CHAPTER TWO

THE MARKET ENVIRONMENT

2.1 Microenvironment
2.2 Macro environment
2.1 INTRODUCTION

The company’s marketing environment consists of

The actors and forces external to the marketing function of the firm that impinges 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.
A company’s marketing environment consists of the actors and forces outside marketing that
affect marketing management’s ability to develop and maintain successful relationships with its
target customers.
Being successful means being able to adapt the marketing mix to trends and change this
environment.
Changes in the marketing environment are often quick and unpredictable. The marketing
environment offers both opportunities and threats
The marketing environment may be classified as external and internal environment.
 The external environment cannot be controlled by the individual company, whereas,
internal environment can be controlled and influenced by the respective company.

 Internal environment includes all forces available within the company such as
policies, procedures, strategies, mission, people, relationships, between people, etc. In
designing marketing plans, marketing management takes other company groups into
account
 The external marketing environment consists of factors and actors that exist outside
the company and affect the marketing management ability to achieve its objectives. This
can be classified into two as macro environment and microenvironment.
2.2. MICRO MARKETING ENVIRONMENT

It consists of the forces close to the marketing activity that affects its ability to serve its
customers.
a. The Company
The first force is the company itself and the role it plays in the microenvironment.
This could be deemed the internal environment.
Top management is responsible for setting the company’s mission, objectives, broad
strategies, and policies.
Marketing managers must make decisions within the parameters established by top
management.
Marketing managers must also work closely with other company departments. Areas such as
finance, R & D, purchasing, manufacturing, and accounting all produce better results when
aligned by common objectives and goals.
All departments must “think consumer” if the firm is to be successful. The goal is to
provide superior customer value and satisfaction.
b. Marketing Intermediaries
Marketing intermediaries are firms that help the company to promote, sell, and distribute its
goods
to final buyers.
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.
Resellers often perform important functions more cheaply than the company can perform itself.
However, seeking and working with resellers is not easy because of the power that some demand
and use.
Physical distribution firms help the company to stock and move goods from their points of
origin to their destinations. Examples would be warehouses (that store and protect goods before
they move to the next destination).
Marketing service agencies (such as marketing research firms, advertising agencies, media
firms, etc.) help the company target and promote its products.
Financial intermediaries (such as banks, credit companies, insurance companies, etc.) help
finance transactions and insure against risks.
c. 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, producer’s resellers, governments and institutions.
d. Suppliers
They are individuals and business firms who provide 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.
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).
e. Publics
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, and 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.
f. Competitors
Every company faces a wide range of competitors. A company must secure a strategic advantage
over competitors by positioning their offerings to be successful in the marketplace. No single
competitive strategy is best for all companies.
2.3 MACROMARKETING ENVIRONMENT

These forces represent non-controllable forces, which the company must monitor and respond to.
The external general/macro marketing environment includes demographic, economic, natural,
technological, political, social-cultural forces and competitors.
2.3.1. Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, sex, race,
occupation, and other statistics. It is of major interest to marketers because it involves people and
people make up markets. Demographic trends are constantly changing. 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 grandparents). 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.

2.3.2 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, this money is used for three purposes: paying tax, spending and
saving.
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. They
are buying less and looking for greater value in the things that they do buy. In turn, value
marketing has become the watchword for many marketers. Marketers in all industries are looking
for ways to offer today’s more financially cautious buyers greater value—just the right
combination of product quality and good service at a fair price.
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. 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.
2.3.3. 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.
Marketers should pay attention to the physical environment in terms of obtaining resources and
also of avoiding damage. Some trend analysts labeled the specific areas of concern were:
1. Shortages of raw materials. Staples such as air, water, and wood products have been
seriously damaged and non-renewable such as oil, coal, and various minerals have been
seriously depleted during industrial expansion.
2. Increased pollution is a worldwide problem. Industrial damage to the environment is very
serious. Far-sighted companies are becoming “environmentally friendly” and are producing
environmentally safe and recyclable or biodegradable goods. The public response to these
 companies is encouraging. However, lack of adequate funding, especially in third world
countries, is a major barrier.
3. Government intervention in natural resource management has caused environmental
concerns to be more practical and necessary in business and industry. Leadership, not
punishment, seems to be the best policy for long-term results. Instead of opposing regulation,
marketers should help develop solutions to the material and energy problems facing the
world.
4. Environmentally sustainable strategies. The so-called green movement has encouraged or
even demanded that firms produce strategies that are not only environmentally friendly but
are also environmentally proactive. Firms are beginning to recognize the link between a
healthy economy and a healthy environment
2.3.4 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
warders 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, anthrax. Technology has a tremendous impact on our lives-our Life-style, our consumption
patterns and our economic well-being. Major technological breakthrough carries 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.
2.3.5. 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.

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.
2.3.6. 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.

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.