The marketing

Envirnoment
Introduction
Have you ever wondered how organizations adapt to the changing environment?
How do companies keep up with the many changes that occur I politics, markets and
economic?
What processes do they use to try to anticipate changes in technologies?
How do they know which factors will impact on their businesses and which wont?
We will consider all these questions in this chapter.
The operating environment for all organizations, whether they are charitable,
commercial, or governmental, or public sector:
Is never static and seldom entirely predictable, and therefore profoundly affect a
company’s course of action.
Here we will examine the nature of the marketing environment, determining the
environmental related issues and context for developing marketing strategies.
Introduction
Consider the degree to which an organization can influence the various environmental forces acting
on it.
The external environment for examples consists of the:
Political, Social, technological influences and organizations usually have very limited influence on
each of these.
The performance environment consists of:
Competitors, suppliers, and indirect service providers, who shape the way an organization achieves
its objectives.
The internal environment concerns the resources, processes and policies an organization manages
in order to achieve its goals.
These elements can be influenced directly by an organization.
Each of three marketing environments is discussed below.
(1) Understanding the external
environment !!
The external environment is characterized in two main ways.
In the first the elements do not have an immediate impact on the performance of an
organization, although they might do in the longer term.
Moreover these are the elements which are difficult to control. This suggests that the
level of risk attached to the external environment is potentially high.
To make sense of external environment we use well known term PESTLE.
Its stands for:
Political.
Economic.
Socio-Cultural.
Technological,
Legal &
Ecological Environments.
The political Environment !!
Although legal environment relates to the laws and regulations associated with consumers
and business practices, the political environment relates to the period of interaction
between business practices, society and government before those:
Laws are enacted, when they are still being formed or are in dispute.
It helps companies to detect potential legal and regulatory changes in their industries and
have a chance to:
Impede, influence and alter that legislation.
Most literature teaches that political environment is uncontrollable.
However this is not always the case. There are circumstances when an organization or an
industry coalition, can affect legislation in its own favor, or at least respond to more
flexibly to changes in legislation than its competitors.
There is increasingly an understanding that business-government relations, properly
undertaken, can be a source of “Sustainable Competitive Advantage”
In other words an organization can outperform other organizations over time if they can
manage their relationships with government and regulatory bodies better than their
competitors.
The political Environment !!
Because legislation is such a technical area, and often written in technical legal
language few firms have the capability to understand and influence legislation,
without employing specialists.
In such cases special industry lobbyists are hired for following reasons:
-To represent clients to government decision-makers.
-To Provide strategic advice to clients on how to design their campaigns and.
-To provide administrative support for their clients.
Companies or organizations often make the decision to influence governments
in collaboration with other organizations, either through industry or trade
bodies or:
Together with other large companies in their industries.
The Economic Environment
Companies must develop an understanding of the economic environment because a
company’s economic circumstances have an impact on particular industry or an
organization.
These factors could include:
Raw material, labor, building and other capital costs, or any other input to a
business.
The external environment of a firm is affected by following items:
(1) Wage Inflation:
Annual wage increase in a particular sector will depend on the supply of labour in
that sector, where there is scarcity of supply, wages usually increase (e.g. Doctors)
(2) GDP: Per Capita, the combined output of goods, and services in a particular nation
is a useful measure for determining relative wealth between countries.
(3) Exchange Rates: The relative value of a currency, against other currency is an
important calculation for those businesses operating in foreign markets or holding
financial reserves in other currencies.
The Economic Environment
Export and Import Quota’s Control and Duties:
There are often restrictions placed on the amount (Quotas) of goods and services
that any particular firm or industry can export to a country.
Depending on the trading bloc or country to which that firm or industry belongs.
In addition countries sometimes charge a form of tax on a particular items as well to
discourage or encourage imports/exports and to protect their own economies.
So while operating in any other country or in any other geographical situation, must
consider above mentioned aspects of life.
One thing is clear, that company has little impact on the macroeconomic
environment, like oil prices, which might effect their business or stock prices.
So, the main challenge for company here is to foresee changes in the environment
that might affect the firms activities.
The Economic Environment

