UNIT 2: THE MARKET ENVIRONMENT CONTENTS

Contents
1.0 Aims and Objectives
1.1 Introduction
1.2 External Macro Environment
1.3 External Micro Environment
1.4 Summary
1.5 Answer Key Check Your Progress Exercise

2.0 AIMS AND OBJECTIVES

This unit is designed to introduce students about the marketing environment, factors in the
marketing environment and how these factors affect the effectiveness of marketers.

After reading this unit: you will be able to :

- understand marketing environment
- explain factors of the marketing environment
- understand how the marketing environment affects managers effectivenss

2.1 INTRODUCTION

The company’s marketing environment consists of the actors and forces external to the
marketing function of the firm that impinge on the marketing management ability to develop
and maintain successful transactions with its target customers. Every company’s primary goal
is to serve and satisfy set of needs/wants of a chosen target market at a profit. To carry out
these tasks, the company links itself with a set of outside factors to reach its customers. The
marketing environment may be classified as external and internal environment. The external
environment cannot be controlled by the individual company, where as, internal environment
can be controlled and influenced by the respective company.

Internal environment includes all forces available with in the company such as policies,
procedures, strategies, mission, people, relationships, between people, etc. In designing

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marketing plans, marketing management takes other company groups into account – groups
such as top management, finance, research and development, purchasing, manufacturing and
accounting.

For example:

To management: - Sets the company’s mission, objectives, broad strategic and

policies.
Marketing manager: - Make decisions within the plans made by top management and
market plans must be approved by top management before they
can be implemented.
Finance: -is concerned with finding and using funds to carry out the marketing plan.

Research & Development: - Focuses on designing safe and attractive products that
help the marketing manager to achieve its objective.

Manufacturing: - is responsible for producing the desired quantity and

quality of products at the night time.

Accounting: - has to measure revenues and costs to help marketing know

how well it is achieving its objectives.

The external marketing environment consists of factors and actors that exist outside the
company and affect the marketing managements ability to achieve its objectives. This can be
classified into two as macro environment and microenvironment.

2.2 EXTERNAL MACRO ENVIRONMENT

This is the set of actors and forces that affect the marketer’s activity indirectly by affecting the
general marketing environment or microenvironment. These forces represent non-controllable
forces, which the company must monitor and respond to. It includes demographic, economic,
natural, technological, political, social-cultural forces and competitors.

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2.2.1 Demographic Environment
The first macro environment force that is of interest for marketers is population. This is
because people constitute a market. 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 house hold consists of a husband, wife and
children (sometimes grand parents). The type and quantity of goods and services is
influenced by their household patterns.
 Single, separated, windowed, divorced (SSWD) need smaller apartments, in
expensive and smaller appliances, furniture and furnishings and food packed in
smaller sizes.

2.2.2 Economic Environment

People alone do not make a market. Marketers require purchasing power as well as people.
The available purchasing power in an economy depends on current income, prices, savings,
debt and credit availability. Marketers must pay close attention to major trends in income and
consumer spending patterns, willingness to spend.

Purchasing power comes from size and availability of resources. The individual get the ability
to purchase income is the amount of money received through wage, rent, investment, pension,
credit or wealth. Normally, these money is used for three purposes: paying tax, spending and
saving. A society can be grouped in to five groups based on the income distribution. 1.Very
low income, 2. Mostly low income, 3. Very low very high incomes, 4. Low, medium, high
incomes, 5. Mostly medium incomes.

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2.2.3. Competitors Environment
Competitors and those firms that market products similar to or substitute for its production in
the same geographic area. An organization rarely stands alone in its effort to serve a given
consumer/customer market.

The marketing concept states that to be successful, a company must provide greater customer
value and satisfaction than its competitors. 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 competitor’s offerings in the minds of consumers. A company
competitor may be classified as:

i. Intertype competitors: - are companies, which produce same or similar products.

The compete on the market and may be on the resources.
ii. Interatype competitors: - are companies, which produces different products from
the same resource. They compete on the resource market.

Or they can also be classified as:

i. Desire competitors: - They compete to satisfy desires of customers. Consumers
may have different desires at a time and competitors compete to wine the purchasing
power of the consumer.
ii. Generic competitors: - compete in the way they satisfy consumers specific need.
ex. Transportation need can be satisfied by different meanses/types of transportation.
iii. Form competitors: - companies compete in the form of a product i.e. design,
feature and shape of the product.
iv. Brand competitors: - companies compete on the brand. Example Pepsi and coca,
Sony and JVC etc. products are similar.

2.2.4. Natural Environment

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.

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Marketers should pay attention to the physical environment in terms of obtaining resources
and also of avoiding damage. Raw materials may be infinite (such: air & water), the infinite
renewable (such as forests and food items) and the finite non renewable (such as oil, coal,
platinum, zinc, silver).

2.2.5 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
worders such as antibiotics, organ transplants, notebook computers, the Internet, penicillin,
open-heart surgery, birth control pill. It also create horrors hydrogen bomb, nerve gas,
submachine gun, antrax. Technology has a tremendous impact on our lives-our Life-style, our
consumption patterns and our economic well-being. Major technological break through carry
a three-fold market impact. They can:

i. Start entirely new industries, as computers, robots, and lasers have done.
ii. 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.
iii. 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. In the western world internet has stimulated the currier and postal
businesses.

