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Marketing chapter3
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Marketing chapter3
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Marketing chapter3

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  • 1. Chapter 3: Analysing the market environmentChapter 3: Analysing the marketenvironment Essential reading Kotler, P. and G. Armstrong Principles of Marketing. (Upper Saddle River, NJ: Prentice Hall, 2004) tenth edition [ISBN 0131018612] Chapter 4. Keywords: Macroenvironment; microenvironment; trends. Learning outcomes By the end of this chapter you should be able to: • distinguish between the micro- and macroenvironment of a firm • understand how the different elements of the micro- and macroenvironment affect firms’ marketing activities. Introduction This chapter focuses on the environmental factors that affect the marketing activities of organisations. Such factors include demographic changes; changes in fashions, and changes in consumption due to economic development and political changes. It also examines how marketers cope with such changes. Another important theme that runs throughout this unit is the fact that marketers have to be aware of changes that take place in the marketing environment, since these can have a major impact on how marketers change and evolve their own marketing strategies. You should note that this chapter and the accompanying material in Kotler and Armstrong (2004) draw attention to specific aspects of the political, economic, social and technological environments – these are all dynamic, and for examination purposes you are likely to need your own examples that illustrate, for example, how specific changes in the economic environment have had an influence on marketers. As you complete the unit, you will note that a number of the issues covered here are also important factors to consider when companies enter foreign markets, one of the topics covered in Chapter 8. Clearly there is a similarity in concepts, and studying them in this chapter will repay you when you reach the end of the unit. Finally, you should remember that study of the marketing environment is important insofar as the environment can have an important impact on the activities of marketers. For this reason this topic has important, though often unstated, links with the other topics in this unit. Table 3 at the end of this chapter summarises some, though not all, of these links. You should be aware that examination questions on any of the other topics may require you to have an awareness of the issues addressed in this topic. Types of environment Companies interact with two types of environment: the ‘microenvironment’ and the ‘macroenvironment’. The microenvironment comprises the company’s suppliers, customers, marketing intermediaries and competitors. The macroenvironment is made up of wider forces that affect demand for a company’s goods. These forces include demographics, economics, nature, technology, politics and culture. 29
  • 2. Marketing The microenvironment The microenvironment can be separated into the internal environment and the external environment. The internal environment consists of the firm’s own management structure, the organisation’s strategies and objectives, and the departments within the company. The characteristics of the firm’s internal environment affect its ability to serve its customers. The external environment comprises suppliers, marketing intermediaries, customers, competitors and publics. As well as obvious groups such as shareholders, publics can also include local interest groups who may have concerns about the marketer’s impact on the environment or on local employment. The macroenvironment Demographics The demographic environment itself is affected by changes in the mix of age groups in the population. If the population becomes older, this will lead to rising demand for products and services consumed by older people and a similar fall in demand for products consumed by younger people. The development of ethnic markets can also be relevant. In a number of countries, the ethnic mix of consumers is changing due to immigration and other factors. This will be reflected in changing demands for various goods, not only from the specific ethnic group but from other consumers whose tastes have been affected by them. Furthermore, as ethnic groups emigrate to other countries, their own tastes can affect those of consumers in the host nation (e.g. Asian foods are now sold in UK supermarkets). The demographic environment is also affected by the level of education in a country, since changes in education have an impact on the wealth of a nation and the tastes of its people. The lifestyles of a population also have an impact on the macroenvironment facing marketers. In Western countries there has been a growth in households made up of single people; and a large proportion of women now go out to work. This has resulted in an increase in the sales of convenience foods. There is also a greater proportion of couples whose children have grown up and left home. Such couples have more disposable income to spend on luxuries, holidays and home improvements. Economics The economic environment is important to marketers because it affects the amount of money people have to spend on products and services. One of the components of the economic environment is the distribution of income. Economies around the world not only vary in their absolute or total level of wealth but also in how their wealth is spread within the population. For example, poor countries may be classified either as those which have a highly unequal spread of wealth or those where it is more evenly shared. The former group of countries may be markets for luxury goods, despite the level of poverty. In contrast, the second type of country may be more attractive to marketers of inexpensive goods for the mass market. Consumers around the world differ in the extent to which they save money and the use they make of credit facilities. A high propensity to save will result in a lower propensity to consume. However, these patterns will also have a secondary effect on the overall macroeconomy of a nation. A country where people have a high propensity to save is likely to be characterised by low interest rates, which will affect industry’s borrowing costs.30
