Business Environment- Overview
M.Com. IV
Concept of Environment
• Companies do not operate in isolation. They operate under the influence and impact of various forces and actors.
• A company’s marketing environment consist of the actors and forces outside marketing that affect marketing management’s ability to develop and maintain successful relationships with its target customers.
• The marketing environment offers both opportunities and threats.
• The environment continues to change at a rapid pace.
• Companies have two important tools to know about their environment—Marketing Intelligence and Marketing Research—for collecting information about the marketing environment.
Types of Environment
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The marketing environment is made up of a microenvironment and a macro environment.
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The microenvironment consists of the forces close to the company that affect its ability to serve e fits customers-the company, suppliers, marketing intermediaries, customer markets, competitors, and publics.
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The macro-environment consists of the larger societal forces that affect the microenvironment-demographic, economic, natural, technological, political, and cultural forces.
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We look first at the company’s microenvironment
Environment
Company Demographic
Economic
Natural
Technological Political
Cultural
Company
Customers
Intermediaries
Suppliers Competitors
Publics
The Company’s Microenvironment
•
Marketing management’s’ job is to attract and retain customers by creating customer value and satisfaction.
•
However, marketing managers cannot accomplish this task alone. Their success will depend on other actors in the company’s microenvironment
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These are: Other company departments, suppliers, marketing intermediaries, customers, competitors, and various publics, which combine to make up the company’s Microenvironment.
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These are shown in the next slide.
Actors in the Microenvironment
Micro Environment
The Company’s Internal Environment
• In designing marketing plans, marketing management takes other company groups into account.
• Top managementsets the company’s mission, objectives, broad strategies, and policies.
• MM make decisions on plans approved by top management.
• MM must also work closely with Finance which is concerned with finding and using funds to carry out the marketing plan.
• The R&D focuses on designing safe and attractive products.
• Purchasing deals with materials, manufacturing is responsible for producing the desired quality and quantity of products.
• Together, these departments have an impact on the marketing department’s plans and actions and they should work in harmony to provide superior customer value and satisfaction.
Suppliers
•
Suppliers are an important link in the company’s overall customer value delivery system.
•
They provide the resources needed by the company to produce its goods and services.
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Supplier problems can seriously affect marketing.
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Marketing managers must watch supply availability-supply; shortages or delays, labor strikes, and other events can cost sales in the short run and damage customer satisfaction 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.
Types of Marketing Intermediaries
Marketing Intermediaries
• Marketing intermediaries help the company to promote, sell, and distribute its goods to final buyers.
• They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries.
• 1. Resellers: Are firms that help the company find customers or make sales to them. These include wholesalers and retailers, who buy and resell merchandise. Selecting and working with resellers is not easy. Because of emergence of corporate (big) retailing. These organizations have enough power to dictate terms.
• 2. Physical distribution firms: Help the company to stock and move goods from their points of origin to their destinations. A company must determine the best ways to store and ship goods, balancing factors such as cost, delivery, speed, and safety.
Marketing Intermediaries (Cont)
• 3. Marketing services agencies: Marketing research firms, advertising agencies, and marketing consulting firms that help the company target and promote its products to the right markets. It must choose carefully because these firms vary in creativity, quality, service and price.
• 4. Financial intermediaries: They include the banks, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods.
• Marketing intermediaries form an important component of the company’s microenvironment. 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.
Customer Markets
Company
Consumer Markets International
Markets
Government Markets
Business Markets Reseller
Markets
The company needs to study its customer markets closely. There are five possible types of customer markets.
Customer Markets
• 1. Consumer markets: Consists of individuals and households that buy goods and services for personal consumption.
• 2. Business markets: Buy goods and services for further processing or for use in their production process.
• 3. Reseller markets: Buy goods and services to resell at a profit.
• 4. Government markets: Are made up of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them.
• 5. International markets: Consist of these buyers in other countries, including consumers, producers, resellers, and governments.
• Each market type has special characteristics that call for careful study by the seller.
Competitors
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The marketing concept states that to be successful, a companies provide better offers than its competitors do.
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Thus, marketers must do more than simply adapt to the needs of target consumers.
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They also must gain advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers.
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No single competitive marketing strategy is best for all companies.
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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.
Competitive Forces
Types of Competition
Competition Other organizations that market products that are similar to or can be substituted for a
marketer’s products in same geographic area Brand competitors Firms that market products with similar
features and benefits to the same customers at similar prices
Generic competitors Firms that provide very different products that solve the same problem or satisfy the same basic customer need
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.
Complete Microenvironment
The Company’s Macro-Environment
• The company and all actors in the microenvironment operate in larger macro-environmental forces.
• These macro-environmental forces present both opportunities as well as threats to the company.
• These forces are largely uncontrollable i.e., they can not be changed by an individual company.
• Therefore companies are required to track or find the changes in the macro-environmental forces by scanning them on a regular basis to take advantages of opportunities and to ward of the threats.
• We may define environmental scanning as “Gathering information regarding macro- environment, analyzing it and forecasting the trends to perform effective marketing.
• These forces are shown in the figure given in the next slide.
The Company’s Macro-environment
Demographic
Technological
Cultural Economic
Political Natural
Forces that Shape Opportunities and Pose Threats
to a Company
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 major interest to marketers because it involves people, and people make up markets.
• The world population is growing at an explosive rate. A growing population means growing human needs to satisfy. Depending on purchasing power, it may also mean growing market opportunities.
• The world’s large and highly diverse population poses both opportunities and challenges.
