A Business principally is the organized effort by individuals in an organization to produce goods and services and to sell these goods and services in a market place to earn a good profit margin. The operating environment for all organizations whether they are commercial, charitable, governmental, or in the public sector more generally, is never static and seldom entirely predictable, and can therefore profoundly affect a company’s course of action. An organization can influence the various environmental forces acting on it.
COMPONENTS OF THE MARKETING ENVIRONMENT
The Internal Environment concerns the resources, processes and policies an organization manages in order to achieve its goals. These elements can be influenced directly by an organization. The External Environment consists of the Micro Environment and the Macro Environment. The Macro Environment consists of the political, social, economical, legal and technological influences, and organizations usually have very limited influence on each of these. The Micro Environment consists of competitors, suppliers and indirect service providers, who shape the way an organization achieves its objectives.
In this environment, organizations have a much stronger level of influence.
Micro environment consists of those organizations that either directly or indirectly influence an organization’s operational performance. There are three main types: 1. Those companies that compete against the organisation in the pursuit of its objectives. 2. Those companies that supply raw materials, goods and services and those that add value as distributors, dealers, and retailers in the marketing channel. 3. Those companies that have the potential to indirectly influence the performance of the organisation in the pursuit of its objectives. Analysis of the performance environment is undertaken so that organisations can adapt to better positions, relative to those of their stakeholders and competitors. An Industry consists of various firms that market similar products and services.
According to Porter, a leading Professor on Competitive Strategy in the Harvard Business School in his work on “How Competitive Forces Shape Strategy”, we should review the ‘competitive’ environment within an industry to identify the major competitive forces, as this can help assess their impact on an organisation’s present and future competitive positions. Porter suggests that competition in an industry is a composite of five main competitive forces. These are the level of threat that new competitors will enter the market, the threat posed by substitute products, and the bargaining power of both buyers and suppliers. These, in turn, affect the fifth force, the intensity of current competitors.
When examining an industry, we should consider whether economies of scale are required to operate successfully within it. Economies of scale are the cost advantages that enterprises obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output. New entrants may be restricted through government and regulatory policy, or they may well be frozen out of an industry because of the capital requirements necessary to set up business.
For example, in the oil and gas industry because of the capital required for the extraction and refining operations. Companies may be out of a market because companies within that market are operating using proprietary products or services or technologies for example, the pharmaceutical industry where patents protect companies’ investments in new medicines.
Consumers consider the switching costs associated with such a decision, which in turn, affects their propensity to substitute the product or service for another offering for example customers consider the switching costs from mobile call rate packages to internet packages and consider their flexibility in transferring messages. They also consider the relative price performance of one offering over another for example as the telecommunications markets continue to move with the development of broadband internet services, there are a variety of different companies such as Airtel, Aircel, Reliance etc operating in the same competitive marketspace.
Companies should consider their sales to one individual company. The reason is, if one buying company purchases a large volume of products from the supplying company, it is likely to be able to demand price concessions when there are lots of competing suppliers in the marketplace relative to the proportion of buyers. Buyers may also increase their bargaining power through backward integration. A Company is said to have backward integrated when it moves into manufacturing the products and services it previously brought from its suppliers. Another important factor is price sensitivity. Depending on their trading circumstances, some companies might be more sensitive to price than other buyers. If such companies are more prices sensitive and yet there are lots of competing suppliers for their businesses, they are likely to display less loyalty to their suppliers.
Most companies enhance other factors associated with an offering for example customization and after sale services to try to reduce a client company’s price sensitivity for example Kitchen equipments are provided with free demo sessions on home delivery. Buyers include Consumers, individuals and households that buy goods and services for personal consumption; Businesses, that buy goods and services for further processing or for use in their production process; Resellers, who buy goods and services in order to resell them at a profit; Government agencies that buy goods and services in order to produce public services or transfer them to those that need them; International markets, buyers of all types in foreign countries.
