Introduction to Marketing (MC4050) Lecture Week 4 The Marketing Environment

Learning Outcomes Define the broad categories of factors that affect the marketing environment Explain the distinction between the microenvironment and the macro environment Understand the influences at work within each of these categories and their importance to marketing decisions Explain how companies respond to environmental change

The marketing environment

The Marketing Environment A Definition The actors and forces outside marketing that affects management’s ability to develop and maintain successful transactions with its target customers Successful companies know the vital importance of constantly watching and adapting to changing environment

Marketing environment Environment continues to change rapidly. More than any other group in the company, marketers must be the trend trackers and the opportunity seekers. Marketing research and marketing intelligence to collect information about the marketing environment Spends more time in the customer and competitor environments By carefully studying the environment Marketers can adapt their strategies to meet new market place challenges and opportunities

Marketing environment-Micro Actors close to the company that affects its ability to serve its customers The company Suppliers Marketing intermediaries Customers markets Competitors and Publics All these actors combine to make up company’s value delivery network

Marketing environment- Macro Consists of the larger societal forces that affect the microenvironment Political/legal Economic Sociocultural Technological Environmental

The Macro-Environment (PESTEL) Political/Legal *The EU *National gov’t *Local gov’t *Regulatory bodies *Trade associations Economic *Market structures *Gov’t policy *Trading blocks *Taxation *Interest rates Sociocultural *Demographics *Culture *Attitudes *Current issues *Ethical issues Technological *Products *Materials *Distribution *Marketing/admin Environmental *Climate change *Sustainable sourcing *Product disposal *Natural resources

How to monitor changes in the external environment Environmental scanning – the process of monitoring and analysing the marketing environment of a company. Environment scanning is done by: The use of SWOT (Strengths, Weaknesses,Opportunities, Threats) analysis Anticipating change, spotting emerging opportunities Spotting potential problems early enough to remedy them before they cause damage Different organisations adopt different approaches and commit different resources to monitoring and evaluating changes in the environment.

Microenvironment- Company In designing marketing plans, marketing management takes other company groups into account Top management, finance, R&D, operations, accounting All these interrelated groups form the internal environment Top management sets the company’s mission, objectives, broad strategies, and policies Marketing managers make decisions within the strategies and plans made by top management Marketing manager must work closely with other company departments.

Microenvironment- Company The Company - key questions: Do all of the departments operate a culture that is focused on ‘think customer’? Do they all work together to provide superior customer value and satisfaction? Could they be structured better in order to achieve these objectives?

Microenvironment- Suppliers An examination of the firms and individuals that provide the resources needed by the company and its competitors to produce goods and services Suppliers are a vital link in the overall ‘value delivery system’ Must keep an eye on supply availability, supply shortages or delays, labour strikes. This will affect sales on short run and damage customer satisfaction in long run. Eg wall mart. It helps them to test new products in its stores. Its supplier development department publishes a supplier proposal guide and maintains a supplier website. This will help suppliers to navigate the complex wall mart buying process.

Microenvironment- Suppliers Marketing managers also monitor the price trend of their key inputs Rising supply cost may force price increases Can harm the company’s sales volume Treat suppliers as a partners in creating and delivering customer value E.g. Wall Mart. It helps them to test new products in its stores. Its supplier development department publishes a supplier proposal guide and maintains a supplier website. This will help suppliers to navigate the complex wall mart buying process.

Microenvironment: Intermediaries Organisations that help the company to promote, sell and distribute its goods and services to final buyers They include re-sellers, physical distributors, marketing-services agencies and financial intermediaries Must partner with marketing intermediaries to improve the performance of entire system.

Intermediaries- Resellers They are distribution channel firms that help the company find customers or make sales to them E.g. wholesalers, retailers Large and growing resellers compared to old days. Such as Wall Mart, Tesco. These kind of re-seller have high bargaining power with manufacturing firm.

Intermediaries: physical distribution firms Help the company to stock and move good from their point of origin to their destination. E.g. warehouse and transportation firms. Working together with them to balance the factors such as cost, safety and speed.

Intermediaries: marketing services agencies Marketing services agencies are marketing research firms, advertising agencies, media firms and marketing consulting firms They help the company target and promote product to the right markets

Intermediaries: financial Financial intermediaries helps financial transaction or insure against the risks associated with the buying and selling of goods. For e.g. bank, credit companies, insurance companies etc.

