The aim of this lecture is: To describe important role of Marketing Environment. To differentiate between Macro and Micro Environments. To assess the impact of Marketing Environment on Marketing Practices. To describe various method/Model of Marketing Environment Scanning. Background Information Marketing cannot be practiced in a vacuum; as a business function is affected by various factors or elements within the business environments.
According to Lancaster and Massingham (1993), a company's marketing environment consists of the factors and forces that affect the companys ability to develop and maintain uccessful transaction with its targeted customers. Business environments are dynamic and it requires enough attention to ensure that the environment are monitored and does not bring miserable effects to the organization. What is Marketing Environment? Marketing Environment can be described as those factors or elements which are surrounding marketing activities and usually affect the decisions and activities of marketing negatively or positively.
It consists of both controllable and uncontrollable factors which determine the success or failure of the organization. The controllable actors refer to those elements which can be managed and monitored by the organization in order to ensure they bring positive impact rather than negative impact. On the other side, uncontrollable factors are those factors which an organization has no direct control on them. It is very difficult and sometimes is not possible to control them.
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The only way that can be done by the organization is to use its internal efforts to reduce the impact of them to the organization activities. Furthermore, uncontrollable factors are usually classified into two groups: one is Macro-environment and the other is Micro-environment. Macro-environment These are external factors which cover the wide range of economic and business activities; its impact goes too far beyond the control of the organization or society as a whole.
Macro environment consists of the following elements or factors: Political Factors, Legal and Regulatory Forces, Social-cultural factors, Economic Factors, Technological Factors, Demographic factors Political Factors; political institutions and politicians are responsible for formulating and enforcing various laws and regulations which in one way or another affects the business operations. Furthermore, political forces are responsible for making and adopting various policies (International and local policies), they are responsible for entering into various agreements and contracts which affects marketing activities. ? Legal and Regulatory Forces; various laws and regulations are formulated by various institutional boards and might affect business in one way or another. For example, laws relating to tax, business registration, policy formulation etc. Socio-cultural Factors; the success ot any business depends on now i t takes care about culture and other social aspects of the societies. Therefore, any action to ignore the culture and life style of the society surrounding the organization marks the failure of the organization. Economic Factors; the impact of economic factors in business and marketing in particular is very significant.
The elements such as inflation, interest rates, foreign exchange rates, economic crisis etc have significant impact to the marketing activities. Technology Factors; marketing activities depends much on technology. A means to produce, distribute, promote etc are much affected with the technology in use. That is to say, the intensity of marketing activities reflects the level f technology which the organization use. Demographic Factors; from demographic structure is where customers, consumers, labors, etc are obtained. Thus, the population structure determines the success of the organization.
The failure of the organization to analyze demographic structure properly affects the organization performance. Micro-environment This is an external factor which affects the performance of the organization to serve its market effectively. It is an immediate factor which touches the organization activities or functions very close compared to Macro-environment. This includes actors such as: Bargaining power of suppliers, bargaining power of consumers, Threat of entry of competitors, Competition from substitutes, and competition between firms.
Sometimes it is known as Michael Porter's Five Forces Framework. Porter, (1980) argues that industry profitability depends upon industry structure and on the above mentioned factors. Bargaining power of suppliers Suppliers are important partners in a business. They provide resources required for the production of goods and services. However, Suppliers have a substantial significant to the marketing functions and business operations as a whole. The ailure to accommodate the pressure of supplier will bring a great impact to organization products and services prices.
For example when the price of supplies increases it is obvious that, the price of the final products will also be higher in order to cover operations and productions cost. Bargaining power of consumers Consumers of the company products or services are important partners in a business. However, consumers have both negative and positive impact to the organization. The pressure of consumers to obtain products or services at a low price without considering the cost of the production it usually affects the organization ellbeing.
Thus, the organization must work hard to see how the pressure from consumers can be accommodated without affecting the organization operations. Threat of entry of competitors In modern business environment competition is a normal and unavoidable situation. The available opportunities for competitors to enter within the market usually become a threat for the organization success. A door for competitors to enter signifies that, the market share should be divided according to the number of the organizations within the market. Furthermore, the presence of competitors can be reflected in a profit generation.
This being the fact, the organization should work hard to compete and not escaping from competition which it is not possible anyway. Competition from substitutes The presence ot competitors or other business partners gives a door ot having substitute goods and services. The substitute goods or services refers to those goods or services which offers similar functions, satisfactions, etc. The availability of substitute goods and products forced the organization to highlight the way forward to compete against those substitutes. Competition between rivalry firm Within the industry, various firms are operating.
For example, in the Communication Industry, there are a number of firms which includes firms such as Vodacom, TTCL, TiGO, Airtel etc. In such environment there is a stiff competition between these firms, in which each firm is trying to compete in order to acquire a large portion of a market share. Thus, it is very hard to manage this environment. A firm needs to work hard in analyzing the intensity of competition so as to adopt the relevant strategies for such a challenge. Internal Environments (Controllable factors) These are factors within the organization; they have direct impact to the organization performance.
