COURSE MANUAL | MAR 2340 MARKETING MANAGEMENT

Analysing Marketing
Environment

Chapter Overview
The chapter three of the course manual focuses on giving an understanding on analysing marketing
environment. First, the chapter presents an introduction to the environment analysis. Then, it
focuses on approaches that can be used to analyse the environment which includes ‘internal and
external’ perspective and ‘micro and macro’ analysis perspective. Finally, the strategic outcome
of an environmental analysis (SWOT analysis) is presented, explaining how to respond to such
changes in the marketing environment.

Learning Outcomes
At the end of this chapter you should be able to,

• Explain what marketing environment is

• Identify two approaches to analyse environment

• Understand the differences between micro and macro environment analysis

• Recognize the importance of analysing internal environment

• Identify main actors in the microenvironment

• Identify major forces in the microenvironment

• Conduct a SWOT analysis for a given organization

• Learn how to respond to environmental uncertainties

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3.1 Introduction to Marketing Environment

By now, you have learnt about the basic concepts of marketing, the marketing process, and the
marketing philosophies. Furthermore, you have learnt that marketing is aimed at satisfying human
needs and wants while achieving the organization
objectives. In order to be profitable in business activities,
marketers must attract and build up relationships with
customers by creating customer value and satisfaction.
However, marketers cannot accomplish this task alone. This
means that marketers cannot operate independent of the
environment. They are surrounded by many other forces and
actors. We call these surrounding forces and actors as
‘marketing environment’.

All the organizations exist in an environmental context. These organizations, no matter profit
oriented or non-profit oriented take inputs from this environment and after the process, they offer
output (products, services, communications, waste, environmental pollution etc.) to the
environment. Thus, the environment in which the organizations exists, arouses lot of pressures and
influences to them. Organizations do not face static environment and though they like or dislike,
environment changes continuously. Today, business organizations are facing to a rapidly changing
dynamic business environment. Actors (customer, competitors, suppliers, intermediaries, public
and others) in the environment work with or against the company and major environmental forces
(demographic, economic, social, political, natural, and technological) shape marketing
opportunities, pose threats, and affect the company’s ability to build customer relationships. In this
type of scenario, these organizations are compelled to analyse these environmental changes in an
ongoing basis so as to respond them quickly and wisely. Environment scanning and adjusting the
business to the environment has been cited as a major reason for successful businesses.

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Furthermore, decisions regarding the 4Ps of marketing cannot be made in isolation from the
changing environment. The environment of a company consists of a large range of factors and
influences that may impact on its ability to serve its customers and survive in the long term.

The marketing environment does not actually form part of the marketing process; however, the
environmental factors influence most aspects of the marketing process. Ex: Changing customer
preferences, changing strategies of competitors etc. Thus, when planning and implementing
marketing programs, marketers should have a thorough understanding of company’s marketing
environment.

Marketing Environment – The actors and forces outside marketing that affect marketing
management’s ability to build and maintain successful relationships with target customers
(Kotler and Armstrong, 2016).

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3.2 Approaches to Analyse Marketing Environment

It can be identified that there are different approaches to analyse marketing environment. The
approach uses to analyse can be influenced by the purpose of the analysis. Two widely used
approaches to analyse the marketing environment are;

• Internal and external environment analysis

• Micro and macro environment analysis

3.3 Internal and External Environmental Analysis

Starting point of the environmental analysis is to start form the organization itself. The
effectiveness of marketing programs is affected by the internal environment of the company too.
Internal environment of an organization consists of elements of an organization which are within
the organization’s boundary. Management of the organization, employees, physical resources,
departments, processes, systems, organization culture, and intangible resources such as brands
create a company’s internal environment.

A Company's external marketing environment consists of the external stakeholders (actors) and
forces that are external to the marketing management function of the firm and that impinge on the
marketing managements' ability to develop and maintain successful transactions with its target
customers. External stakeholders include customers, competitors, suppliers, intermediaries, and
publics with whom organization have direct and two-way relationships. On the other hand, major
environmental forces include demographic, economic, social, political, natural, and technological
forces. With these forces, organization has indirect and one-way relationships.

Note: Elements of an organization’s internal environment, external stakeholders, and major

environmental forces will be discussed in detail under Micro and Macro Environmental Analysis.

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3.4 Micro and Macro Environmental Analysis

This approach emphasizes the distinguish of close of environment which directly influence the
business and broader environment which indirectly affect all the actors in the microenvironment.

3.4.1 The Microenvironment

Microenvironment consists of actors close to the company, that affect its ability to serve its
customers. This includes the company, suppliers, marketing intermediaries, customers,
competitors, and various public groups, which combine to make up the company’s value delivery
network. The figure 3.1 depicts actors in the microenvironment.

