UNIT II:MARKETING ENVIRONMENT

• SESSION1:
• MEANING AND IMPORTANCE OF
ENVIRONMENT
 Learning objectives
• 1. Explain the meaning and definition of
Marketing environment
• 2. Discuss static environment and dynamic
environment in business.
• 3. Study ‘Internal environment factors’
• and ‘External environment factors’
 Marketing Environment-Why do firms need to
understand the marketing environment?.
• SWOT Analysis SWOT analysis is a tool for auditing an organization
and its environment. It is the first stage of planning and helps
marketers to focus on key issues.
• SWOT stands for strengths, weaknesses, opportunities, and threats.
• Strengths and weaknesses are internal factors. Opportunities and
threats are external factors.
• A strength is a positive internal factor.
• A weakness is a negative internal factor.
• An opportunity is a positive external factor.
• A threat is a negative external factor.
• We should aim to turn our weaknesses into strengths, and our
threats into opportunities.
• The outcome should be an increase in ‘value’ for customers – which
hopefully will improve our competitive advantage.
 .

• The main purpose of the analysis has to be to

add value to our products and services so that
we can recruit new customers, retain loyal
customers, and extend products and services
to customer segments over the long-term.
 Marketing Environment-Why do firms need to understand
the marketing environment?
• Marketing is an art of winning hearts of customers and
persuading them to buy the firm’s product and services.
• A company’s ability to develop and maintain successful
relations with its target customers, in fact, determines its
growth.
• Marketing environment consists of numerous factors and
forces close to company which affect its ability to serve
and satisfy its customers for their needs and requirements.
• The mix of these internal factors like Objectives, Size of
the firm, promotional programs etc and external factors
like Demand, Competition, Government regulations etc
affect the way a firm operates.
 .

• Firms need to understand the marketing

environment so that they can make the most
of positive factors and manage the impact of
negative factors.
• Since a successful relationship with customers
and stakeholders results into growth of
business, now a day almost all the firms
engaged in production and marketing, tend to
identify, monitor and analyze these forces
before taking decisions for the firm.
 A firm plans production keeping in view the
customers' needs, market characteristics, competing
rivals, behavior of suppliers and distributors for its
product. Do you agree the statement? Discuss

• In production process, right from the product

conceptualization till final production, every
single person, group entity, factor- internal/
external, makes a specific impact on firm's choices.
• Similarly individuals or organizations, in capacity of
customers, suppliers, competitors, even governments
are also affected by the firm’s activities.
• As these directly or indirectly give some input into
marketing decisions taken by the firm.
 .

• A firm plans production keeping in view the

customers' needs, market characteristics,
competing rivals, behavior of suppliers and
distributors for its product.
• It also gives due consideration to the
legislative, social and cultural framework.
• By producing goods and services for people,
the firm is committed to provide satisfaction
to individuals and to increase the welfare of
society.
 Define Marketing Environment
• According to M. Weimer, “Business environment is the
climate or set of conditions -i.e., economic, social, legal,
technological and political situations in which business
activities are conducted".
• In the words of Keith Davis, "Business environment is
the aggregate of all conditions, events and influences
that surround and affect it.”
• Philip Kotler defines "A company's marketing
environment consists of the factors and forces outside
marketing that affect its management's ability to build
and maintain successful relationships with target
• customers."
Enlist certain external forces making an influence on a
business.
• i. Fast technological changes as in the mobile
industry or computer industry- introduction of
new models and software and Apps
• ii. Uncertainty in political scenario, e.g., changing
governments, change of finance minister or minister
of concerned industries etc.
• iii. Changes in government's economic policies, e.g.,
licensing policy, taxation policy, inter-state or
foreign trade policy.
• iv. Social changes, e.g., demand for reservation in jobs
for minorities and women.
 .

