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Chapter Two
The Marketing Environment
Marketers need to be good at building relationships with customers, others in the
company, and external partners. To do this effectively, they must understand the major
environmental forces that surround all of these relationships. A company’s Marketing
Environmental consists of the actors and forces outside marketing that affect marketing
management’s ability to build and maintain successful relationships with target
customers. Successful companies know the vital importance of constantly watching
and adapting to the changing environment.

As we move into the twenty-first century, both consumers and marketers wonder what
the future will bring. The environment continues to change rapidly. More than any
other in the company, marketers must be the trend trackers and opportunity seekers.
All though 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 collecting information about the marketing
environment. They also spend more time in the customer and competitor
environments. By carefully studying the environment, marketers adapt their strategies
to meet new market place challenges and opportunities.

The marketing environment is made up of a microenvironment and a macro

environment. The microenvironment consists of the actors close to the company that
affect its ability to service its customers- the Company, suppliers, marketing
intermediaries, customer markets, competitors and publics. The macro environment
consists of the larger societal forces that affect the microenvironment- demographic,
economic, natural, technological, political, and cultural forces.

2.1. The Company’s Microenvironment

Marketing Managements job is to build relationship with customers by creating

customer value and satisfaction. However, marketing managers cannot do this alone.
Marketing success will require building relationships with other parties, which
combine to make up the company’s value delivery network.

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The Company
In designing marketing plans, marketing management takes other company group into
account- groups such as top management, finance, research and development / R and
D/ , purchasing, operation, and accounting. All these inter related groups form the
internal environment. Top management sets the company’s mission, objectives,
broader strategies and policies. Marketing managers make decision within the
strategies and plans made by top management.

Marketing managers must also work closely with the other company departments.
Finance is concerned with finding and using funds to carry out the marketing plans.
The R and D department focuses on designing safe and attractive products, whereas
operations is responsible for producing and distributing the desired quality and
quantity of products. Accounting has to measure revenues and costs to help marketing
know how it is achieving its objectives. Together, all of these departments have an
impact on the marketing department’s plans and actions. Under the marketing concept
all of these must “think customers’’. They should work in harmony to provide superior
customer value and satisfaction.

Suppliers
Suppliers form an important link in the company’s overall customer value delivery
system. They provide the resources needed by the company to produce its goods and
services. Supplier problems can seriously affect marketing. Marketing managers must
watch supply availability- supply shortages and delays, labor strikes, and other events
can cost sales in the short-run and damage customer satisfaction in the long run.
Marketing managers also damage customer satisfaction in the long run. Marketing
managers also monitor the price tends of their key inputs. Rising supply costs may
force price increases that can harm the company’s sales volume. Most marketers today
treat their suppliers as partners in creating and delivering customer value.

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Marketing Intermediaries
Marketing intermediaries help the company to promote, sell and distribute its goods to
final buyers. They include resellers, physical distribution firms, marketing service
agencies, and financial intermediaries.

Resellers - are distribution channel firms that help the company fined customers or
make sales to them. These include wholesalers and retailers who buy and sell
merchandise. Selecting and partnering with resellers is not easy. No longer do
manufacturers have many small, independent resellers from which to choose.

Physical Distribution firms - help the company to stock and move goods from their
points of origin to their distribution. Working with warehouse and transportation
firms, a company must determine the best ways to store and ships goods, balancing
factors such as cost, delivering, speed and safety.

Marketing Service Agencies - are the marketing research firms, advertising agencies,
media firms, and marketing consulting firms that help the company target and
promoter its products to the customer. When the company decides to use one of these
agencies, it must choose carefully because these firms vary in creativity, quality,
service, and price.

Financial intermediaries - Include banks credit companies, insurance companies and

other businesses that help finance transactions or insure against the risks associated
with the buying and selling of goods. Most firms and customers depend on financial
intermediaries to finance their transactions. Like suppliers marketing intermediaries
form an important component of the company’s overall value delivery system. In its
guest to create satisfying customer relationships, the company must do more than just
optimize its own performance. It must partner effectively with marketing
intermediaries to optimize the performance of the entire system.

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Customer
The company needs to study five types of customer markets closely

- Consumer Markets - consist of individuals and households that buy goods and
services for personal consumption.
- Business markets - buy goods and services for further processing or for use in
their production process.
- Reseller markets- buy goods and services to resell at profit
- Government market- are made up of government agencies that buy goods and
services to produce public service or transfer the goods and services to others
who needs them.
- International markets--- consists of these 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
The marketing concept states that to be successful, a company must provide greater
customer value and satisfaction than its competitors to. Thus, marketers must do
more than simply adapt to the needs of target consumers. They also must gain
strategic advantage by positioning their offerings strongly against competitors’
offerings in the minds of consumers.

