Unit 3: Marketing Environment.
3.1. Introduction.
A marketing oriented company always looks its external environment carefully to analyze opportunities and threats. This external environment influences company’s strategies in two levels i.e. external macro environment and external micro environment. The macro environment involves political and legal, economic and natural, social and cultural and technology environment. The micro environment consists of supply chain, customer and competitor. These factors are uncontrollable by the organization. Even the best company faces threat if any of the external environments are adverse to it. A moderate company will be successful if the external environment favors it. Hence marketing companies should monitor the external environment carefully and continuously.
Objectives:
After studying this chapter you will be able to explain
a. The need of environmental scanning.
b. How external micro environment affects the company’s strategies.
c. The influence of external macro environment on company’s plans.
d. The difference between the external macro and micro environment.
e. The role of organization’s internal environment in dealing with opportunities and threats.
3.2. Environmental scanning
This is the process of gathering, analyzing and forecasting of external environments’ information to identify opportunity and threats that company faces.
Need for environmental scanning:
It helps in
1. Identifying the opportunities company has in immediate future.
2. Identifying the threats faced by the company.
3. Demand forecasting
4. Developing appropriate business plans.
5. Adjusting company strategy in changing competitive environment.
3.3. Analyzing the organization’s micro environment
Marketing department let alone can not satisfy all the needs of customer. Therefore it is essential to integrate the functions of suppliers, publics, company departments and intermediaries in creating the value to the customer. These forces are known as organization’s micro environment.
Microenvironment: The forces which are very close to company and have impact on value creation and customer service
Figure 3.1
Forces in the micro environment
Micro Environment
3.3.1. The company:
Remember in the previous unit we discussed about the strategic and marketing planning. Deducing a strategic plan in to specific marketing plan require coordination of other functions like finance, Human resource, production, and research and development. For example, Safe Express, a leader in the supply chain management solution wants to hold its position in the US $ 90 billion Indian logistics market. Company plans to expand its service areas in the coming months. To meet the targets of the marketing plan, other departments of safe express also expanding their horizon. Company is coming out with logistics parks in different cities; plan’s to hold seven million square feet of warehousing capacity in the next three years and investing Rs 10 billion in three years to meet that targets. The above example shows that company’s marketing plan should be supported by the other functional department activities also.
3.3.2. Intermediaries:
Marketing intermediaries: The firms which distribute and sell the goods of the company to the consumer.
Marketing intermediaries plays an important role in the distribution, selling and promoting the goods and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer are some of the major functions carried out by the middlemen.
3.3.3. Publics:
These are microenvironment groups, which helps company in generating the financial resources, creating the image, examining the companies’ policy and developing the attitude towards the product.
We can identify six types of publics
1. Financial publics influence the company’s ability to obtain funds. For example, Banks, investment houses and stockholders are the major financial publics.
2. Media publics carry news and features about the company e.g. Deccan Herald
3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation agency(IRDA) of the government
4. Citizen action groups: Formed by the consumer or environmental groups. For example, people for ethical treatment of animals (PETA) or Greenpeace.
5. General publics: a company should be concerned towards general publics’ attitude towards its products and services.
6. Internal publics: Employees who help in creating proper image for the company through word of mouth.
3.3.4. Competitors:
A company should monitor its immediate competitor. It should try to position its product differently and be able to provide better services.
3.3.5. Suppliers
Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relation management system to manage them well.
3.3.6. Customers:
A company may sell their products directly to the customer or use marketing intermediaries to reach them. Direct or indirect marketing depends on what type of markets in which company’s customers present. Generally we can divide the markets into five different categories. They are
a. Consumer market.
b. Business market
c. Reseller market
d. Government market and
e. International market
You will come to know about these five different markets from the following example.
MRF a tyre company sells its product directly to consumer (in case of urgency) i.e. operates in consumer market. It operates in business markets by selling tyres to companies like Maruti Udyog limited which in turn uses these tyres in their cars. MRF also sells TYREs to BMTC and KSRTC, transport organizations of Karnataka government. If MRF sells tyre in African or American countries then it is operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumer at a profit then company is operating in the reseller market.
3.4. Company’s macro environment.
Figure 3.2 Forces in the macro environment.