• v. Changes in fashion and tastes of consumers,

e.g., preference for organic products
or demand for Khadi clothes in place of
synthetic clothes by the customers etc.
• vi. Industrial conflicts caused by labour unrest-
labour demanding higher wages and
bonus and better working conditions, etc.
• vii. Globalization and Liberalization resulting in
increased competition in the market with
the entry of multinational corporations or
start-ups.
 Stable or static environment.
• The environmental forces, at times, do not show any
significant change. The environment of a business enterprise
then is termed as stable or static environment.
• Dynamic environment
• Modern organizations now a day are observing frequent
changes, both internally as well as externally.
• There are new products and designs being introduced to the
market every day, invention of new techniques of production,
new competitors, changes in ministries in the Government,
changes in policies related to industry, taxation or banking that
bring irregularity in the environment for the marketers.
• Such factors creating instability make the business
environment volatile and it is called a dynamic environment.
 “The firm has to deal with the changes taking
place 'within' and 'around' it". Discuss in detail
• There are certain forces that can be controlled to a large extent
by the management of a company.
• These are called internal environment factors, which are
generally related to product design,
volume of production, procurement of raw material,
employment of labour, doses of financial investment
and expansion plans of the firm.
• These changes can be introduced as per desire of
the company's management. Besides this, the four P's
of marketing i.e., product, price, place and
promotion are also controllable.
 .

• For example, if the customers expect some

variations in the product offered by the firm,
or price is high/ low for the target customers
or the current medium of advertisement is not
effective enough, the firm is quite free switch
over to required changes.
• These factors are a part of controllable
environment making an impact on approach
and success of its operations.
 .

• Another type of marketing environment, which generally

cannot be guarded by the management of a company, is called
uncontrollable environment.
• The external uncontrollable environment consists of factors
and forces at two levels namely-
• micro environment, and macro environment.
• Micro environment consists of the elements or forces that
influence marketing and business directly. It includes
suppliers, customers, intermediaries, competitors and the
• general public.
• Macro environment includes demographics, economic forces,
political and legal forces, socio-cultural and technological
forces, which are beyond the control of firm
• and affect business indirectly. The firm analyzes these
environmental forces also, while taking various decisions in
marketing.
 Environmental Scanning. Why is it necessary for a
business?
• Environmental scanning is a process of scrutinizing and
weighing up changes and trends in marketing
environment by the firm.
• The firm survives and contrives in an uncertain dynamic
environment.
• An environmental scanning by the firm for recognizing
potential opportunities and threats outside are very
essential. It is, in fact, key to business success.
• The management has to systematically monitor the
external forces to make strategy for the firm in the
future.
 .

• Through environmental analysis, the

management can develop an Environmental
Threat and Opportunity Profile (ETOP) which
gauges the impact of various environmental
forces on the Firm.
• .Threat may be like emergence of strong
competition in the market by new firms and
substitute products, and opportunity may occur
in the form of path breaking new technology
that may help to reduce cost and improve
product quality of the firm.
 Which are the various aspects explored by the
management of a firm through market research
before starting its operations ? Discuss in detail.
• Before production and launching the product in the
market the management has to make a good
market research to explore various aspects like
• a) Nature of target customers-
• Identifying the size of family, job profile, purchasing
power and buying motive of the customer etc.
• For example before introducing Tata Nano to the
automobile market these factors were ensured by
the company.
• b) The market trends-Observing the position of company's
previous products and services in the market, whether demand
is likely to remain static, decrease or increase.
• c) Economic, social and political trends- Scanning the
economic, social and political trends affecting production
namely monetary policy, social changes, anti-pollution or
energy conservation laws
• e.g., Tata Nano project faced strong opposition in Singur
(West Bengal) both socially and politically.
• d) Technology trends- Anticipation of technological changes,
i.e. whether new product may become popular or what type of
technology advancements are about to
• take place.
• e) Competition in the market- Analyzing the upcoming or
existing competitors and what are their strengths and
weaknesses.
What is the importance of environmental scanning for
the organizations in modern times. Explain

• Environmental scanning is very significant for the

organizations as it helps in:
• 1. Determining Opportunities-
• The interaction between the business and its
environment identifies opportunities and helps in
getting 'First Mover Advantage' out of it successfully.
• Opportunities mean the positive or favorable
external forces that are likely to help a firm increase
its business.
 Example
• For instance, by learning that the demand for
bikes is going to increase, a bike producing
company can take steps to increase
production and introduce new models of
motorbikes to lure new customers. This is
what Hero Honda did in the 1990s to establish
its leading position in the Indian bike market.
By doing so, the company got the first mover
advantage.
 2. Identification of Threats:
• Threats refer to the negative or unfavourable external factors
that create hurdles for a firm.
• Environmental scanning helps to identify possible threats in
future and give warning signals to the firms.
• For instance,
• An Indian firm finds that an MNC is entering the Indian
market with new substitutes. This should work as a warning
signal for the Indian firm. Based on this information, the
Indian firm can improve the quality of its products, reduce
cost of production, engage in aggressive advertising, etc.
 3. Sensitization of Management to Cope
with Rapid Changes:
• The knowledge of environmental changes
sensitizes the management to make strategy
to cope with the emerging problems.
• A keen watch on the trends in the
environment would help to sensitize the firm's
management to the changing technology,
competition, government policies and
changing needs of the customers.
4. Formulation of Strategies and Policies:

• Environmental analysis helps in identifying threats and

opportunities in the market.
• They can serve as the basis of formulation of
strategies to counter threats and capitalize on
opportunities in the market.
• Leading companies like Reliance, Airtel, Tata Motors,
Bajaj Auto and ITC have engaged the services of experts
to monitor trends in the external environment.
• The inputs provided by the experts are used in making
strategies.
 5. Image Building:
• If a firm is sensitive to the external environment,
it will come out with new products and services
to meet the requirements of the customers.
• This would build the image or reputation of the
firm in the eyes of the customers and the
general public. Because of sensitivity to Indian
consumer's requirements, LG was able to
enhance its brand image in the Indian market in
a short span of time.
 6. Continuous Learning:
• Strategy formulation is a continuous process that
involves keeping in touch with the external
environment.
• Thus, managers continue to understand
environmental changes and act on the basis of
such information.
• Search of alternatives and choice of strategy to
deal with the environment are parts of the
learning process.
 .

• 7. Giving Direction for Growth:

• The interaction with the environment leads to
opening up new frontiers of growth for the
business firms. It enables the business to
identify the areas for growth and expansion of
their activities.
• 8. Identifying Firm’s Strength and Weakness:
Business environment helps to identify the
individual strengths and weaknesses in view of
the technological and global developments. It
activates management to move accordingly.
 .

• 9. Basis of strategy:
• Strategists can gather qualitative information
regarding business environment and utilize it in
formulating effective plans.
• For example: ITC Hotels foresaw bright opportunities
in the travel and tourism industry and started
building hotels in India and abroad.
• 10. Intellectual stimulation:
• Knowledge of environment changes provides
intellectual stimulation to planners and decision-
making authorities. They can do it by paying more
attention to people by listening to their problems
and suggestion. The drastic and dynamic steps will
definitely keep the company better placed.
SESSION 2: MACRO ENVIRONMENT
FACTORS
 .

• The macro-environment refers to external forces that are part of the

larger society and so are beyond the control of firm’s management.
• This macro environment is also known as PEST, that is, Political
Environment, Economic Environment, Social Environment,
Technological Environment,
• The macro environmental factors/ forces which affect organization's
marketing decisions and
• activities are as follows:
• i. Demographic forces
• ii. Political and legal forces
• iii. Economic forces
• iv. Natural or physical forces
• v. Technological forces
• vi. Socio-cultural forces
 (i) Demographic forces:

• Even before setting up the business first a firm must

gather demographic environmental information.
• Demography refers to studying human population in
terms of size, density, location, age, gender, race,
literacy and occupation.
• The demographic environment is of great interest to
the marketers because these factors constitute
potential market for company's products.
• If the total population consists more of children,
there will be more demand for toys, baby foods,
children accessories and diapers.
 .

•With more of elderly people in a locality/city, there will

be more demand for medicines, wellness products, and
walking sticks etc.
• On the contrary if there is more of young population, the
producers will produce variety of cosmetics, personality
improvement products, designer fashionable clothes and
lifestyle goods to meet their demand.
• The changing habits, tastes and life styles of the
population also give directions to the marketers,
• e.g.,in metropolitan cities there is more demand for fast
foods, electronic home appliances and crèches etc.
• So demography is a very important factor to study for
marketers as it helps to divide the population into market
segments and target markets.
 (ii) Political and Legal forces:
• The political environment includes all laws,
government agencies and constitutional provisions
affecting or limiting business organizations within a
society.
• It is essential for marketers to be aware of such
provisions, incentives, Government's intervention
and restrictions in business as these factors make
great influence on business decisions.
• The marketing managers are required to have
adequate knowledge and understanding of political
and legal forces for accomplishing their tasks.
 Following are the important components of the
politico-legal environment:
• i. The constitutional framework-directive
principles, fundamental rights of citizens, and
division of legislative powers between central
and state governments.
• ii. Political institutions like government and
allied agencies
• iii. The extent and nature of government
intervention in business
 .
• iv. Commercial and economic laws and government
policies under the laws relating to licensing,
monopolies, foreign investment, etc.
• v. Government policies related to imports and
exports
• vi. Government policies related to small scale
industries, sick industries, consumer
protection, control of environmental
pollution, etc.
• vii. Government policies related to pricing and
distribution of essential commodities.
• viii. Court decisions for the protection of
consumers, environment and ecological
balance.
 (iii) Economic Forces

