External and Internal Marketing Environment
Internal Marketing Environment
The internal environment refers to all the factors existing within a marketing firm. The internal factors are generally regarded as controllable factors or elements because the company has control over these factors, it can alter or modify such factors as its physical facilities, personnel, organization and functional means, such as marketing mix, to suit the environment. Controllable elements are eligible to control the operation of an organisation. Controllable variables are further categorised into two aspects which are the strategy variables and unmarketable variables.
Marketing managers must also work with other departments of the company. Together, all of these departments have an impact on the plans and actions of the marketing department. There are several internal forces or controllable elements, which influence marketing decisions, which are as follows:
1) Top Management: The organisational structure, the composition of the Board of Directors, the extent of professionalisation of management etc., are important factors influencing business decisions. The business domains of the company, the direction of development, priorities, business philosophy, business policy etc., are guided by the mission and objectives of the company.
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Factors like the support top management enjoy from different levels of shareholders, employees, and the Board of Directors have a vital influence on the marketing decisions and their implementation.
2) Finance and Accounting: Finance is concerned with finding and using funds to carry out the marketing plan. Financial factors like financial position, financial policies, and capital structure are also important internal environments affecting business strategies, performances, and decisions. Accounting has to measure cost and revenues to help marketers know how well it is achieving its objectives.
3) Research and Development: Research and Development are done when organisations gather knowledge to create new products or discover new ways to improve their existing products and services, R&D department focuses on designing attractive and safe products. R & D and technological capabilities, determine a company’s ability to compete and innovate.
4) Manufacturing: Manufacturing is responsible for producing the desired quality and quantity of products by hand or by a machine that upon completion the business sells to a customer. Physical assets and facilities like technology, distribution logistics, production capacity, the efficiency of the productive apparatus, etc., are among the factors which influence the competitiveness of a firm.
5) Purchasing: Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals, it worries about getting supplies and materials.
Purchasing means buying goods and services from external agencies so that a company can operate and manufacture products. Purchasing is one of the most common at the same time strategic activities of the business. The success of any business activity is dependent upon having materials & parts, stores & supplies, machines and equipment available in proper quantity, quality, place, time and price.
6) Company Image and Brand Equity: The image of the company matters when forming joint ventures, raising finance, or other alliances, soliciting marketing intermediaries, launching new products, entering purchase or sale contracts, etc. Brand equity is also relevant in many of these cases.
Marketing resources like the organisation for marketing, quality of the marketing men, brand equity and distribution network have a direct bearing on marketing efficiency. They are important for new product introduction, brand extension, etc.
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External Marketing Environment
The external marketing environment refers to the factors that exist outside the marketing firm. The external factors are, by and large, beyond the control of the organisation. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors, socio-culture factors, government and legal factors, demographic factors, geophysical factors etc., are, thus regarded as uncontrollable factors or elements.
Uncontrollable factors are those which are outside of an organization and affect a marketer’s ability to develop and maintain its marketing strategies. These variables are called uncontrollable because the elements of the external environment cannot be directly controlled by the marketing manager.
The marketing manager is left with the option of adapting to the environment by immediate analysis, observation, and forecasting of these environmental factors.
There are two marketing environments micro and macro.
The external marketing environment consists of the following elements:
1) Microenvironment, and
2) Macro environment.
The microenvironment in marketing is the operating environment of the company. This is because the functioning of the microenvironment has a direct and immediate effect on the company. These factors are more interlinked with the company than macro-environmental factors.
Micro-environment refers to the company’s immediate environment i.e., those environmental factors that are near to it. These factors influence the company’s non-capability to produce and serve the market. The microenvironment is also known as the task environment or operating environment. These are also the groups of people who directly affect the company’s prospects. These factors are:
- Market Intermediaries
1) Suppliers: For the production of goods or services, a variety of goods are required as input. The people or companies who supply inputs such as material, components, labour and other stock of goods are called suppliers. The success of the marketing organisation depends upon the continuous and smooth supply of inputs in required quantities on fair terms. Suppliers have the power to change the company’s position in the market and its capabilities.
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2) Market Intermediaries: Market intermediaries may be individuals or business enterprises. These intermediaries are middlemen (wholesalers, retailers, agents etc.), distributing agency market service agencies and financial institutions. Normally, every producer has to appoint several intermediaries in assisting him in the promotion, distributing and selling of goods and services to ultimate consumers.
3) Customers: A customer purchases goods and services from the market to satisfy his needs and wants.
