MBA Marketing Management and Research PDF

UNIT 04 Marketing Environment Names of Sub-Units Concept of Marketing Environment, Macro environment, Task environment, PESTEL – A Technique to Environment Analysis, Global environment Overview This unit explains the concept of the market enviro...

UNIT 04 Marketing Environment Names of Sub-Units Concept of Marketing Environment, Macro environment, Task environment, PESTEL – A Technique to Environment Analysis, Global environment Overview This unit explains the concept of the market environment. Further, this unit also describes the internal and external marketing environment along with task environment. PESTEL analysis and global environment are also discussed in this unit. Learning Objectives In this unit, you will learn to:  Describe the concept of market environment  Elaborate the market environment factors  Define PESTEL  Justify the PESTEL factors  Summarise the global environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y Marketing Management and Research Learning Outcomes At the end of this unit, you would:  Examine the concept of market environment  Conclude the reason for scanning market environment  Discuss the concept of PESTEL  Brief the difference between domestic environment and global environment Pre-Unit Preparatory Material  https://www.shivajicollege.ac.in/sPanel/uploads/econtent/d39b61fcece4f18a9064b1e7e36ef870. pdf 4.1 INTRODUCTION Nike is a globally recognised brand in sports accessories, sports equipment, footwear, athletic apparels, etc. Nike has gained the advantages of policies formulated by the government of United States for the growth of their business. The company has gained advantage of the stable currency and low-interest rate on loans including competitive tax arrangements which led to the growth of its business. Nike has gained benefits of the initiatives taken by the US government with respect to the transparency in the global value chain. But, Nike has also been through hard times in other countries like Indonesia, Thailand and Vietnam due to unrest in the political environment. There were no proper trade pacts between United States and these three countries, which made it difficult for Nike to trade with these countries. Nike gained access to the markets of these countries only when the US government established trade pacts with these countries. The process of formulation of the vision, mission, goals, and objectives of an organisation is followed by the analysis of the environment in which the organisation operates. An organisation is influenced by two types of environment – external and internal. The external environment includes external factors that are beyond the organisation’s control, whereas the internal environment includes internal factors that are within the control of the organisation. External factors offer opportunities and create threats for the organisation. However, internal factors help in identifying strengths and weaknesses of the organisation in various functional areas. Therefore, the organisation needs to analyse the environment in which it operates. It cannot formulate effective strategies without analysing its environment. Even the formulation of vision and mission requires studying external environment as the businesses survive/grow in a dynamic environment. No organisation operates in isolation; its business operations are affected by a number of external factors. These external factors comprise political, economic, social, cultural, technological and legal factors. For example, government policies and plans change substantially with a change in political forces within the government. The political change in the government can affect an organisation greatly. Similarly, an organisation or an industry as a whole gets affected by economic conditions prevailing in a country. For instance, in times of recession, the organisation witnesses a decline in sales. In addition, the organisation has to cope with interest rate fluctuations and inflation. The same is true for social, cultural, technological and legal factors. The organisation does not have any direct control over these 2 UNIT 04: Marketing Environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y external factors. However, the organisation is hugely affected by these factors. On the other hand, there are some internal factors which affect the organisation’s operations. These include organisational culture, structure, capabilities and resources. The organisation has direct control over these internal factors. The environment in the context of an organisation refers to all these factors (external and internal), influences and circumstances that directly or indirectly affect the organisation. Thus, in order to retain its market position and have an upper hand over its competitors, the organisation needs to be aware of its environment. The long-term sustainability and success of the organisation mostly depends on the favourability of different environmental factors. For example, the Internet and e- commerce have totally changed the mode of business transactions. e-books and e-papers have also posed serious challenges to the traditional publishing industry. Increasing concern for the eco-system is forcing organisations to become eco-friendly. Therefore, those organisations which cannot adapt to these environmental changes find it difficult to survive in the competitive marketplace. There are three forces that form the vital part of an organisation’s environment and drive its growth. These forces are discussed in the following points:  Customers: They demand customised products and want the organisation’s individual attention. Customers’ tastes and expectations influence marketing strategies of the organisation to a great extent.  