  • 3. Chapter 3: Analysing the market environmentThe economic problems faced by some countries have meant that someinternational marketers cannot be paid in hard currency. To make sales,therefore, they have had to barter their products. An example of this was thebarter of Pepsi-Cola for Russian vodka by the Pepsi company and the formerSoviet government.NatureThis is important to marketers insofar as it is the source of many rawmaterials and fluctuation in supply can affect the prices paid for purchases.Furthermore, the increasing cost of some raw materials has meant thatrecycling of some materials, such as aluminium, has become economic.There is increasing pressure from public opinion as to where raw materialsare sourced from, and their effect on the natural environment. Papermanufacturers have had to pay attention to sourcing pulp from renewableforests, where trees are replanted to make up for those which have beenfelled. There is also pressure on them not to use chemicals and bleaches intheir processing of paper. The increased cost of energy is also having aneffect on the types of products that appeal to consumers. For example, insome countries there is a trend towards small cars and products that saveenergy.Finally, due to developments in technology, it is possible for manufacturersand consumers to cause less damage to the environment. Various Europeancountries encourage the use of catalytic converters in cars to reduce thelevels of poisonous gases that are emitted into the atmosphere.TechnologyTechnological developments offer marketers both opportunities and threats.Although firms can offer customers a wider array of advanced products,changes in technology also mean that there may be more than one technicalsolution to a customer’s needs. Where a market converges towards onetechnological standard, there can be problems for marketers who havepromoted an alternative standard. An example of such a situation isillustrated by the fight between two alternative video formats: VHS(promoted by JVC) and Betamax (promoted by Sony). Although Sony’stechnology was considered superior, most other manufacturers adopted theVHS format, and ultimately Sony stopped selling Betamax video-recordersand switched to making those using the VHS format. Today there is a similarstruggle between suppliers of different types of hi-fi equipment.Increased technological development accelerates the speed of obsolescence.Marketers have to consider how their product may need to be developed overtime, if it is to remain competitive. For example, Apple Computer gained anadvantage over IBM and IBM compatibles through the use of its Graphic UserInterface (GUI), which meant that the users can manipulate pictures on thecomputer screen rather than use complex commands. This made it mucheasier to use than IBM personal computers. However, the introduction byMicrosoft of Windows meant that IBM users could also have a pictorialdisplay on their screens, and this reduced Apple’s advantage. To regain theadvantage Apple has recently introduced a new computer chip (PowerPC)which is supposed to be faster than the Pentium chip used by IBM.Technological developments affect how people work and do business. Forexample, the falling cost of telecommunications coupled with their increasedsophistication has meant that it is possible for individuals to work away fromthe office. In the future this could lead to lower usage of transportationsystems. Furthermore, the falling cost of technology has meant that many 31
  • 4. Marketing more small firms can function in areas such as publishing and film production, which used to be the domain of large organisations. In a number of countries this has resulted in the establishment of small firms in these areas. The risks from technological changes have meant that firms are increasingly entering into ‘strategic alliances’ with customers, suppliers and even competitors. Indeed, there has been an increasing emphasis on open, long- term relationships, based on trust between customers and suppliers. This is expected to help in the development of products and the management of technological risks. Politics Marketers are influenced by the regulatory environment. This has implications for their obligations to customers and the wider public. Customers are increasingly able to seek redress for faulty products, and those who live near manufacturing plants are able to claim compensation for pollution. The political environment around the world has recently favoured the privatisation of public companies. Such companies have also been able to compete more freely in the private sector. Political changes in Eastern Europe have also meant that these markets are now open to marketers from around the world. Culture People’s opinions and tastes are shaped by the society in which they live. It should be noted that societies are not made up of homogeneous populations. They contain sub-cultures, which are beliefs and values shared by smaller groups of people. Such groups may arise out of a common race, religion, social activity or hobby. Sub-cultures are important to marketers