Chapter 2.docx

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Chapter Two
Scanning the Marketing Environment
Successful companies take an outside-inside view of their business. They recognize that the marketing
environment is constantly spinning new opportunities and threats and understand the importance of
continuously monitoring and adapting to that environment. Firm’s marketing environment consists of the
actors and forces external to the marketing management function of the firm that interrupt marketing
management’s ability to develop and maintain successful transactions with its target customers. We can
divide the external environment of a firm as: microenvironment and macro environment
2.1 Company’s micro environment
Company’s micro environment involves the forces close to the company that affect its ability to serve its
customers – the company, market channel firms, customer markets, competitors and publics.
Figure 2.1.Principal actors in the company's microenvironment
I. The Company- In designing marketing plans, marketing management should take other company groups,
such as top management, finance, research and development (R& D), purchasing, manufacturing and
accounting, into consideration. All these interrelated groups form the internal environment
Top management sets the company's mission, objectives, broad strategies and policies. Marketing managers
must make decisions consistent with the plans made by top management, and marketing plans must be
Suppliers
company intermediari
es
competitors
customers
publics

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approved by top management before they can be implemented. Marketing managers must also work closely
with other company departments.
Finance is concerned with finding and using funds to carry out the marketing plan. The R & D department
focuses on the problems of designing safe and attractive products.
Purchasing worries about getting supplies and materials, whereas manufacturing is responsible for
producing the desired quality and quantity of products. Accounting has to measure revenues and costs to help
marketing know how well it is achieving its objectives. Therefore, all of these departments have an impact
on the marketing department's plans and actions. Under the marketing concept, all of these functions must
'think customer' and they should work together to provide superior customer value and satisfaction.
II. Suppliers: Suppliers are business firms and individual who provide resources needed by the company and its
competitors to produce the particular goods and services. Developments in the “supplier” environment can
have a substantial effect on the company’s marketing operation. Marketing managers need to watch price
trends of their key inputs. Many companies prefer to buy from multiple sources to avoid overdependence on
any one supplier who might raise prices arbitrarily or limit supply. Company purchasing agents try to build
long- term relationships with key suppliers. Purchasing agents find that they have to “market” their company
to suppliers in order to obtain favourable consideration, especially in times of shortages.
III.Marketing Intermediaries Marketing intermediaries are firms that aid the company in promoting, selling,
and distributing its goods to the final buyers. They include middlemen, physical distribution firms, marketing
service agencies, and financial intermediaries.
 Middlemen: Middlemen are business firms that help the company find customers and/or close sales with
them. They fall into two types, agent middlemen and merchant middlemen. Agent middlemen-such as
agents, brokers, and manufacturers’ representatives-find customers and /or negotiate contracts but do not
take title to merchandise. Merchant middlemen-such as wholesaler, retailers, and other resellers-buy, take
title to, and resell merchandise.
Specifically, middlemen create place utility by stocking merchandise where customers are located. They
create time utility by staying open long hours so that customer can shop at their convenience. They create
quantity utility by collecting in one point other goods that consumers may seek on the same shopping trip.

