BOM Unit 2 – Marketing Environment

By
Assistant Prof. Rajit Panickar
 Concept of Environment

All living creatures including human beings live within an environment. Apart from the natural environment, environment of
humans include family, friends peers and neighbors.

It also includes man-made structures such as buildings, furniture, roads and other physical infrastructure. The individuals do
not live in a vacuum. They continuously interact with their environment to live their lives.

Just like human beings, business also does not function in an isolated vacuum. Businesses function within a whole gambit of
relevant environment and have to negotiate their way through it. The extent to which the business thrives depends on the
manner in which it interacts with its environment.

A business, which continually remains passive to the relevant changes in the environment, is destined to gradually fade-away
in oblivion. To be successful business has not only recognize different elements of the environment but also respect, adapt to
or have to manage and influence them.

The business must continuously monitor and adapt to the environment if it is to survive and prosper. Disturbances in the
environment may spell extreme threats or open up new opportunities for the firm. A successful business has to identify,
appraise, and respond to the various opportunities and threats in its environment.
 Concept of Environment
The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the
business and they affect the functioning of a business enterprise. These include customers, competitors, suppliers,
government, and the social, political, legal and technological factors etc.

While some of these factors or forces may have direct influence over the business firm, others may operate indirectly. Thus,
business environment may be defined as the total surroundings, which have a direct or indirect bearing on the functioning of
business.

It may also be defined as the set of external factors, such as economic factors, social factors, political and legal factors,
demographic factors, technical factors etc., which are uncontrollable in nature and affects the business decisions of a firm.
 Macro Environment
A macro environment refers to the set of conditions that exist in the economy as a whole, rather than in a particular sector or
region. In general, the macro environment includes trends in the gross domestic product (GDP), inflation, employment,
spending, and monetary and fiscal policy.

The macro-environment refers to how the macroeconomic conditions in which a company or sector operates influence its
performance. Macroeconomics deals with aggregate production, spending, and the price level in an economy as opposed to
individual industries and markets.

The macro-environment refers to the broader condition of an economy as opposed to specific markets.
The macro environment can be affected by GDP, fiscal policy, monetary policy, inflation, employment rates, and consumer
spending. The state of the macro environment affects business decisions on things such as spending, borrowing, and investing.
Macro Environment
 Macro Environment
Components

1. Socio-Cultural Environment
The social values and culture of an environment play a huge role in the functioning of the company. So when the social
environment changes it can have a direct or indirect effect on the company. For example in recent time society has seen a
shift, and people no longer retire at 60. They work five to ten years more after sixty. So this has had a huge impact on
companies.
Cultural forces also have a significant impact on the success of a company in the long run. Especially in a country
like India where the cultural influences are strong and complicated.

2. Technological Environment
In the times we live in, technology is constantly changing it is important that the business can keep up with the changes.
Technology does not only confine to computers and IT services. It includes products, manufacturing processes, techniques etc.
The technological developments can be a huge advantage for a firm. But at the same time of the technology used by the firm
becomes obsolete due to such developments, then it can also be a threat to the firm.

3. Economic Conditions of the Market

The economic conditions of the economy and the performance of a business have a very close relationship. A business
depends on the economy for all its inputs and factors of production. It also sells its products and services in the same market.
A market is never in one stable condition. It is always in a flux. If there is a boom in the market then all businesses will benefit
from the favorable conditions. The income will be higher, rate of interests will be low, new capital will be available etc.
 Macro Environment
Components

4. Ecology and Physical Environment

Ecology and physical environment play a huge part in the performance of any business. This is especially true for
manufacturing/production companies. Let us take the example for global warming.
This change in our physical environment has started affecting the rainfall in certain regions. This in turn may affect the crops
and cause a shortage in raw materials such as jute, cotton, rubber etc.
Weather conditions, topographical elements, geographical location, climate changes and other ecological factors are a very
important element in the macro environment of a business.

5. Political and Legal Factors

The political environment of a country is the combination of three branches of the government – legislature, executive and the
judiciary. The political environment of a country will mainly depend on the political beliefs and ideologies of the party in
power at the state and central levels.
The legal environment refers to the rules, laws, regulations, and judgments etc. that affect the functioning of a business. And
this will also include the taxation laws and the Budget for the given year. So stable legal and political government is really
important if the business and the economy as a whole has to succeed.
 Micro Environment

The micro environment refers to the factors within a company that impact its ability to do business. Micro environmental
factors are specific to a company and can influence the operation of a company and management's ability to meet the goals of
the business. Examples of these factors include the company's suppliers, resellers, customers, and competition.