The success of the company strongly depends on how effectively the company fulfils the needs and wants of the customers, which is profitable to the business and also provides value to the customer. The company needs to understand what the customers expect from products and services so that the company can satisfy them.
A company must note that without customers no business can survive for a long time. So, the primary objective of the company is to create and retain customers, to keep itself going.
4) Competitors: Competitors are those who sell the goods and services of the same and similar description, in the same market to your customers. Apart from competition on the price factors, there are other forms of competition like product differentiation. It is, therefore, essential to build an efficient system of marketing. This will create confidence and better results.
For this purpose, at first, competitors are to be identified and closely monitored. The competitive environment consists of certain basic things which every marketing manager must take note of Philip Kotler thinks that “the best way for a company to grasp the full range of its competition is to take the viewpoint of a buyer.”
5) Public: The company must satisfy the people at large along with its competitors and the consumers. It is necessary for future stay and growth. The actions of the company do affect the other groups forming the general public for the company. The public is defined as, “any group that has an actual or potential interest in or impact on a company’s ability to achieve its objectives.” Public relations are certainly a broad marketing operation which must be completely taken care of.
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Macro environment refers to those factors, which are not concerned with the immediate environment. These factors exist outside the company and are quite uncontrollable. These factors do not affect the marketing ability of the concern directly but indirectly they influence the marketing decisions of the company.
Macro-environmental factors that affect the company’s marketing decisions are given below:
1) Demographic Environment: The first macro-environmental force that marketers monitor is population because people make up markets Marketers are keenly interested in the size and growth rate of population in different cities, age distribution and ethnic mix, regions, and nations, educational levels, household patterns, and regional characteristics and movements.
Corporate planners should study the demographic environment and identify the broad characteristics of the population that affect the organisation. Active management will have plenty of advance notice of possible changes in demographic factors and then they can start searching for new product lines and more attractive markets.
Major factors in the demographic environment relevant to business organisations are trends in size, ageing geographical shift and literacy of the population.
2) Economic Environment: The economic environment consists of macro-level factors related to the means of production and distribution of wealth that have an impact on the business of an organisation. Economic factors affect the spending and purchasing power of people. Further economic development and growth affect the product choice of customers.
For example, recently with a drop in interest rates the banking industry is finding it hard to mobilise small savings and stock markets are fast emerging as a better investment option for investors To assess the impact of these forces, a marketer must examine the following factors in a greater detail
i) Gross Domestic Product (GDP) and Gross National Products (GNP).
ii) Per capita income of the population;
iii) Balance of payments position;
iv) Industry life cycle and present phase through which the industry is passing. The different phases of this life cycle could be classified as growth/prosperity, boom, recession, depression and recovery.
v) Consumers’ buying and financial power, willingness and ability to buy.
vi) Trends in the prices of goods and services-specifically, whether the inflationary or deflationary trends are visible,
vii) Fiscal policies and prime rate of interest charged by commercial banks have a direct impact on investment by businesses and an indirect impact on consumer demand in arms of the amount of discretionary spending, and
viii) Fall in exchange rate boosts exports and makes imports more expensive and causes cost-push inflation.
3) Physical Environment: Components of physical forces are the earth’s natural renewal and non-renewal resources. Natural renewal forces are forests, food products from agriculture or sea etc. Non-renewable natural resources are finite such as oil, coal, minerals etc. Both these components quite often change the level and type of resources available to a marketer for his production.
The governments of most countries are trying to conserve and recycle their natural resources through legislation and vigorous campaign. It is because the world is about to face a crisis if the current rate of consumption is not checked. Ecological balance may also be disturbed. All these will have an impact on marketing decisions.
For example, India does not have enough petroleum reserves and imports petrol and other products. Recently the gulf war has drastically affected the supply of petrol, diesel and other petroleum products in our country. This had a lot of implications for the companies consuming petro-products.
To ensure the sustainability of natural resources, companies should examine the ecological balance, efforts to reduce ozone layer depletion, the impact of global warming and also need much effort to protect natural resources, avoid pollution and etc.
4) Technological Environment: The technological environment consists of those factors related to knowledge applied, and the materials and machines used in the production of goods and services that have an impact on the business of an organisation.
Some of the factors and influences operating in the environment are given below:
i) Sources of technology like company sources, external sources and foreign sources, cost of technology acquisition, collaboration in, Technological development stages of development, change and rate of change of technology and research and development,
For example, manual typewriters were replaced by electronic typewriters, which were further replaced by computers.
ii) Impact of technology on human beings, the non-machine system, and the vital effects of technology, for example, the invention of the microwave, kitchen appliances and frozen foods have given housewives more free time to do other activities.
iii) Communication and infrastructural technology, for example, electronic marketing, voice mail, and video conferencing affect the travel industry and transfer of technology.