Similarly, Inflation drives consumer prices higher in a particular country, it

means an increase in price of your products, which in return means a drop in
sales.
Typically during recession, consumers tend to purchase fewer goods and
increase their savings.
The Socio-Cultural Environment
Lifestyles are constantly changing, and consumers are constantly shifting their preferences
over time.
Companies that fail to recognize changes in socio-cultural environment, and changes in:
Goods/services mix accordingly.
For considering socio-cultural environment, companies must consider the changing:
Nature of households, demographics, lifestyles, and family structures, and changing values in
society.
(1) Demographic and lifestyles:
People’s lifestyles are also changing.
In India, the usage of mobile phones has doubled since 2000.
There were 851.70m mobile phones subscribers at the end of the june 2011.
In Europe the trend is towards marrying later, there is a greater tendency to divorce than
in previous generations.
In some countries citizens are increasingly living alone, in single-person households.
The Socio-Cultural Environment

There are also changes taking place within society that affect the way the
consumers interact with an organizations marketing activity.
Consumers are increasingly happy to work with companies to solve problems.
According to (HOWE 2006) this phenomenon is known as “Crowdsourcing”
It means identify what is to be done, then crowd is invited to perform a task,
for a certain fee or prize.
But obv everyone cant be invited so, only those are invited who are considered
qualified to undertake the task.
The technological environment
The emergence of technology can surely affect the businesses.
It has a direct impact on:
Productivity & Business Efficiency.
Some companies adopt new technologies, and make new products and services
based on their competitors, products, and services, through “Me-too” or imitation
marketing strategy.
This might also be because of firms inability to turn their technological advances into
sustainable competitive advantage.
The problem is as soon as they introduce a new product or variant, it is quickly
copied.
So, the idea is to continually introduce new products/services, and stay as close to
the consumers as possible.
Many firms, believe in “Technological forecasting, an attempt to identify future
technological trends.
The technological environment