Micro environment consists of the factors or elements in a firm's immediate environment which affect its performance and
decision-making. The micro environment is popularly referred to as task environment or operating environment.

It refers to the environment comprising of all the actors of an organization’s immediate environment which influences the
performance of the company, as they have a direct bearing on the firm’s regular business operations.
 Micro Environment
Components

1. Customers and Consumers

Customers are people who buy an organization’s products/services. In simple words, an organization cannot survive without
customers. A consumer, on the other hand, is the ultimate user of the product/service.
For example, a husband might purchase a product for his wife. In this case, the husband is the customer and the wife is the
consumer.
A successful business keeps a close watch on both customers and consumers of its products/services. It must monitor and
track any changes in tastes and preferences of the consumer along with changes in the buying habits of the customer.

2. Competitors
Every business has competition. Competitors are other organizations that compete with each other for both resources and
markets. Hence, it is important that an organization is aware of its competitors and in a position to analyze threats from its
competition. A business must be aware of its competitors, their strengths and weaknesses, and the most aggressive and
powerful competitors at all times.
Further, an organization can have direct or indirect competitors. When organizations are involved in the same business
activity, they compete for both resources and markets. This is Direct Competition. For example, Pantene and Sunsilk
shampoo companies are direct competitors. On the other hand, a five-star holiday resort and a luxury car company are Indirect
competitors since they offer different products but vie for the same market.
 Micro Environment

Components

3. Organization
One of the most important aspects of the micro environment of an organization is the self-analysis of the organization itself. It
must understand its own strengths and weaknesses, objectives and goals of the business, and resource availability. The
following non-specific elements of an organization can affect its performance:
i) Owners – People who have a major shareholding in the organization and have vested interests in the well-being of the
company.
ii) Board of Directors – The board of directors is elected by the shareholders for overseeing the general management of the
business and ensuring that the shareholder’s interests are met.
iii) Employees – People who work in the organization are major contributors to its success. It is important that all employees
embrace the organization’s goals and objectives.

4. Intermediaries
Intermediaries are also a major determining force in business. Most customers are unaware of the manufacturer of the
products they buy since they approach retailers, departmental store, chain stores or online stores for their purchases.
 Micro Environment

Components

5. Market
The market is much more than the sum of all the customers. The organization must study the market in terms of its actual size,
the potential for growth, and its attractiveness. Some important issues are:
The cost structure of the market, Price Sensitivity of the market, Technological structure of the market, The existing
distribution system of the market, The maturity of the market.

6. Suppliers
Suppliers are another important component of the micro environment. Organizations depend on many suppliers for
equipment, raw material, etc. to maintain their production. Suppliers can influence the cost structure of the industry and are
hence a major force.
 Needs & Trends

Market Needs
The market needs help to compare your business and its product or service with the competition in regards to customer
experience. Allowing your business to strategically cater to the customers’ market needs. From the customers’ perspective,
you need to have answered, what problem does your business solve? What does your business offer that the customer can’t get
anywhere else?

Market Trends
It is important to be able to recognize when a change can or will affect your business. Knowing the needs of the market and
understanding trends will help you always be aware of industry adjustments.
Your product or service needs to help change the way customers are solving the problem that your product or service
addresses.
Major Factors Affecting Macro Environment
 Major Factors Affecting Macro Environment

1. Demographic Factors

Demographic forces ultimately involve human populations that patronize businesses and contribute to the economy. There are
a variety of statistics that must be analyzed when it comes to demography, including age, gender, size, occupation, and need.
Ultimately, fulfilling the needs of any demographic is the reason that businesses operate in the first place and why they are
ultimately successful. Demographics, then, ultimately drive how a company chooses to operate and how broader markets
develop.
Population growth and resulting changes to demographics are important areas of study for any business. A company needs to
understand exactly who is patronizing it to best be of service, and thereby, generate a profit.
Marketing, for any business, depends heavily on paying close attention to changes in demographics. Knowing how to target
new or emerging demographics is critical. Changes also must be passed on to operations and production to make sure the
company continually meets its clients’ needs.
 Major Factors Affecting Macro Environment
2. Ecological Factors
Ecological factors are natural forces that shape a macro environment. It is largely shaped by the ease of access to natural
resources used in the production and distribution of a company’s goods and services.
Environmental concerns affect both access to natural resources and the supply of natural resources a company can utilize. As
populations expand, access to natural resources increases, which tends to lead to a depletion of said resources. Pollution
increases resulting from population growth also shape the environment.
For years, there’s been a growing shortage of raw materials, and a heavier emphasis is being placed on changing business
practices to utilize more sustainable materials. The hope is that placing less burden on the environment will help to regenerate
ecological cycles and make materials both more plentiful and more accessible.