No single competitive marketing strategy is best for all companies. Each firm should
consider its own size and industry position compared with those of its competitors.
Large firms with dominant positions in an industry can use certain strategies that
smaller firms cannot afford. But being a 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 rates of return than large firms enjoy.

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Public
The companies marketing environment also including various publics. A public is
any group that has an actual or potential interest in or impact on an organization’s
ability to achieve its objectives. We can identify seven types of publics.

- Financial publics- influence the company’s to obtain funds. Banks, investment

houses, and stockholders are the major financial publics.
- Media publics-carry news, features, and editorial opinion. They include
newspapers, magazines, and radio and television stations.
- Government Publics-management must take government developments into
account. Marketers must consult the company’s lawyers on issues of product
safety, truth in adverting, and other matters.
- Citizen action publics-a company’s marketing decisions may be questioned by
consumer organizations, environmental groups, minority groups, and others.
Its public relations department can help it stay in touch with consumer and
citizen groups.
- Local Publics-include neighborhood residents and community organizations.
Large companies usually appoint a community relations officer to deal with
community, attend meetings, answer questions, and contribute to worthwhile
causes.
- General public-A company needs to be concerned about the general public’s
attitude towards its products and activities. The publics image of the company
affects its buying.
- Internal Publics- include workers, managers, volunteers, and the board of
directors. Large companies use newsletters and other of directors. Large
companies use newsletters and other means to inform and motivate their
internal publics. When employees feel good about their company, this positive
attitude spills over the external publics.

A company can prepare marketing plans for these major publics as well as its
customers markets. Suppose the company wants a specific response from a
particular public, such as goodwill, favorable word of mouth, or donations of time

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or money. The company would have to design an offer to this public what is
attractive enough to produce the desired response.

2.2 THE COMPANY’S MACRO ENVIRONMENT

The company and all of the other actors operate in a larger macro environment of
forces that shape opportunities and pose threats to company. The figure below
shows the six major forces in the company’s macro- environment. In the remaining
sections of this unit, we examine these forces and show how they affect marketing
plans.

Natural Forces Technological

Economic Forces Forces

Political Forces

Demographic
Forces Cultural Forces

Company

Major Forces in the company’s macro-environment

Demographic Environment

Demographic tell marketers who current and potential customers are; where they are;
and how many are likely to buy what the marketer is selling. Demography is the study
of human population in terms of size, density, location, age, gender, race, occupation
and other statistics. The demographics environment is of major interest to marketers
because it involves, people, and people make up markets. The world population is
growing at an explosive rate. It now totals more than 6.1 billion by the year 2030.

Changes in the world demographic environment have major implications for business.
For example, consider China. Twenty-five years ago, to curb its skyrocketing

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population, the Chinese government passed regulations limiting families to one child
each. As a result, Chinese children known as “ little emperors and empresses” – are
being showered with attention and luxuries under what’s known as “ six-pocket
syndrome” As many as six adults two parents and four doting grandparents- may be
including the whims of each child. Parents in the average Beijing household now
spend about 40 percent of their income on their cherished only childe. Among other
things, this trend has created huge market opportunities for children’s educational
products.

The world’s large and highly diverse population poses both opportunities and
challengers. Thus, marketers keep close track of demographic trends and developments
in their markets, both at home and abroad. As a result marketers basically focus on the
following demographic issues.

- Changing age and family structures

- Geographic population shifts
- Educational Characteristics, and
- Population diversity

Economic Environment
Marketers require buying power as well as people. The Economic Environment consists
of factors that affect consumer purchasing power and spending patterns. Nations vary
greatly in their levels and distribution of income. Some countries have subsistence
economies- they consume most of their own agricultural and industrial output. These
countries offer few market opportunities. The other extreme are industrial economies-
Which constitute rich markets for many different kinds of goods. Marketers must pay
close attention to major trends and consumer spending patterns both across and with in
their world markets. Following are some of the major economic trends:

Changes in Income: GDP, Per Capita Income, Disposable Income and so on are
economic variables that may describe a nation’s aggregate favorable or unfavorable
nature of the economy. Individual’s purchasing power is relied on such general truths.
These economic variables are taken as misleading figures for there might be a large

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amount of money shifting towards one group, rich people. So, it is advisable to refer to
market segment’s income rather than nation wide margin of earning.

