The Environment of Marketing
The organization operates within the larger framework of the external environment that shapes opportunities and poses threats to the organization. The external environment is a set of complex, rapidly changing and significant interacting institutions and forces that affect the organization's ability to serve its customers. External forces are not controlled by an organization, but they may be influenced or affected by that organization. It is necessary for organizations to understand the environmental conditions because they interact with strategy decisions. The external environment has a major impact on the determination of marketing decisions. Successful organizations scan their external environment so that they can respond profitably to unmet needs and trends in the targeted markets.
The Organization as a System
It is useful to conceptualize the organization as a system or a whole with interdependent and interrelated parts. The systems approach solves problems by diagnosing them within a framework of inputs, transformation processes, outputs, and feedback. Inputs are the labor (human), money (financial), materials, and equipment resources that enter a transformation process. Transformation processes comprise the technologies used to convert inputs into outputs. Outputs are the original inputs as changed by a transformation process, products and services. Feedback is information about a system's status and performance.
Internally, an organization can be viewed as a resource conversion machine that takes inputs (labor, money, materials and equipment) from the external environment (i.e., the world outside the boundaries of the organization), converts them into useful products, goods, and services, and makes them available to customers as outputs. The organization must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the environment may spell profound threats or new opportunities. The successful organization will identify, appraise, and respond to the various opportunities and threats in its environment.
External Macroenvironment
The external macroenvironment consists of all the outside institutions and forces that have an actual or potential interest or impact on the organization's ability to achieve its objectives: competitive, economic, technological, political, legal, demographic, cultural, and ecosystem. Though noncontrollable these forces require a response in order to keep positive actions with the targeted markets. An organization with an environmental management perspective takes aggressive actions to affect the forces in its marketing environment rather than simply watching and reacting to it.
Competitive Environment
Adopting the marketing concept means that an organization must provide greater customer value than its competitors. Being good is not good enough if a competitor is better. It is impossible for an organization to develop strong competitive positioning strategies without a good understanding of its competitors and the strengths and weaknesses of the competitors.
Three levels of competition exist.
1. Direct competitors are firms competing for the same customers with the similar products (ex. grocery stores).
2. Competition exists between products that can be substituted for one another (ex. margarine for butter).
3. Competition exists among all organizations that compete for the consumer's purchasing power (ex. entertainment).
Pure competition has many firms, all selling identical products, and no one firm is powerful (ex. wheat farmers). Monopolistic competition has a large number of firms selling slightly differentiated products (ex. fast food - product differentiation). Oligopoly is a small number of firms selling that can act collusively (ex. long distance telephone). Monopoly is a single firm selling in the market for which there is no close substitute (ex. AT&T pre-1980).
Economic Environment
The economic environment consists of factors that affect consumer purchasing power and spending patterns. Economic factors include business cycles, inflation, unemployment, interest rates, and income. Changes in major economic variables have a significant impact on the marketplace. For example, income affects consumer spending which affects sales for organizations. According to Engel's Laws, as income rises, the percentage of income spent on food decreases, while the percentage spent on housing remains constant.
People spend, save, invest and try to create personal wealth with differing amounts of money. How people deal with their money is important to marketers. Trends in the economic environment show an emphasis on global income distribution issues, low savings and high debt, and changing consumer-expenditure patterns. If you consider access to telephones, clothes washers, dryers, microwaves, etc., there is little visible difference between the poor and nonpoor. Indeed, recent figures indicate that the affluent are shopping at discount stores, having adopted some of the shopping habits of those with less income.
According to the U.S. Census Bureau reports, in 1995, the poverty threshold for a single-person household was $7,763; it was $9,933 for a two-person household and $12,158 for a three-person household. In spite of that, more than 90 percent of these households have a kitchen range, a refrigerator and a color TV. A 1995 study from the National Center for Policy Analysis found that more Americans at the poverty level owned dishwashers than families in the Netherlands, Italy or the United Kingdom. It also found that more U.S. poor owned microwaves than the people of any nation in Europe did.
Marketers can't control the problems that have cropped up, and that may continue to develop, at various hot spots across the global economy. But they can -- and should -- take proactive steps to shelter their organizations from unwanted consequences of a worldwide downturn. When an organization's underlying financials are strong, it is able to capitalize on competitors' weaknesses, prosper, and continue to grow, even in adverse economic times.
Technological Environment
The technological environment refers to new technologies, which create new product and market opportunities. Technological developments are the most manageable uncontrollable force faced by marketers. Organizations need to be aware of new technologies in order to turn these advances into opportunities and a competitive edge. Technology has a tremendous effect on life-styles, consumption patterns, and the economy. Advances in technology can start new industries, radically alter or destroy existing industries, and stimulate entirely separate markets. The rapid rate at which technology changes has forced organizations to quickly adapt in terms of how they develop, price, distribute, and promote their products.
Political and Legal Environment
Organizations must operate within a framework of governmental regulation and legislation. Government relationships with organizations encompass subsidies, tariffs, import quotas, and deregulation of industries.
The political environment includes governmental and special interest groups that influence and limit various organizations and individuals in a given society. Organizations hire lobbyists to influence legislation and run advocacy ads that state their point of view on public issues. Special interest groups have grown in number and power over the last three decades, putting more constraints on marketers. The public expects organizations to be ethical and responsible. An example of response by marketers to special interests is green marketing, the use of recyclable or biodegradable packing materials as part of marketing strategy.
The major purposes of business legislation include protection of companies from unfair competition, protection of consumers from unfair business practices and protection of the interests of society from unbridled business behavior. The legal environment becomes more complicated as organizations expand globally and face governmental structures quite different from those within the United States.
Demographic Environment
Demographics tell marketers who current and potential customers are; where they are; and how many are likely to buy what the marketer is selling. Demography is the study of human populations in terms of size, density, location, age, sex, race, occupation, and other statistics. Changes in the demographic environment can result in significant opportunities and threats presenting themselves to the organization. Major trends for marketers in the demographic environment include worldwide explosive population growth; a changing age, ethnic and educational mix; new types of households; and geographical shifts in population.
Cultural Environment
Social/cultural forces are the most difficult uncontrollable variables to predict. It is important for marketers to understand and appreciate the cultural values of the environment in which they operate. The cultural environment is made up of forces that affect society's basic values, perceptions, preferences, and behaviors. U.S. values and beliefs include equality, achievement, youthfulness, efficiency, practicality, self-actualization, freedom, humanitarianism, mastery over the environment, patriotism, individualism, religious and moral orientation, progress, materialism, social interaction, conformity, courage, and acceptance of responsibility. Changes in social/cultural environment affect customer behavior, which affects sales of products. Trends in the cultural environment include individuals changing their views of themselves, others, and the world around them and movement toward self-fulfillment, immediate gratification, and secularism.
Ecosystem Environment
The ecosystem refers to natural systems and its resources that are needed as inputs by marketers or that are affected by marketing activities. Green marketing (the greening of America) or environmental concern about the physical environment has intensified in recent years. Environmental consciousness has a strong presence in Western Europe and Japan, as well as in the United States. To avoid shortages in raw materials, organizations can use renewable resources (such as forests) and alternatives (such as solar and wind energy) for nonrenewable resources (such as oil and coal). Organizations can limit their energy usage by increasing efficiency. Goodwill can be built by voluntarily engaging in pollution prevention activities and natural resource.
External Microenvironment
The external microenvironment consists of forces that are part of an organization's marketing process but are external to the organization. These microenvironmental forces include the organization's market, its producer-suppliers, and its marketing intermediaries. While these are external, the organization is capable of exerting more influence over these than forces in the macroenvironment.