Microenvironment: Customers A vital factor that clearly has to be examined in great detail - there are up to five types of customer markets: Consumer individuals and households that buys for personal consumption Business buys goods and services for further processing or for use in production Reseller buys to resell at profit GOVERNMENT MARKETS ARE MADE UP OF GOVERNMENT AGENCIES THAT BUYS GOOD AND SERVICES TO PRODUCE PUBLIC SERVICES OR TRANSFER THE GOODS AND SERVISES TO OTHERS WHO NEED THEM.

Microenvironment: Customers Government government agencies that buys goods and services to produce public services or transfer the goods and services who need them International buyers in other countries, including all of the above GOVERNMENT MARKETS ARE MADE UP OF GOVERNMENT AGENCIES THAT BUYS GOOD AND SERVICES TO PRODUCE PUBLIC SERVICES OR TRANSFER THE GOODS AND SERVISES TO OTHERS WHO NEED THEM.

Microenvironment: Competitors To be successful Company must provide greater customer value and satisfaction than competitors do They have to gain competitive advantage by positioning their offer against those of the competition You need to draw a competitive map of all your organisation’s competitors and then decide which of them are worthy of an in-depth analysis

Microenvironment: Publics Any group that has an actual or potential interest in or impact on an organisation’s ability to achieve its objectives Seven types of publics: Financial media government citizen action publics Local publics general public/local groups internal CITIZEN ACTION- CONSUMER ORGANIZATION, ENVIRONMENTAL GROUPS, minority groups AND OTHERS.

Types of publics Financial: Media publics: Government publics: Influence the company’s ability to obtain funds Banks, investment houses, and stockholders Media publics: Carry news, features and editorial opinions They include newspapers, magazines, radio and television stations Government publics: Management must take government developments into account Such as product safety, truth in advertising etc.

Types of publics Citizen action publics: Local publics: Company’s marketing decision may be questioned by Consumer organisations, environmental groups, minority groups and others Local publics: Includes neighbourhood resident and community organisation Large companies appoint community relation officer to deal with Community, attend meetings, answer questions and contribute to worthwhile causes

Types of publics General public: Internal publics: Need to be concerned about the general public attitude towards its products and activities Internal publics: Include workers, managers, volunteers and the board of directors Newsletters and other means to inform and motivate internal publics

The Macro-Environment (PESTEL) These are external forces which may not immediately affect the relationship that a company has with its customers, suppliers & intermediaries. But macro-environmental changes will alter the nature of these relationships.

Political/Legal Changes in the political environment National/ EU/ Globally affect business Political stability crucial for market stability Government legislation is a major influence on economic environment & businesses Local/National/European/International law & bylaws all influence business Regulation & deregulation of business sectors Trade associations

Macro environment Political Consists of Laws, government agencies and pressure groups that influence and limit various organisations and individuals in a given society legislation regulating business ethical and social responsibility

Legislation regulating business The system work best with at least some regulation. Well prepared regulation can encourage competition and ensure fair markets for goods and services. Thus government develop public policy to guide commerce that limits business for the good of society as a whole. Business law protect unfair competition.

Legislation regulating business For e.g. no permission to advertise alcohol and cigarettes in TV in Nepal. Thailand requires food processors selling national brands to also market low price brands so that low income consumers can find economy brands on the shelves. US has many laws covering issues such as Competition, fair trade practices, environmental protection, product safety, truth in advertising, consumer privacy, packaging, pricing etc.

Increased emphasis on ethics and socially responsible actions Beyond written laws and regulations, business is also governed by social codes and rules of professional ethics. Encourages managers to simply ‘do the right things’ These socially responsible firms actively seek out to protect the long run interests of their consumers and the environment.

Economic Markets require buying power as well as people The economic environment consist of factors that affect consumer purchasing power and spending patterns. Nations vary greatly in their levels and distribution of income.

Macro environment- economic Subsistence economy Country consume most of their own agricultural and industrial output. These countries offer few market opportunities Industrial economies Constitute rich market for many different kind of goods. Marketers must pay close attention to major trends and consumer spending patterns Both across and within their world markets

Economic trends Change in income: Different level of income at different times such as more in boom and less in recession Value marketing: ways to offer financially cautious buyer greater value Right combination of product quality and good service at fair price The distribution of income has created tiered market targeting customers at different level. Upper class, middle class, working class, under class

Economic trends Changing consumer spending patterns: Consumer at different income level have different spending patterns. Changes in economic variables such as income, cost of living, interest rates and savings and borrowing patterns have a large impact in the market place.

