Module-2

Analyzing Marketing
Environment
 Marketing Environment:
• The marketing environment refers to all internal
and external factors, which directly or indirectly
influence the organization’s decisions related to
marketing activities.
• Internal factors are within the control of an
organization; whereas, external factors do not fall
within its control.
• The external factors include government,
technological, economical, social, and competitive
forces; whereas, organization’s strengths,
weaknesses, and competencies form the part of
internal factors.
 Types of environment:

• Micro Environnent

• Macro Environnent
 Micro Environment
• Suppliers:
• Marketing Intermediaries:
• a. Resellers:
• b. Distribution Centers:
• c. Marketing Agencies:
• d. Financial Intermediaries:
• iii. Customers:
• iv. Competitors:
 Macro Environment:

• Macro environment involves a set of environmental

factors that is beyond the control of an organization.

• These factors influence the organizational activities to a

significant extent.

• Macro environment is subject to constant change.

• The changes in macro environment bring opportunities

and threats in an organization.
 I- Demographic Environment:
• Demographic environment is the scientific study of human
population in terms of elements, such as age, gender,
education, occupation, income, and location.

• It also includes the increasing role of women and

technology.

• These elements are also called as demographic variables.

• Before marketing a product, a marketer collects the

information to find the suitable market for the product.
 II- Economic Environment:

• Economic environment affects the organization’s

costs structure and customers’ purchasing power.

• The purchasing power of a customer depends on

the current income, prices of the product, savings,
and credit availability.
 The factors economic
environment is as follows:
a. Inflation:

b. Interest Rates:

c. Unemployment:

d. Customer Income:

e. Monetary and Fiscal Policy:

 III. Natural Environment:
• Natural environment consists of natural resources,
which are needed as raw materials to manufacture
products by the organization.
• The marketing activities affect these natural
resources, such as depletion of ozone layer due to
the use of chemicals.
• The corrosion of the natural environment is
increasing day-by-day and is becoming a global
problem.
 Natural factors affect the marketing
activities of an organization
• A. Natural Resources:

• b. Weather:

• c. Pollution:
 iv. Socio-Cultural Environment:
• Socio-cultural environment comprises forces, such
as society’s basic values, attitudes, perception, and
behavior.
• These forces help in determining that what type of
products customers prefer, what influences the
purchase attitude or decision, which brand they
prefer, and at what time they buy the products.
• The socio-cultural environment explains the
characteristics of the society in which the
organization exists. The analysis of socio-cultural
environment helps an organization in identifying
the threats and opportunities in an organization.
 Technological Environment:

• Technology contributes to the economic growth of

a country. It has become an indispensable part of
our lives.

• Organizations that fail to track ongoing

technological changes find it difficult to survive in
today’s competitive environment.
Technological trends
affect the marketing
environment:
a. Pace of Technological Change:

b. Research and Development:

c. Increased Regulation:

vi. Political and Legal Environment:

a. It leads to product obsolescence at a rapid pace. If the pace of
technological change is very rapid then organizations need to modify
their products as and when required. On the other hand, if the
technology is not changing at a rapid pace then there is no need for the
organization to bring constant changes in the product.
b. It helps in increasing growth opportunities for an organization. Many
organizations have developed a separate team for R&D to bring
innovation in its products. Pharmaceutical organizations, such as
Ranbaxy and Cipla, have started putting greater force in R&D and these
efforts have led to great opportunities in global market.
c. It refers to government guidelines to ban unsafe products. Marketers
should be aware of these regulations to prevent their violation. Every
pharmaceutical organization takes the approval of the Drugs Controller
of India, which lays down the standards for drugs manufacturing.
d. Political and legal environment consists of legal bodies and government
agencies that influence and limit the organizations and individuals.
Every organization should take care of the fact that marketing activities
should not harm the political and legal environment prevailing in a
country. The political and legal environment has a serious impact on the
economic environment of a country. For example, in some regions of
Uttar Pradesh, Reliance Fresh had to shut down its stores because of the
lack of political support.
 Various legislations affecting the
marketing activities are as follows:
• a. Anti-pollution laws, which affect the production

or manufacturing of various products.