Figure 3.1: Actors in the Microenvironment

Company

Customers Suppliers

Marketing
Marketing
Publics Intermediaries

Competitors

The Company: When designing marketing plans and programmes, marketers need to consider
other company groups and resources as well. Top management, other departments, their resources
and support, organizational culture, processes and systems influence the effectiveness of marketing
effort of the Marketing department. Therefore, the marketing and non-marketing resources should
be assessed by the marketer before planning and implementing marketing plans and programmes
of an organization.

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Figure 3.2: Company’s Internal Environment

Top
Management

Finance/
Employees
Accounting

Marketing

Organization
Purchasing
Culture

Manufacturing

The purpose of internal analysis is to find strengths and weaknesses of both marketing and non-
marketing resources. Thus, it is important to have a coordination between marketing and these
non-marketing resources. The marketing management has some degree of control over these
internal resources.

Suppliers: Suppliers of the organization consist of the parties who provide resources needed to
produce goods and services. Also, they form an important link in the company’s overall customer
value delivery network.

- Provide resources needed by the company to produce its goods and services

- Problems related with suppliers can seriously affect marketing

- Rising supply cost may force price increases

In the present marketing context, marketers should treat their suppliers as partners who support in
creating and delivering customer value.

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Marketing Intermediaries: Marketing intermediaries help the company to promote, sell, and
distribute its products to final buyers. They include;

- Resellers

- Physical distribution firms

- Financial intermediaries

- Marketing services agencies

Competitors: Competitors are the parties who serve the same target market with similar products
and services. In other words, competition includes all the actual and potential rival offerings and
substitutes that a buyer might consider. According to the marketing concept, to be successful in
the marketplace, companies must provide greater customer value and satisfaction than their
competitors do, and company must gain strategic advantages against their competitors to succeed.

Therefore, to plan effective marketing strategies, a company needs to find out all it can about its
competitors. It must constantly compare its marketing strategies, products, prices, channels and
promotions with those of close competitors. There are three steps involved in analysing
competitors.

1. Identifying the company’s competitors

At first companies need to identify competitors. Identifying competitors seems like a simple
task. However, it is the duty of marketing managers to clearly identify different as well as
potential competition the company faces. There are different tools and techniques marketers
and managers can use to identity competitors.

Accordingly, based on the degree of product substitutability, we can identify four levels of
competition as mentioned below.

➢ Brand competition
➢ Industry competition
➢ Form competition
➢ Generic competition

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2. Assessing competitors’ objectives, strengths, weaknesses, and reaction patterns.

After identifying different levels of competitors, marketing manager need to assess them
considering following areas,
➢ What are their objectives?
➢ What does each competitor seek in the marketplace?
➢ What is each competitor’s strategy?
➢ What are various competitors’ strengths and weaknesses
➢ How will each react to actions the company might take?

Furthermore, it is important for the company to identify the different positions occupied by
different competitors in the market. There are four main positions can be identified in any
market,
➢ Market leader
➢ Market challenger
➢ Market follower
➢ Market nicher

3. Selecting which competitors to attack or avoid

Once the company has assessed its competitors, they will be able to identify different types
competitors in relation to the company.
➢ Strong or weak competitors
➢ Close or distant competitors
➢ Good or bad competitors

Next, considering the level of influence, the company can decide which competitors should be
attacked and which competitors should be avoided or ignored.

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Publics: A public is any group that has an actual or potential interest in or impact on an
organization's ability to achieve its objectives. Seven types of publics can be identified.

- Financial Publics: Those who can influence company’s ability to obtain funds

- Media publics: Groups that can carry news and information related to the company

- Government publics: Government actions, decisions, and policies that impact on the
company

- Citizen-action publics: Consumer organizations, environmental groups, and others those

who can question company’s marketing decisions

- Local publics: Neighbourhood residents and community organizations

- General publics: General public’s attitudes towards company’s products and activities

- Internal publics: Workers, managers, volunteers, and the board directors of the company

Customers: Customers can be introduced as the most important actors in the company’s
microenvironment. The aim of the entire value delivery network is to serve target customers and
create strong relationships with them. Marketers can think of any or all five types of markets that
might purchase company’s goods and services.

Figure 3.3: Five Types of Customer Markets

Consumers markets Business markets Reseller markets

Government markets International markets

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Select an app -based public transport service such as

PickMe, Uber, operating in Sri Lanka. Identify elements
3.1 of its internal environment and external stakeholders
(actors) in its microenvironment. Briefly discuss their
implications on the marketing activities of the
organization.

3.4.2 The Macroenvironment

Macroenvironment consists of larger forces that affect the Company’s microenvironment which
includes the company and other actors. These forces are out of control of the business. Scanning
these macroenvironmental forces allow marketers to identify unmet needs and pertaining trends,
which raise opportunities for marketers.