Other Economic Factors Economic growth and unemployment The state of the economy and business cycle Interest rates Personal disposable income Currency fluctuations The BRICS, and other growth economies

Sociocultural Consumer attitudes & changes in taste and fashion for products and services over time Role of women & balance between population of women and men and age distribution Race, subcultures and occupation The importance of leisure time The role of the family Changes in the structure of population globally Geographical distribution of populations

Macro environment: sociocultural The study of human populations in terms of size, density, location, age, sex, race, occupation and other statistics It is of particular importance because it involves people and people make up markets Population is growing at an explosive rate 8.1 billion by the year 2030

Macro environment: sociocultural The worlds large and highly diverse population poses both opportunities and challenges. for example in china regulation to control the population by allowing only one child has created huge market opportunities for children’s product. Chinese children’s known as ‘little emperors and empresses’ Similarly at the other end of this is the opportunity of senior citizens business.

Macro environment: sociocultural Marketers need to keep close track of demographic trends and developments in their markets both at home and abroad. They track Changing age and family structures, Geographic population shifts, Educational characteristics, and Population diversity.

Changing age and family structures Changing age structure of the population Several generational groups The baby boomers Born between 1946 and 1964, 27.5% of the population Spend about $2.1 trillion annually Generation X Born between 1965 and 1976 with population of 49 million Grown up during recession and corporate downsizing, therefore more cautious economic outlook $1.4 trillion purchasing power Generation Y Born between 1977 and 1994 76 million population Marge teen and young adult market Requires creative marketing approaches

The changing family Traditional family in US US today: Husband, wife and children, and may be grand parents US today: Married couple with children make up only 23% Married couple without children: 28% Single parents 16% No family households: 32% More women at work Rise in child day care business

Geographic shift in population Great migration movements between and within countries Movement from rural to metropolitan areas Such population shifts interests marketers as people from different region buy differently

Educational characteristics Population of Better educated More white collar More professional Rising number of educated people will increase demand for Quality products Books, magazines Travel PC and internet services

Increasing diversity Countries vary in their ethnic and racial makeup Japan: mostly Japanese US: diverse groups of many nations International market: more diverse Proper segmentation and target market required by business to meet their needs

Macro environment: sociocultural Institutions and other forces that affect society’s basic values, perceptions, preferences and behaviours Peoples basic beliefs and values are shaped by the society where they grow.

Cultural characteristics Following cultural characteristics affects marketing decision making. persistence of cultural values Core belief and values have high degree of persistence For e.g. American believe in working, getting married, giving to charity and being honest Core belief passed on from parents to children Reinforced by schools, churches, businesses and governments shifts in secondary cultural values Secondary beliefs and values are more open to change For e.g. impact of popular personalities on young people hair style and clothing norm

Technological Allows new goods and services to be offered to consumers New technology can allow existing products to be made more cheaply, thereby lowering an organisations costs and widening their markets Technological development allows for new methods of distributing goods and services (e.g. online marketing and selling) New opportunities for companies to communicate with their target customers

Macro environment: Technological Forces that create new technologies, creating new product and market opportunities fast pace of change high R&D budgets concentration on minor improvements increased regulation

Environmental Consumer concerns have led to demand for: products not tested on animals more natural ingredients in products ingredients from renewable resources and/or processed with minimal environmental impact organic/non-factory farmed produce, particularly in light of the recent debate on genetically modified foods health orientated foods and drinks with minimal artificial additives Recyclable/refillable packaging/minimal packaging Less energy consumption

Trends in natural environment shortage of raw materials Firms using such scarce resources face large cost increases increased pollution Industry will almost always damage the quality of natural environment Increased government actions

Macro environment- environmental Environmentally friendly companies are developing environmentally sustainable strategies and practices. More environmentally responsible products E.g. recyclable or biodegradable packaging, energy efficient operations Company are learning that environmentally responsible actions can also be good business.

Responding to marketing environment Three kind of companies Who makes thing happen Who watch things happen Who wonder what’s happened. Proactive approach vs reactive approach to respond to the marketing environment

Responding to changes in the environment Organisations who ignore or fail to read the marketing environment may not survive in the competitive market Successful organisations anticipate change and spot emerging opportunities Successful organisations spot potential problems early enough to remedy them before they cause damage Organisations must be aware of: Information overload Problems associated with handling & sorting information Failure to appreciate the significance of information