2.2.6 Socio Cultural Environment

The society in which people grow up shapes their beliefs, values and norms. People absorb,
almost unconsciously, a worldview that defines their relationship to themselves, to others and
to the universe.

The people living in a particular society hold many core beliefs and values that tend to persist
like believe: in work, in getting married, giving to the poor, being honest, etc. core beliefs and
values are passed on from parents to children and are reinforced by major social institutions
such as schools, churches, business and government.

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Secondary beliefs and values are more open to change. Believing in the institution of marriage
is a core belief; believing that people ought to get married early is a secondary belief.
Marketers have some chance of changing secondary values but little chance of changing core
values. Each society contains subcultures, various groups with shared values emerging from
their special life experiences or circumstances. Sub cultural groups exhibit different wants and
consumption behavior, marketers can choose sub cultures as their target markets.

Although core values are fairly persistent, cultural swings do take place. Marketers have a
keen interest in spotting cultural shifts that might be a sign of new marketing opportunities or
threats.

2.2.6. 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.

Government plays at least four roles as it interacts with business: as

i. A regulatory – As a regulatory government acts as a supportive and restrictive by
enacting legislation to regulate. The purpose of legislations is to protect.
a. Firms from unfair competition
b. Consumers from unfair business practices
c. The interests of society from uncontrolled business behavior
ii. A supplier – government runs and supplies land and natural resources needed by
business.
iii. A competitor – government may produce goods and services and supply to the
market.
iv. A customer – government buys goods and services of the private business.

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It is the marketer’s responsibility to have a good working knowledge of the major laws
protecting competitors, consumers and society. Companies generally establish legal review
procedures and promulgate ethical standards to guide their marketing managers.

2.3 EXTERNAL 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 market, suppliers, marketing channel firms and publics.

2.3.1 The Market/Customers

As both an external force and a key part of every marketing system, the market is really what
marketing is all about how to reach the market and serve it profitably and in a socially
responsible manner. 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, consumer, producers resellers, governments and institutions.

2.3.2 Suppliers
They are individuals and business firms who provides the resources needed by the company
to produce the particular products because a company can’t sell a product if it can’t first make
it or buy it. Producer-suppliers of goods and services are critical to the success of any
marketing organization.

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Marketing managers must watch supply availability supply shortages or delays, labor strikes,
other events that can cost sales in the short run and damage customer satisfaction in the long
run, the price trends of their key inputs (rising supply costs may force price, to increase that
can harm the company’s sales volume).

2.3.3 Marketing Intermediaries

Marketing intermediaries are individuals and independent business organizations that directly
aid the company in the flow of goods and services between the company and its customers.
They help the company in promoting, selling and distributing its goods to the final buyers.
These intermediating include.
i. Re-sellers – are distribution channel firms that help the company to find customers
or make sales to the company. It consists of middlepersons such as agents, whole
sellers and retailers.
ii. Physical distribution firms:- They help the company to stock and move goods from
their point of origin to their destinations. It consists of wherehousing firms and
transportation firms.
iii. Marketing services agencies:- They are marketing research firms, advertising
agencies, media firms and marketing consulting firms that help the company target
and promote its products to the right markets. They have to be chosen carefully
because they vary in creativity, quality, service and price.
iv. Financial Intermediaries:- They are banks, credit companies, insurance companies
and other business that help finance transactions or insure against the risk
associated with the buying and selling of goods.

These intermediaries operate between a company and its markets and between a company and
its suppliers.

In some situations it may be more efficient for a company to operate on a “do it yourself”
basis without using marketing intermediaries. But marketing intermediaries gave certain
benefits to the organization such as: expertise distribution, lower cost of distribution,
minimizes the financial burden of the marketing firm, etc.

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2.3.4 Publics
Are any group that has an actual or potential interest in or impact on an organization’s ability
to achieve its objectives. This includes:
 Financial public:- affect/influence the company’s ability to obtain funds: banks, stock
broker, Insurance.
 Media public:- carry news, features and editorial opinion. This includes advertising
agencies, media firms, printing firms.
 Government publics:- It includes government offices, authorities and agencies.
 Citizen – action public: It includes consumer organizations, environmental groups,
minority groups and others.
 Local public:- Neighborhood residents and community organizations.
 General public: Includes the general attitude of the society towards the business.
 Internal public:- Includes workers, managers, volunteers and the board of directors

2.4 SUMMARY

Marketing environment is the set of actors and factors external to the marketing function of
the firm that influences the sources of the marketing manager.

Marketing environment can be classified into two broad categories as Macro and Micro
Marketing Environment.

Macro Marketing Environment consists of factors that influence the marketer's efficiency
only indirectly through direct or micro forces. It includes such forces as Demographic,
Economic, Competitors, Natural and Physical, Technological, Socio cultural and Legal
Political.

Whereas, Micro Marketing Environment consists of factors that influences the markets
efficiency directly. It includes such factors as: Customers, Suppliers, Marketing
Intermediaries and Publics.

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Check Your Progress Exercise
1. Define marketing environment.
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2. Discuss the different of the marketing environment and their respective factors.
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3. Discuss how these factors affect the performance of the marketer.
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2.5 ANSWER KEY TO CHECK YOUR PROGRESS EXERCISE

1. Refer to 2.1
2. Refer to 2.2
3. Refer to 2.3

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