CHAPTER TWO
MARKETING ENVIRONMENTS
Chapter objectives
At the end of this chapter, you will be able to:
✓ understand marketing environment
✓ explain factors of the marketing environment
✓ understand how the marketing environment affects managers effectiveness
2.1. Introduction
Marketing does not exist in a vacuum but rather in a complex and changing environment. Many
of these forces in the environment influence what can and should be done in the area of
marketing. Ultimately, a firm’s ability to adapt to its operating environment determines, in large,
part, its level of business success. To understand marketing, and to develop effective marketing
strategies, we must first understand the context in which marketing operates.
Marketers operate in an increasingly dynamic world. They must be good at customer relationship
management and partner relationship management in order to connect effectively with
customers, others in the company, and external partners. To get these done effectively and
efficiently, the firm should understand and identify the major environmental forces that surround
all these relationships.
The marketing environment consists of the internal and external environment. The term
environment has a much broader sense. The organization operates within an external
environment that it cannot control. At the same time, there are marketing and non-marketing
resources within the organization that generally can be controlled.
Successful marketing depends largely on a company’s ability to manage its marketing programs
within its environment. To do this, a firm’s marketing executives must determine what makes up
the firm’s environment and then monitor it in a systematic, ongoing fashion. They must be alert
to spot environmental trends that could be opportunities or problems for their organization. Then
the marketing executives must be able to respond to these trends with the resources they control.
2.2. Meaning of Marketing Environment
The Marketing Environment is the internal and the external factors that surround the business
and influence its marketing operations. A company's marketing environment consists of the
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actors and forces that affect marketing management's ability to develop and maintain successful
transactions with its target customers. Marketing environment implies the landscape of the
market which consists of the internal environment, micro-environment and macro-environment.
The marketing environment offers both opportunities and threats. Companies must use their
marketing research and intelligence systems to watch the changing environment and must adapt
their marketing strategies to environmental trends and developments.
Macro-environment
Micro-environment
Internal-environment
Figure 2.1: Marketing environment
2.3. Internal Environment
The internal marketing environment refers to the factors within the organization that influence its
marketing activities and strategies These factors are part of the organization and affects the
marketing decision and its relationship with the customers. These factors are under the control of
the organization's management and can include elements such as:
1. Human resource: The people within the organization who are involved in marketing
activities, including sales staff, marketing professionals, customer service representatives,
and executives. Their skills, attitudes, and commitment to the company's goals can
significantly impact marketing effectiveness. The characteristics of the human resources like
skill, quality, morale, commitment, attitudes, etc. could contribute to the strength or
weakness of an organization’s marketing activities. Sometimes, organizations find it
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difficulties to carry out restructuring or modernization because of resistance by employees
whereas they are smoothly one in some others.
2. Culture: The values, beliefs, and norms that shape the organization's culture can influence its
marketing approach. A company with a strong customer-centric culture, for example, may
prioritize customer satisfaction in its marketing efforts.
3. Mission, objectives and value system: The value system of an organization has important
bearing on the choice of business, the mission and objectives of the organization, business
policies and practices. It is a widely acknowledged fact that the extent to which the value
system is shared by all in the organization is an important factor contributing to success. The
business domain of the company, priorities, direction of development, business philosophy,
business policy etc. is guided by the mission and objectives of the company.
4. Structure and Organization: The organizational structure, hierarchy, and communication
channels within the company can affect how marketing decisions are made and implemented.
A decentralized organization may allow marketing teams more autonomy, while a centralized
structure may promote consistency across marketing efforts.
5. Other Resources: The financial and technological resources available to the organization
can impact its marketing capabilities. Adequate funding, and advanced marketing tools can
give a company a competitive advantage in the marketplace. Physical assets and facilities
like the production capacity and efficiency of the productive apparatus, logistics etc. are
among the factors which influence marketing competitiveness.
6. Processes and Systems: The internal processes and systems for product development,
distribution, and customer relationship management can influence marketing strategies.
Efficient processes and integrated systems can streamline marketing activities and enhance
customer experiences.
7. Leadership and Management Style: The leadership style and management practices of top
executives can shape the organization's marketing culture and priorities. Visionary leadership
and strategic decision-making can drive innovation and growth in marketing initiatives.
8. Research and Development (R & D) capability, among other things, determine the ability
to innovate and compete.
9. Company Reputation and Brand: A strong brand identity and positive reputation can
enhance employee morale and commitment to marketing goals. The image of the company
matters while raising finance, forming strategic alliances, soliciting marketing intermediaries,
entering purchase or sale contracts, launching new products etc.