An organisation should determine how suppliers operate and the extent of their bargaining power. If a small number of suppliers operate within an industry with a large number of competitors, the suppliers have the stronger bargaining advantage. On the other hand, in an industry where there is a large number of suppliers with few competing companies, the buying companies have the bargaining advantage. The suppliers need to be evaluated on the uniqueness and the quality of materials provided that enhance their bargaining situation. An increase in raw material prices will affect an organisation’s Marketing Mix strategy and may even force price increases.
Close supplier relationships are an effective way to remain competitive and secure quality products. In some Industries, suppliers increase their market dominance by forward integrating. It is a business strategy that involves a form of vertical integration whereby activities are expanded to include control of the direct distribution of its products for example tea manufacturing company selling based on auctions bringing in sales outlets at their factories to increase local community sales. It allows a Company to control its own supply chains better, but also allows it to sell at lower prices, thereby increasing sales and profit.
Every company faces a wide range of competitors. A company must secure a strategic advantage over competitors by positioning their offerings to be successful in the marketplace. No single competitive strategy is best for all companies. Competitor analysis and monitoring is crucial if an organisation is to maintain or improve its position within the market for example an analysis of the Diary Industry helps to know the market segmentation, share and the major players and their contribution and competitive opportunities. We should consider each company’s structure, current and future developments and its latest financial results. We should also consider the different types of goods and services that competitors’ offer in different market sectors. Measuring and quantifying market responses to any new strategy developments that the company initiates are also important factors.
OTHER MICRO ENVIRONMENT FACTORS
As organizations require investment to grow, they may decide to raise money by entering the stock market. They move from private to public ownership. The introduction of public shareholders brings new pressures as public shareholders want a return from the money they have invested in the company. Maintaining Shareholders’ interest will substantiate huge profits.
Organizations need to manage their media activities so that it can help promote the positive things about the organisation and reduce the impact of a negative event on their reputation. Some organisations will even employ Public Relations (PR) consultants to help them manage a particular event or incident. Television programmes with a wide and more direct audience can also have a very powerful impact on the success of an organization.
Marketing Intermediaries are firms that help the company to promote, sell, and distribute its goods to final buyers. They are the distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers who buy and resell merchandise. They perform important functions more cheaply than the company can perform itself.
The company and all of the other actors operate in a large macro environment of forces that shape opportunities and pose threats to the company is known as macro environment. Six largely uncountable external forces influence an organization’s marketing activities and shape opportunities is known as macro environment.Major external and uncontrollable factors that influence an organization’s decision making,and affect its performance and strategies. These factors include the economic, demographics,legal, political, and social conditions, technological changes, and natural forces is known as macro environment.
Demography is the study of human populations in terms of size, destiny, location, age, gender,race, occupation and other statistics. The demographic environment is of major interest to marketers because it involves people
Age Structure of the Total Population and Its Changes
The number of different ages of people such as the number of children, teenage, youth, old person should be kept in mind at the time of doing marketing strategy. Because a product cannot be certified for every ages of customer. Moreover, at the time of increasing of population the growth of demand of product rises should be noticed otherwise marketing process won’t be effective at all. On the contrary at the time of the decrease of population the demand falls. This is the reason at the time of doing marketing strategy the matter of population must be analyzed.
For example PONDS ANTI ageing cream is specially focused on a particular customer group of women above 30 years.
Changed Family Life
Now a day’s one can easily identify the changes of family life style such as- the growth of working class women, income capability of women, adult marriage of women and the right of divorce of women etc. also important for doing marketing strategy. For this reason people are eager to do a less physical labored task. And prepared food, half cooked food, bread, washing machines etc. are used more. So, now we use packet masala, pressure cooker, rice cooker, washing machine, go to restaurants for food for saveour time but those things created market for the product and the marketers getting benefit from their work and growing rapidly.
Geographical Shift in Population
Geographically living of population and the shift of geographical living of population create impact on marketing. For a lot of reason people tend to go to big cities. For this reason peoples’ life style and their demand style are changing. Moreover, producing product for tourist, job seeking people, businessmen is also profitable business. Besides, people are going abroad and coming back to the country and making a change in their demand style which has to be kept in mind to keep pace with the global growing market This leads to less production in farming products and industry concentrate more on construction tools as majority of farmers move towards cities and mostly involved in construction work as helpers.
