End of

CHAPTER TWO:

Chapter
THE 1
MARKETING

ENVIRONMENT
 1. Concept of marketing environment

• A marketing environment encompasses all the internal and external

factors that drive and influence an organization's marketing activities. 
• Marketing managers must stay aware of the marketing environment to
maintain success and tackle any threats or opportunities that may affect
their work.
• A marketing environment is vast and diverse, consisting of controllable
and uncontrollable factors.
• Tracking the marketing environment helps a business avoid possible
threats, make the right business decisions, develop relevant marketing
campaigns, and allocate resources efficiently.
 2. Types of Environment
The Environment can generally be divided into:
1.1 External-Environmental
1 Macro (General)
2 Micro (Task or Industry)
1.2 Internal Environment.

External
Environment A. 2 Micro
A.1 Macro
Internal
Environment

Organization
 1.1 The External Environment

• External environment: everything outside an

organization’s boundaries that might affect it.
• The uncontrollable environment.
• The external environment constitutes the
opportunities (O) and threats (T).
• External analysis often is termed as PEST analysis.

• Political • Social
• Economic • Technological
 Opportunities
• An OPPORTUNITY is a chance for organization’s
growth or progress due to a favorable circumstances
in the business environment.
• Possible Opportunities examples:
 Emerging customer needs

 Quality improvements
 Expanding global markets
 Vertical integration
Threats
• A THREAT is a factor in a company’s external
environment that poses a danger to its well-being.
• Possible Threats examples:
 New entry by competitors
 Changing demographics/shifting demand
 Emergence of cheaper technologies
 Regulatory requirements
Macro-Environment

Macro-Environment
1. Political
5. Demographic
2. Economic
6. Natural
3. Socio-cultural
4. Technological

Micro-Environment

Organization
 The Macro-Environment
1. Political-Legal Environment
• The political environment includes the nature of
relationship between various areas of government and
the organization.
• Factors of politics include governmental stability,
ideology, international relations, tax, incentives, etc.
 The Macro-Environment…

 Political-Legal Environment
 Governments develop wide range of laws and regulations that
affect organizations as:
• Protect organizations from each other (antitrust).
• Protecting consumers (users) from unfair business practices.
• Protecting interests of society against unrestrained business
behavior.
• Increased emphasis on ethics and socially responsible actions.
• Regulates relationship between employers and employees
(Labor relations)
 The Macro-Environment…

2. Economic Environment
 The economic factors such as the business cycle, inflation,
interest rate, and income distribution affect organizations
significantly.
1. Business cycle is the measure of the economy rise and fall cyclically.
• Prosperity: is the period of economic growth, high employment and high
income.
• Strategy is to expand organizational performance and activities such as
produce more, introduce new products, enter new market.
• Recession: is a period of retrenchment for consumers and business.
• Consumers are discouraged, scared and angry which has an implication for
organizational operations.
 Economic Environment…

 Depression: is the period of economic stagnation, where

unemployment is high, income is low and spending is low.
 Recovery: is the movement of the economy upwards towards
from recession to prosperity. Where employment rises, income
increases.
 An organization needs to operate its system quite differently
during each economic stage.
2. Inflation: Inflation is a rise in price levels. When prices rise faster
than personal incomes, customer buying power declines.
3. Interest Rate: When interest rate are high, consumers hold back
long term purchases such as housing.
4. Income Distribution: different segment of people and countries
have different economic levels that affect transaction and
exchange dealings-percapita, disposable income etc.
Economic Environment…

Business cycle is the measure of the economy

rise and fall cyclically.

Peak

Prosperity Recession

Depression

Recovery
Trough
 The Macro-Environment…

3. Socio-cultural Environment
• The Socio-cultural Factors: refers to attitude, beliefs and
values of people, of the society in which organizations
operates.
• Culture teaches the people’s behavioral standards,
language, and the products they use.
• An organization which is insensitive to culture, may end
up in dealing with goods or services that are
undesirable, unacceptable and misunderstood by the
culture.
• Firms make grave mistakes if they lack awareness of
the culture of their environment.
Socio-cultural Environment…

Culture Affects:
• Perception • Touching
• Language and • Food and eating
meaning of words habits
• Greetings • Body language
• Contact • Exposure
 The Macro-Environment…

4. Technological Environment
• Technological breakthroughs can affect organizations in
three ways.
 Start and operate entirely new industries, as
computers and robots have done
 Virtually destroy or cripple existing industries, for
example video crippled movie industries.
 Stimulate demand by improving consumer life
standard and provide additional life by saving time
• Advance in technology in communications now, permit
transact business from almost any location at any time
of the day through the internet.
 The Macro-Environment…

5. Demographic Environment
• It is the study of population in terms of age, sex, race, occupation, location
and other statistics.