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Overall, the internal marketing environment plays a crucial role in shaping an organization's
marketing strategies and activities. By effectively managing internal factors, companies can
create a supportive environment that fosters innovation, collaboration, and success in the
marketplace.
2.4. External Environment
The external environment comprises all events outside the company that have the potential to
affect the company. Marketers generally do not directly control the elements of the external
environment. Marketing managers can create a marketing mix to effectively meet the needs of
target customers. The external marketing environment can be broadly categorized as Micro and
Macro environment.
2.4.1. Micro Marketing Environment
It consists of the forces close to the marketing activity that affects its ability to serve its
customers. This includes: the firm’s suppliers, customers, marketing channel firms and publics.
2.4.1.1. Suppliers
Suppliers are firms and individuals that provide the resources needed by the company to produce
its goods and services. Supplier developments can seriously affect marketing. Marketing
managers must watch supply availability. Supply shortages or delays and other events can cost
sales in the short run and damage customer goodwill in the long run. Marketing managers also
monitor the price trends of their key inputs. Rising supply costs may force price increases that
can harm the company's sales volume.
2.4.1.2. Marketing Intermediaries
They are firms that help the company to promote, sell and distribute its goods to final buyers.
They include resellers/middlemen, physical distribution firms, marketing services agencies and
financial intermediaries. Resellers are distribution channel firms that help the company find
customers or make sales to them. These include wholesalers and retailers who buy and resell
merchandise (they are often called resellers). Selecting and working with middlemen is not easy.
No longer do manufacturers have many small, independent middlemen from which to choose,
they now face large and growing middlemen organizations. These organizations frequently have
enough power to dictate terms or even shut the manufacturer out of large markets. Physical
distribution firms help the company stock and move goods from their points of origin to their
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destinations. Marketing services agencies are the marketing research firms, advertising agencies,
media firms, and marketing consulting firms that help the company target and promote its
products to the right markets. 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.
Like suppliers, marketing intermediaries form an important component of the company's overall
value delivery system. In its quest 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.
Thus, today's marketers recognize the importance of working with their intermediaries as
partners rather than simply as channels through which they sell their products.
2.4.1.3. Customers
The company needs to study its customer markets closely. The market is the focal point of all
marketing decisions in an organization. The company links itself to suppliers and middlemen in
order to efficiently supply products and services to its target market. There are six types of
customer markets.
i. Consumer markets: - Consists of individual and households that buy goods and services
for personal consumption.
ii. Business markets: - Buy goods and services for further processing or for use in their
production process.
iii. Reseller markets: - Buy goods and services to resell at a profit.
iv. Government markets: - are made up of government agencies that buy goods and
services to produce public services or transfer goods and services to others who need
them.
v. Institutional markets: - consists of those buyers for the purpose of donation and charity.
vi. International markets: - consists of these buyers in other countries, including consumer,
producers’, resellers, governments and institutions.
Each market type has special characteristics that call for careful study by the seller.
2.4.1.4. Competitors
The marketing concept states that to be successful, a company must provide greater customer
value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt
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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 to those of its competitors. Large firms with dominant
positions in an industry can use certain strategies that smaller firms cannot afford. But being
large is not enough. There are winning strategies for large firms, but there are also losing ones.
Small firms can develop strategies that give them better rates of return than large firms enjoy.
2.4.1.5. Publics
The company's marketing environment also includes 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. There are seven types of publics.
➢ Financial Publics: influence the company's ability to obtain funds. Banks 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 often consult the company's lawyers on issues of product safety, truth in
advertising and other matters.
➢ Citizen action Publics: a company's marketing decisions may be questioned by
consumer organizations, environmental groups and others. Its public relations department
can help it stay in touch with consumer and citizen groups.
➢ Local Publics: include neighboring 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.
➢ General Publics: a company needs to be concerned about the general public's attitude
toward its products and activities. The public's image of the company affects its buying.
➢ Internal Publics: include workers, manager, 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
external publics.
A company can prepare marketing plans for these major publics as well as for its customer
markets for a specific response from a particular public, such as goodwill, favorable word of
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mouth, or donations of time or money. The company would have to design an offer to this public
that is attractive enough to produce the desired response.
2.4.2. Macro Environment
The company and all of other actors operate in large macro environmental forces that shape
opportunities and pose threats to the company. The following are the six most influential forces
in the company's macro environment.
2.4.2.1. Demographic Environment
The first macro environmental force that is of interest for marketers is population. This is
because people constitute a market. Demography is the study of human populations in terms of
size, density, location, age, gender, race, occupation, and other statistics. Marketers are keenly
interested in the size and growth of population, age distribution, ethnic mix, educational levels,
household patterns, mobility trend, birth rate, marriage and death rate, religious structure and
regional characteristics.