Competition: It drives out inferior products out of the market. Competition compels organisations to produce better quality products at competitive prices and provide best services. In addition, it initiates fight for the market share and thus influences the organisation’s strategies.  Change in market needs: It leads to innovation of new products and services and their introduction in the market. Change is an imperative part of the organisation in today’s dynamic world. 4.2 CONCEPT OF MARKETING ENVIRONMENT A market can be defined as a system of institutions, instructions and processes relating to the exchange of goods and services between persons or organisations. Markets can be defined on the basis of various factors, such as geographical dimensions, consumers, products or even the behavioural aspects of consumers. They are mainly divided into two types, namely international market and domestic market. According to Philip kotler, “A company’s marketing environment consists of the internal factors & forces, which affect the company’s ability to develop & maintain successful transactions & relationships with the company’s target customers.” The marketing environment of an organisation consists of an internal and external environment. By monitoring the marketing environment, marketers try to predict potential changes in terms of opportunities and threats for the business. With these changes, marketers continue to modify their strategies and plans. As stated, the marketing environment consists of various internal and external factors, which directly or indirectly influence an organisation’s marketing decisions. Organisation’s strengths, weaknesses and competencies are the internal factors, while external factors include government, technological, economic, social and competitive forces. Internal factors are within the control of an organisation, whereas external factors do not fall within its control. External factors are uncontrollable factors which affects the organisation. 3 JGI JAINDEEMED-TO-BE UNIVERSIT Y Marketing Management and Research Figure 1 shows the types of marketing environment: Marketing Environment Internal Environment External Environment Or Or Controllable Factors Uncontrollable Factors Micro Environment Macro Environment Figure 1: Types of Marketing Environment Source: https://bbamantra.com/marketing-environment-internal-external/ 4.2.1 Macro Environment Macro environment involves a set of environmental factors that is beyond the control of an organisation. These factors influence organisational activities to a significant extent. Macro environment is subject to constant change. The changes in macro environment bring both opportunities and threats to an organisation. The following are the factors that affect the macro environment of an organisation:  Demographic environment: This refers to the type of environment in which there is scientific study of population’s age, gender, educational qualification, occupation, income and location. These elements are also called demographic variables. Before marketing a product, a marketer collects information to find a suitable market for the product. Consider the example of an automobile company, which identifies people belonging to high-income group, aged between 35 to 60 years, to sell its luxury cars. This will be the company’s ideal demographic for selling its luxury cars. Any change in this environment cause variations in the individuals tastes, preferences and buying patterns. This also persuades an organisation to time to time modify their marketing strategies so that they can satisfy the needs of customers.  Economic environment: This type of environment influence the costs structure of the organisation and purchasing power of the customers. The customers purchasing power is based on the customer’s current income, their savings, product prices and credit availability. The significance of economic environment is different for different people. Consider an example of a farmer for whom factors such as weather conditions, price of fertilizers, etc., are important. For a TV channel, the steep rise in the Internet advertising matters a lot from business perspective but not weather conditions. Similarly, for a farmer, advertising does not matter from the perspective of agriculture. The factors affecting the economic environment are:  Inflation: Inflation is responsible for influencing the demand of the customers for various products. For example, Demand for the cars will decrease if the price of petrol increases.  