Six major macroenvironmental forces are shown in the figure 3.4 below. Even some big players
in the market are subject to the influences of macroenvironment. Some influences of these forces
are unpredictable and uncontrollable. However, influences of macroenvironment should be
handled skilfully and carefully. Companies that understand and adapt well to their environments
can thrive. Those who cannot adapt will face difficulties and failures.

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Figure 3.4: Major Forces in the Company’s Macroenvironment

Demographic

Social
and Economic
Cultural

Company

Political Natural

Technological

3.4.2.1 The Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender,
race, occupation, education, and other statistics. Demographic environment can be recognized as
one of the important macro forces that marketers need to study. Because demographic environment
involves people, and people make up markets.

In 2020, the world population has reached to 7.8 billion and it is expected to grow further. The
world’s large and highly diverse population poses both opportunities and challenges. Specially
changes in the demographic environment have major implications for marketers. Therefore,
marketers need to be vigilant about changes or developments taking place in demographic
environments of their markets. Some of the common demographic trends observable in the present
world are identified below.

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Population growth and changing age structure: Population growth and changing age structure
of the population creates important implications for marketers. When studying population data, it
can be identified that, world population is growing at a faster rate. However, different countries
experience different population growth rates. Further, changes in age structure of the population
can also be identified. Some countries have young population while others’ population is ageing.
As well as growth of some segments in size and power and generational effects can also be seen
across different countries in the world. Therefore, it is the duty of marketers to identify relevant
changes in population or age structure in respective markets and come up with appropriate
strategies to overcome difficulties and capitalize opportunities.

Geographic shifts in population: At present great migratory movements can be seen between
and within countries. Shifting from rural areas to urban areas, as well as migrating from developing
countries to developed countries are common today. People move between and within countries
due to occupational, educational, and personal factors.

Changing Family Structure: Trends in the family structure of the market also vital for marketers
to plan and implement effective marketing programs. The traditional household consists of
husband, wife, and children (and sometimes grandparents). However, during last time periods, the
traditional family has faced to some changes and challenges. When analysing this scenario, several
trends can be identified which have strongly affected marketing of products. They are,

- Increasing the age of marriage

- Delayed in childbearing

- Married but no children / single kid families

- Increasing dual income families

- Changing household patterns

- Part-time jobs and businesses

- Nuclear families

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A better-educated, more white-collar, more professional population: Sri Lankan population is

becoming better educated. Opportunities for education are widened and tendency toward getting a
good education has increased.

Changing role of women: Women’s role in the society has changed specially in the Sri Lankan
context. More women are entering higher education compared to men, and also, they earn
competitive to men. Further, women employment has also increased significantly. Specially, today
more and more women can be seen as professionals, managers, administrators, as well as
entrepreneurs or business leaders.

3.4.2.2 The Economic Environment

Markets require buying power as well as people. The economic environment consists of factors
that affect consumer purchasing power and spending patterns. Changes in the economic
environment directly affect the purchasing power of customers and hence business policies,
approaches and strategies.

Thus, marketers should track these changes by analysing,

- Changes in consumer spending

- Income distribution and income levels

- Cyclical trend of the economy

- GNP and economic growth rate

- Interest rate and savings

- Credit availability of the economy

- Inflation and unemployment rate fluctuations

- Balance of payment condition and foreign exchange fluctuations

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3.4.2.3 The Natural Environment

The natural environment involves the physical environment and the natural resources that are
needed as inputs by marketers or that are affected by marketing activities. At the most basic level,
unexpected happenings in the physical environment, anything from weather to natural disasters
can affect companies and their marketing strategies.

Today, environmental sustainability has been one of the key concerns in the society. Concerns
related to climate change, global warming, and environmental pollution have forced organizations
to consider the negative effects of their business activities on natural environment.

Marketers should be aware of the trends in the natural environment.

- Growing shortage of raw materials

- The increased levels of pollution

- Increased government intervention in natural resource

- Movement towards environmental sustainability

Environmental Sustainability

An effort to create a world economy that the planet can support indefinitely. Environmental
sustainability means meeting present needs without compromising the ability of future
generations to meet their needs.

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3.4.2.4 The Technological Environment

One of the most dramatic forces shaping people’s lives is technology. People have seen several
wonders like internet, antibiotics, robotic surgery, smartphones, mobile communication,
automobiles etc. Also, it has some negative creations such as nuclear weapons and chemical
weapons. However, our attitude towards technology depends on whether we are more impressed
with its blunders or wonders.

Technology affects businesses and organization in different ways; some businesses either
manufacture or sell technological products, some use technology for their business processes or
operations, and also technology can be used for marketing communication purposes. The
technological environment changes rapidly. Every new technology obsolete old technology and
the products based on it. Further it affects the entire business process of a company (inbound
logistics, manufacturing, delivering etc.) and create new opportunities to reach new customers,
satisfy them with better solutions and provide higher convenience for customers when making
transactions, settling bills etc. Therefore, no doubt that, marketers must review these technological
improvements in an ongoing basis to survive in the marketplace. Accelerating pace of change,
increasing research and development expenditures by companies, increasing regulations on
technological changes and focus on minor improvements are some trends accruing in this
environment.

