Chapter Two
Analyzing Market Environment
Introduction
A company’s marketing environment consists of the factors and forces outside marketing that affects
marketing management’s ability to develop and maintain successful transactions with its target
customers. Changes in the marketing environment are often quick and unpredictable. The marketing
environment offers both opportunities and threats. The company must use its marketing research
and marketing intelligence systems to monitor the changing environment. Marketers use marketing
intelligence and marketing research for collecting information about the marketing environment. By
conducting systematic environmental scanning, marketers are able to revise and adapt marketing
strategies to meet new challenges and opportunities in the marketplace. The marketing environment
is made up of: Micro Environment and Macro Environment.
2.1 What is Marketing Environment?
Marketing Environment is the combination of external and internal factors and forces which affect the
company’s ability to establish a relationship and serve its customers.
The marketing environment of a business consists of an internal and an external environment. The
internal environment is company-specific and includes owners, workers, machines, materials etc. The
external environment is further divided into two components: micro & macro. The micro or the task
environment is also specific to the business but external. It consists of factors engaged in producing,
distributing, and promoting the offering.
The macro or the broad environment includes larger societal forces which affect society as a whole.
The broad environment is made up of six components: demographic, economic, physical, technological,
political-legal, and social-cultural environment.
“A company’s marketing environment consists of the actors and forces outside of marketing that
affect marketing management ability to build and maintain successful relationships with target
customers”. – Philip Kotler
I. Internal Environment
The internal environment of the business includes all the forces and factors inside the organization
which affect its marketing operations. These components can be grouped under the Five Ms of the
business, called 5Ms which are: Men, Money, Machinery, Materials, and Markets
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The internal environment is under the control of the marketer and can be changed with the changing
external environment. Nevertheless, the internal marketing environment is as important for the
business as the external marketing environment. This environment includes
the sales department, marketing department, the manufacturing unit, the
human resource department, etc.
II. External Environment
The external environment constitutes factors and forces which are external to the business and on which
the marketer has little or no control. The external environment is of two types:
a) Microenvironment
The micro environment consists of the forces close to the company that affect its ability to serve its
customers. Marketing management's job is to attract and build relationships with 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 which combine
to make up the company's value delivery system. The micro environment consists of six actors
1. Company:
A company is a legal entity formed by a group of individuals to engage in and operate a commercial
or industrial enterprise. A company may be organized in various ways for tax and financial liability
purposes depending on the corporate law of its jurisdiction.
In designing marketing plans, marketing management takes other company groups into account-
groups such as top management, finance, research and development (R&D), purchasing,
manufacturing, and accounting. All these interrelated groups come from the internal environment.
Top management sets the company's mission, objectives, brand strategies, and policies. Marketing
mangers make decisions within the plans made by top management, and marketing plans must be
approved by top management before they can be implemented.
Finance is concerned with funding and using funds to carry out the marketing plan. The R&D
department focuses on designing safe and attractive products. Purchasing worries about getting
supplies and materials whereas, manufacturing is responsible for producing the desired quantity of
products. Accounting has to measure revenues and costs to help marketing know how well it is
achieving its objectives. Together, all of these departments have an impact on the marketing
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department's plans and actions. Under the marketing concept, all of these functions must "think
consumer," and they should work in harmony to provide superior customer value and satisfaction.
2. Suppliers:
Suppliers are firms and individuals that provide the resources needed by the company and its
competitors to produce goods and services. Suppliers are an important link in the company's overall
customer value delivery system. 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 damage customer satisfaction in the long run. Marketing managers
also monitor the price trends of their key inputs. Rising supply costs may force price increase that
can harm the company's sales volume.
3. Intermediaries:
Marketing intermediaries help the company to promote, sell, and distribute its goods to final buyers.
They include resellers, physical distribution firms, marketing service agencies, and financial
intermediaries.
i. 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. Selecting
and working with resellers is not easy
ii. Physical distribution firms help the company to stock and move goods from their points of
origin to their destinations. Working with warehouse and transportation firms, a company
must determine the best way to store and ship goods, balancing factors such as cost, deliver,
speed, and safety.
iii. Marketing services agencies are the advertising agencies, media firms, and marketing
consulting firms that help the company target and promote its products to the right markets.
When the company decides to use one of these agencies, it must choose carefully because
these firms vary in creatively, quality, services, and price.
iv. 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. Most firms and customers depend on financial intermediaries to finance
their transactions.
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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.
4. Customers Market:
Company needs to study its customer markets closely. There are five types of customer markets.
Consumer markets consist of individuals and households that buy goods and services for
personal consumption.
Business markets buy goods and services for further processing or for use in their
production process.
Reseller markets buy goods and services to resell at a profit.
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. Finally,
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.
5. 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 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. 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.
6. 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.
1. Financial publics: influence the company's ability to obtain funds. Banks, investment houses,
and stockholders are the major financial publics.