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They create possession utility by transferring the merchandise to the consumer in an easy transaction format,
namely for a simple payment of cash without the need for any billing. To create the same utilities, the
company would have to establish, finance and operate a far-flung network of national stores and vending
machines. A company, of course, finds it more efficient to work through established channels of middlemen.
Selecting and working with middlemen, however, is not a simple task. At one time, the manufacturer had to
contact and sell to numerous small independent middlemen.
 Physical distribution firms: Physical distribution firms assist the company in stocking and moving goods
from their original locations to their destinations. Warehousing firms store and protect goods before they
move to the next destination. Every company has to decide how much storage space to build for itself and
how much to rent from warehousing firms. Transportation firms consist of railroads, truckers, airlines,
barges, and other freight handling companies that move goods from one location to another. Every company
has to decide on the most cost-effective modes of shipment, balancing such considerations as cost, delivery,
speed, and safety.
 Marketing Service Agencies: marketing research firms, advertising agencies, media firms, and marketing
consulting firms- assist the company in targeting and promoting its products to the right markets. The
company faces a “make or buy” decision with respect to these services. Some large companies such as Du
Pont and Quaker Oats- operate their own in-house advertising agencies and marketing research departments.
But most companies contract for the services of outside agencies. When a firm decides to buy outside
services, it must carefully choose whom to hire, since the agencies vary in their creativity, quality, service,
and price. The company has to review periodically their performance and must consider replacing those that
no longer perform at the expected level.
 Financial Intermediaries: Financial intermediaries include banks, credit companies, insurance companies,
and other companies that help fiancé and/or insure risk associated with the buying and selling of goods. Most
firms and customers depend on financial intermediaries to finance their transactions. The company’s
marketing performance can be seriously affected by rising credit costs and/or limited credit. For this reason
the company has to develop strong relationships with outside financial institutions.
IV. Customers: A company links itself to suppliers and middlemen in order to efficiently supply product and
services to its target market. Its target market can be one (or more) of the following five types of customer
markets:

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 Consumer markets. Individuals and households that buy goods and services for personal consumption.
 Industrial markets. Organizations that buy goods and services needed for producing other products and
services for the purpose of making profits and/or achieving other objectives.
 Reseller markets. Organization that buys goods and service in order to resell them at a profit.
 Government markets. Government agencies that buy goods and services in order to produce public services,
or transfer these goods and services to others who need them.
 International markets. Buyers found abroad, including foreign consumers, producers, resellers, and
governments.
V. Competitors: An organization rarely stands alone in its effort to serve a given customer market. Its efforts to
build an efficient marketing system to serve the market are matched by similar efforts on the part of others.
The company’s marketing system is surrounded and affected by a host of competitors. These competitors
have to be identified, monitored, and out maneuvered to gain and maintain customer loyalty. The
competitive environment consists not only of other companies but also of more basic things. The best way
for a company to grasp its competition is to take the viewpoint of buyer. A basic observation about the task
of competing effectively can be stated as follows: A company must keep four basic dimensions in mind,
which can be called the four Cs of market positioning. It must consider the nature of the Customers,
Channels, Competition, and its own characteristics as a Company. Successful marketing is a matter of
achieving an effective alignment of the company with customer, channels, and competitors.
VI. Publics. A pubic is any group that has an actual or potential interest or impact on an organization’s ability
to achieve its objectives. Seven publics include:
1. Financial publics. Influence the company's ability to obtain funds. Include banks, investment houses and
stockholders.
2. Media publics. Are those that carry news, features and editorial opinion? They include newspapers,
magazines and radio and television stations.
3. Government public*. Marketers must often consult the company's lawyers on issues of product safety,
truth-in-advertising and other matters.

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4. Citizen action publics. A company's marketing decisions may be questioned by consumer organizations,
environmental groups, minority groups and other pressure groups. Its public relations department can help it
stay in touch with consumer and citizen groups.
5. Local publics. Every company has local publics, such as neighbourhood residents and community
organizations. Large companies usually appoint a community-relations officer to deal with the community,
attend meetings, answer questions and contribute to worthwhile causes.
6. General public. A company needs to be concerned about the general public's attitude towards its
products and activities. The public's image of the company affects its buying. Thus, many large
corporations invest huge sums of money to promote and build a healthy corporate image.
7. Internal publics. A company's internal publics include its workers, managers, volunteers and the board 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 to their external publics.
2.2. The Company's Macro Environment
The macro environment consists of the larger societal forces that affect all of the actors in the company’s
micro environment. These include the demographic, economic, physical (natural), technological, legal and
socio-cultural forces.
I. Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gender, race,
occupation and other statistics. The demographic environment is of considerable interest to marketers
because it involves people, and people make up market
 Population Size and Growth Trends - In any geographic market, population size and growth trends can be
used to gauge its broad potential for a wide range of goods and services. Population growth trends are
important because they can offer marketers indications of demand for certain goods and services. For
instance, a 'baby boom' would suggest growing demand for infant foods, nursery appliances, maternity
services, baby clothing, toys and so forth, in the short to medium term, with rising demand for family-size
accommodation, larger cars, schools and educational services over the longer term. Differences in population

