The Environments of Markets 9/2/09

 At the end of the lesson students should be able to: 1. Distinguish between the micro- and macro- environments in which a firm operates. 2. Explain the effects of the micro- and macro- environments on the marketing strategy of the firm.

 The company must start with the marketing environment in searching for opportunities and monitoring threats.  The marketing environment consist of all the actors that affect the company’s ability to transact effectively with the target market.  The company’s marketing environment can be divided into the Microenvironment and the Macroenvironment.

 The Microenvironment consists of the forces close to the company that affect its ability to serve its customers:  Marketing channel firms  Company’s suppliers  Competitors  Customers  The Macroenvironment consists of the larger societal forces that affect the whole microenvironment:  Demographic forces  Economic forces  Natural forces  Political forces  Cultural forces

The Firm The microenvironment The macroenvironment

 The job of marketing management is to create attractive offers for target markets.  Success is affected by the factors identified as part of the firm’s microenvironment.  Marketing mangers cannot simply focus on the target market but must also continuously monitor all these factors.

 Suppliers are firms and individuals that sell to the firm the resources required to produce its goods and services.  Marketers must monitor events such as: (?)  Supply availability  Supply shortages and delays  Labor strikes  Can affect sales in the short run and customer goodwill in the long run.  Increases in key input prices in the market must also be monitored.  Can force price increases that can adversely affect the company’s sales volume.

 It is a common view that a company must satisfy the needs and wants of consumers better than its competitors in order to be successful.  The firm must adopt to the strategies of competitors who are serving the same target market.  Must gain competitive advantage by strongly positioning their offerings against the competitors’ offerings in the mind of the consumers.  Firms must find marketing strategies that best position them against competitors in their markets.

 Marketing intermediaries are (?)  firms that help the company to promote, sell, and distribute its products to final buyers  Types:  Middlemen  Physical distribution firms  Marketing service agencies  Financial intermediaries

 Distribution channel firms that help the company find customers or make sale to them.  Wholesalers and retailers who buy and sell merchandise.  Large middlemen (e.g. Sears, Wal-mart, Home Depot) organizations pose significant threats to the firm since they are large enough to dictate terms and deny access to large markets.  Company have to develop strong and mutually beneficial relationships with strategic middlemen in order to execute an effective marketing strategy.

 Assist the company to stock and move goods from their points of origin to their destination.  Warehouses – store and protect goods before they move to the next destination.  Transportation firms – move goods from one location to another.  company must determine the best ways to store and ship goods, balancing such factors as cost, delivery speed, and safety.

 Organizations that assist the firm in targeting and promoting its products to the right markets.  Marketing research firms  Advertising agencies  Media firms  Marketing consulting firms  When choosing one of these firms must focus on:  Creativity, quality, service and price  The company has to review the performance of these firms regularly and consider replacing those that no longer perform well.

 Finance transactions or insure against risks associated with the buying and selling of goods  Banks, credit companies, insurance companies  Most firm and customers depend on these intermediaries to finance their transactions.  The company can suffer from rising credit costs and limited access to credit.  The company must develop strong relationships with important financial institutions.

 The company must study its customer markets closely.  Five types of customer markets:  Consumer markets  Individuals and households that buy goods for personal consumption.  Industrial markets  Organizations that buy goods and services for further processing or for uses in their production process.  Government markets  Government agencies that buy goods and services in order to provide public services.  International markets  Foreign buyers  Each market type has special characteristics that call for careful study by the company

 The company and factors in its micro- environment all operate in a macro- environment that provides opportunities for and poses threat to its success.  The company must carefully watch and respond to these forces.

 Demography is the study of human populations in terms of (?)  size, density, location, age, sex, race, occupation etc.  Some important trends:  Changing age structure (?)  Changing family structure (?)  Geographic shifts in population (?)  Better educated populace (?)  Demographic trends are highly reliable for the short and intermediate run. There is little excuse for a company’s being suddenly surprised by a demographic development.  Companies can easily list the major demographic forces and determine present and future impact on its present and future marketing strategy.

 The economic environment consists of factors that affects consumer purchasing power and spending patterns.  Total buying powers depends on:  Current income, prices, savings, and credit  Marketers should be aware of major trends in :  Income and its distribution  income per capita  Distribution of income in the economy among social classes  Upper class, middle class, working class, underclass  Changing consumer spending patterns.  Trends in the proportion of total expenditures that households at different income levels spend on major categories of goods and services. Food, housing and transportation use up most household incomes.  Changes in major economic variables as income, cost of living, interest rates and savings and borrowings patterns have a large impact on the marketplace.  Companies must watch these variables using economic forecasting in order to take advantage of changes in the economic environment

 The natural environment involve natural resources needed as inputs by marketers or which are affected by marketing activities.  Issues:  Depletion of the earth natural resources  Global warming  Damage to the ozone layer – ban on some propellants used in aerosol cans  Raw material shortages – push up production costs  Increased cost of energy  Increased Levels of pollution – non- biodegradable packaging  Government intervention in natural resources management  Marketing management must pay attention to the natural environment.  Marketers should not oppose regulations but should help in developing solutions to issues relating to materials, energy and pollution.

 The political environment consist of laws, government agencies, and pressure groups that influence and limit various organizations and individuals in a given society.  Reasons for government regulations:  Protection of companies  Protection of consumers  Protect the interests of society  Marketers:  need to know the national and local laws protecting competition, consumers and society.  be aware of the activities of public interest groups.

 Institutional and other forces that affect society’s basic values, perceptions, preferences and behaviours.  People grow up in society that shape basic beliefs and values.  Cultural characteristics that can affect marketing decisions:  Core and secondary beliefs and values  Subcultures  Groups whose members share common beliefs, preferences and behaviours  Shifts in secondary cultural values  E.g. impact of pop music (reggae and Rap) on young people’s clothing, hairstyle and speech.  Marketing response:  Producing products that promote self expression  “social support “ products that improve direct communication between people – health clubs, vacations, games, social substitutes (VCR, computers )  Projecting a good “corporate image”  Products for nature enthusiasts