Interest rates: Interest rates are determined by the organisation’s borrowing activities. For example, if the bank increases the interest rate on loans, the organisation may have to cut their important activities.  Unemployment: Unemployment is the result of nil or zero income state. This influence individual’s purchasing power. 4 UNIT 04: Marketing Environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y  Customer income: This factor is responsible for regulating the customer’s buying behaviour. Any increase or decrease in the customer’s income results to change in the spending patterns or habits of the customers.  Monetary and fiscal policy: This policy refers to the government policy which tries to stabilise country’s economy. This is done by controlling interest rates and money supply in an economy. Fiscal policy refers to the policy which regulates the government spending in different areas by collecting revenue from citizens and by taxing their income.  Natural environment: This refers to the surrounding which has natural resources. These resources are required by the organisations to manufacture products or offer services. Natural factors that affect marketing activities of an organisation include:  Socio-cultural environment: This refers to the surrounding which consists of factors like values, attitude, education, language, religion, perceptions and buying behaviour. This environment explains the characteristics of the society and class in which an organisation exists. The screening of the socio-cultural environment enables an organisation to recognise organisation’s threats and opportunities.  Technological environment: Technology has a great role in contributing to the country’s economic growth. Technology is the indispensable part of our lives. It is rapidly changing force, which has the strong potential for creating new opportunities for the organisation. For example; Smart watch and fitness tracker has captured the market of smart watches. Therefore, marketers should scan the technological environment. Following are the factors in technological environment:  Rate at which the technology is changing  R&D (Research and development)  Increased regulation  Political and legal environment: This refers to the surrounding which consists of legal bodies and government agencies which impacts the organisations and individuals. Interference of the government in organisations work, ban, fines, penalties etc. marketing activities of the organisation. 4.2.2 Task Environment Task environment affects the working of the organisation. The factors under this environment are:  Suppliers: Suppliers provide raw material to produce goods and services. They can influence the profit of an organisation because the price of raw material determines the final price of the product.  Marketing intermediaries: They help organisations in establishing a link with customers by promoting, selling and distributing products. Marketing intermediaries include:  Merchants: This category includes resellers such as wholesalers and retailers. Resellers purchase products from organisations and sell them to customers. Apart from this, there are distribution centres that help organisations to store goods. A warehouse is an example of a distribution centre.  agents: Agents work as an extension of the manufacturing company. They do not directly own the product/service, but take possession of the product/service in its distribution process.  Agents help to promote products/services by making customers aware of their benefits. An advertising agency is an example of a marketing agency.  Facilitators: Facilitators provide financial help for business transactions. Examples of facilitators are banks, credit organisations and insurance organisations. 5 JGI JAINDEEMED-TO-BE UNIVERSIT Y Marketing Management and Research  Customers: Customers buy product/service of an organisation for final consumption. An organisation undertakes research and development activities to analyse the needs of customers and manufactures products according to those needs.  Competitors: Competitors help an organisation to differentiate its products in the market.  Public: Public is also one of the major components of micro environment. It includes a group of individuals that influence an organisation’s ability to fulfil its objectives. Thus, it is a responsibility of an organisation to satisfy the general interest of the public. In other words, an organisation must evaluate its actions in terms of how they can affect the public. By doing so, an organisation could develop an effective marketing plan for both the public as well as customers. 