Changing Age Structure

Population is getting older

Changing Family Structure

Marrying later, fewer children,
working women, and nonfamily households

Geographic Shifts
Moving to the Cities and suburbs (MSA’s)

Increased Education
Increased college attendance

Growing Ethnic and Racial Diversity

 The Macro-Environment…

6. Natural Environment
• Involve the resources that are needed as inputs by organizations

Changing Role
of Government

Higher Pollution Natural Shortage of

Levels Environment Raw Materials

Increased Costs
of Energy
 Natural Environment…

• Changing Roles of Governments: Governments make different

regulations on the exploitation and use of natural resources
• Shortages of raw materials: Such as air, water, and wood
products have been seriously damaged and non-renewable such
as oil, coal, and various minerals have been seriously depleted .
• Increased pollution: Industrial damage to the environment is
very serious. Far-sighted companies are becoming
“environmentally friendly” and are producing environmentally
safe and recyclable or biodegradable goods.
• Increased cost of energy: the cost of energy used by
organization is increasing consistently.
 2. The Micro-environment
• The micro-environment (Task) are those parties that have direct impact and influence
on the organization.
• They include: customers, competitors, publics, intermediaries, suppliers, regulators

Suppliers
Customers

Micro- Publics
Competitors Environment

Intermediaries Regulators

Organization
 Micro-Environment(Task Environment): Michael
Porter’s Five Forces Industry Competition Model

Industry Competition
• Marketing need to understand how competition affect sustained
level of profitability.
• Porter’s Model of Industry Competition, Is a major tool for
Strategic Marketing Management which is commonly known
as Porter’s Five Forces provides a framework for analyzing the
influence of the forces on the industry to determine the industry’s
profitability and competitiveness.
 Elements of Industry – The Five Forces Model

New
Entrants

Threat of New Entrants

Bargaining Industry Bargaining

Power of Competitors Power of
Suppliers Buyers
Suppliers Buyers
Intensity of
Rivalry

Threat of Substitutes

Substitutes
1. Intensity of Rivalry

The industry is less attractive if:

Industry • Numerous competitors

Competitors
• Stable or declining market
Intensity of • High investment/large capacity
Rivalry
increments
• Low product differentiation
• Low switching costs
 2. Potential New Market Entrants
The easier to jump in, the less attractive.
Less barrier to enter. Conditions that make
Threat of New Entrants

the industry less attractive include:

• Low economies of scale and learning
Entrants
New

effects
• Low capital intensity
• Low product differentiation
• Gaining distribution outlets is easy
 3. Supplier Power

The industry is less attractive if:

• Suppliers are concentrated or
Bargaining
Power of
Suppliers organized

Suppliers • Substitute prices are high

• Providing critical component/ large
value added
• High switching costs exist
 4. Buyer Power
The industry is less attractive if:
• Buyers are few or organized
• Your product is undifferentiated Bargaining
Power of
• Switching costs are low Buyers

• Buyer profits are low & your product is a Buyer

s
large percentage of buyer’s total costs
• Your product isn’t all that critical to buyer
 5. Threat of Substitutes product
The industry is less attractive if:
• Numerous potential substitutes
Threat of Substitutes

• Numerous current substitutes

Substitutes

• Buyer propensity to substitute

• Relative price performance of
substitutes
• Switching cost
• Substitute doesn’t mean another brand, but
another product type. (Tea for Coffee)
 The Micro-environment
 Competitors: an organization that competes with other
organizations by adding competitive advantage through adding
greater customer value. Competitors can be opportunities as well
ad threats
 Customers: whoever pays money to acquire an organization’s
products or services.
 Suppliers: organizations that provide resources for other
organizations
 Publics: Affect organizations in many ways. They include
financial publics, media publics, internal publics.
 Regulators: a unit that has the potential to control, legislate, or
influence an organization’s policies and practices.
 Intermediaries: Those who act in between, distributors, agents
etc.
 The Internal Environment
• Internal environment: the conditions and forces within an
organization. They are controllable.
• Internal environment determines the strengths (S) and
weaknesses (W) of Organizations (ST).