Marketers require buying power as well as people. The economic environment consists of factors that affect consumers’ purchasing power and spending power/ patterns. Marketers must pay close attention to major trends and consumers’ spending patterns
Though our per capita income grows but customers’ real purchasing power falls for 3 decades. Increase rate of inflation, increase rate of unemployment, taxes, economic uncertainty also responsible for the downward shift of economic condition of customer. For trade and foreign support some peoples’ purchasing power are increasing but limited earned peoples’ condition getting worse day by day.
Changing Consumer Spending Patterns
The spending patterns are different basis on earning patterns so their buying patterns also different. Food, housing and transportation use up the most house hold income. As family income rises, the percentage expense on food declines, spent on housing remains constant, and both the percentage spent on most other categories and that devoted to saving categories. At the time of increasing of income the eating habit gets changed. Again the storage of product or the shortage of product may cause the change of demand.
The natural environment involves the natural resources that are needed as inputs by marketers or they are affected by marketing activities. Environmental concerns have grown steadily during the past three decades. Marketers should be aware of several trends in the natural environment.
Shortage of Raw Material
Assets can be divided as limitless but not increasable and limited but increasable. As example- air and water is unlimited but for some industrial reason these resources gets polluted. For this reason mass consciousness is raised or some countries enforced law. Forest and food is limited but it is possible to increase its’ production. To make run the forest or wood related businesses we should start taking tree plantation measures. On the other hand oil, gas, coal etc. natural resources are also problematic. Though these resources are enough in some cases available but the expense to use these resources are increased a lot. So the alternative resources are looked for or experimenting is going on to lessen the expenses
Increase of Pollution
Some industrial activities are undoubtedly harming the nature. The filth of factories consisting of poison is polluting both soil and water. As a result taking food seems threatening.
The technological environment is perhaps the most dramatic forces now shopping own destiny. Technological environment involves forces that create new technologist creating new product and marketing opportunities.
Faster Pace of Technological Change
Technology is changing day by day. A company must have to fix their step accordance with the technological changes. Otherwise, it is impossible to survive in the market competition. At the present day all types of communication are done by modern technology. To marketing goods in BD one has to stay connect with modern technology.
High Research & Development Budget
For better production one company may require a group of people for research the market & requite a group of expertise for proper budget in production which will help to take part in competition with others. Sometimes it seems that the authority of the marketing department spends a huge amount of money for research & development budget whereas they forget about the product. Along with research one should take his/her eye on the product.
Marketing decisions are strongly affected by developments in the political environment. Political environment consists of laws, government agencies, government itself and pressure groups that influence or limits various organizations and individuals in a given society. For instance Alcohol advertising is the promotion of alcoholic beverages by alcohol producers through a variety of media. Along with tobacco advertising, it is one of the most highly regulated forms of marketing. All forms of alcohol advertising is banned India. Though the manufacturers try to promote their product by using the similar name for the products that can be advertised and promoted in media it still has an impact.
The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences and behaviors. There are few cultural values which affect marketing decision making. These are, persistence of cultural value, shifts in secondary cultural value, people views of organization/ others, etc.
Persistence of Cultural Values
People in a given society hold many beliefs and views. Their core belief and values have a high degree of persistence. For example, Bangladeshi people are peace loving, getting married for once, strongly hold their religion and being honest. These beliefs shape more specific attitudes and behaviors found in everyday life. Core beliefs and values are passed on from parents to children and are reinforced by schools, colleges, universities, and business and so on.
Every culture has some sub-cultures. People of sub-culture’s belief, ethics, attitude etc. are like to be core culture but they have secondary beliefs. Like rich people. They have different thinking from the other people and they have different life style. They like to present them as different from others and it affects marketing to a certain extent.
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By Paul Baines, Chris Fill, Kelly Page, Adapted by Piyush K. Sinha 2. How Competitive Forces Shape Strategy, Harvard Business Review, Harvard Business School Publishing by Porter, M.E
3.Market Audit and Analysis – Nicole Lorat
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Cite this essay
Factors Affecting Marketing. (2016, May 31). Retrieved from https://studymoose.com/factors-affecting-marketing-essay