Another difficulty for most firms is how to determine whether or not to invest in
radical new technologies, as the potential benefits are far from clear at the outset.
Firms are also concerned about the impact of technological changes on their product
and service lifecycles.
Yet, innovation has become necessary condition in strategic marketing decisions,
specially for high tech firms.
Same can be said for less technological firms, they also need:
Innovation of some form.
Process or product/service focused.
To stay ahead of competition.
Legal Environment !!
It covers every aspect of an organizations business, laws and regulations, for
example:
Transparency of pricing.
Prevention of restrictive trade practices.
Product safety.
Good practices in packaging and labelling.
Codes of practice in advertising as well.
(1) Product safety, packaging and labelling:
In Malaysia, Part 3 Safety of good and services, of consumer protection act
599:
“It might include, Performance, composition, content, manufacture,
processing, design, finishing, testing, packaging, also the content of marking,
warnings or instructions to accompany the products”
Legal Environment !!
(2) Food safety and Standards Authority of India (FSSAI):
Made under food safety and standards act 2006, which deals in food related
issues.
It regulates the:
Manufacture, storage, distribution, sale and import, to ensure the availability
of safe and wholesome food for human consumption.
In pharmaceutical industry:
Regulations govern, testing, approval, manufacturing, labelling and marketing
of drugs.
Some countries also place restrictions on the prices that pharma companies
charge on drugs.
Legal Environment !!
(2) Code of practices in Advertising:
Adv standards differ around the world, in UK Advertising is self-regulated.
That is, by adv industry itself.
In other countries its been regulated by government legislation.
In India there is only one body for regulating advertising:
The Advertising Standards Council of India (ASCI), a self-regulatory voluntary
organization, which is concerned with safeguarding the interests of consumers.
It was formed in 1985, with support of all four sectors connected with advertising:
-Advertisers.
-Advertising Agencies.
-Media.
-Others, PR Agencies.
Etc.
Ecological Environment !!
In 1990, companies became concerned with the concept of Green Marketing.
And latter in 2000 with the concept of marketing sustainability.
These days consumers are concerned with the impact of companies on their
ecological environments.
They are demanding more “Organic Food” incorporating principles of better welfare
for the animals they consume &
Less interference with natural processes of growing fruit and vegetables.
Consumers are equally concerned with ensuring that products are not sourced from
countries with:
Poor or Coercive labor policies.
They are also keen to ensure that companies are not damaging the environment
themselves or causing harm to consumers.
There is a rise in Fairtrade products.
Ecological Environment !!
Some countries have “Fair Trade Foundations”
They Guarantee that all goods are not sourced from unethical products.
Now the question is how a company can incorporate sustainability into its
organizational processes, here are following means for achieving the goals.
(1) Eco-Efficiency:
“Developing lower Costs through organizational processes such as Resource
productivity, and better utilization of by-products.
(2) Use of Certifications:
By making use of certified schemes, companies can demonstrate their ecological
credentials, and their environmental excellence. E.g. ISO Certifications
(3) Eco-Branding:
Causing Differentiation to promote environmental responsibility.
By relating brand elements with CSR and also the appeals used in advertising.
Ecological Environment !!
(4) Environmental Cost Leadership:
The offering of products and services that give greater environmental benefits at a
lower price.
Environmental Scanning !!
To understand how external environment is changing, organizations need to
put in place a method and processes to inform them of developments.
The process of doing this Is also known as “Environmental Scanning”
“It’s the process of gathering information about a company’s external events
and relationships to assist top management in its decision making, & so:
To develop its future course of action.
It is the internal communication of external information about issues that
may potentially influence an organization’s decision making process, focusing
on:
Identification of emerging issues, situations, and potential threats in the
external environment.
Environmental Scanning !!
We gather information in this through:
Company’s reports, newspapers, industry reports, magazines, governments reports, &
marketing intelligence reports.
Networking is also an important chunk of environmental scanning.
Here are three important areas of information in environmental scanning activities:
(1) Customers, & Competitor Information, including:
Competitors prices, New product introductions, Adv & Promotional Programs, Its entry in
new markets, anew product technologies, customer buying habits, product preferences,
demand and desires.
(2) Company Resources and Capabilities:
Companies R&D capabilities, adv and promotions resources, sales capabilities/resources,
financial capabilities/resources and management capabilities/resources.
(3) Suppliers of labor and funds:
Availability of external financing, labor and new manufacturing technologies.
Environmental Scanning !!
For larger and smaller companies operating in global environments, there is
even greater need to undertake scanning, it helps:
Information about export opportunities.
Helps monitoring competitors export performances (Their export
intentions)
Helps monitor changes in technologyEco/Soci-political.
Although, it seems straight forward, yet there are some barriers because:
Its difficult to what's the right information.
Data gathering can be time consuming.
Even if info gathered rightly, still firm remain fail to under take opportunities
bec of “Switching cost” related to production, sourcing, and other business
operations.
Environmental Scanning !!

There are some frustrations, in environmental scanning exercises because of:

Inability to move faster.
Conflict between the desire for stability and the reality of constant change.
Missed opportunity because of poor timing.
Problems motivating the management team to discuss issues.
Some organization believe in to take advantage of environmental changes in a
reactive manner, while other believe in:
Developing a proactive approach to determining how their operating
environment is changing.
Understanding performance
Environment
Also called, Macro environment, consist of organizations that either directly or
indirectly influence an organizations operational performance.
There are three main types:
(1) Firms who compete against organization in the pursuit of its objectives.
(2) Those that supply raw materials, goods and services, and also those who add
value:
Distributors, dealers, retailers.
(3) firms which often supply services as:
Consultancy, financial services, marketing research or communication agencies.
Industry Analysis !!