insofar as they may have different consumption habits from the rest of the population. The following are some aspects of culture that influence people’s consumption: the ‘core’ culture is that set of values handed down from generation to generation and which is reinforced by social institutions such as schools and places of worship. Core values are likely to be strongly held and it may be difficult for marketers to promote a message that runs counter to them. More susceptible to change are secondary values. People’s opinions are influenced by the media, role models and changing tastes. Chapter 5 of Kotler and Armstrong (2004) ends with a discussion of how marketers can respond to the marketing environment. This is an important issue that is significant for examination purposes, and you should pay attention to it. Figure 3.1 shows the different elements of the macro- and microenvironments. It also shows that the marketing organisation (represented by the marketing mix) is directly influenced by the microenvironment, and that both are influenced by the macroenvironment. Figure 3.1: Macro- and microenvironment.32
  • 5. Chapter 3: Analysing the market environment Activity Choose an industry about which you can get information from either newspapers or books. Using Chart 1, describe any political, economic, social and technological changes taking place that will affect the demand for the products/services produced by that industry. Then explain what impact this is having on the marketing activities of the firms in that industry. Where possible, collect relevant statistics and details of the source of the information. The examples you use and the sources of information can be either local or international. An example for using the chart is as follows. It is based on an extract from a UK national newspaper. ‘Within the UK a social change which is taking place is the rise in the sales of ethnic foods. Last year £366 million was spent on such foods, an increase of 87 per cent in four years. Of this figure Indian food is the most popular, accounting for £171 million. Furthermore 37 per cent of people questioned had tried cooking Indian meals at home. Industry experts say that the recession and the ease of ethnic cooking is encouraging people to cook at home.’ The marketing impact of this information would be on producers of ethnic cooking ingredients, whose forecasts of sales could take into account the news of a healthy and growing market.Summary The firm is affected by both its microenvironment and the macroenvironment. The characteristics of the marketer’s microenvironment affect its ability to serve its customers. The macroenvironment comprises the wider societal forces which determine the opportunities and threats facing a firm.Reminder of the learning outcomes By the end of this chapter you should be able to: • distinguish between the micro- and macroenvironment of a firm • understand how the different elements of the micro- and macroenvironment affect firms’ marketing activities.Sample examination questions 1. Singapore is currently experiencing relatively slow economic growth. What effects of this have you observed on the marketing of goods and services in Singapore? 2. What are the main components of the microenvironment of marketing? With respect to each of these components identify the major questions that the marketer should be asking him/herself when carrying out an audit of the microenvironment. (Zone B 2000 BSc Econ) 33
  • 6. Marketing Chapter Implication 1 Wants will be influenced by levels of economic prosperity and social and cultural factors. 2 Macroenvironment issues will be important areas for firms to do marketing research, both secondary and primary. 4 Consumer buying behaviour will be influenced by technological, economic, social and cultural factors. Demand for various goods will vary between countries according to economic, political, technological factors for example, also see discussion for Chapter 8. Changes in macroenvironment (external environment) may influence the 5 strengths/weaknesses/opportunities/threats facing an organisation. The microenvironment will influence the opportunities and threats facing an organisation. 6 The types of products developed by organisations will have to take into account both the micro- and macroenvironment. Social and other trends may influence the shape of the product lifecycle curve and therefore have an impact on new product development. The pricing strategy undertaken by an organisation may have to take into account the health of the wider economy, as well as the prices charged by competitors. Social and cultural factors will influence the level of ‘noise’ in 7 communications. They will also influence the methods of distribution that are most likely to be effective in a given situation. Channel intermediaries will have to take into account the level of power that they have in comparison to their suppliers and customers (microenvironment) when negotiating with them. 8 Economic factors may determine which markets are more profitable than others. Note that low levels of economic success are not necessarily bad – predicted growth is important, as is the degree of local competition, which may be low in developing countries. Cultural factors may determine whether or not adaptation is required for the elements of the marketing mix. Countries vary in terms of political stability/instability and the extent to which governments encourage overseas corporations. Technology (levels) are important since they influence how easy or difficult it will be to do business in other countries. Table 3: Implications of the marketing environment for other areas of marketing.34

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