Growth and Recession: These two economic variables affect the marketing
environment differently. An increase in the capacity of an economy to produce goods
and services, Compared from one period of time to another. Economic growth attracts
many companies even from highly developed countries. China can be a role model;
growth at 9% is a blistering phenomenon which attracts large number of multinational
companies. Recession is a significant decline in activity spread across the economy,
lasting longer than a few months. It is visible in industrial production, Employment,
real income and wholesale-retail trade. The technical indicator of recession is two
consecutive quarters of negative economic growth as measured by a country’s gross
domestic products (GDP).

Changing consumer spending patterns: Consumers at different income levels have

different spending patterns. Ernest Engel, who studied how people shifted their
spending as their incomer rose, noted some of these differences over a century ago. He
found that as family income rises, the percentage spent on food declines, the percentage
spent on housing remains about constant ( except for such utilities as gas, electricity,
and public services, which decrease), and both the percentage spent on most other
categories and that devoted to savings increase.

Changes in major economic variables such as income, cost of living, interest rates,
savings and borrowing patterns have a large impact on the market place. Companies
watch these variables by using economic forecasting. Businesses do not have to be
wiped out by an economic downturn or caught short in boom. With adequate warning,
they can take advantage of changes in the economic environment.

Natural Environment

The natural environment involves the natural resources that are need as inputs by
marketers or that are affected by marketing activities. In many cities around the world,
air and water pollution have reached dangerous levels. World concern continues to

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amount about the possibilities of global warming, and may environmentalists fear that
we soon will be buried on our own trash.

Marketers should be aware of several trends in the natural environment.

The first involves growing shortages of raw materials. Air and water may seem to be
infinite resources, but some groups see long-run dangers. Air pollution chokes many
of the world’s large cities and water shortages are already a big problem in some parts
of the world. Renewable resources, such as oil, coal, and various minerals, pose a
serious problem. Firms making products that require these scarce resources face large
cost increases, even if the materials do remain available.

A second environmental trend is increased pollution. Industry will almost always

damage the quality of the natural environment. Consider the disposal of chemical and
nuclear wastes, the dangerous mercury levels in the ocean, the quantity of chemical
pollutants in the soil and food supply; and the littering of the environment with non-
biodegradable bottles, Plastics, and other packaging materials.

A third trend is increased government intervention in natural resource

management. The governments of different countries vary in their concern and efforts
to promote a clean environment. Some like the German government vigorously pursue
environmental quality. Others, especially many poorer nations, do little about
pollution, largely because they lack the needed funds or political will. Even the richer
nations lack the vast funds and political harmony needs to mount a worldwide
environmental effort. The general hope is that companies around the world will accept
more social responsibility and that less expensive devices can be found to control and
reduce pollution.

Concern for the natural environment has spawned the so-called green movement.
Today, enlightened companies go beyond what government regulations dictate. They
are developing environmentally sustainable strategies and practices in an effort to
create a world economy that the planet can support indefinitely. They are responding
to consumer demands with ecologically safer products, recyclable or biodegradable

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packaging, better pollution control, and more energy-efficient operations. Some

organizations run a pollution prevention pays program that has led to a substantial
reduction in pollution and costs. Others use a special software package to choose the
least harmful materials, cut hazardous waste, reduce energy use, and improve product
recycling in its operations. Still others eliminated polystyrene cartons and now use
smaller, recyclable paper wrappings and napkins.

Technological Environment

The technological environment is perhaps the most dramatic forces now shaping our
destiny. Technology has released such wonders as antibiotics, organ transplants, laptop
computers and the Internet. It also has released such horrors as nuclear missiles,
chemical weapons and assault rifles. It has released such mixed blessings as the
automobile, television and credit cards. Our attitude towards technology depends on
weather we are more impressed with its wonders or its blunders.