Porter’s Five Analysis:

(1) New Entrants.
(2) Analysis of Substitutes.
(3) Analysis of a Buyers.
(4) Analysis of Suppliers &
(5) Analysis of Competitors.
(1) New Entrants !!
Industries are seldom static, companies and brands enter and exit industries all
the time.
New entrants may be restricted through government and regulatory policy, or
they may well be frozen out of industry, bec of the capital requirements
necessary.
Companies may also remain unable to enter because of the companies within
that market are operating using proprietary product/services or technologies.
-Economies of Scale.
-Government Policies.
-Capital Requirement.
-Proprietary products/services/technologies.
(2) Substitutes
In any industry there are usually substitute products and services that perform the
same function or meet similar customer needs.
Levit (1960) warned that many companies fail to recognize the competitive threat
from newly developing products and services.
E.g. Telecommunication Sector.
Development of broadband internet services, is causing fixed line
telecommunications act as a commodity.
Firms operating in India like Airtel are increasingly looking to develop value-added
services as:
Online Tv (Content on Demand)
Interactive Gamming.
Web-Conferencing Services.
(2) Substitutes
At a moment still companies are holding with fixed line operators, even their
subscribers, even though cheaper alternatives are appearing.
Yet consumers take time to become aware of new product and service
possibilities and obtain the necessity information to allow them to make a
decision over:
Whether or not to switch to an alternative switching.
Consumers always consider the switching costs.
They also consider “Relative Price Performance of one offering over
another”
In simple words, we as a company should consider:
What alternatives product and service offerings exist in the marketplace,
which also meet, to a greater or lesser extent our customers needs.
(3) Buyers !!
Firms should ask themselves how much of their sales go to one individual company.
This is an important question because if one company purchases a larger volume of
product from a supplying company then they are in a position to:
Demand price concessions.
Specially when there are lot of competing suppliers.
Buyers may also decide to increase their bargaining power through “Backward
Integration”
A company is said to have backward integrated when it moves into manufacturing the
products or services it previously bought from it suppliers.
It also means that they effectively have a new entrant into the market, as a suppler, and
hence a new competitor.
(3) Buyers !!
Another factor impacting on a buyers bargaining power is how much price sensitive
are they.
Some companies try to enhance other factors associated with an offering to reduce
clients price sensitivity (After-sales service, or product customization)