5) Political and Legal Environment: Developments in the political and legal fields greatly affect marketing decisions. Sound marketing decisions cannot be taken without taking into account, the government agencies, political parties in power and in opposition, their ideologies, pressure groups, and laws of the land.
These variables create tremendous pressure on marketing management. Laws affect production capacity capability, product designs, pricing and promotion. Government in almost all nations intervenes in the marketing process irrespective of their political ideologies.
Some of the important factors and influences operating in the regulatory environment are given below:
i) The constitutional framework, directive principles, fundamental rights and division of legislative powers between Central and State Governments.
ii) Policies related to the public sector, small-scale industries, sick, industries, development of backward areas, control of environmental pollution and consumer protection.
iii) Policies related to licensing, monopolies, foreign investment and financing of industries
iv) Policies related to imports and exports.
v) Polices related consumers protection & environmental protection.
vi) Policies related to patent, preventions of food, water and air adulteration
6) Social and Cultural Environment: Social responsibility concept has crept into marketing literature as an alternative to the marketing concept. The social forces attempt to make marketing socially responsible.
It means that business firms should take a lead in eliminating socially harmful products (eg, cigarettes or wine) and produce only what is beneficial to society. There are innumerable numbers of pressure groups in society (like activist consumers, social workers, mass media, professional groups, politicians, government, consuming public, social organisations, etc.) who impose restrictions on the marketing process.
There are some core-cultural values, which are found in our society deep-rooted and stable and hence change very little. There are also secondary cultural values, which are susceptible to fast changes in society. Some of them like hairstyles, clothing, etc. Even in a given culture, the entire population does not adopt the changes.
There are different extents to which people adopt them. Religion is also an important element of culture, which has implications for marketing.
However, it can be recommended to marketing managers, that to estimate the impact of the socio-cultural forces on marketing, he/she should carefully consider elements of socio-cultural factors such as attitude, beliefs, values, norms, cultures, sub-culture, cross-culture and lifestyles of individuals.
Because these socio-cultural factors determine what the customers exactly buying from the market, how they are buying, where they are buying, the timing of buying and also whom they buying products and the ways they use it
7) International Environment: The international environment is particularly important for industries directly depending on imports or exports and import-competing industries.
For example, a recession in foreign markets, or the adoption of protectionist policies by foreign countries, may create difficulties for industries that depend on exports. On the other hand, a relaxation of the protectionist policies or a boom in the export market may help the export-oriented industries.
The international environment is important for certain types of businesses and the country as it has a pivotal role in the growth and development of the country. It is particularly important for industries that directly depend on imports or exports. A recession in foreign markets or protection policy by foreign nations may create difficulties for industries depending on exports.
Liberalisation of imports may help some industries but may adversely affect other industries, e.g., the entry of multinationals such as L.G. Samsung into the electronics industry has adversely affected the market share of domestic business firms like Videocon. Liberalised imports of capital goods, technology, and raw materials have increased the productivity and efficiency of some domestic industrial units.
Process of Marketing Environment Analysis
The procedure of marketing environment analysis consists following steps (as shown in the figure).
Step 1: Monitoring the Nature of the Environment: It is useful to take a view of the nature of the marketing environment in terms of how uncertain it is Is it relatively static or does it show any symptoms of change, and in what ways; is it simple or complex to comprehend? This helps in determining what focus the rest of the analysis is to take.
Step 2: Audit Environmental Influences: The aim is to identify which of the many different environmental influences have affected the organisation’s development or performance in the past. It may also be helpful to construct pictures-or scenario-of of possible futures to consider the extent to which strategies might need to change.
Step 3: Identify Key Competitive Forces through Structural Analysis: It aims to identify the key forces at work in the immediate or competitive environment, why they are important and to what extent they will affect your organization.
Step 4: Identify Strategic Position: It means to analyse the organisation’s strategic position, i.e. how it stands about those other organisations competing for the same resources, or customers, as itself.
This may be done in many ways:
1) Competitor analysis,
2) Strategic group analysis, in terms of similarities and dissimilarities of the strategies they follow,
3) The analysis of market segments and market power,
4) Building on growth/share analysis,
5) Attractiveness analysis.
Step 5: Identify Key Opportunities and Threats: Develop an understanding of opportunities which can be built upon the threats which have to be overcome or circumvented. An understanding of which needs to be considered in terms of the resource base of the organisation and which will contribute to strategy choice is very important.
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