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growth patterns between country markets may also suggest different international marketing opportunities
for firms.
 Changing Age Structure of a Population- The aging population structure reflects two influences. First,
there is a long-term slowdown in birth rate, so there are fewer young people to pull the population's average
age down. Secondly, as longevity increases more elderly people. For instance, in Germany, the balance of
people over 65 years of age to persons of working age (or the dependency ratio) is expected to exceed 1:1 by
2031. At one extreme is Mexico, a country with a very young population and rapid population growth. At the
other extreme is Japan, a country with one of the world's oldest populations. Milk, diapers, school supplies,
and toys would be important products in Mexico. Japan's population would consume many more adult
products.
A population can be subdivided into six age groups: preschool, school-age children, teens, young adults age
25 to 40, middle-aged adults age 40 to 65, and older adults age 65 and up. For marketers, the most populous
age groups shape the marketing environment
 Household Patterns/Family Structure- The "traditional household" consists of a husband, wife, and
children (and sometimes grandparents). Yet, in the United States today, one out of eight households is
"diverse" or "non traditional," and includes single live-alones, adult live-together of one or both sexes,
single-parent families, childless married couples, and etc.
 Rising Number of Educated People- The rising number of educated people will increase the demand for
quality products, books, magazines and travel. In many developed and industrializing countries, the
workforce is also becoming white collar. The population in any society falls into five educational groups:
illiterates, high school dropouts, high school diplomas, college degrees, and professional degrees The most
growth comes in the following occupational categories: computers, engineering, science, medicine, social
service, buying, selling, secretarial, construction, health service, personal service and protection.
 Growing Ethnic and Racial Diversity- Countries also vary in ethnic and racial makeup. At one extreme is
Japan, where almost everyone is Japanese; at the other is the United States, where people come from
virtually all nations. According to the 2000 census, the U.S. population of 276.2 million was 72 percent
white. African Americans constituted 13 percent

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Ethnic groups have certain specific wants and buying habits. Several food, clothing, and furniture companies
have directed their products and promotions to one or more of these groups. Charles Schwab is one of the
leading financial services firms serving Asian Americans with a carefully targeted marketing program.
II.Natural Environment
The natural environment involves the natural resources that are needed as inputs by marketers or that are
affected by marketing activities. Protection of the natural environment will remain a crucial worldwide issue
facing business. In many cities around the world, air and water pollution have reached dangerous levels.
Concern continues to mount about the depletion of the earth's ozone layer and the resulting 'greenhouse
effect', a dangerous warming of the earth and many of us fear that we will soon be buried in our own rubbish.
Marketers should be aware of four trends in the natural environment: shortages of raw materials, increased
cost of energy, increased pollution, and government intervention in natural resource management.
 Shortages of Raw Materials- Air and water may seem to be infinite resources, but some groups see long-
run dangers. Water shortage is already a big problem in some parts of the world. Renewable resources, such
as forests and food, also have to be used wisely. Companies in the forestry business are required to reforest
timberlands in order to protect the soil and to ensure enough wood supplies to meet future demand. Food
supply can be a critical problem because more and more of our limited farmable land is being developed for
urban areas.
Non-renewable resources, such as oil, coal and various minerals, pose a serious problem. Firms making
products that require these increasingly scarce resources face large cost increases, even if the materials do
remain available. They may not find it easy to pass these costs on to the consumer. However, firms engaged
in research and development and in exploration can help by developing new sources and materials.
 Increased Cost of Energy- One non-renewable resource - oil - has created the most serious problem for
future economic growth. The large industrial economies of the world depend heavily on oil. And until
economical energy substitutes can be developed, oil will continue to dominate the world political and
economic picture. Many companies are searching for practical ways to harness solar, nuclear, wind and other
forms of energy.