Macro Environment
3.4.1. Demographic environment.
Demography:
The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion.
Demography statistics helps companies to develop their products in better way. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.
1. Age structure of the population
2. Marital status of the population
3. Geographical distribution of the population
4. Education level
5. Migration
6. Occupation.
Age structure of the population: from the following table you can generalize that India is having 48% population who are aged less than 21 and 28% of the population are in the bracket of 21-25. Most of the companies are focusing on these two segments. For example, Radio Indigo, FM radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music. Radio indigo targets youth segment who like western music.
TABLE 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO TOTAL POPULATION
| Age group | Population | Percentage |
| All Ages | 1,028,610,328 | 100.0 |
| 0 - 4 | 110,447,164 | 10.7 |
| 5 - 9 | 128,316,790 | 12.5 |
| 10 - 14 | 124,846,858 | 12.1 |
| 15- 19 | 100,215,890 | 9.7 |
| 20 - 24 | 89,764,132 | 8.7 |
| 25 - 44 | 284,008,819 | 27.6 |
| 45 - 64 | 139,166,661 | 13.5 |
| 65 - 79 | 41,066,824 | 4.0 |
| 80+ | 8,038,718 | 0.8 |
| Less Than 18 | 422,808,543 | 41.1 |
| Less than 21 | 492,193,906 | 47.9 |
| Age no stated | 2,738,472 | 0.3 |
| Source : C2 and C14 Table, India, Census of India 2001. | ||
Marital status of the population:
TABLE 2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001
| Marital status | Number of Persons ( in '000) | Percentage (%) | |||
| Persons | Males | Females | Males | Females | |
| Total | 1,028,610 | 532,157 | 496,454 | 100 | 100 |
| Never Married | 512,668 | 289,619 | 223,048 | 49.8 | 54.4 |
| Married | 468,593 | 231,820 | 236,773 | 45.6 | 43.6 |
| Widowed | 44,019 | 9,729 | 34,290 | 4.3 | 1.8 |
| Divorced / Separated | 3,331 | 988 | 2,343 | 0.3 | 0.2 |
| Source : C2 and C14 Table, India, Census of India 2001 | |||||
Half of the Indian population falls into the never married category. This provides an opportunity for organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage group and shaadi.com are few to name in this industry. These companies are offering end to end solution to the customers who are looking for lavish wedding in the exotic locations both in domestic and abroad.
Geographical distribution of the population
TABLE 3: NUMBER OF VILLAGES AND UAs / TOWNS BY SIZE CLASS AND THEIR POPULATION
| Population | |
| Persons@ | 1,028,737,436 |
| Males | 532,223,090 |
| Females | 496,514,346 |
| Rural | 742,617,747 |
| Urban | 286,119,689 |
| % Urban population | 27.8% |
Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in this untapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market. These bazaars offer quality agriculture inputs, financial services, and farm output services.
Education level: More than 3 crore people in India either have graduation or post graduation. This has led to the growth of many sunrise sectors. This educated population fueled the growth of information technology (IT), information technology enabled services (ITES), and biotechnology industries.
TABLE 4: NUMBER OF VILLAGES/TOWNS BY RANGE OF LITERACY RATE & SEX, INDIA, 2001.
| Range of Literacy (Percent) | Persons | Males | Females | |||
| No.of Villages | No. of UAs/Towns | No. of Villages | No. of UAs/Towns | No. of Villages | No. of UAs/Towns | |
| Nil | 3,077 | 0 | 3,546 | 0 | 9,899 | 0 |
| Less than 10 | 8,664 | 0 | 4,516 | 0 | 28,412 | 0 |
| 10-25 | 31,494 | 0 | 14,410 | 0 | 90,198 | 17 |
| 25-50 | 162,727 | 122 | 72,057 | 33 | 244,760 | 475 |
| 50-75 | 294,596 | 1,740 | 237,381 | 624 | 186,245 | 2,638 |
| 75 or above | 93,055 | 2,516 | 261,630 | 3,721 | 33,029 | 1,248 |
| Total* | 593,613 | 4,378 | 593,540 | 4,378 | 592,543 | 4,378 |
Source : Primary Census Abstract, Census of India 2001 Note: *Excludes villages/UA/Towns with no Male/Female population.
| ||||||
Migration:
Geographical shift in the population is becoming an interesting area in the demographic studies. The Table 6, list out the various reasons for migration.
