analysing business env

8/7/2019 analysing business env

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There are several components in the overall marketing environment. At the simplest

level, we can distinguish between the internal environment (conditions within theorganization) and the external environment (conditions outside the organization).

The external environment can then be divided into the macro-environment and the market

environment. The macro-environment is concerned with broad general trends in the

economy and society that can affect all organizations, whatever their line of business.The market environment describes those factors that are specific to the particular market

in which the organization operates. The external environment may create opportunities

for the organization to exploit, or may pose threats to current or planned activities

Marketing as a strategic activity is concerned with managing the relationship

between the organization and its environment. This may mean adjusting and adapting the

organization’s marketing activities to respond to external changes in the environment. It

may also mean trying to change the environment to make it better suited to what the organization wishes to do. That is to say, the environment should not

be viewed simply as a constraint; rather, it should be viewed as something which can, if necessary, be influenced and changed by an organization. Lobbying for changes to the

regulatory framework is one very obvious example of an attempt to change the external

environment. Equally, mergers and acquisitions serve as a means of altering patterns of

competition and changing the resources and capabilities available to a particular organization. Some forms of marketing communications may be employed to influence

customer needs and expectations, while branding decisions and distribution strategies can

sometimes be used to build barriers to market entry by potential competitors. The extentto which aspects of the environment can be managed varies. Typically, macro-

environmental factors are seen as being least controllable. while market environmentalfactors are most controllable



ENVIRONMENTAL SCANNING

Changes in the marketing environment are a source of opportunities and threats to bemanaged. The process of continually acquiring information on events occurring outside

the organization to identify and interpret potential trends is called environmental

scanning .

Environmental trends typically arise from five sources: social, economic, technological,

competitive, and regulatory forces. As shown in Figure 3–1 and described later in thischapter, these forces affect the marketing activities of a firm in numerous ways.

To illustrate how environmental scanning is used, consider the following trend:

Coffee industry marketers have observed that the percentage of adults who drink coffee

declined from 75 percent in 1962 to 49 percent in 2004 and then increased to 57 percent

in 2007. Age-specific analysis indicates that the percentage of 18- to 24-year-olds who

drink coffee has risen from 16 percent in 2003 to 37 percent todayWhat types of businesses are likely to be influenced by these trends? What future

would you predict for coffee?

We may have concluded that the change from a declining trend to an increase in coffee

consumption is likely to influence coffee manufacturers, coffee shops, and supermarkets.

If so, We are correct—manufacturers have responded by offering new flavors and

seasonal blends, coffee shops are automating to prepare drinks faster, and supermarketshave added coffee boutiques and gourmet brands. Predicting the future requires

assumptions about the number of years the trends will continue and the rate of increase or

decline in various age groups. Did we consider these issues in your analysis? Becauseexperts make different assumptions, their forecasts range from decline, to no growth, to a

7 percent annual increase through 2010, a range that probably includes your forecast.

Environmental scanning also involves explaining trends. Why did coffee consumption

decline for many years and increase recently? One explanation for the decline isthat consumers switched from coffee to other beverages such as soft drinks, juices, and

bottled water. Another explanation is that preferences shifted to more expensive types of

coffee, and consumers reduced their use to maintain the same level of expenditure. Therecent increases may be the result of new coffee products distributed in supermarkets

and vending machines, and gourmet single-serving products for homes and offices.

Identifying and interpreting trends such as the decline and increase in coffee

consumption, and developing explanations such as those offered in this paragraph, areessential to successful environmental scanning.



An Environmental Scan of Today’s MarketplaceWhat other trends might affect marketing in the future? A firm conducting an

environmental scan of the marketplace might uncover key trends such as those listed in

Figure 3–2 for each of the five environmental forces. 4 Although the list of trends is far from complete, it reveals the breadth of an environmental scan—from the increasing

diversity of the U.S. population, to the growing economic impact of China and India, tothe dramatic growth of customer-generated content. These trends affect consumers and

the businesses and organizations that serve them. Trends such as these are described inthe following discussions of the five environmental forces.

SOCIAL FORCES

The social forces of the environment include the demographic characteristics of the

population and its values. Changes in these forces can have a dramatic impact on

marketing strategy.

Demographics

Describing a population according to selected characteristics such as age, gender,ethnicity, income, and occupation is referred to as demographics . Several organizations

such as the Population Reference Bureau and the United Nations monitor the world

population profile, while many other organizations such as the U.S. Census Bureau

provide information about the American population.

For marketers, global trends such as WORLD POPULAION & SHIFTING OF AGE

STRUCTURE OF POPULATION have many implications. Obviously, the relative sizeof countries such as India and China will mean they represent huge markets for many

product categories. Elderly populations in developed countries are likely to save less and

begin spending their funds on health care, travel, and other retirement-related products

and services. Economic progress in developing countries will lead to growth inentrepreneurship, new markets for infrastructure related to manufacturing,

communication, and distribution, and the growth of exports

Culture-A second social force, culture, incorporates the set of values, ideas, and

attitudes that are learned and shared among the members of a group. Because many of the

elements of culture influence consumer buying patterns, monitoring national and globalcultural trends is important for marketing.