However, these factors are within the organization controlling capacity, which means the organization has the ability to monitor its impact and to regulate its trends. These factors include among others, the following important factors: R & D factor, production and operation management factor, financial factor, Human Resources and management factor and marketing factor. R & D factor; this is an important factor which can be used to improve the organization performance by adding new idea, technology, products and services through research and development.
Production and operation management factor; the organization readiness to adopt dvanced and recent methods of production and operation can be said as the most important decision to control the organization performance. The production and other operation methods are changing rapidly, thus, the organization needs to take quick decision to cope with these changes. Financial Factor; the management of financial assets is very important and must be taken carefully. In ability of the firm to manage its financial assets it is a disaster to that particular organization.
It creates the light way for its failure while this could be avoided if the organization could have taken serious measures earlier. Human resources and management; people are very important resources for the organization performance. Human resources should be handled in a due care in order to create a situation of offering consistency efforts to the organization productions and operations activities. Marketing factor; in order to ensure marketing as a unit or department within the organization it offers valuable contribution and there must be a close supervision of all activities done within this unit.
Any disregards to this important component of business operations create a smooth way for the failure of a particular organization. Environmental Scanning and Analysis Atter the organization has identified the above described tactors (Macro and Micro), the next important stage is to analyze in deep the impact of each factor on the organization operations. The big challenge which is facing business owners and business decision makers nowadays is how to deal with environment uncertainty.
Now, environmental scanning and analysis is used to assist business analyst to study environment in deep and formulating appropriate strategies to cope with business changes. For examples, from strategic marketing point of view, in formulating arketing plan, two issues must be considered, first; organization capabilities in term of resources, second; the demands of environment which the organization operates. Therefore, there is no way the organization can ignore the importance of environmental scanning and Analysis. What is Environmental Scanning and Analysis?
Environmental Scanning and Analysis refers to a process of studying and exploring the impact of environments on business operations. It focuses on understanding how business environment affects strategy formulation and implementation. The Former Chief Executive Officer of General Electric Company Jack Welch, once said, "When the rate of change inside the company is exceeded by the rate of change outside the company, the end is near. " The meaning of this statement is that, if the firm is very weak in studying and coping with external environments is digging a grave for its own death.
Environmental Scanning and Analysis is done in the following style. First; the organization is required to analyze business factors which exist in the environment in which the business operates. Second; the organization is required to classify each factor as to whether it falls under an opportunity or a threat. The following phases should be followed while doing environmental scanning and analysis: First phase; identify environmental influences; the aim of this stage is to indentify various factors which influence the organization performance recently and to forecast likely factors that will influence the performance in future.
Second phase; an assessment of nature of the environment; the trends of an active factors should be analyzed, the assessment should look on whether the environment is static or dynamic and from there the decision of what is supposed to be done can be taken. Third phase; identify he factors which have a great influence on business operations based on their nature and intensity of its impact. Fourth phase; identify competitive position; analysis of the level of competition should be done based on how competitors are doing, their capabilities and weaknesses and how they are trying to deal with both of them should be scrutinized.
Fifth phase; identify how the information obtained above influences the organization operations. Each information should be categorized in either it is a threat or an opportunity to the organization. At the end, this becomes an mportant component in dealing with organization strategy formulation and implementation. Therefore, environmental scanning and analysis results to the identification of Strengths, Weaknesses, Opportunities and Threats. This can be analyzed by using a SWOT analysis Model which is an abbreviation of the words Strength, Weakness, Opportunity and Threat.
Analysis of Strengths and Weaknesses The strength and weakness are internal tactors which can attect the organization operation in future. Specifically, Strengths refer to internal factors which can affect the organization operations in a positive way, while weaknesses are internal factors hich can affect the organization operations in a negative way. For example, poor management of human resources can be considered as a weakness, and the application of advanced technology can be termed as strength to an organization.
Environmental Strengths and Weakness Profile Basically, after intensive analysis has been done, is very important to prepare a strategic advantage profile for the organization. This profile gives a clear picture of critical areas which have a great impact to the organization op4 erations recently and in future. Strategic Advantage Profile for a Hypothetical firm A Organization Internal Area Competitive Strength or Weakness Marketing + Product Line is extensive + Services is excellent - Channels of distribution are weak Research and Development - No Research and development performed Operations + Excellent sourcing for new materials. Facilities are old and becoming out dated. Corporate Resources O Company size is about average for the industry. O Profits have been consistent but average. - Union employees complain frequently Finance + Balance sheet shows ability to obtain needed capital, low debt equity ratio, high working capital position and favorable stock position. Sources: Mzava, (2004:20) KEY: + Indicates Strength Indicates weakness O Indicates Neutral Analysis of Opportunities and Threats An opportunity and a threat are external factors which might affect the organization operation in future.
Now, specifically, Opportunities are external environments which can affect the organization operations in a favorable way, while, Threats refers to factors which might affect the organization in unfavorable way. At the end of opportunities and threats analysis, Environmental Threat and Opportunity Profile (ETOP) must be established. Environmental Threat and Opportunity Profile (ETOP) is very important for strategies formulation and implementation.
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