2. Media publics: carry news, features, and editorial opinion and they include newspapers,
magazines, and radio and television stations.
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3. 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.
4. Citizen action publics: A company's marketing decisions may be questioned by consumer
organizations, environmental groups, minority groups, and others. Its public relations department
can help it stay in touch with consumer and citizen groups.
5. Local publics: include neighborhood 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 toward its
products and activities. The public's image of the company affects its buying.
7. Internal publics: include 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 external publics.
b) Macro Environment
The company and all of the other actors operate in a larger macro environmental forces that shape
opportunities and pose threats to the company. The macro environment consists of the larger societal
forces that affect the microenvironment. There are six major forces in the company's macro
environment.
Company's Macro Environment
The major external and uncontrollable factors that influence an organization is decision making, and
affect its performance and strategies. These factors include the economic factors; demographics; legal,
political, and social conditions; technological changes; and natural forces.
Specific examples of macro environment influences include competitors, changes in interest rates, and
changes in cultural tastes, disastrous weather, or government regulations.
The macro component of the marketing environment is also known as the broad environment. It
constitutes the external factors and forces which affect the industry as a whole but don’t have a direct
effect on the business.
Macro Environment is the external environment factors greatly influenced the business success,
strategies and decision making. These factors are uncountable by the business organizations. The wider
and broader set of economical conditions is known as macro environment.
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The macro-environment can be divided into 6 parts.
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1. Demographic Environment: Demography is the study of human population 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. Demographic trends are constantly changing. Some of the more interesting trends
globally are:
1. The world’s population rate is growing at an explosive rate.
2. The most important trend is the changing age structure of the population.
3. Geographical shifts in population will also alter demographics.
4. The population is becoming better educated.
2. Economic Environment: Markets require buying power as well as people. The economic
environment consists of factors that affect consumer purchasing power and consumption
pattern or spending patterns. The major factors that affect purchasing power include: Income,
saving, and credit facilities. Nations vary greatly in their levels and distribution of income.
Some countries have subsistence economies - they consume most of their own agricultural and
industrial output. These countries offer few market opportunities.
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 several trends in the natural environment such as:
a) Growing shortages of raw materials.
b) Increased pollution. Industry will almost always damage the quality of the natural
environment. Industrial damage to the environment has become very serious.
c) Government intervention in natural resource management has caused environmental
concerns to be more practical and necessary in business and industry. Instead of
opposing regulation, marketers should help develop solutions to the material and
energy problems facing the world.
4. Technological Environment: The technological environment includes forces that create
new technologies, creating new product and market opportunities. The technological
environment is perhaps the most dramatic force now shaping our destiny. The technological
environment changes rapidly. New technologies create new markets and opportunities.
However, every new technology replaces an older technology. Companies that do not keep up
with technological change soon will find their products outdated. They will miss new product
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and market opportunities. Thus, marketers should watch the technological environment
closely. The following trends are worth watching:
Faster rate of technological change. Products are being technologically outdated at a rapid
pace.
There seems to be almost unlimited opportunities being developed daily. The challenge is
not only technical but also commercial - to make affordable versions of products.
Higher research and development budgets.
Increased regulation. Marketers’ should be aware of the regulations concerning product
safety, individual privacy, and other areas that affect technological changes.
5. Political Environment
Marketing decisions are strongly affected by developments in the 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. Business is
regulated by various forms of legislation such as:
1. Governments develop public policy to guide commerce - sets of laws and regulations
limiting business for the good of society as a whole.
2. Increasing legislation to:
Protect companies from each other.
Protect consumers from unfair business practices.
Protecting interests of society against unrestrained business behavior.
3. Growth of public interest groups. The number and power of public interest groups have
increased during the past two decades.
4. Increased emphasis on ethics and socially responsible actions. Socially responsible firms
actively seek out ways to protect the long-run interests of their consumers and the
environment.
6. Cultural Environment: The cultural environment is made up of institutions and other
forces that affect society’s basic values, perceptions, and behaviors. Certain cultural
characteristics can affect marketing decision making. Among the most dynamic cultural
characteristics are:
1. Persistence of cultural values. People’s core beliefs and values have a high degree of
persistence. Core beliefs and values are passed on from parents to children and are
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reinforced by schools, churches, business, and government. Secondary beliefs and values
are more open to change.
2. Shifts in secondary cultural values. Since secondary cultural values and beliefs are open to
change, marketers want to spot them and be able to capitalize on the change potential.
Society’s major cultural views are expressed in:
1. People’s view of themselves. People vary in their emphasis on serving themselves versus
serving others.
2. People’s views of others. Observers have noted a shift from a “me-society” to a “we-
society”. Consumers are spending more on products and services that will improve their
lives rather than their image.
3. Peoples views of organizations. People are willing to work for large organizations but
expect them to become increasingly socially responsible
4. People’s views of society. This orientation influences consumption patterns. “Buy
Ethiopian products” versus buying abroad is an issue that will continue
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