TABLE 5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001
| Category | Migrations by Place of birth | Percentage | |
| A. | Total Population | 1,028,610,328 | |
| B. | Total Migrations | 307,149,736 | 29.9 |
| B.1 | Migrants within the state of enumeration | 258,641,103 | 84.2 |
| B.11 | Migrants from within the districts | 181,799,637 | 70.3 |
| B.12 | Migrants from other districts of the state | 76,841,466 | 29.7 |
| B.2 | Migrants from other states in India | 42,341,703 | 13.8 |
| B.3 | Migrants from other countries | 6,166,930 | 2.0 |
| Source : Table D1 India, Census of India 2001. | |||
TABLE 6: REASONS FOR MIGRATION OF MIGRANTS BY LAST RESIDENCE WITH DURATION (0-9 YEARS) INDIA 2001
| Reason for migrations | Number of Migrants | Percentage to Migrants | ||||
| Persons | Males | Females | Persons | Males | Females | |
| Total migrants | 98,301,342 | 32,896,986 | 65,404,356 | 100.0 | 100.0 | 100.0 |
| Reason for migration : Work / Employment | 14,446,224 | 12,373,333 | 2,072,891 | 14.7 | 37.6 | 3.2 |
| Business | 1,136,372 | 950,245 | 186,127 | 1.2 | 2.9 | 0.3 |
| Education | 2,915,189 | 2,038,675 | 876,514 | 3.0 | 6.2 | 1.3 |
| Marriage | 43,100,911 | 679,852 | 42,421,059 | 43.8 | 2.1 | 64.9 |
| Moved after birth | 6,577,380 | 3,428,673 | 3,148,707 | 6.7 | 10.4 | 4.8 |
| Moved with households | 20,608,105 | 8,262,143 | 12,345,962 | 21.0 | 25.1 | 18.9 |
| Other | 9,517,161 | 5,164,065 | 4,353,096 | 9.7 | 15.7 | 6.7 |
| Source: Table D3, Census of India 2001 | ||||||
Marketers started identifying the niches in the migrated communities and offered their goods and services. For example, Nandhini, an Andhra restaurant in Bangalore catering to the food needs of the Andhra community. Patrika, a Rajasthan based daily now available through out the country.
Occupation:
TABLE 7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIAL CATEGORIES, INDIA 2001
| Industrial category | Main Workers ('000s) | Percentage (%) |
| Total main workers * |
312,972
|
100.0
|
| Agricultural & allied activities |
176,979
|
56.6
|
| Mining & quarrying |
1,908
|
0.6
|
| Manufacturing |
41,848
|
13.4
|
| Electricity, gas and water supply |
1,546
|
0.5
|
| Construction |
11,583
|
3.7
|
| Wholesale, retail trade & repair work, Hotel and resturants |
29,333
|
9.4
|
| Transport, storage & communications |
12,535
|
4.0
|
| Financial intermediation, Real estate, business activities |
6,109
|
2.0
|
| Other services |
31,131
|
10.0
|
| Source : Industrial classification data based on sample. | ||
Agriculture is the main occupation of the people in India but the share of other services is growing rapidly. The other service category includes IT and ITES. Employees of these categories have high disposable income. This has led to the opening of specialty stores and manufacturing of the luxury items in the country.
3.4.2. Political and legal environment.
Government policies, legislation, regulations, and stability will directly affect the business. Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are grouped into the following four categories.
1. Monetary and fiscal policies: These policies regulate government spending, money supply and tax legislation.
2. Social legislation and regulations. Environmental protection act which specifies the emission level.
3. Government relationships with industries: Government subsidies and change in tariff rate will have direct impact on the particular company.
4. Legislation related to marketing:
Following are the list of legislation which affect marketing activities of the company.
- · Companies act 1956.
- · Industrial dispute act 1957
- · Consumer protection act
- · Minimum wages act
- · Payment of bonus act.