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In fact, hundreds of firms already offer products that use solar energy for heating homes and other uses.
Others are directing their research and development efforts to produce high energy-efficient technologies to
meet customers' needs.
 Increased Pollution- Industry has been largely blamed for damaging the quality of the natural environment.
The 'green' movement draws attention to industry's 'dirty work': 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.
Many companies, especially those at the 'grubbier' ends of manufacturing, often complain about the cost of
fulfilling their obligations to 'clean up' regulations or to produce new greener technologies. On the other
hand, more alert managers have adapted quickly to rising public environmental concerns, which have created
marketing opportunities for firms.
Many firms are responding to public environmental concerns with more ecologically sensitive goods,
recyclable or biodegradable packaging, improved pollution controls and more energy-efficient operations.
Niche green markets, where environmentally sensitive consumers are prepared to pay a premium price for
green benefits, have emerged in sectors ranging from cosmetics, toiletries and detergents to passenger cars.
However, most consumers worldwide are more likely to make trade-offs between green advantages and
product quality and performance benefits in their purchasing decision. So, although environmental pressures
upon businesses in the decade ahead are expected to escalate, firms must seek to balance both the ecological
and performance benefit expectations of the mass of consumers.
 Government Intervention in Natural Resource Management- In most countries, industry has been
pressured rather than persuaded to 'go green'. Environmental legislation has toughened up in recent years and
businesses can expect this to continue in the foreseeable future. Recession in leading world economies over
the early 1990s, however, forced governments to look at the potential of voluntary agreements with industry.
The idea is to help industry meet environmental standards cost-effectively.
III. Technological Environment
The technological environment is perhaps the most dramatic force now shaping our destiny. Technology has
released such wonders as penicillin, organ trans-plants and notebook computers. Every new technology
replaces an older technology. When old industries fought or ignored new technologies, their businesses
declined. New technologies create new markets and opportunities. The marketer should watch the following

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trends in technology: fast pace of technological change, high R&D budgets, increased regulation, and
concentration on minor improvements.
 Fast Pace of Technological Change- Technology life cycles are getting shorter .The first-generation
modern mechanical typewriter dominated the market for 25 years. Subsequent generations had shorter lives -
15 years for electromechanical models, 7 years for electronic versions and 5 years for first-generation
microprocessor-based ones.
Firms must track technological trends and determine whether or not these changes will affect their products'
continued ability to fulfil customers' needs. Businesses must diligently monitor their technological
environment to avoid missing new product and market opportunities.
 Varying R&D Budgets: Technology and innovations require heavy investments in research and
development.
 Concentration on Minor Improvements. As a result of the high cost of developing and introducing new
technologies, many companies are tinkering - making minor product improvements - instead of gambling on
substantial innovations. The high costs and risks of commercialization failure make firms take this cautious
approach to their R & D investment. Most companies are content to put their money into copying
competitors' products, making minor feature and style improvements, or offering simple extensions of
current brands. Thus much research is in danger of being defensive rather than offensive
 Increased Regulation. As products become more complex; people need to know that they are safe. Thus,
government agencies investigate and ban potentially unsafe products. The US Federal Food and Drug
Administration, for example, is notorious for its strict enforcement of drug testing and safety rules. Statutory
and industry regulatory bodies exist to set safety standards for consumer products and penalize companies
that fail to meet them. Such regulations have resulted in much higher research costs and in longer times
between new-product ideas and their introductions. Marketers should be aware of these regulations when
seeking and developing new products.
Marketers need to understand the changing technological environment and the ways that new technologies
can serve customer and human needs. They need to work closely with R & D people to encourage more
market-oriented research. They must also be alert to the possible negative aspects of any innovation that
might harm users or arouse opposition.