Changing Values -Culture also includes values, which vary with age but tend to be

very similar for men and women. All age groups, for example, rank “protecting the

family” and “honesty” as the most important values. Consumers under 20 years old rank “friendship” third, while the 20-to-29 and 30-to-39 age groups rank “self esteem” and“health and fitness” as their third most important values, respectively. An increasingly

important value for consumers is preserving the environment and other health issues.

These values are reflected in the growth of products that consumers believe are consistent

with their values. Dannon Co., for example, has developed probiotic yogurts such asLight & Fit Crave Control yogurt and immunity-boosting DanActive for health-conscious

consumers. Concern for the environment is one reason consumers are buying hybrid gas-



electric automobiles such as the Toyota Prius and energy-efficient lightbulbs such as

General Electric’s Energy Smart fluorescent bulbs. Companies are also changing their

business practices to respond to trends in consumer values. Wal-Mart has set ambitiousgoals to cut energy use, switch to renewable power, and reduce packaging on the

products it carries

ECONOMIC FORCESThe second component of the environmental scan, the economy, pertains to the income,

expenditures, and resources that affect the cost of running a business and household.We’ll consider two aspects of these economic forces: a macroeconomic view of the

marketplace and a microeconomic perspective of consumer income.

Macroeconomic Conditions-Of particular concern at the macroeconomic level is the

inflationary or recessionary state of the economy, whether actual or perceived by

consumers or businesses. In an inflationary economy, the cost to produce and buyproducts and services escalates as prices increase. From a marketing standpoint, if prices

rise faster than consumer incomes, the number of items consumers can buy decreases.This relationship is evident in the cost of a college education. The price of attending

college has increased 29 percent during the past 10 years while median family incomerose 3 percent during the same period. Whereas inflation is a period of price increases,

recession is a time of slow economic activity. Businesses decrease production,

unemployment rises, and many consumers have less money to spend.

Consumer Income-The microeconomic trends in terms of consumer income are also

important issues for marketers. Having a product that meets the needs of consumers maybe of little value if they are unable to purchase it. A consumer’s ability to buy is related to

income, which consists of gross, disposable, and discretionary components.

Disposable Income The second income component, disposable income, is the money

a consumer has left after paying taxes to use for food, shelter, clothing, and

transportation. Thus, if taxes rise at a faster rate than does income, consumers must

economize. In recent years, consumers’ allocation of income has shifted. As themarketplace has become more efficient, producing products that are more durable and

use less energy, consumers have increased their disposable income

TECHNOLOGICAL FORCESOur society is in a period of dramatic technological change. Technology, the third

environmental force, refers to inventions or innovations from applied science or engineering research. Each new wave of technological innovation can replace existing

products and companies.

Technology’s Impact on Customer Value-Advances in technology are having

important effects on marketing. First, the cost of technology is plummeting, causing the

customer value assessment of technology-based products to focus on other dimensions

such as quality, service, and relationships. When Plaxo introduced its address book software, it gave the product away at no charge, reasoning that satisfied customers would



later buy upgrades and related products. A similar approach is now used by many cellular

telephone vendors, who charge little for the telephone if the purchase leads to a telephone

service contract. Technology also provides value through the development of newproducts. Many automobile manufacturers now offer customers a navigation system that

uses satellite signals to help the driver reach any destination. Under development are

radarlike collision avoidance systems that disengage cruise control, reduce the enginespeed, and even apply the brakes. Other new products likely to be available soon include

a “smart ski” with an embedded microprocessor that will adjust the flexibility of the ski

to snow conditions; injectable health monitors that will send glucose, oxygen, and other clinical information to a wristwatch-like monitor; and electronic books that will allow

you to download any volume and view it on pages coated with electronic “ink” and

embedded electrodes. Technology can also change existing products and the ways they

are produced. Many companies are using technological developments to allow recycling

products through the manufacturing cycle several times.

COMPETITIVE FORCES

The fourth component of the environmental scan, competition , refers to the alternativefirms that could provide a product to satisfy a specific market’s needs. There are various

forms of competition, and each company must consider its present and potentialcompetitors in designing its marketing strategy

REGULATORY FORCESFor any organization, the marketing and broader business decisions are constrained,

directed, and influenced by regulatory forces. Regulation consists of restrictions state

and federal laws place on business with regard to the conduct of its activities. Regulation

exists to protect companies as well as consumers. Much of the regulation from the federaland state levels is the result of an active political process and has been passed to ensure

competition and fair business practices. For consumers, the focus of legislation is toprotect them from unfair trade practices and ensure their safety.

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