4.3 PESTEL – a TECHNIQUE TO ENVIRONMENT ANALYSIS PESTEL is the technique which is used by the organisation to track the environment special if they are launching a new product or service. PESTEL stands for: P-Political factors E-Economic factors S-Social factors T-Technological factors E-Environmental factors L-Legal factors The different components of the external environment are political, economic, socio-cultural, technological, ecological and legal. Their abbreviated form is known as PESTEL. Therefore, the external environment analysis is also known as PESTEL analysis. Every component of the external environment plays an essential role in influencing the activities of the organisation. There is no relative importance given to a particular component. Figure 2 shows the PESTEL analysis P E S T E L Government Economic Population Technology Weather Discrimination Policy Growth Growth Rate Incentives Climate Law Political Exchange Rates Age Distribution Level of Environmental Antitrust Laws Stability Interest Rates Career Attitudes Innovation Policies Employment Corruption Inflation Rates Safety Emphasis Automation Climate Change Law Foreign Trade Disposable Health R&D Activity Pressures from Consumer Policy Income Consciousness Technological NGO’s Protection Law Tax Policy Unemployment Lifestyle Charge Copyright and Labour Law Rates Attitudes Technical Patent Laws Trade Cultural awareness Health and Restriction Barriers Safety Laws Figure 2: PESTEL analysis Source: https://www.business-to-you.com/scanning-the-environment-pestel-analysis/ 6 UNIT 04: Marketing Environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y Let’s understand the factors:  Political factors: These include government regulations such as employment laws, environmental regulations and tax policy.  Economic factors: These affect the cost of capital and purchasing power of an organisation. These factors include economic growth, interest rates, inflation and currency exchange rates.  Social factors: These impact the customer’s need and potential market sise for an organisation’s goods and services. These factors include population growth, age demographics and attitude towards health.  Technological factors: These influence barriers to entry, make or buy decisions and investment in innovation, such as automation, investment incentives and rate of technological change.  Ecological or Environmental factors: The ecological environment signifies the natural environment. Similar to the political, economic, socio-cultural and technological factors, the natural environment also has a significant impact over an organisation. For example, agro industries are found in places which are favourable for agricultural productivity. In addition, nowadays consumers are increasingly concerned about global warming and environmental damage. Recent trends suggest that more and more consumers are switching to eco-friendly products to reduce environmental pollution. Further, both governmental and non-governmental organisations (NGOs) are also putting pressure on business organisations to reduce their carbon footprint and produce more eco-friendly products. All over the world, organisations are facing protests by farmers and local people who get affected by environmental damage caused by business organisations. Thus, an organisation needs to be concerned about ecological environment, and make continuous efforts to minimise environmental damage. In other words, the organisation can create a better brand image by being more environmentally conscious. Therefore, the ecological environment plays a vital role in the long-term success of the organisation. Environment factors consist of ecological and environmental aspects such as weather, climate, environmental offsets and climate change.  Legal Factors: Legal factors affect the work of the organisation. These are laws such as discrimination laws, antitrust laws, employment laws, consumer protection laws, copyright and patent laws, and health and safety laws. Organisation must have a clear understanding of these laws to trade successfully and ethically. 4.4 MARKETING ENVIRONMENT OF INDIA India is considered as the country having larger consumer markets in the world. India has complex consumer market. Consumers are diverse so organisations have to tailor their marketing strategies accordingly. Organisations have to face intense competition from small, medium and large retailers and multinational companies. It is important to consider cultural background, the purchasing power of people, population sise etc. Organisations hire a local person having local area knowledge to deal with the complexities of the Indian market. Organisation makes a detail marketing plans and take into consideration some main elements like:  Stakeholder management  Brand  Public relations  Digital and social media  Product value  Brand value 7 JGI JAIN DEEMED-TO-BE UNIVERSIT Y Marketing Management and Research The socio-cultural environment of India is changing and evolving which affects consumer choices. Price of the product is very important for the consumers in India especially lower-middle class and lower income people. India has rural population of approximately seven hundred million, leaving many opportunities for growth. Let’s understand the Indian socio-cultural environment with the help of an example. For example, when McDonald’s entered India, it did not launch its Big Mac burger, which is beef preparation. Since majority of Indians are Hindus, they don’t consume beef. Therefore, instead of beef burgers, McDonald’s serves chicken, fish and vegetable burgers in India. ITC going green “Paperkraft Premium Business Paper” is an environment-friendly paper which has been crafted by ITC by using the pioneering ‘Ozone Treated Elemental Chlorine Free Technology’. The use of this technology is the first of its kind in India. Superior