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IV. Economic Environment:
Markets require purchasing power as well as people. The available purchasing power in an economy depends
on current income, prices, savings, debt, and credit availability. Marketers must pay careful attention to
trends affecting purchasing power because they can have a strong impact on business, especially for
companies whose products are geared to high-income and price-sensitive consumers.
o Income Distribution- Nations vary greatly in level and distribution of income and industrial structure. There
are four types of industrial structures: subsistence economies (few opportunities for marketers); raw-
material-exporting economies like Zaire (copper) and Saudi Arabia (oil), with good markets for
equipment, tools, supplies, and luxury goods for the rich, industrializing economies, like India, Egypt,
and the Philippines, where a new rich class and a growing middle class demand new types of goods; and
industrial economies, which are rich markets for all sorts of goods.
In a global economy, marketers need to pay attention to the shifting income distribution in countries around
the world, particularly countries where affluence levels are rising. This is leading to a two-tier U.S. market,
with affluent people able to buy expensive goods and working-class people having to spend more carefully,
shopping at discount stores and factory outlet malls, and selecting less expensive store brands. Conventional
retailers who offer medium-priced goods are the most vulnerable to these changes
 Savings, Debt, and Credit Availability- Consumer expenditures are affected by savings, debt, and credit
availability. U.S. consumers have a high debt-to-income ratio, which slows down further expenditures on
housing and large-ticket items. Credit is very available in the United States but at fairly high interest rates,
especially to lower-income borrowers. Here the Internet can offer a helping hand: Consumers seeking a
mortgage can go to lendingtree.com, fill out a single loan application, and receive several loan package
proposals from competing banks within 48 hours.
 Outsourcing and Free Trade - An economic issue of increasing importance is the migration of
manufacturers and service jobs offshore. Outsourcing is seen as a competitive necessity by many firms, but
as a cause of unemployment by many domestic workers. For example, in December 2003, IBM decided to
move the jobs of nearly 5,000 programmers to India and China. GE has moved much of its research and
development overseas. Microsoft, Dell, American Express, and virtually every major multinational from
Accenture to Yahoo! have already offshored work or are considering doing so.

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Usually the economic environment is analyzed with reference to the following key economic indicators:
employment, consumer price index, housing starts, auto sales, weekly unemployment claims, real GNP,
industrial production, personal income, savings rate, capacity utilization, productivity, money supply:
currency and checking accounts, retail sales, inventories, and durable goods orders. Trends indicate the kind
of economic issues that marketing strategists must take into account to determine their strategies.
V. Social-Cultural Environment
The cultural environment is made up of institutions and other forces that affect society’s basic values,
perceptions, preferences and behaviours. People grow up in a particular society that shapes their basic beliefs
and values. They absorb a world-view that defines their relationships with others.
 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. For example, most of us believe in working, getting married,
giving to charity and being honest. These beliefs shape more specific attitudes and behaviours found in
everyday life. Core beliefs and values are passed on from parents to children and are reinforced by schools,
religious groups, business and government.
Secondary beliefs and values are more open to change. Believing in marriage is a core belief; believing that
people should get married early in life is a 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.
 Shifts in Secondary Cultural Values- The principal cultural values of a society are expressed in people's
views of them-selves and others, as well as in their views of organizations, society, nature and the universe.
 People's Views of Themselves- Some people seek personal pleasure, wanting fun, change and escape.
Others seek self-realization through religion, recreation or the avid pursuit of careers or other life goals.
People use products, brands and services as a means of self-expression and buy products and services that
match their views of themselves. In a 'me-society', people buy their 'dream cars' and take their 'dream
vacations.
 People's Views of Others- More recently, observers have noted a shift from a 'me-society' to a 'we-society',
in which more people want to be with and serve others. Flashy spending and self-indulgence appear to be on
the way out, whereas saving; family concerns and helping others are on the rise.