• Another aspect of the macro-environment is the

economic environment.
• Sometimes economic news spreads optimism; like
Improvement in growth rate, higher demand, low interest
rates and declining unemployment.
• On other times it may cause nervousness indicating
industrial recession, price rise, increase in taxation,
declining employment and demand etc.
• Naturally, business thrives when the economy is
growing, prices are stable, and people have employment
as well as high purchasing power creating demand.
 .

• Marketing products is easier, when consumers are willing to

buy, but is very difficult when people have less money to
spend.
• Inflation is a sustained rise in the prices of goods and services.
As a result, the purchasing power of rupee or real value of
money gets reduced.
• For the same quantity and quality of goods, people are forced
to pay higher prices. Inflation of mild dose is good for the
economy but wild rise is bad for the society particularly
middle and poor classes.
• Thus inflation poses a great problem in managing marketing
programmes.
 (iv) Natural or physical forces

• The natural environment is another important

factor of the macro-environment.
• The concern in this area is the shortages of raw
materials, increased air pollution, noise pollution,
land pollution, water pollution, and so on.
• As raw materials become increasingly scarcer, the
ability to create a company’s product gets much
harder.
• Also, pollution causes huge social cost, i.e.
deterioration of the environment around us.
 .

• The ecologists and sociologists assess social

cost which negatively affects a company’s
reputation if they are known for damaging the
• physical environment.
• A marketer also has to calculate social net
profitability (social benefit minus social cost)
of its business activity.
 .

• The Indian government has introduced the concept of

• ‘corporate social responsibility of business’ as well as
“Eco mark" for marketing ecofriendly products.
• To maintain ‘ecological balance’ the marketing managers
are expected to:
• i. Control the environmental consequences of the
product adopting green production processes and
bio-degradable packaging.
• ii. Follow the environmental criteria while deciding on
product ingredients, design and packaging;
• iii. Respond to the issues raised by the environmentalists
• and consumerists.
 (v) Technological forces:

• The technological environment is one of the fastest changing

factors in the macro environment.
• Technological environment refers to the state of technology in
the areas of manufacturing, mining, construction, materials
handling, transportation and
• information technology.
• Advancements in technology leads to greater productivity,
• higher quality and lower cost of production for the business.
• However, introduction of advanced technology requires higher
capital investment. It may also lead to
• unemployment in some cases where machines replace jobs.
That is why, labour unions generally oppose the introduction of
new technology.
 .

• There is now an increasing trend towards

e-commerce because of easier availability of
information technology throughout the
• world.
• The marketers must constantly watch changes
in technology for keeping track of competition
and customer wants.
• Early adoption of new technology helps in
new improved products and increases the
competitive advantage of the business firm.
 .Ques
• ‘The socio-cultural environment of a country
determines the value system of the
• society which in turn affects the marketing of
products’; explore the truth in the
• statement with the help of an example.
 (vi) Socio-cultural forces:

• The final aspect of the macro-environment is the socio-

cultural forces which consists of institutions and basic
values and beliefs of a group of people.
• Sociological factors such as caste structure,
• mobility of labour, customs, cultural heritage, view
towards scientific methods etc. might have a far-
reaching impact on business.
• For instance, the nature of goods and services in
demand depends upon people's attitudes, customs,
socio-cultural values, etc.
• In India, the attitudes of people have changed with
respect to food and clothing.
 .

• Socio-cultural environment determines the

code of conduct the business should follow.
• If a business follows unethical practices,
various social groups and Government will
intervene to discipline it.
• For instance, if an industrial unit is not
• paying fair wages to workers, trade unions and
Government will intervene.
 .

• Some of the socio-cultural factors which have the

potential of influencing marketing decisions
include the following:
• Caste and occupational structure
• Family structure- joint v/s nuclear family
• Increasing number of women in the workforce
• Population shifts from rural to urban areas
• Educational system and literacy rates
• Changing consumption habits of the population
for enhancement of quality of life
• Exposure to western modern culture
 SESSION 3: MICRO ENVIRONMENT FACTORS

• Micro environment includes both internal as well as

external forces.
• Internal forces include the company's top management
and its various departments
• like
• purchasing department,
• research and development department,
• Production department,
• finance department and
• personnel department.
• All departments within an organization have the potential
to positively or negatively impact firm’s objectives.
 .

