Topic 2: The marketing environment Flashcards
What is a company’s marketing environment?
A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers. Companies constantly watch and adapt to the changing environment – or, in many cases, lead those changes.
What does the marketing environment consist of?
The marketing environment consists of a microenvironment and a macroenvironment.
- The microenvironment consists of the actors close to the company that affect its ability to engage and serve its customers – the company, suppliers, marketing intermediaries, customer markets, competitors, and publics.
- The macroenvironment consists of the larger societal forces that affect the microenvironment – demographic, economic, natural, technological, political, and cultural forces. We look first at the company’s microenvironment.
Who are the major actors in the marketer’s microenvironment?
- The Company: In designing marketing plans, marketing management takes other company groups into account – groups such as top management, finance, research and development (R&D), etc. All of these interrelated groups form the internal environment. Top management sets the company’s mission, objectives, broad strategies, and policies. Marketing managers make decisions within these broader strategies and plans. Then, marketing managers must work closely with other company departments. With marketing taking the lead, all departments – from manufacturing and finance to legal and human resources – share the responsibility for understanding customer needs and creating customer value.
- Suppliers: Suppliers provide the resources needed by the company to produce its goods and services. Supplier problems can seriously affect marketing. Marketing managers must watch supply availability and costs. Supply shortages or delays, natural disasters, and other events can cost sales in the short run and damage customer satisfaction in the long run. Rising supply costs may force price increases that can harm the company’s sales volume. Most marketers today treat their suppliers as partners in creating and delivering customer value.
- Marketing intermediaries: Marketing intermediaries help the company promote, sell, and distribute its products to final buyers. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers that buy and resell merchandise. Physical distribution firms help the company stock and move goods from their points of origin to their destinations. Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets. 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. Like suppliers, marketing intermediaries form an important component of the company’s overall value delivery network. 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.
- 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. 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. But being large is not enough. There are winning strategies for large firms, but there are also losing ones. And small firms can develop strategies that give them better rates of return than large firms enjoy.
- 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. We can identify seven types of publics:
- Financial publics. This group influences the company’s ability to obtain funds. Banks, investment analysts, and stockholders are the major financial publics.
- Media publics. This group carries news, features, editorial opinions, and other content. It includes television stations, newspapers, magazines, and blogs and other social media.
- 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.
- 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.
- Local publics. This group includes neighborhood residents and community organizations. Large companies usually work to become responsible members of the local communities in which they operate.
- 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 behavior.
- Internal publics. This group includes 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 the companies they work for, this positive attitude spills over to the external publics.
- Customers: Customers are the most important actors in the company’s microenvironment. The aim of the entire value delivery network is to engage target customers and create strong relationships with them. The company might target any or all of 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 use in their production processes.
- Reseller markets buy goods and services to resell at a profit.
- Government markets consist 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.
What are the six major forces in the company’s macroenvironment?
- Demographic
- Economic
- Natural
- Technological
- Political
- Cultural
Describe the 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. Changes in the world demographic environment have major implications for business. Thus, marketers keep a close eye on demographic trends and developments in their markets. They analyze changing age and family structures, geographic population shifts, educational characteristics, and population diversity. Some important demographic trends in the US include:
- The changing age structure of the population: baby boomers (born during the years following WW2 and lasting until 1964), Generation X (born between 1965 and 1976), Millennials/Generation Y (born between 1977 and 2000) and Generation Z (born after 2000).
- The changing American family: the structure of mother, father, kids is fast changing. Divorce, spearation, single people, interracial couples, same-sex couples, etc.
- Geographic shifts in population: this is a period of great migratory movements between and within countries. Rural-urban migration.
- A better-educated, more white-collar, more professional population: In 2012, 88 percent of the U.S. population over age 25 had completed high school and 32 percent had a bachelor’s degree, compared with 66 percent and 16 percent, respectively, in 1980.27 The workforce also is becoming more white collar. Job growth is now strongest for professional workers and weakest for manufacturing workers. Between 2010 and 2020, of 30 detailed occupations projected to have the fastest employment growth, 17 require some type of postsecondary education.