• b. Customer legislation, which tries to protect the

customer’s interest.
 The important acts set by the Indian
government, which effect the marketing
environment of an organization:
• i. Prevention of Food and Adulteration – 1954
• ii. Drugs Control Act – 1954
• iii. Company Act – 1956
• iv. Standard Weights and Measurement Act – 1956
• v. MRTP- Monopoly and Restrictive Trade Practices – 1969
• vi. Display of Price Order – 1963
• vii. Indian Patents Act – 1970
• viii. Packaged Commodities Order – 1975
• ix. Environment Act – 1986
• x. Consumer Protection Act – 1986
 The marketing environmental
analysis will help the marketer to:
• Become well acquainted with the changes in the
environment.
• Gain qualitative information about the business
environment; which will help him to develop strategies in
order to cope with ever changing environment.
• Conduct marketing analysis in order to understand the
markets needs and wants so as to modify its products to
satisfy these market requirements.
• Decide on matters related to Government-legal-regulatory
policies in a particular country so as to formulate its
strategies successfully amidst these policies.
• Allocate its resources effectively and diversify either into a
new market segment or totally into a new business which is
outside the scope of its existing business.
• Identify the threats from the environment in terms of new
competitors, price wars, competitor’s new products or services,
etc.; and prepare its strategies on the basis of that.
• Identify the opportunities in the environment and exploit these
opportunities to firm’s advantage. These opportunities can be
in terms of emergence of new markets; mergers, joint ventures,
or alliances; market vacuum occurred due to exit of a
competitor, etc.
• Identify its weaknesses such as lower quality of goods or
services; lack of marketing expertise; or lack of unique products
and services; and prepare strategies to convert its weaknesses
into strengths.
• Identify its strengths and fully exploit them in firm’s advantage.
These strengths can be in terms of marketing expertise,
superior product quality or services, or giving unique
innovative products or services.
SWOT Analysis
Porter's Five Forces Model
 Analysing Industry Attractiveness
Porters’ Five Forces
Power of Suppliers Threat of New Entrants
- dominated by a few large companies - there is economies of scale
- input is unique or differentiated - product are differentiated e.g. brands
- input has large switching costs - capital is required to enter e.g. fixed assets
- input cannot easily be substituted - access to distribution channels
- supplier poses a threat of forward integration - government policy restrictions
- you are not important to supplier eg. licensing, safety

Industry Rivalry
- numerous players of roughly equal size
- a slow rate of growth in the industry
- lack of differentiation
- lack of switching costs
- capacity can be increased only in large amounts
- high exit barriers
- rivals are strategically diverse
Power of Buyers Threat of Substitutes
- few or large volume buyers
- standard undifferentiated products - alternative products are available
- represents a high proportion of buyers costs
- buyer is in a low profit industry
- unimportant to quality of buyers product
- product does not save the buyer money
- buyer poses a threat of backward integration
(Porter, 1979)
• Power of Suppliers
• The next factor in the five forces model addresses how easily suppliers can drive up the cost of inputs. It is affected by
the number of suppliers of key inputs of a good or service, how unique these inputs are, and how much it would cost a
company to switch to another supplier. The fewer suppliers to an industry, the more a company would depend on a
supplier. As a result, the supplier has more power and can drive up input costs and push for other advantages in trade.
On the other hand, when there are many suppliers or low switching costs between rival suppliers, a company can keep
its input costs lower and enhance its profits.

• Power of Customers
• The ability that customers have to drive prices lower or their level of power is one of the five forces. It is affected by how
many buyers or customers a company has, how significant each customer is, and how much it would cost a company to
find new customers or markets for its output. A smaller and more powerful client base means that each customer has
more power to negotiate for lower prices and better deals. A company that has many, smaller, independent customers
will have an easier time charging higher prices to increase profitability.

• Threat of Substitution. This refers to the likelihood of your customers finding a different way of doing what you do. For
example, if you supply a unique software product that automates an important process, people may substitute it by
doing the process manually or by outsourcing it. A substitution that is easy and cheap to make can weaken your position
and threaten your profitability.

• Threat of New Entry. Your position can be affected by people's ability to enter your market. So, think about how easily
this could be done. How easy is it to get a foothold in your industry or market? How much would it cost, and how tightly
is your sector regulated?
• If it takes little money and effort to enter your market and compete effectively, or if you have little protection for your key
technologies, then rivals can quickly enter your market and weaken your position. If you have strong and durable
barriers to entry, then you can preserve a favorable position and take fair advantage of it.

• Competitive Rivalry. This looks at the number and strength of your competitors. How many rivals do you have? Who
are they, and how does the quality of their products and services compare with yours?
• Where rivalry is intense, companies can attract customers with aggressive price cuts and high-impact marketing
campaigns. Also, in markets with lots of rivals, your suppliers and buyers can go elsewhere if they feel that they're not
getting a good deal from you.
• On the other hand, where competitive rivalry is minimal, and no one else is doing what you do, then you'll likely have
tremendous strength and healthy profits.
 KEY TAKEAWAYS
• Porter's Five Forces is a framework for
analyzing a company's competitive
environment.
• The number and power of a company's
competitive rivals, potential new market
entrants, suppliers, customers, and substitute
products influence a company's profitability.
• Five Forces analysis can be used to guide
business strategy to increase competitive
advantage.