quality and environment-friendly, Paperkraft is a multipurpose paper for office and home use. ITC has taken an important initiative to ensure the optimum use of scarce natural resources by creating this unique product. It has been launched in line with ITC’s triple bottom line vow to building economic, environmental and social capital for the nation. Paperkraft Premium Business Paper aims to provide consumers an opportunity to lessen the adverse impact of climate change and create positive environmental tracks. The exclusive chemical treatment has empowered the paper to be an eco-friendly paper with great archival life. Elemental Chlorine, which is used in the bleaching process during paper manufacturing, generates by-products during this process. The by-products include a large number of organo-chlorine chemicals, which are toxic and adversely impact the environment. The ECF (Elemental Chlorine Free) Technology almost reduces the creation of such toxins. This is attained by relieving elemental chlorine with chlorine dioxide. Ozone treatment is advancement over ECF, which results in lower chemical usage and reduced water pollution. These determinations cover all critical elements of environmental sustainability and have directed ITC to be the only organisation in the world of its size to achieve the success of being carbon positive, water-positive and triumphing almost 100% solid waste recycling. 4.5 GLOBAL ENVIRONMENT Global Environment is multidimensional. It consists of factors such as the political factors or risks, cultural differences, foreign exchange risks, legal and taxation issues. Therefore, global business environment comprises:  Political  Economic  Regulatory  Tax  Social and cultural  Legal  Technological The global business environment refers to the surrounding in which international or global organisations run their businesses. This business environment brings along it with many differences. 8 UNIT 04: Marketing Environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y There is some difference between business environment and international business environment. Let’s discuss. Global business environment refers to the business environment or surroundings in which the international organisations operate. Whereas business environment is the surrounding wherein domestic organisation operates. An international market is defined geographically as a market outside the international boundaries of a company’s country of citizenship. A company is usually a citizen of the country where it was organised. IBM, for example, was formed in the United States. Thus, IBM’s international market would be any geographical area outside the territorial boundary of the US, where it conducts business. On the other hand, domestic market is conceptually opposite of international market. It is the geographic region within the national boundaries of the company’s home country. To operate in the global business environment, an organisation has to consider following things:  Import and Export  Licensing  Franchising  Joint venture  Foreign Direct Investment Following are the advantages of global business environment:  It helps to expand the business  It helps in attracting more customers  It enables the international companies to do proper management of the product life cycle  It helps in mutual growth Conclusion 4.6 CONCLUSION  The marketing environment has the internal and external environment.  Internal factors are within the control of an organisation, whereas external factors do not fall within its control.  External factors are uncontrollable factors which affects the organisation.  Macro environment has various environmental factors which are beyond the control of an organisation. These factors influence organisational activities to a significant extent. Macro environment is subject to constant change.  Based on internal and external factors, the two major categories of marketing environment are: 1. Micro environment 2. Macro environment  Micro environment links closely to an organisation and affects its activities directly.  Macro environment involves a set of environmental factors that is beyond the control of an organisation. 9 JGI JAIN DEEMED-TO-BE UNIVERSIT Y Marketing Management and Research  The major task environmental forces that affect an organisation are:  Suppliers  Marketing intermediaries  Customers  Competitors  The factors that affect the macro environment of an organisation are:  Demographic environment  Economic environment  Natural environment  Socio-cultural environment  Technological environment  Political and legal environment  PESTEL analysis is a scan of external macro-environment wherein the organisation exists. 4.7 GLOSSARY  Socio-cultural environment: It consists of elements, such as society’s basic values, attitudes, education, language, religion, perceptions and buying behaviour.  Public: It includes a group of individuals that influence an organisation’s ability to fulfil its objectives.  PESTEL analysis: It stands for the political, economic, socio-cultural and technological environment.  global business environment: It refers to the surrounding in which international or global organisations run their businesses. 