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3.4.2.5 Political and Legal Environment

Marketing decisions are strongly affected by developments in the political and legal environment.
This environment is composed of laws, government policies and bodies, pressure groups that
influence or limit various organizations and individuals in each society.

Marketers must abide by business regulations. Business legislation has been enacted for several
reasons.

- To protect companies from unfair competition

- To protect consumers from unfair business practices

- To protect the interest of society from unbridled business behaviour.

The effects of legislations on businesses have steadily increased over the years. Companies have
to face immerging new legislations always. Therefore, they must have a good working knowledge
of the major laws protecting competition, consumers and society. Governments tend to change
their policies over the years, establish new agencies and bodies, which regulate business activities.
Marketers should review those influences and respond properly. Further marketers have to respond
increasing emphasis on ethics and social responsibility, which are highly created by various
influencing groups such as envier mental protecting groups etc.

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3.4.2.6 Social and Cultural Environment:

Cultural and social impact on business is a major factor to which marketers must pay greater
concern. Social organizations such as family, school and temple and culture of the society shape
beliefs, norms, values and behaviour of people. The ways of fulfilling their needs and wants are
learned by people mainly through their culture. The way we dress at various places, what we eat,
how our conduct should be at certain places etc. are taught by such social organizations. Therefore,
when a marketer is trying to satisfy customers’ specific need, it must consider these cultural and
social impact on the marketing program planned. In analysing these influences, marketers should
understand high persisting core values of people, changing secondary values and existing
subcultures and their impact.

• The people living in a particular society hold many core beliefs and value that trend to
persist. Core beliefs and values passed on from parents to children and reinforced by major
social institutions- Schools, Churches, and government etc. Core cultural values have high
persistence and marketers cannot do against these core values.
• Secondary values are more open to change. These are the values which are open to change
or cultural swings. E.g. Hair styles, clothing, sexual norms etc. marketers make use of these
cultural changes to find new marketing opportunities.
• Existence of Subcultures. Each society contains subculture, which is a group with shared
values, emerging from their special life experiences or circumstances. Eg. Hindu
subculture, Buddhist subculture etc. As each subculture show different wants and
consumption behaviors, marketers have to study them and use when take their marketing
decisions.

Recognise major macro environmental trends in present

Sri Lankan context that would influence app -based public
3.2
transport service companies given in the activity 3.1.

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3.5 SWOT Analysis

WOT Analysis is the strategic outcome of the
environmental analysis. Based on the findings
of the micro and macro analysis, SWOT Strengths Weaknesses
analysis can be performed. By analysing the
internal organizational environment, strengths
and weaknesses can be identified and from the SWOT
external environment analysis, opportunities
and threats can be identified. Once SWOT
Opportunitie
analysis is conducted, it is the duty of Threats
s
marketing and other managers to develop
strategies to capitalize opportunities,
Figure 3.5: SWOT Analysis
minimize the impacts of threats and overcome
weaknesses.

Refer the scenario given in the question number one (01)

in MAR 2340-Marketing Management, Year - II, Semester
- I End Examination paper –August 2020, and answer the
3.3
following questions.

1. Describe the importance of scanning the marketing

environment for an entrepreneur such as Santhush and
list down Strengths, Weaknesses, Opportunities and
Threats (SWOT) identified by him during his
environment analysis.

2. Suggest appropriate strategies based on the insights

obtained from SWOT analysis.

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3.6 Responding to the Marketing Environment

When observing how companies respond to environmental implications, it can be noticed that
different companies are responding to the marketing environment differently. Some companies
view the marketing environment as an uncontrollable element. Therefore, they react and adapt to
the forces in the marketing environment. Accordingly, they develop strategies to avoid threats and
maximize opportunities. Other set of companies being proactive, take aggressive actions to affect
forces in the environment, they develop strategies to change the environment. Some others take a
reactive approach. They take aggressive actions to affect the publics and forces in their marketing
environment.

By taking actions, companies are able to overcome seemingly uncontrollable environmental

events. However, marketing managers cannot control their environments, especially major forces,
all the time. In such situations, it is advisable to watch and react to situations. But whenever
possible, marketing managers should take proactive approaches rather than reactive approaches to
the influences of the marketing environment.

Discuss possible marketing implications of below

environmental conditions on relevant business
organizations operating in the Sri Lankan market.

i. Increasing shifts of population to urban areas

ii. Growing Sri Lankan middle class
Think iii. Import controls by the government
Deep iv. Growing tech savvy consumer groups
v. Society’s orientation towards comfort or luxury
lifestyles.

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