What is a Macro Environment? Definition and Its Components

What is Macro Environment?

The macro-environment is the totality of all factors that are external to the business organization and are uncontrollable. The forces of the macro-environment create both opportunities and threats to the firm.

The macro-environment components have a greater influence on business operations directly or indirectly or negatively or positively. Its components include legal, political, economic, social, environmental, competitive, demography, technology, etc.

All the forces of the macro-environment are external, unpredictable, and uncontrolled by the firm. Thus, a business firm has to adjust those forces instead of trying to change them which worthless effort. Any marketer, manager, or firm needs to understand the dynamics of the macro-environment to succeed, sustain, and prosper in this ever-changing environment for successful marketing and other activities by satisfying customers and achieving planned goals.

Components of Macro Environment

The components we are going to understand are what makes the macro-environment complete. It is also studied as PESTEL analysis. PESTEL analysis can be defined as the framework that is used to study the factors of the macro environment that have a significant impact on business organizations.

Economic Environment

The economic environment is a significant macro-environment variable that affects both the marketing firm and consumers. The economic environment consists of factors that affect consumers’ purchasing and spending power. The marketing of a particular product largely depends upon two factors- the ability of the consumers to spend and their willingness to spend.

Total purchasing power is a function of the current level of income, monetary & fiscal policy, level of employment, rate of inflation, etc. Marketers should be able to study and analyze the following major trends of the economy.

  • Level of income: The income level of consumers is fundamental to their purchasing power. The higher the level of current income, the higher will be the purchasing capacity. As such, the people will be able and willing to purchase more products and services. The people of rich nations have comparatively more purchasing power and buy more products and services as compared to the people of poorer nations.
  • The economic policy of the government. The economic policy of the government mainly consists of monetary policy and fiscal policy. These policies have a direct impact on economic conditions, and thereby purchasing power. The higher the level of money supply, the higher the level of income and the higher the purchasing capacity of the people. As such, they tend to buy and consume more commodities. Similarly, the higher the level of the tax burden on the people lower their saving capacity and thus, the lower their purchasing capacity.
  • Level of employment: Employment is the major source of income. If the level of employment in the country is high then the level of income of the people becomes higher, as such, their purchasing power will be increased and they tend to buy and consume more products.
  • Rate of inflation: Inflation is the killer of the people’s purchasing power. The higher the level of inflation, the lower will be the saving capacity of the people. As such, they tend to buy and consume less. On the other hand, if the rate of inflation is low their saving capacity will be improved, and they tend to buy and consume more products and services.

Read More: What is Marketing Research?

Demographic Environment

Demography represents the statistical study of the human population and its distribution characteristics. It is an important task for managers to study changing patterns of the demography of the nations. The demography of a nation can be studied in two ways.

  • Total population and its growth: China and India are two of the biggest growing markets for products or services. What does it signify? It signifies the population and its growth is a key demographic macro-environment variable for the marketing firm. The greater the population size bigger the market for products and services.
  • Structure of population distribution: It refers to the makeup of the composition of the population. Population structure has a major influence on the marking activities. It is thus important to study the structure of the population distribution of a market. The population of the country is distributed in different ways based on geographical area, sex, marital status, and so on.

Socio-Cultural environment

A society is a group of people having distinct beliefs, knowledge, costumes, habits, tastes, values, cultural lifestyles, etc. Culture is the means used in adjusting to the biological, environmental, psychological, and historical components of human existence. These sociocultural characteristics differ from person to person and from society to society.

Therefore, their choice of products and services also differ. With the changing times, these characteristics go on changing. A successful market can adjust its product to the changing stock cultural environment. Therefore marketers must be able to make a detailed study and analysis of the socio-cultural variables such as demographics of society, the cultural value of society, socio-economic characteristics of society, aging of the population, and consumerism.

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Technological Environment

One of the major macro-environment factors that have changed the entire dynamics of marketing activities is the technological environment. It is the primary force that is redefining our destiny. It changes rapidly and creates an array of marketing opportunities.

The economic, social, and industrial development of advanced countries is due to the development of appropriate and advanced technology.

If marketers want to cope with global change, they must be able to adapt to t modern technology. For this purpose, they must analyze the following technological factors that impact the marketing activities of a firm. Such as levels of technology, the pace of change in technology, technology transfer, research, and development budget.

Political and Legal Environment

The political and legal environment is a broad term covering the firms and institutions by which the nation is governed. It consists of an interacting set of laws, government agencies, and pressure groups that influence and constrain the conduct of various organizations and individuals in society. While formulating a marketing plan and program, a marketer must be able to analyze all these political and legal factors.

  • Type and permanency of government: Type of government refers to a particular ideology and principle associated with the government governing the nation. The type of government has a direct impact on the nature of business policy adopted in the country. Some governments may have a greater intervention in business activities, while others may be liberal.
  • Government laws, rules, and regulations: Government laws, rules, and regulations are concerned with the legal environment of the country in which firms operate. All marketing organizations must follow government laws, rules, and regulations. In that re, government laws, rules, and regulations control all activities of the marketing organizations. There are several forms of laws such as consumer law, competition, law, employment law, health, and safety law, etc.

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Natural Environment

Natural environment refers to the totality of natural resources that are essential as input for marketers or are affected by marketing activities. Resources are not distributed by nature in all the countries in the same ratio. Whatever resources are available; cannot be used forever, because they will be fully deployed after a certain period. Therefore, marketers need to be aware of the consequences of the non-availability of natural resources and alternative solutions to the problems should be determined.

While analyzing the natural environment, the following natural variables may be incorporated such as the availability of natural resources, inability to cost energy, increasing levels of environmental pollution, etc.

Competitive Environment

The competitive environment is another major macro environment variable. With competition now an unavoidable aspect of every business, it is important to understand the various aspects of the competitive environment. Success in the marketplace is dependent not only upon identifying and responding’ to customers’ needs but also upon the company’s ability to ensure that its response is judged by consumers to be superior to that of the competitors. In other words, the development of a marketing strategy must be based on both customer satisfaction and competitive differentiation.

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