Thus, marketers keep close track of demographic trends and developments in their markets
• We discuss the most important demographic trends.
Major Trends in Demographic Environment
• Worldwide Population growth: 6.1 billion in 2000—7.9 b in 2025.
• Two major concerns:
1. Certain natural resources are limited and non-replaceable.
2. Population growth is highest in poor countries
• Population Age Mix: Marketers are required to know the proportion of various age groups in the population.
• Household Patterns: Traditional family is replaced by nuclear family. From single earning family to dual earning family.
• Geographical Shifts in Population: people are migrating from rural areas (villages, towns) to urban areas (cities)
• Marketers in their respective product categories are required to know the changing trends in the population in order to take advantage of opportunities.
Demographic Environment in India
• Increasing population
• Rapid growth in urban population in Asia
• In India, urban population to rise to 523 million by 2025
• Change in Family Structure
• Changing Role of Women
• A growing middle class
• One study MGI India divided the Indian population into 5 economic classes
• Division based on real annual disposable income
• 1.Deprived households have an annual disposable income of less than Rs 90,000
• The poorest economic class, Mostly unskilled or semi-skilled workers on daily wages
Demographic Environment in India
• 2. Aspirers have an annual disposable income in the range of Rs 90,000 to Rs 200,000
– Spend most of their income on basic necessities, Small-time retailers, small farmers, etc.
• 3. Seekers have an annual disposable income between Rs 200,000 and Rs 500,000. Mostly white-collar employees, mid-level government officials, newly employed postgraduates, medium- scale traders
• 4. Strivers have an annual income ranging from Rs 500,000 to Rs 1,000,000
• Have a stable income source and access to amenities
• Mostly professionals such as lawyers, CAs, senior government officials, rich farmers
• 5. Global Indians have an annual disposable income in excess of Rs 1,000,000
• Creamy layer in society, Globe-trotters with a high standard of living
Economic Environment
• Factors that affect consumer purchasing power and spending patterns. Marketers should keep track of the following factors:
Income Distribution: Marketers should pay attention to income distribution as well as average income. Average income is increasing in every country. Purchasing power increased.Many companies are aggressively targeting the affluent in India also.
Changing Consumer Spending Patterns: Percentage spent on food declined, the percentage spent on housing remains more or less same and the percentage spent on most other categories increased
Savings: Purchasing power not only comes from current income but also from savings people have.
Credit Availability: Another factor is availability of loan facilities. Banks and other financial institutions are providing loans for purchasing various products particularly High Ticket Items.• Therefore, Marketers should take advantage of changes in the economic environment.
Economic Environment (Cont)
• The global financial crisis of 2007–2009 has affected the consumption and production of many products
• Value marketing involves ways to offer financially cautious buyers greater value—the right combination of quality and service at a fair price
• Changes in Consumer Spending Patterns
• Ernst Engel—Engel’s Law
• As income rises:
• The percentage spent on food declines
• The percentage spent on housing remains constant
• The percentage spent on savings increases
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 several trends in the natural environment.
The first involves growing shortages of raw materials. Nonrenewable resources, such as oil, coal, and various minerals, pose a serious problem.
A second environmental trend is increased pollution. Governments of many countries coming out with anti-pollution laws.
A third trend is increased government intervention in natural resource management.
A fourth environmental trend is increased energy costs. Prices of oil, electricity and coal increased tremendously. Alternative sources of energy are being explored.Natural Environment
Factors affecting the natural environment
Higher Pollution Levels
Increased Costs of Energy
Shortage of Raw Materials Changing Role
of Government
Technological Environment
• The technological environment is perhaps the most dramatic force shaping our destiny.
Following trends are important.
Accelerating pace of change: The technological environment changes rapidly. Think of all of today’s common products that were not available 100 years ago, or even 30 years ago.
New technologies create new markets and opportunities. Thus, marketers should watch the technological environment closely. Companies that do not keep up with technological change soon will find their products outdated. They will miss new product and market opportunities.
More R & D Budgets: Big companies and governments are spending more on H & D activities.
Increased regulations of technological change: As products and technology become more complex, government agencies come with more regulations to safeguard consumers. Marketers should be aware of these regulations when applying new technologies and developing new products.Technological Environment
Rapid Pace of Change
High R & D Budgets
Focus on Minor Improvements
Increased Regulation Issues in the Technological
Environment
Increasing legislation
• Protect companies from each other
• Protect consumers
• Protect society
Government agency enforcement
Includes laws, government agencies, and pressure groups that influence or limit … in a given society
Emphasis on ethics & social
responsibility
• Societal marketing concept
(self-regulation)
Political Environment
Cultural Environment
• 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.
• Core beliefs and values are persistent and are passed on from parents to children and are reinforced by schools, religious institutions, businesses, and government
• Secondary beliefs and values are more open to change and include people’s views of themselves, others, organization, society, nature, and the universe
• The cultural values of a society are expressed throughpeople’s views.
RESPONDING TO THE ENVIRONMENT
• There are three kinds of companies:
• 1. Those who make things happen; Proactive companies
• 2. Those who watch things happen; Reactive companies
• 3. Those who wonder what’s happened; Passive companies
• Many companies view the marketing environment as an uncontrollable and analyze the environmental forces and accordingly design marketing strategies.
• Other companies, rather than simply watching and reacting, these firms take aggressive actions to affect the forces in their marketing environment.
• Companies can find positive ways to overcome uncontrollable environmental constraints.
• Marketing management cannot always control environmental forces. But whenever possible, smart marketing mangers will take a proactive rather than reactive approach to the marketing environment.