4.8 CASE STUDY: GLOBAL MARKETING STRATEGIES FOR TANGO SPICES Case Objective This case study aims to describe the global marketing strategies for Tango spices. Tango Spices Ltd. (TSL) is the biggest spice marketer in India. TSL decided to launch an aggressive bid for Europe’s major spice marketer Chilean. It is a very rare case that an Indian company is interested in making an unsolicited aggressive takeover bid for an international company. Tango Spices has its competencies in Indian spices and they dominate the Indian markets. International markets The important destination markets for the Tango spices exports have been Europe and America. The competencies of Europe’s major spice marketer Chilean, consist of Italian herbs and spices. The Indian company bidding for the takeover wishes to synergise its operations in the world market. It also wants to take advantage of entering the international market enjoyed by the Italian company in several countries, where its products are not being sold presently. The move for the aggressive takeover follows Chilean’s rejection of an agreement entered a year back. At that time, Chilean was suffering losses and it offered majority shares at a price of € 2.25. A total of 20% of shares was transferred at that time. Chilean 10 UNIT 04: Marketing Environment JGI JAIN DEEMED-TO-BE UNIVERSIT Y turn around its business operations in one year and in the last quarter, the company made good profits. The promoters having residual holding of 35 per cent do not want to transfer the shares now and also rejected the agreement with request that the earlier offer price was not good enough. Tango spices revised their offer to € 2.95. After this, largest shareholders of Chilean showed their interest in selling their stakes. On the other hand, the promoters maintained their position on this matter. The important issues on hand for them were:  Working on strategies for the international expansion  Understanding the market potential of the overseas markets  Importance of customising the products to suit the environment  Overcoming the challenges and ensuring success Conclusion Going through the process of buying of shares in the market Tango spices gradually consolidated their hold in Chilean to 45% shares. This made them a major shareholder in the company and this prompted them to be ready for a takeover. At the same time, Yippee Spices Ltd. was trying hard to improve their position within the company so that they do not leave any place for Chilean’s promoters to stop their bid for the takeover process in the future. Questions 1. Define international market. (Hint: global surroundings, outside physical boundaries) 2. Why was TSL interested in taking over Chilean? (Hint: Takeover would synergise its operations in the world market and it can take advantage of entering the international market) 3. What strategies are followed by organisations to enter into international markets? (Hint: The choice of strategy to be used in the international market depends on the country’s culture, laws, competition, etc.) 4. State the reasons for entering international markets. (Hint: Entering international markets help in fast industrialisation and rise in the standard of living) 5. What strategic alternatives can be followed by TSL for the takeover bid? (Hint: Stability strategy, expansion strategy, retrenchment strategy or the combination strategy) 4.9 SELF-ASSESSMENT QUESTIONS B. Essay Type Questions 1. Global Environment is multidimensional. Describe the global environment. 2. India is considered as the country having larger consumer markets in the world. Explain the marketing environment of India. 3. This technique is used to evaluate market growth or market decline and as such the position, potential and direction for a business. Which technique is this? Explain. 4. Define agent and the role of the agent in detail. 11 JGI JAINDEEMED-TO-BE UNIVERSIT Y Marketing Management and Research 5. Elaborate uncontrollable and controllable factors in detail. 4.10 ANSWERS AND HINTS FOR SELF-ASSESSMENT QUESTIONS B. Hints for Essay Type Questions 1. It consists of factors such as the political factors or risks, cultural differences, foreign exchange risks, legal and taxation issues. Refer to Section Global Environment 2. Organisations have to face intense competition from small, medium and large retailers and multinational companies. Refer to Section Marketing Environment of India 3. PESTEL refers to the external environment scanning tool to scan the political, economic, socio- cultural and technological environment. Refer to Section PESTEL – A Technique to Environment Analysis 4. Agents work as an extension of the manufacturing company. Refer to Section Concept of Marketing Environment 5. Internal factors are within the control of an organisation, whereas external factors do not fall within its control. External factors are uncontrollable factors which affects the organisation. Refer to Section Concept of Marketing Environment @ 4.11 POST-UNIT READING MATERIAL  https://indiafreenotes.com/marketing-environment-in-india/ 4.12 TOPICS FOR DISCUSSION FORUMS  Describe few examples of organisations that are late entrants but are still successful. 12