- Increasing diversity: US has often been called a melting pot of cultures. LGBTQ. US adults with disabilities.
Describe the Economic Environment.
The economic environment consists of economic factors that affect consumer purchasing power and spending patterns. Nations vary greatly in their levels and distribution of income. Some countries have industrial economies, which constitute rich markets for many different kinds of goods. At the other extreme are subsistence economies; they consume most of their own agricultural and industrial output and offer few market opportunities. In between are developing economies that can offer outstanding marketing opportunities for the right kinds of products.
- Changes in consumer spending: Economic factors can have a dramatic effect on consumer spending and buying behavior.
- Income distribution: Marketers should pay attention to income distribution as well as income levels. Over the past several decades, the rich have grown richer, the middle class has shrunk, and the poor have remained poor. The top 5 percent of American earners get over 22 percent of the country’s adjusted gross income, and the top 20 percent of earners capture 51 percent of all income. In contrast, the bottom 40 percent of American earners get just 11.5 percent of the total income. This distribution of income has created a tiered market. Many companies – such as Nordstrom and Neiman Marcus – aggressively target the affluent. Others – such as Dollar General and Family Dollar – target those with more modest means. In fact, dollar stores are now the fastest-growing retailers in the nation. Still other companies tailor their marketing offers across a range of markets, from the affluent to the less affluent.
- Changes in major economic variables, such as income, cost of living, interest rates, and savings and borrowing patterns, have a large impact on the marketplace. Companies watch these variables by using economic forecasting. Businesses do not have to be wiped out by an economic downturn or caught short in a boom. With adequate warning, they can take advantage of changes in the economic environment.
Describe the Natural Environment.
The natural environment involves the physical environment and the natural resources that are needed as inputs by marketers or that are affected by marketing activities. At the most basic level, unexpected happenings in the physical environment – anything from weather to natural disasters – can affect companies and their marketing strategies. Although companies can’t prevent such natural occurrences, they should prepare contingency plans for dealing with them.
At a broader level, environmental sustainability concerns have grown steadily over the past three decades. In many cities around the world, air and water pollution have reached dangerous levels. World concern continues to mount about the possibilities of global warming, and many environmentalists fear that we soon will be buried in our own trash.
Marketers should be aware of several trends in the natural environment.
- The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but some groups see long-run dangers. Air pollution chokes many of the world’s large cities, and water shortages are already a big problem in some parts of the United States and the world. By 2030, more than one in three people in the world will not have enough water to drink.37 Renewable resources, such as forests and food, also have to be used wisely. Nonrenewable resources, such as oil, coal, and various minerals, pose a serious problem. Firms making products that require these scarce resources face large cost increases, even if the materials remain available.
- A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. Consider the disposal of chemical and nuclear wastes; the dangerous mercury levels in the ocean; the quantity of chemical pollutants in the soil and food supply; and the littering of the environment with nonbiodegradable bottles, plastics, and other packaging materials.
- A third trend is increased government intervention in natural resource management. The governments of different countries vary in their concern and efforts to promote a clean environment.
What is environmental sustainability?
These are strategies and practices that create a world economy that the planet can support indefinitely. Environmental sustainability means meeting present needs without compromising the ability of future generations to meet their needs. Many companies are responding to consumer demands with more environmentally responsible products. Others are developing recyclable or biodegradable packaging, recycled materials and components, better pollution controls, and more energy-efficient operations.
Describe the Technological Environment.
The technological environment consists of forces that create new technologies, creating new product and market opportunities.
New technologies create new markets and opportunities. However, every new technology replaces an older technology. Transistors hurt the vacuum-tube industry, digital photography hurt the film business, and digital downloads and streaming are hurting the CD and DVD businesses. When old industries fought or ignored new technologies, their businesses declined. Thus, marketers should watch the technological environment closely. Companies that do not keep up will soon find their products outdated. If that happens, they will miss new product and market opportunities.