- · Environmental protection act
- · Industries development and regulation act.
- · Trade union act
- · Contract law
- · Factories act 1948
- · The contract labor (regulation and abolition) act1970.
- · Sales promotion employees’ act1976
- · Shops and establishment act 1953
- · Copyright act 1957
- · Trade marks act 1999
- · Patents act 1970
- · Designs act 2000
- · Foreign exchange management act 1999
3.4.3. Economic and Natural environment:
Consumer spending pattern
According to National sample survey 2005-06,
1. Monthly per capita consumption in rural area: Rs625.
2. Monthly per capita consumption in urban area: Rs1, 171.
3. Food expenditure in monthly per capita consumption: 53%
4. Food expenditure in monthly per capita consumption: 40%
The above data shows that most of the expenditure in monthly per capita income goes to the food expenditure only. Marketers in the non food category should promote heavily to change this spending pattern. Companies in the food category should note that food expenditure in monthly per capita expenditure is coming down. Hence extra effort is required by these companies to sell their products.
Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing. If the interest rate is low people put their money in alternative financial options where they get better return.
Inflation: If the inflation is high, consumer buying power will go down. Hence government always tries to control the inflation within the limit.
Changes in income: The rise in the salaries of the employees, improved performance of stock market and better industrial growth led to the change in the income pattern in India. Many Indians became millionaires and billionaires. Percentage of below poverty line is decreasing, but the concern is rich and poor divide is growing.
NATURAL Environment:
Environmental concerns are growing over the years. Governments increased regulations to manage the natural resources. Marketers should aware of such trends in the natural environment. Some of the factors which organizations should keep a vigil are
a. Inadequate raw materials
b. Global warming and pollution levels and
c. Regulatory world.
a. Inadequate raw materials: We are over depending on Middle East countries for petroleum products. Automobile companies are improving their technologies and also planning to come out with hybrid cars which use alternative fuels.
b. Global warming is a big issue today.
c. Regulatory world; The Indian government through environmental protection act, making stringent rules on emission and environment standards. Companies, particularly in automobiles should adhere to those norms, which are expensive and time consuming.
3.4.4. Social and cultural environment:
1. Working women and rise of metro sexual man.:
Number of women who are working in India is increasing. This segment is looking towards products which help them to bring better work life balance. MTR a fast food giant in south India started offering ready to eat products to this segment. The products are instant in nature where a woman dips a product in the hot water for 2-3 minutes and serves. Metro sexuality is another new phenomenon, wherein a man also assumes the role of women like purchasing household items and helping in kids’ education etc. It made marketers’ task more difficult on positioning their products.
2. Time short people:
This segment involves people who work long hours and have less personal time. These people are looking for products which satisfy them quickly and conveniently. For example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and do other financial transactions.
3.4.5. Technology environment
1. Growth of information and technology and biotechnology industries:
Manufacturing organization adopted many technology solutions in the recent years. This has boosted the performance of IT companies. For example, companies adopted ERP solutions, CRM packages and other software to reduce the cost, retain the customer and increase the efficiency. Biotech firms came out with innovative health solutions to the consumer. This has resulted in companies like wockhard and Nicolas Piramil to invest heavily in this sector.
2. Nano technology:
The technology in waiting, which is expected to reduce the size and cost of the materials.
3. TATA nano car, a technology breakthrough: This has been described as a giant leap by an Indian manufacturer. TATA Company used different metal compositions, engine configurations and accessories to bring path breaking entry level car which just cost Rs 1 Lakh to the consumer.
3.5. Difference between Micro environment and Macro environment.
3.6. Summary
· Environmental scanning is necessary to understand opportunities and threats faced by the company.
· Micro environment factors like marketing intermediaries, suppliers, competitors, publics and customers influences company’s strategies. These are controllable to some extent.
· Population variables like age, gender, marital status and occupation helps the company to assess the market and change or develop their offerings
· Shortage of raw material and increase in the income disparity are immediate concerns of the organizations.
· Working women and time short people changing the socio- cultural environment of the country.
· Technology is helping company to reduce cost, increase the efficiency and save time.
· Micro and macro environment are differentiated on the basis of size, complexity, and uncertainty.
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