compared to what the organization will need in the future to achieve its strategic goals.

Summary

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The market environment refers to the environment that the business operates in, which includes factors and forces that affect the firm’s policies and strategies.

There are two levels of market environment

Internal and external environment, the external environment can be further divided into Macro and Micro environment.

The analysis of the environment in which business operates is referred

to as a SWOT analysis. The SWOT analysis aids to find information helpful in matching the firm’s competencies to the competitive environments.

Macro environmental analysis scans the macro factors that influence the organization. The macro environmental analysis is also termed as Pest analysis. The factors under macro environment are:

Demographic environment

Economic environment

Natural environment

Technological environment

Culture

political environment

The micro environment consists of factors that are close to the organization and has a direct effect on its operations.

The factors under micro environment are:

Company itself

Suppliers

Marketing Intermediaries

customers

Competition

Internal scanning is the process of assessing the organization’s strengths and weaknesses. It is through this process that organizations competencies and competitive advantages can be identified.

The elements under internal environment can be:

Employees

Management

Company policies

Organizational culture

Organizational structure

Company image

Experience and expertise

Operational efficiency

Operational capacity

Brand awareness

Market share

Financial capacity

Patents and trade secrets

Exclusive contracts

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