So, when analyzing an industry, we should understand the bargaining power that
buyers have with their suppliers.
As this can impact the prices charged and volumes sold or total revenue.
(4) Suppliers !!
We must also know:
How suppliers operate & the extent of their bargaining power.
If smaller numb of suppliers operate with large buyers, it helps them have strong
bargaining power.
Vice Versa.
We should also consider, whether suppliers are providing:
Unique components, products and services that might enhance bargaining.
Some Firms/suppliers also go for Forward integration which helps them:
Control Own supply chain.
Allow to sell at lower price.
Increasing sales.
Lastly if a firms have high switching cost associated with using another supplier, than again.
Supplier will have a stronger bargaining power.
(5) Competitors !!
Develop an outline of companies operating.
Analysis of each company’s structure.
Current and future developments.
Calculate market volumes and shares for each competitor. Latest financial
results.
Type and nature of goods offered by competitors.
Also identify or observe competitors on the basis of:
Supply-based approach. (Firms who supply same products)
Demand-based approach. (Customer attitude and behavior)
Also on market responses to any new strategy developments
Understanding internal Environment
!!
(1) Product Portfolio Analysis:
Stars, Cash Cows, Question Marks, Dogs.
(2) Financial Analysis.
(3) Marketing Audit.
(1) Product Portfolio Analysis
When managing a collection or portfolio of products, we should keep in mind that
performance of an individual product can often fail to give the appropriate insight.
So, the most important thing is understanding the relative performance of products.
When current products cease to be attractive and profitable, than a firm can increase
its chances of generating profits by:
Creating a balance of old, mature, Established, growing and new products.
For observing the above mentioned aspect, The Boston Consulting Group (BCG)
developed the original idea through their Boston Box.
Based on two key variables:
Market Growth & Relative Market Share.
(1) Question Marks. (2) Stars. (3) Cash Cows. (4) Dogs.
(1) Product Portfolio Analysis
(1) Question Marks: (Also Known As Problem Children)
Are products that exist in growing markets, but have low market share.
As a result there is negative cash flow and they are unprofitable.
(2) Stars:
Are mostly the market leaders.
But their growth has to be financed through fairly heavily level of investment.
(3) Cash cows:
Exist in fairly stable, low growth markets and require little ongoing investment.
Their high market share draws both positive cash flows and high level of profitability.
(4) Dogs:
Experience low growth, low market share, and generate negative cash flows. These
indicators suggest that many of them are operating in decling markets and they have no real
long-term future.
Question Marks
Question Marks:
Are Businesses That operate in high growth markets, but have low relative
market shares.
Most Businesses start off as question marks as the company tries to enter a
high-growth market, in which there is already a market leader.
A question mark requires lot of cash because the company is spending money
on:
Plant, Equipment's and personnel.
Here company is to think hard about whether to keep pouring money into
this business or not.
Stars
Are Market Leaders in a high-growth market.
A star is once a question mark, but it does not necessarily produce positive cash
flow.
Company must still spend to keep up with high market growth and fight off
competition.

(3) Cash Cow:

Are former stars with the largest relative market share in a slow-growth market.
A cash cow produces a lot of cash for the company (Due to economies of scale and
higher profit margins).
Paying the company’s bills and supporting its other businesses.
Dogs
Are businesses with weak market shares in low-growth markets, typically these generate
low profits or even losses.

(1) Build:
Objective here is to increase market share. Even foregoing short-term earnings to achieve
this objective if necessary.
Building is appropriate for question marks, whose market shares must grow of they are to
become stars.
(2) Hold:
To preserve market share, its appropriate for cash cows, if they have to yield large positive
cash flow
Harvest
3) Harvest:
To increase short-term cash flows regardless of long-term effect.
It may also include to withdraw some aspects of business as well.
The hope is to reduce cost faster than any potential drop in sales.
This strategy is appropriate for weak cash cows, whose future is dim, from which
more cash flow is needed.
Its also suitable for both:
Question marks, and Dogs.
Divest
The objective is to sell or liquidate the business because the resources can be better
used elsewhere.
This approach is suitable for dogs and QM, that are dragging down company profits.
(1) Product Portfolio Analysis
Portfolio analysis is an important analytical tool, it draws attention to:
Cash flow investment characteristics of each firms products.
& indicate how financial resources can be maneuvered to attain optimal strategic
performance over the long term.
Obviously, excess of cash generated by cash cows should be utilized to develop question
marks, and stars, which are unable to support themselves.
Dogs should only be retained as long as they contribute positive cash flow and don’t
restrict the use of assets and resources elsewhere in the business.
Once they do, they should be divested or ejected from the portfolio.
Plotting all a company’s products into the grid it becomes visually easy to appreciate just
how well balanced the product portfolio is.
Financial Analysis & Marketing Audit
Imp tool to measure financial strength and performance of a company, is financial
analysis.
It’s a mean of measuring:
Performance of current strategies with those of past.
Benchmarking techniques also help in this regard.
Supplier as use this tool to measure risk.
Investors also use this to make their investment decisions. And see level of risk.
Marketing Audit:
It considers three environments in mind:
(1) The External Opportunities and Threats (Where Mgt has little or no control)
(2) Changes within the performance environment. (Partial Influence)
(3) Reviews Quality and Potential of organizations products, marketing system,
resources and capabilities as part of internal environment.
(Full Control Usually)