The technological environment changers rapidly. Think of all of today’s common

products that were not available 100 years ago, or even 30 years ago. Abraham
Lincoln didn’t know about automobiles, airplanes, radios, or the electric light.
Woodrow Wilson didn’t know about television, aerosol cans, automatic dishwashers,
room air conditioners, antibiotics, or computers. Fraanklin Delano Roosevelt didn’t
know about Xerography, synthetic detergents, tape recorders birth control pills, or
earth satellites. John F. Kennedy didn’t know about personal computers, compact disk
players, DVD players or the internet

New technologies create new markets and opportunities. However, every new
technology replaces an older technology. Transistors hurt the vacuum-tube industry,
Xerography hurt the carbon paper business, the auto hurt the railroads and compact
disks hurt phonograph records. When old industries fought or ignored new
technologies, their business declined. Thus, marketers should watch the technological
environment closely. Companies that don’t keep up with technological environment
closely. Companies that don’t keep up with technological change soon will find their
products outdated. They will miss new product and market opportunities.

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The marketer should monitor the following trends in technology: the pace of change,
the opportunities for innovation, and increased regulation.

Accelerating Pace of the Technological Change: many of today’s common products

were not available 40 years ago. For example, personal computers, digital
wristwatches, radio recorders or fax machines were not available some decades ago.
More ideas are being worked on; the time lag between new ideas and their successful
implementation is decreasing rapidly; and the timer between introduction and peak
production is shortening considerably. Ninety percent of all the scientists who ever
lived are alive today, and technology feeds upon itself.

The advent of personal computers and fax machines has made it possible for people to
telecommute- that is, work at home instead of traveling to offices that may be 30 or
more minutes away. Some hope that this trend will reduce auto pollution, bring the
family closer together, and create more home- centered entertainment and activity. It
will also have substantial impact on shopping behavior and marketing performance.

Unlimited Opportunities for Innovation: Scientist today are working on a starting

range of new technologies that will revolutionize products and production processes.
Some of the most exciting work is being done in biotechnology, solid-state electronics,
robotics and materials sciences, Researchers are working on AIDS cures, happiness
pills, painkillers, totally safe contraceptives and nonfattening foods. They are designing
robots for firefighting, underwater exploration and home nursing. In addition,
scientists also work on fantasy products, such as small flying cars, three- dimensional
television, and space colonies. The Challenge in each case is not only technical but also
commercial-to develop affordable versions of these products.

Increased Regulation of Technological Change: as products become more complex,

the public needs to know that these are safe. Consequently, government agencies
powers to investigate and ban potentially unsafe products have been expanded. Safety
and health regulations have also increased in the areas of food, automobiles, clothing,
electrical appliances and construction marketers must be aware of these regulations
when proposing, developing, and launching new products.

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Political Environment

Marketing decisions are strongly affected by developments in the political and legal
environment. This environment is composed of laws, government agencies, and
pressure groups that influence and limit various organizations and individuals.

Legislation regulating business: business legislation has three main purposes; to protect
companies form unfair competition, to protect consumers form unfair business
practices and to protect the interest of society form unbridled business behavior. A
major purpose of business legislation and enforcement is to charge businesses with the
social costs created by their products or production processes. Legislation affecting
businesses has steadily increased over the years. Several countries have been active in
establishing a new framework of laws covering competitive behavior, product
standards, product reliability and commercial transactions. And other countries are
passing laws to promote and regulate an open market economy.

Marketers must have a good working knowledge of the major laws protecting
competition, consumers, and society. Companies generally establish legal review
procedures and promulgate ethical standards to guide their marketing managers. As
more and more business takes place in cyberspace, marketers must establish new
parameters for dong business ethically.

Growth of Special Interest Groups: the number and power of special interest groups
have increased over the past three decades. Political action committees lobby
government officials and pressure business executives to pay more attention to
consumer rights, women’s rights, senior citizen rights, and minority rights. Many
companies have established public affairs departments to deal with these groups and
issues. An important force affecting business is the consumerist movement- an
organized movement of citizens and government to strengthen the rights and powers of
buyers in relation to sellers.
Clearly, new laws and growing numbers of pressure groups have put more restraints
on marketers. Marketers have to clear their plans with the company’s legal, public
relations, public affairs and consumer- affairs departments.

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Cultural Environment

The cultural environment is made up of institutions and other forces that affect a
society’s basic values, perceptions, preferences, and behaviors. People grow up in a
particular society that shapes their basic beliefs and values. They absorb a worldview
that defines their relationships with others. The following cultural characteristics can
affect marketing decision making.

Persistence of cultural Values

People in a given society hold many beliefs and values. Their core beliefs and values
have a high degree of persistence. These beliefs shape more specific attitudes and
behaviors found in everyday life. Core beliefs and values are passed on from parents to
children and are reinforced by schools, churches, business, and government.