• Internal factors are generally under control of

the firm as these have to co-ordinate with
each other, but external factors cannot be
governed by the firm.
• External micro-environment includes the–
• 1. Suppliers
• 2. Marketing intermediaries
• 3. Competitors
• 4. Customers
• 5. General public.
 1. Suppliers:

• The suppliers comprise all the business firms or

individuals who provide raw materials,
components and semi-finished goods to be used
in production or even sell finished products of
the organization.
• The buyer-supplier relationship is one of mutual
economic interdependence, as both parties rely
on one another for their commercial well-being.
• Although both parties are seeking stability and
security from their relationship, factors in the
supplier environment are subject to change.
 2. Marketing Intermediaries:
• Marketing intermediaries are the independent
individuals or organizations that directly help
• in the free flow of goods and services between
marketing organizations and the customers.
• Generally these are of two types, namely
'merchant' and 'agent'.
• Merchant middlemen can be wholesalers and
retailers.
• Agent middlemen are an important part of the
distribution network and render important
services in different capacities.
 .

• Organizations typically rely on banks, venture

capitalists and other sources to finance their
operations;
• Warehouses and transportation companies to
distribute goods; and
• Advertising, market research firms and
• public-relations firms to market their products.
• Each intermediary can potentially increase or
• decrease production and customer satisfaction.
 3. Customers:
• A customer may be an individual or
household, an organization that purchases a
product for use in the production of other
products, or an organization that purchases a
product for resale at a profit.
• This customer factor of a marketing
microenvironment has great influence on
marketing decisions.
 Target may be grouped as follows:

• i. Consumer market-
Individuals and households buying the
product for consumption.
• ii. Industrial market-
Organizations buying for producing other
goods and services for the purpose of either
earning profits or fulfilling other objectives
or both.
 .

• iii. Reseller market-

Organizations buying goods and services with a view to sell
them to others for a profit. These may be selling intermediaries
and retailers.
• iv. Government and other non-profit market-
The institutions buying goods and services in order to produce
public services. They transfer these goods and services to
those who need them for consumption in most of the cases.
• v. International market-
Individuals and organizations of other countries buying for
their consumption or industrial use or both. They may be
foreign consumers, producers, resellers and governments.
 4. Competitors:
• Competitors are the rival business firms in the effort
to satisfy the markets and consumers’ demand.
• Since these are competing with each-other, the
marketing decisions of one firm not only influence
consumer responses in the marketplace but also
affect the marketing strategies of other
competitors.
• So marketers have to continuously monitor the rival
firm’s marketing activities, their products,
distribution channels, prices and promotional
efforts to design its marketing strategy.
 There are three types of competition:

• a) Competition from similar products-

• The most direct form of competition occurs
amongst marketers of similar products.
• b) Competition from substitute products-
• The second type of competition involves products
that can be substituted for one-another.
• c) Competition amongst all firms-
• The final type of competition occurs among all
organizations that compete for the consumer's
purchases.
 5. Publics:

• The company's micro environment also

includes various publics, i.e. groups of people.
• A 'public' means any group that has an actual
or potential interest in or impact on the
company's ability to achieve its objectives.
• A public can contribute to a marketing
program through positive word of mouth or
may hinder marketing activities through
negative word-of-mouth.
Kotler and Armstrong have described seven types of publics as follows-

• 1. Financial publics-
• They groups influence the company's ability to obtain funds.
The examples of major financial publics are- banks,
investment houses and shareholders.
• 2. Media publics-
• They consist of those mechanisms or devices that carry
news, features and editorial opinion. They include-
newspapers, magazines, radio and television stations.
• 3. 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.
 .

• 4. 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.
• 5. Local publics-
• Every company has local publics, such as neighborhood residents
and community organizations.
• 6. General publics-
• A company needs to be concerned about the general public's
attitude towards its products and activities. The public's image of
the company affects its buying.
• 7. Internal publics-
• A company's internal publics include its workers, managers, and
board of directors. Large companies use newsletters and other
means to inform and motivate their internal publics. When
employees feel good about their company, this positive attitude
spills over to external publics.
– THANK YOU