Marketing Mix II: Marketing Environment – SS1 Marketing Lesson Note (Second Term)

The marketing environment is the set of all factors and forces, inside and outside a business, that affect how well its marketing performs.

Behavioural objectives

By the end of the lesson, students should be able to:

1. define the marketing environment;
2. distinguish between the micro-environment and the macro-environment;
3. list the factors of the micro-environment;
4. list the factors of the macro-environment;
5. name the four stages of the economic cycle.

Why do we study the marketing environment?

We study the marketing environment to understand the forces that influence a market and how the market reacts to them.

• Strategy: the environment is a major factor in deciding how a new product is marketed.
• Planning: in a real marketing plan, a firm spends much time researching its environment.
• Decisions: it covers everything an organisation must consider when developing and presenting a new product.

What forces make up the marketing environment?

The marketing environment is made up of internal forces and external forces.

• Internal forces: departments other than marketing, such as the finance department and the human resource department.
• External forces: competitors, suppliers, and economic or political situations.

Marketers group these forces into two categories: the micro-environment and the macro-environment.

What is the micro-environment?

The micro-environment is made up of the forces close to a company that affect its ability to serve its customers.

There are five factors of the micro-environment: suppliers, market intermediaries, customers, competitors and the public.

1. Suppliers

• Meaning: suppliers are those who provide a firm with what it needs, and they can change its competitive position and marketing ability.
• Raw material suppliers: provide the materials used to make goods.
• Energy suppliers: provide power and fuel.
• Suppliers of labour and capital: provide workers and money.

The bargaining power of a supplier is at its greatest in these situations:

1. The seller firm is a monopoly or an oligopoly firm.
2. The supplier does not have to compete with substitute products when selling to the buyer group.
3. The buyer is not an important customer of the supplier.
4. The supplier poses a real threat of forward integration, that is, moving into the buyer’s business of selling to customers.

2. Market intermediaries

• Meaning: intermediaries help a producer promote, sell and distribute goods to final consumers.
• Middlemen: wholesalers, retailers and agents.
• Distributing agencies: firms that store and move goods.
• Market service agencies: firms that offer services such as advertising and research.
• Financial institutions: banks and others that fund or insure trade.

3. Customers

There are five types of customers: ultimate, industrial, resellers, government and non-profit, and international.

4. Competitors

• Meaning: competitors sell goods and services of the same or similar kind in the same market.
• Price: firms compete on price.
• Product differentiation: firms also make their products look different from others.
• Response: a firm needs an efficient marketing system, which builds confidence and gives better results.

5. The public

A public is any group that has an actual or potential interest in, or impact on, a company’s ability to achieve its objectives.

• Need: a company must satisfy the general public as well as its customers and competitors, for future growth.
• Influence: the company’s actions affect the groups that make up the public.
• Public relations: a broad marketing activity that the firm must handle carefully.

What is the macro-environment?

The macro-environment is made up of all the factors that can influence an organisation but are outside its control.

It is often summarised as political, economic, socio-cultural and technological factors. Social and cultural factors are taught separately below.

1. The political environment

• Meaning: laws, procedures, practices and policies made by government to regulate and support business.
• Stability: it also covers how stable or unstable the government is.
• Bodies: it includes laws, government agencies and lobbying groups that limit organisations or individuals.
• Restrictions on target market: for example, cigarettes should not be marketed to young children.
• Other restrictions: there are limits on subliminal messages and on monopolies.
• Federal and state laws: some products are regulated by both.
• Monitoring: laws change often, so marketers must watch them.

2. The economic environment

• Meaning: factors that affect consumers’ purchasing power and spending habits.
• Examples: inflation, national income, the economic system, salary levels, credit trends and pricing patterns.
• Business cycle: a marketer must adjust to changes in the cycle to operate successfully.

The economic cycle has four stages: prosperity, recession, depression and recovery.

• Link to marketing: the campaign, product offerings and pricing must suit the current stage of the cycle.

3. The social environment

• Meaning: the values and norms of society, interest groups, reference groups and social class.
• Effect: these shape the basic values, behaviour and preferences of buyers.
• Result: they influence consumers’ buying decisions.

4. The cultural environment

• Meaning: the ways of life of the people, such as language, aesthetics and perception.
• Action: a marketer must adjust to the culture of the people to operate successfully.

5. The technological environment

• Meaning: changes and advances in processes, equipment and devices used to carry out a marketer’s or organisation’s tasks.
• Speed: it is one of the fastest-changing factors in the macro-environment.
• New markets: technology can create new markets and new uses for products.
• Updating: firms must update outdated technology to stay ahead of others.
• Trends: marketers must follow trends, or they risk becoming outdated and losing money.

What is the difference between the micro-environment and the macro-environment?

The micro-environment is close to the firm and affects how it serves customers. The macro-environment is wider and lies outside the firm’s control.

Evaluation

1. Define the marketing environment.
2. Explain the difference between the micro-environment and the macro-environment.
3. List the five types of customers in the micro-environment.
4. State two situations in which the bargaining power of a supplier is at its greatest.
5. Name the four stages of the economic cycle and state the stage with the lowest consumer spending.

Assignment

Explain any three factors of the macro-environment, stating how each one can affect a business.