Business Environment- Overview

M.Com. IV

Concept of Environment

• Companies do not operate in isolation. They operate under the influence and impact ofvarious forces and actors.

• A company’s marketing environment consist of the actors and forces outside marketingthat affect marketing management’s ability to develop and maintain successfulrelationships 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—MarketingIntelligence and Marketing Research—for collecting information about the marketingenvironment.

Types of Environment

• The marketing environment is made up of a microenvironment and a macroenvironment.

• The microenvironment consists of the forces close to the company that affect itsability to serve e fits customers-the company, suppliers, marketingintermediaries, customer markets, competitors, and publics.

• The macro-environment consists of the larger societal forces that affect themicroenvironment-demographic, economic, natural, technological, political,and cultural forces.

• 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 creatingcustomer value and satisfaction.

• However, marketing managers cannot accomplish this task alone. Their successwill depend on other actors in the company’s microenvironment

• These are: Other company departments, suppliers, marketing intermediaries,customers, competitors, and various publics, which combine to make up thecompany’s Microenvironment.

• 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 intoaccount.

• Top management sets 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 fundsto 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 desiredquality and quantity of products.

• Together, these departments have an impact on the marketing department’s plans andactions and they should work in harmony to provide superior customer value andsatisfaction.

Suppliers

• Suppliers are an important link in the company’s overall customer value deliverysystem.

• They provide the resources needed by the company to produce its goods andservices.

• Supplier problems can seriously affect marketing.

• Marketing managers must watch supply availability-supply; shortages or delays,labor strikes, and other events can cost sales in the short run and damagecustomer satisfaction in the long run.

• Marketing managers also monitor the price trends of their key inputs. Risingsupply 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 tofinal buyers.

• They include resellers, physical distribution firms, marketing services agencies, andfinancial intermediaries.

• 1. Resellers: Are firms that help the company find customers or make sales to them. Theseinclude wholesalers and retailers, who buy and resell merchandise. Selecting and workingwith resellers is not easy. Because of emergence of corporate (big) retailing. Theseorganizations have enough power to dictate terms.

• 2. Physical distribution firms: Help the company to stock and move goods from their pointsof origin to their destinations. A company must determine the best ways to store and shipgoods, balancing factors such as cost, delivery, speed, and safety.

Marketing Intermediaries (Cont)

• 3. Marketing services agencies: Marketing research firms, advertising agencies, andmarketing consulting firms that help the company target and promote its products to theright 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 otherbusinesses that help finance transactions or insure against the risks associated with thebuying and selling of goods.

• Marketing intermediaries form an important component of the company’smicroenvironment. It must partner effectively with marketing intermediaries to optimizethe performance of the entire system.

• Thus, today’s marketers recognize the importance of working with their intermediaries aspartners rather than simply as channels through which they sell their products.

Customer Markets

Company

ConsumerMarkets

InternationalMarkets

GovernmentMarkets

BusinessMarkets

ResellerMarkets

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 servicesfor personal consumption.

• 2. Business markets: Buy goods and services for further processing or for use in theirproduction 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 servicesto 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

• The marketing concept states that to be successful, a companies provide better offers than its competitors do.

• Thus, marketers must do more than simply adapt to the needs of target consumers.

• They also must gain 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.

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-environmentalforces.

• These macro-environmental forces present both opportunities as well as threats to thecompany.

• These forces are largely uncontrollable i.e., they can not be changed by an individualcompany.

• Therefore companies are required to track or find the changes in the macro-environmentalforces by scanning them on a regular basis to take advantages of opportunities and to wardof 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

PoliticalNatural

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 growinghuman needs to satisfy. Depending on purchasing power, it may also mean growing marketopportunities.

• 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 agegroups in the population.

• Household Patterns: Traditional family is replaced by nuclear family. From singleearning 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 changingtrends 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. Mostlywhite-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 shouldkeep track of the following factors:

Income Distribution: Marketers should pay attention to income distribution as well asaverage 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 percentagespent on housing remains more or less same and the percentage spent on most othercategories increased

Savings: Purchasing power not only comes from current income but also from savings peoplehave.

Credit Availability: Another factor is availability of loan facilities. Banks and other financialinstitutions are providing loans for purchasing various products particularly High TicketItems.

• 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 ofmany products

• Value marketing involves ways to offer financially cautious buyers greater value—the rightcombination 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 bymarketers 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 countriescoming 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 coalincreased tremendously. Alternative sources of energy are being explored.

Natural Environment

Factors affecting

the naturalenvironment

Higher PollutionLevels

Increased Costsof Energy

Shortage of Raw Materials

Changing Roleof 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 ofall of today’s common products that were not available 100 years ago, or even 30 yearsago.

New technologies create new markets and opportunities. Thus, marketers shouldwatch the technological environment closely. Companies that do not keep up withtechnological change soon will find their products outdated. They will miss new productand market opportunities.

More R & D Budgets: Big companies and governments are spending more on H & Dactivities.

Increased regulations of technological change: As products and technology becomemore complex, government agencies come with more regulations to safeguardconsumers. Marketers should be aware of these regulations when applying newtechnologies 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 companiesfrom each other

• Protect consumers • Protect society

Governmentagency

enforcement

Includes laws, government agencies, and pressure groups that influence or limit … in a given society

Emphasis onethics & socialresponsibility

• Societal marketingconcept

(self-regulation)

Political Environment

Cultural Environment

• The cultural environment is made up of institutions and other forces that affect asociety’s basic values, perceptions, preferences, and behaviors. People grow up in aparticular society that shapes their basic beliefs and values.

• Core beliefs and values are persistent and are passed on from parents to children and arereinforced by schools, religious institutions, businesses, and government

• Secondary beliefs and values are more open to change and include people’s views ofthemselves, others, organization, society, nature, and the universe

• The cultural values of a society are expressed through people’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 theenvironmental forces and accordingly design marketing strategies.

• Other companies, rather than simply watching and reacting, these firms take aggressiveactions 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 wheneverpossible, smart marketing mangers will take a proactive rather than reactive approach tothe marketing environment.