As products and technology become more complex, the public needs to know that these items are safe. Thus, government agencies investigate and ban potentially unsafe products.
Describe the Political and Social Environment.
The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.
Well-conceived regulation can encourage competition and ensure fair markets for goods and services. Thus, governments develop public policy to guide commerce – sets of laws and regulations that limit business for the good of society as a whole. Almost every marketing activity is subject to a wide range of laws and regulations.
Legislation affecting business around the world has increased steadily over the years. The United States and many other countries have many laws covering issues such as competition, fair-trade practices, environmental protection, product safety, truth in advertising, consumer privacy, packaging and labeling, pricing, and other important areas.
Business legislation has been enacted for a number of reasons.
- The first is to protect companies from each other. Although business executives may praise competition, they sometimes try to neutralize it when it threatens them. Therefore, laws are passed to define and prevent unfair competition. In the United States, such laws are enforced by the Federal Trade Commission (FTC) and the Antitrust Division of the Attorney General’s office.
- The second purpose of government regulation is to protect consumers from unfair business practices. Some firms, if left alone, would make shoddy products, invade consumer privacy, mislead consumers in their advertising, and deceive consumers through their packaging and pricing. Rules defining and regulating unfair business practices are enforced by various agencies.
- The third purpose of government regulation is to protect the interests of society against unrestrained business behavior. Profitable business activity does not always create a better quality of life. Regulation arises to ensure that firms take responsibility for the social costs of their production or products.
What is socially responsible behavior?
Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply “do the right thing.” These socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.
What is cause-related marketing?
This is a type of marketing that, to exercise their social responsibility and build more positive images, many companies are now linking themselves to worthwhile causes. Cause-related marketing has become a primary form of corporate giving. It lets companies “do well by doing good” by linking purchases of the company’s products or services with benefiting worthwhile causes or charitable organizations.
Describe the Cultural Environment.
The cultural environment consists of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values. They absorb a worldview that defines their relationships with others. The following cultural characteristics can affect marketing decision making:
- The persistence of cultural values: People in a given society hold many beliefs and values. Their core beliefs and values have a high degree of persistence. Core beliefs and values are passed on from parents to children and are reinforced by schools, businesses, religious institutions, and government. Secondary beliefs and values are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief. Marketers have some chance of changing secondary values but little chance of changing core values.
- Shifts in secondary cultural values
- People’s view of themselves
- People’s view of others
- People’s views of organizations
- People’s views of society
- People’s view of nature
- People’s views of the Universe
Describe the environmental forces that affect the company’s ability to serve its customers.
The company’s microenvironment consists of actors close to the company that combine to form its value delivery network or that affect its ability to serve its customers. It includes the company’s internal environment – its several departments and management levels – as it influences marketing decision making. Marketing channel firms – suppliers, marketing intermediaries, physical distribution firms, marketing services agencies, and financial intermediaries – cooperate to create customer value. Competitors vie with the company in an effort to serve customers better. Various publics have an actual or potential interest in or impact on the company’s ability to meet its objectives. Finally, five types of customer markets exist: consumer, business, reseller, government, and international markets.
The macroenvironment consists of larger societal forces that affect the entire microenvironment. The six forces making up the company’s macroenvironment are demographic, economic, natural, technological, political/social, and cultural forces. These forces shape opportunities and pose threats to the company.
Explain how changes in the demographic and economic environments affect marketing decisions.
Demography is the study of the characteristics of human populations. Today’s demographic environment shows a changing age structure, shifting family profiles, geographic population shifts, a better-educated and more white-collar population, and increasing diversity. The economic environment consists of factors that affect buying power and patterns. The economic environment is characterized by more frugal consumers who are seeking greater value – the right combination of good quality and service at a fair price. The distribution of income also is shifting. The rich have grown richer, the middle class has shrunk, and the poor have remained poor, leading to a two-tiered market.