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 People's Views of Organizations- People van' in their attitudes towards corporations, government agencies,
trade unions, universities another organizations. By and large, people are willing to work for big
organizations and expect them, in turn, to carry out society's work. This trend suggests that organizations
need to find new ways to win consumer confidence. More companies are linking themselves to worthwhile
causes, measuring their images with important publics and using public relations to build more positive
images.
 People's Views of Society- People vary in their attitudes toward their society - from patriots who defend it,
to reformers who want to change it, and malcontents who want to leave it. In the affluent and industrializing
Asian nations, consumers aspire to achieve the high living standards and lifestyles of people in the more
advanced western countries. The display of conspicuous consumption and fondness for expensive western
brands - the common label for achievement and westernization – are highly acceptable behaviour. Consumer
patriotism for example, is not an issue, since locally made goods are often viewed as inferior or less desirable
than foreign imported brands. By contrast, in the western developed countries, the late 1980sand early 1990s
saw an increase in consumer patriotism. European consumers reckoned that sticking to locally produced
goods would save and protect jobs.
 People's Views of Nature- Love of nature is leading to more camping, hiking, boating, fishing and other
outdoor activities. Business has responded by offering more hiking gear, camping equipment, better insect
repellents and other products for nature enthusiasts. Tour operators are offering more tours to wilderness
areas.
 People’s Views of the Universe- People vary in their beliefs about the origin of the universe and their place
in it.
VI. Political Environment
The political environment consists of laws, government agencies and pressure groups that influence and limit
various organizations and individuals in a given society
 Legislations and Regulating Business- Even the most liberal advocates of free-market economies agree that
the system works best with at least some regulation. Well-conceived regulation can encourage competition
and ensure fair markets for goods and services. Thus, governments develop public policy to guide commerce

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- sets of laws and regulations that limit business for the good of society as a whole. Almost every marketing
activity is subject to a wide range of laws and regulations.
Understanding the public policy implications of a particular marketing activity is not a simple matter. First,
there are many laws created at different levels: for example, in the EU, business operators are subject to
European Commission, individual member state and specific local regulations. This legislation has been
enacted for a number of reasons. The first is to protect companies from each other. Although business
executives may praise competition, they sometimes try to neutralize it when it threatens them. So laws are
passed to define and prevent unfair competition.
The second purpose of government regulation is to protect consumers from unfair business practices. Some
firms, if left alone would make shoddy products, tell lies in their advertising and deceive consumers through
their packaging and pricing. Unfair business practices have been defined and are enforced by various
agencies. The third purpose of government regulation is to protect the interests of society against
unrestrained business behaviour. Profitable business activity does not always create a better quality of life.
Regulation arises to ensure that firms take responsibility for the social costs of their production or products.
New laws and their enforcement are likely to continue or increase. Business executives must watch these
developments when planning their products and marketing programmers. Marketers need to know about the
main laws protecting competition, consumers and society. International marketers should additionally be
aware of regional, country and local laws that affect their international marketing activity
 Growth of Public Interest Groups- Hundreds of consumer interest groups, private and governmental,
operate at all levels - regional, national, state/county and local levels. Other groups that marketers need to
consider are those seeking to protect the environment and to advance the rights of various groups such as
women, children, ethnic minorities, senior citizens and the handicapped
 Increased Emphasis on Ethics and Socially Responsible Actions. Written regulations cannot possibly
cover all potential marketing abuses, and existing laws are often difficult to enforce. However, beyond
written laws and regulations, business is also governed by social codes and rules of professional ethics.
Enlightened companies encourage their managers to look beyond what the regulatory system allows and
simply to 'do the right thing'. These socially responsible firms actively seek out ways to protect the long-run
interests of their consumers and the environment.

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