3. Political Factors
Businesses are always limited by the political environment in which they exist. Laws and governments regularly shape how a
company can operate and even have sway over the markets that companies can serve.
The primary instance where political factors play a critical influence is when a company tries to move into a new market –
specifically one in a different country. The company must understand the laws and regulations that dictate both the industry it
operates in and any specific rules it may be subjected to. It may affect whether it’s financially responsible for the company to
enter the new market at all.
It’s also important to keep abreast of new legislation in the works or tabled for passage. Understanding shifting political forces
can help a company change directions to skirt any serious impact should new regulations or rules be passed.
 Major Factors Affecting Macro Environment

4. Economic Factors
Economic factors affecting the macro environment relate to forces that affect how consumers spend and their purchasing
power. It is important to understand a variety of metrics and data, including:
i. Gross Domestic Product (GDP) and its real growth rate
ii. Unemployment rates
iii. Inflation
iv. Disposable Personal Income
v. Existing Spending Patterns
Every business should closely monitor data regularly and be fully aware of such numbers before moving into new markets in
different countries.
 Major Factors Affecting Macro Environment

5. Socio-Cultural Factors
Socio-cultural factors relate to demographics in a sense but are more related to populations and how they behave based on
preference and values. Different societies and cultural groups are characterized by different needs, which are often based on
different core values and preferences.
Cultures often develop a group mentality, which passes along core values and general beliefs. It shapes how the individuals in
such cultures shop and what they choose to spend their money on. A business needs to pay attention to socio-cultural
variances, especially when moving into new markets.

6. Technological Factors
Technological factors refer to the creation of new technologies and how they shape products, product development, and access
to new market opportunities. A perfect example of a strong technological force today is wireless communication.
Nearly everyone in the world owns a smartphone, tablet, or laptop that can quickly and easily be connected to the internet. It
exerts a serious impact on individuals and societies and their ability to patronize companies freely.
Mobile technology is also shaping the development of new technological devices and replacing ones that have become
outdated. A company needs to continually use the most up-to-date technology in order to operate at its highest capacity and be
aware of how technological applications can better serve customers.
Major Factors Affecting Micro Environment
 Major Factors Affecting Micro Environment

1. The Impact of Customers

Customers have the most direct microeconomic impact on a business. The simple fact is that you can't successfully operate a
for-profit company without attracting targeted customers.
Knowing your ideal customer types and developing and presenting effective marketing campaigns are integral to building a
customer base and generating revenue streams.

2. Availability of Employees
Your workers produce, sell or service the goods and service that drive your business. The availability of qualified, motivated
employees for your business type is vital to economic success.
If you operate a highly technical business, for instance, you might have to pay more in salary to attract a limited number of
available, specialized workers.

3. Distribution Channels and Suppliers

Sourcing goods used in production or resale and distributing your inventory to customers are important as well. Manufacturers
rely on materials suppliers and resale companies rely on manufacturers or wholesalers to transport goods. To operate
profitably, you need to get good value on products and supplies and, in turn, offer good value to your customers with
accessible solutions.
 Major Factors Affecting Micro Environment

4. Level of Competition
The level of competition also impacts your economic livelihood. In theory, more competitors means your share of dollars
customers spend diminishes.
However, a large number of competitors in an industry usually signifies lots of demand for the products or services provided.
If an industry lacks competition, you might not find enough demand to succeed in the long run.

5. Availability of Investors
Shareholders and investors may help fund your company at start-up or as you look to grow. Without funds to build and
expand, you likely can't operate a business.
You could look to creditors, but you have to repay loans with interest. By taking on investors, you share the risks of operating
and often gain support and expertise. You do give up some control, though.

6. Media and the General Public

Your local community and media also affect your ongoing business image. Communities often support companies that provide
jobs, pay taxes and operate with social and environmental responsibility.
If you don't do these things, you may run into negative public backlash. Local media often help your story proliferate, for
better or worse.
Need for Analyzing the Marketing Environment

What is Marketing Environment?

&

What is the need for analysing for Marketing Environment?

 Need for Analyzing the Marketing Environment
A marketing environment encompasses all the internal and external factors that drive and influence an organization's
marketing activities. Marketing managers must stay aware of the marketing environment to maintain success and tackle any
threats or opportunities that may affect their work. A marketing environment is vast and diverse, consisting of controllable
and uncontrollable factors.