Organization’s Internal Environment

o Owners o Structure
o Board of Directors
o Culture
o Employees
o Facilities
o Guidelines
o Functional units
o Strategies o Etc.,
 The Internal Environment…
• Owner: someone who has legal property rights to a business.
• Board of directors: governing body elected by a corporation’s
stockholders and charged with overseeing the general
management of the firm.
• Employees: those employed by the organization (management
and non management).
• Guidelines: Policies, Strategies, Mission, Vision: Guide for
actions
• Physical work environment: the firm’s facilities (building, space,
equipments etc.,).
• Culture: The set of values, beliefs, behaviors, customs, and
attitudes that helps the members of the organization understand
what it stands for, how it does things, and what it considers
important.
 The Internal Environment
Michael Porter’s Value Chain Model
The Internal Environment: Value Chain
Successful organization create values that satisfy and delight
customers more than competitors. Michael Porter (1985) suggested
that the activities of a business can be grouped under two headings.

1. Primary activities: those that are directly involved with

the physical creation and delivery of the product or service.

2. The support activities: which feed both into primary

activities and into each other. Support activities are not
directly involved in production, but have the potential to
increase effectiveness and efficiency.
Value Chain Support Activities

V
Firm infrastructure ( financing, planning, )
A

Human Resource Management

ACTIVITIES

L
SUPPORT

Technology development U

Procurement E
 Support Activities
1. Organizational infrastructure:- which is concerned
with a wide range of support systems and functions, such
as planning , external relations, finance, quality control
and coordinating ability.
2. Human resource management:- dealing with those
activities concerned with recruiting, developing,
motivating, and rewarding the workforce of the
organization and employee relations.
3. Technology development, managing information, R&D,
meeting deadlines, innovation and protection of
"knowledge" in the organization.
4. Procurement, which deals with how resources are
acquired for the organization (e.g., sourcing and
negotiating with)
 Value Chain Primary Activities

V
A
Inbound Outbound Marketing After-sales
Operations L
logistics logistics And sales service

PRIMARY ACTIVITIES
 Primary Activities
a. Inbound logistics: involves preparations for operations,
including production and operation planning; acquiring and
ordering inputs and materials, receiving and storing and
supplying to operations.
b. Operations: involve the actual conversion process. The
transformation of inputs into outputs.
c. Outbound logistics: concerns the packaging and warehousing
of the processed materials and physical distribution to
customers
d. Marketing and Sales: involves in the satisfaction of customer
needs and wants and creating demand and revenue to the
company’s product.
e. After Sales service: Creating enduring relationship by
monitoring and guarantying customers the best use of the
product they have bought
 Value Chain
Firm infrastructure ( financing, planning, )
Human Resource Management
ACTIVITIES
SUPPORT

M
Technology development
A
R
Procurement
G

I
Inbound Operations outbound Marketing After-sales
logistics logistics And sales N
service

PRIMARY ACTIVITIES
 5. Managing the Environment and Interaction

Some of the most common techniques for interaction with

the environment in order to lesson the threat and take
advantage of opportunities, include:
† Research and intelligence,
† Public relations,
† Boundary spanning,
† Lobbying,
† Negotiation,
† Strategic alliance
† Organizational design and restructuring.
Managing the Environment and Interaction…

‫ﻬ‬ Research and Intelligence: Obtain information about

developments in the environment
‫ﻬ‬ Public Relations: Creating good image of the company in the
environment
‫ﻬ‬ Boundary spanning: Regularly meet with stakeholders to
explain the current and future status of the organization
‫ﻬ‬ Lobbying: Meeting with government officials, representatives to
attempt to influence their votes on some policies that affect
organization
‫ﻬ‬ Strategic Planning: developing vision, mission, objectives and
strategies
‫ﻬ‬ Organizational Restructuring: changing the organization’s
structure and work arrangement to make the organization
competitive, (continuous change, BPR).
‫ﻬ‬ Creating Strategic Alliance: With competitors and suppliers
 Group Assignment
1. Analyze external environment opportunities
and threats for your working organizations.
Take one organization as example
2. Explain internal environment of your working
organization. Use one organization as
example