Secondary beliefs and values are more open to change. Believing in marriage is a core
belief; believing that people should et married early in life is secondary belief.
Marketers have some chance of changing secondary values but little chance of
changing core values. For example, family- planning marketers could argue more
effectively that people should get married later than that they should not get married at
all.

Although core values are fairly persistent, cultural swing do take place. Consider the
impact of popular music groups, movie personalities, and other celebrities on young
people’s hair styling and clothing norms. Marketers want to predict cultural shifts in
order to spot new opportunities or threats.

The major cultural values of a society are expressed in people’s views of themselves and
others as well as in their views of organizations, society, and nature.

 Views of themselves: People vary in the relative emphasis they place on self
gratification. Earlier “pleasure seekers” Sought fun, change and escape. Others
sought “self-realization”. People bought products, brands and services as a means
of self-expression. They bought dream cars, dream vacations and spent more time
in health activities, in introspection, and in arts and crafts. Today, in contrast

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people are adapting more conservative behaviors and ambitions. They have
witnessed harder times and cannot rely on continuous employment and rising real
income. They are more cautious in their spending pattern and more value-driven
in their purchases.

 Views of others: some observers have pointed to countermovement from a “me

society” to “we society”. People are concerned about the homeless; crime and
victims, and other social problems. They would like to live in a more human
society. At the same time problems. They would like to live in amore human
society. At the same time people are seeking out there “own kind” and avoiding
strangers. People hunger for serious and long-lasting relationships with a few
others. These trends portend a growing market for social support products and
services that promote direct relationships between human beings, such as health
clubs, cruises, and religious activity. They also suggest a growing market for “
social surrogates “ things that allow who are alone to feel that they are not such as
television, home video games, and chat rooms on the Internet.
 Views of Organizations: People vary in their attitudes toward corporations,
government agencies, trade unions and other organizations. Most people are
willing to work for these organizations, although they may be critical of particular
ones. But there has been an overall decline in organizational loyalty. The massive
wave of company downsizing has bred cynicism and distrust. Many people today
see work not as a source of satisfaction but as required chore to earn money to
enjoy their non-work hours.

This outlook has several marketing implications. Companies need to find new ways
to win back consumer and employee confidence. They need to make sure that they
are good corporate citizens and that their consumer messages are honest. More
companies are turning to social audits and public relations to improve their image
with publics.

 Views of Society: People vary in their attitudes toward their society. Some
defend it (preservers), some run it (makers), some take what they can from it
(takers), and some want to leave it (escapers). Often consumption patterns

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reflect changers usually live more frugally, driving smaller cars and wearing
simpler clothes. Escapers and seekers are a major market for movies, music,
surfing and camping.

 Views of Nature: people vary in their attitude toward nature. Some feel
subjugated by it, others feel harmony with it and still others seek mastery over
it. A long-term trend has been humankind’s growing mastery of nature
through technology. More recently, however, people have awakened to
nature’s fragility and finite resources. They recognize that nature can be
destroyed by human activities.

Love of nature is leading to more camping, hiking, boating and fishing. Business has
responded with hiking boots, tenting equipments, and other gear. Tour operators are
packing more tours to wilderness areas. Marketing communicators are using more
scenic backgrounds in advertising. Food producers have found growing markets for
“natural” products, such as, natural cereal, natural ice-cream, and health foods.

2.2. Responding to the Marketing Environment

Someone once observed “there are three kinds of companies: those who make things
happen, those who watch things happen, and those who wonder what has happened.”
Many companies view the marketing environment as an uncontrollable element to
which they must react and adapt. They passively accept the marketing environment
and do not try to change it. They passively accept the marketing environment and do
not try to change it. They analyze the environmental forces and design strategies that
will help the company avoid the threats and take advantage of the opportunities the
environment provides.

Other companies take a proactive stance toward the marketing environment. Rather
than simply watching and reacting, these firms tale aggressive actions to affect the
publics and forces in their marketing environment. Such companies hire lobbyists to
influence legislation affecting their industries and stage media events to gain favorable
press coverage. They run advertorials (ads expressing editorial points of view) to shape
public opinion. They press law suits and file complaints with regulators to keep

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competitors in line, and they form contractual agreements to better control their
distribution channels. Marketing management cannot always control environmental
forces. In many cases, it must settle for simply watching and reacting to the
environment. For example would have little success trying to influence geographic
population shifts, the economic environment or major cultural values. But whenever
possible, smart marketing mangers will take a proactive rather than reactive approach
to the marketing environment.

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