For example
• Population growth – determines the quantity of products demanded.
• Age mix – signals the kinds of products and services that will be in high demand at
each age group.
• Ethnic mix – Each population group has certain specific wants and buying habits
• Educational group – Illiterate, high school dropouts, high school graduates, college
degrees, professional degrees. Their educational group influences the type and
quantity of goods and services they demand
• Household patterns – The traditional household consists of a husband, wife and
children (sometimes grandparents). The type and quantity of goods and services is
influenced by their household patterns.
• Single, separated, windowed, divorced need smaller apartments, inexpensive and
smaller appliances, furniture and furnishings and food packed in smaller sizes.
2.4.2.2. Economic Environment
People alone do not make a market. Marketers require purchasing power as well as people. The
Economic environment consists of factors that affect consumer purchasing power and spending
patterns. The available purchasing power in an economy depends on current income, prices,
savings, inflation, and debt and credit availability. Marketers must pay close attention to major
trends in income and consumer spending patterns, willingness to spend. Marketers must pay
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close attention to major trends and consumer spending patterns both across and within their
world markets. Changes in major economic variables such as income, cost of living, interest
rates, and savings and borrowing patterns have a large impact on the market place. Companies
watch these variables by using economic forecasting.
2.4.2.3. Natural Environment
The natural environment involves the natural resources that are needed as inputs by marketers or
that are affected by marketing activities. Marketers should be aware of the threats and
opportunities associated with four trends in the natural environment: the shortage of raw
materials, the increased cost of energy, the increased levels of pollution and the changing role of
government in the natural resource management.
Marketers should pay attention to the physical environment in terms of obtaining resources and
also of avoiding damage. Raw materials may be infinite (such as air & water), the infinite
renewable (such as forests and food items) and the finite non-renewable (such as oil, coal,
platinum, and zinc, silver).
2.4.2.4. Technological Environment
Every new technology is a force for creative distraction. It includes forces that create new
technologies, creating new products and marketing opportunities. Technology has released
wonders such as antibiotics, notebook computers, the Internet, penicillin, open-heart surgery. It
also creates horrors hydrogen bomb, nerve gas, submachine gun, anthrax. Technology has a
tremendous impact on our life-style, our consumption patterns and our economic well-being.
Major technological breakthroughs carry a three-fold market impact. They can:
• Start entirely new industries, as computers, robots, and lasers have done.
• Radically alter or virtually destroy, existing industries. Television crippled the radio and
movie industry; hand-held calculators did in the slide-rule industry; computers did in the
typewriter industry.
• Stimulate other markets and industries not related to the new technology. New home
appliances and frozen food gave homemakers additional free time to engage in other
activities. The internet has affected postal businesses.
New technologies create new markets and opportunities. However, every new technology
replaces an older technology. The economy growth rate is affected by how many major new
technologies are discovered.
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2.4.2.5. Political/Legal 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 in a given society. Sometimes
these laws also create new opportunities for business.
The legal/political forces have an indirect but strong influence on the organization. They affect
business organizations in the areas of wages and taxes any organization pays, the rights of
employees and the organization’s liabilities for harm done to customers by its products. For
example, mandatory recycling laws have given the recycling industry a major boost and spurred
the creation of dozens of new companies making new products from recycled materials.
Legislation regulating business: business legislation has three main purposes: to protect
companies from unfair competition, to protect consumers from unfair business practices, and to
protect the interests of society from 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. Still others
have many laws on their books covering such issues as competition, product safety and liability,
fair trade and credit practices, and packaging and labeling. A central concern about business
legislation is: At what point do the costs of regulation exceed the benefits? The laws are not
always administered fairly; regulators and enforcers may be lax or overzealous. Although each
new law may have a legitimate rationale, it may have the unintended effect of sapping initiative
and retarding economic growth.
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 take place in
cyberspace, marketers must establish new parameters for doing business ethically. Although
America Online has been hugely successful and is the country's most popular online service
provider, it has lost millions of dollars due to consumer complaints regarding unethical
marketing tactics.
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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. Consumerists have advocated and won the right to know
the true interest cost of a loan, the cost per standard unit of competing brands (unit pricing), the
basic ingredients in a product, the nutritional quality of food, the freshness of products, and the
true benefits of a product. In response to consumerism, several companies have established
consumer affairs departments to help formulate policies and respond to consumer complaints.
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.
2.4.2.6. Socio-Cultural Forces
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. Society shapes our beliefs, values and norms. People
absorb, almost unconsciously, a worldview that defines their relationship to themselves, to
others, to organizations, to society, to nature, and to the universe.
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 get 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.
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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.
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