Analysis of the marketing environment is of great importance to marketers because of the following reasons : -
1) The impact of the environment on the organisation is enormous. To understand the trends and events in the market and
successfully analyzing the data to produce a product of customers need.
2) The changes in the environment affect the functioning of all the departments. The organisations who constantly screen the
environment become future ready to overcome the challenges from environmental changes.
3) A change in any one factor of the environment can have a direct or indirect impact on all the functions. For example, a
change in taxes by the government will affect the finance department, but also other functions like supply, production, etc.
Hence its study becomes very critical.
4) The organisations list out the strengths and weaknesses which are internal to the organisation. It helps in analyzing the
efforts to be put in to upskill the staff, expectations of the suppliers, distributors, etc.
5) It helps in analyzing the opportunities and threats to the organisation.
 Need for Analyzing the Marketing Environment

By constantly analyzing the changes that are occurring in the Marketing Environment, organisations are better prepared to :–

1. Adapt to change

2. Prepare long-range strategy

3. Meet the needs of customers

4. Forecast tomorrow’s needs, and

5. Compete with the intense competition present in the global marketplace.

What comes under PESTEL Analysis?
Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

1. Political Factors
When looking at political factors, you are looking at how government policy and actions intervene in the economy and other
factors that can affect a business. These include the following:
i. Tax Policy
ii. Trade Restrictions
iii. Tariffs
iv. Bureaucracy
One of the reasons that elections tend to be a period of uncertainty for a country is that different political parties have
diverging views and strategies for policy on the items above.

Political Factor Example: A company decides to move its operations to a different state after a new government is elected on
a campaign to implement policies that would adversely impact the company’s core operations.
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

2. Economic Factors
Economic Factors take into account the various aspects of the economy, and how the outlook on each area could impact your
business. These economic indicators are usually measured and reported by Central Banks and other Government Agencies.
They include the following:
i. Economic Growth Rates
ii. Interest Rates
iii. Exchange Rates
iv. Inflation
v. Unemployment Rates
Often these are the focus of external environment analysis. The economic outlook is of extreme importance for a business, but
the importance of the other PESTEL factors should not be overlooked.

Economic Factor Example: A company decides to refinance its debt after an interest rate decrease is announced.
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

3. Social Factors
PESTEL analysis also takes into consideration social factors, which are related to the cultural and demographic trends of
society. Social norms and pressures are key to determining consumer behavior. Factors to be considered are the following:
i. Cultural Aspects & Perceptions
ii. Health Consciousness
iii. Populations Growth Rates
iv. Age Distribution
v. Career Attitudes

Social Factors Example: The percentage of the population that smokes has decreased since the 1970s, due to changes in
society’s perception of health and wellness.
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

4. Technological Factors
Technological factors are linked to innovation in the industry, as well as innovation in the overall economy. Not being up to
date with the latest trends of a particular industry can be extremely harmful to operations. Technological factors include the
following:
i. R&D Activity
ii. Automation
iii. Technological Incentives
iv. The Rate of change in technology

Technological Factors Example: A company decides to digitize their physical data files to allow for quicker access to
company information.
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

5. Environmental Factors
Environmental factors concern the ecological impacts on business. As weather extremes become more common, businesses
need to plan how to adapt to these changes. Key environmental factors include the following:
i. Weather Conditions
ii. Temperature
iii. Climate Change
iv. Pollution
v. Natural disasters (tsunami, tornadoes, etc.)
Additionally, there is increasing importance for businesses to be environmentally friendly with their operations, as evidenced
by the rise of Corporate Sustainability Responsibility (CSR) initiatives. Examples of CSR initiatives include carbon footprint
reduction efforts and transitions into renewable material and energy sources.
Environmental Factors Example: An agricultural company has to adjust its harvest forecasts due to unexpectedly dry
seasonal conditions that will prevent crop growth.
 Analyzing the Political, Economic, Socio-cultural, Technical and Legal
Environment (PESTEL)

6. Legal Factors
There is often uncertainty regarding the difference between political and legal factors in the context of a PESTEL analysis.
Legal factors pertain to any legal forces that define what a business can or cannot do. Political factors involve the relationship
between business and the government. Political and legal factors can intersect when governmental bodies introduce legislature
and policies that affect how businesses operate.
i. Legal factors include the following:
ii. Industry Regulation
iii. Licenses & Permits
iv. Labor Laws
v. Intellectual Property

Legal Factors Example: A restaurant is forced to shut down after not meeting food safety standards set out in state law.