What is Marketing Environment?
The marketing environment is the totality of internal and external factors that affect the companies marketing decisions, goals, customers relationships, and performance as a whole.
It is well-known fact that business firms are not located in a vacuum. It is obvious that every business is affected by a variety of factors directly as well as indirectly. The combination of internal and external factors made up a marketing environment. Some of the factors are controllable by the business organization, while others are hard to control, so it has to adjust those factors as they change.
A company’s marketing environment consists of the actors and forces that affect the company’s ability to develop and maintain successful transactions and relationships with its target customers – Philip Kotler
All these factors influence the growth of the business. Some factors have positive value for the business whereas some have negative. It is important to understand all the factors to maximize the most out of the positive factors and to manage and minimize the impact of adverse factors.
It encompasses all those factors or forces which are constantly changing and carry with them both opportunities and threats for the firms’ products and services. These forces include both humans and non-human that affect the ways of doing business. Understanding of all marketing environment forces has more significant management potential today than ever due to the increasing rate and type of environmental change.
Some distinct features of the marketing environment are as follows:
External in Nature. Mainly the forces of the marketing environment are external in nature. They can not be controlled and manipulated by the marketer when and wherever required, which takes lots of time.
Dynamic. All the factors are dynamic in nature, they go on changing over time. They might be stable for some time but they always change. Like the habit of people, their needs & wants, technology, the demographic character of the people, politics, rules, and regulations, competition, and so on.
Creates Opportunities and Threats. It can not be said that the forces always bring negative impacts to the business. Some factors bring opportunities to business such as new market, competitive advantage, job opportunity whereas, some factors bring threats such as fierce competition, natural disasters, etc. It is one of the parts of the marketer to identify these business opportunities and realize them.
Relevancy. It is relevant to marketing decision-making. A marketer needs to consider each marketing environment component while making a rational decision. Without the consideration of the marketing environment, a marketing program can neither be formulated nor be implemented successfully.
Uncertainty. Market factors are uncertain in nature. They are not predicting accurately. A smart marketer always tries to predict the factors and make effective strategies over time. But, some factors are hard to predict as they change frequently. In recent times, technology and fashion are changing frequently than ever was.
Types or Components of Marketing Environment
Basically, there are two types of marketing environment first is internal, and the second is the external environment. Internal environment components can be controlled and external components are not, thus require adaptability.
1. Internal Environment
The internal environment of marketing refers to the components that are within the business organization. The internal forces are controllable in nature, the marketer can control and manipulate those forces whenever required. The major components of the internal environment are:
Organizational Strucure. Organizational structure is the process that outlines the how and why, from beginning to end, the activities to be done to realize the organization’s goals. It involves the formation of rules, different departments, working procedures, status, roles, authorities, and responsibilities of employees inside the organization.
Resources. Resources are vital to function in a business organization effectively. The resources include physical -machines, buildings where the business is established, human – people, skilled manpower the most valuable asset of the business, financial – money, the capital necessary to make an investment, information – which is needed to formulate quality decisions and strategies.
Organizational Objectives. Organizational objectives are what a business is formed for. Objectives may be a high level of productivity, meeting competition, coordinating functional areas, satisfying high-level quality, profitability, growth, stability, etc.
All the components and activities of the internal environment the marketer can easily control and manipulate wherever the changing environment is moving. It also affects the overall activities of the business and if managed and implemented properly – increases customer satisfaction and success of the business operations.
2. External Environment
The external environment of marketing consists of factors and forces that are outside of the firm. The external environment also has two types micro and micro environment. The factors of both micro and macro environments are uncontrollable in nature or have little control by the marketer.
- Micro Environment
- Macro Environment
The microenvironment is also called the task environment and includes the main player in the market. The factors of microenvironment affect the business ways of serving its customers. These factors are part of the business marketing system.
Although these forces are classified as non-controllable in nature, they are some extent controlled and influenced by the marketer in a particular situation. The variables of the microenvironment are as follows:
Customers. Customers are the main target of any business. They are the real market of products and services. Their personal characteristics such as buying habits, spending pattern, standard of living, cultural & religious values, education, attitude, personality, perception, taste, feelings, etc. affect the performance of businesses.
Suppliers. Suppliers are the individual or organizations regularly supplying the materials or products to the marketing organization for reproduction or resale purposes. The regular supply of goods and services by the suppliers increases the rate of success of the business.
Marketing Intermediaries. Marketing intermediaries are the independent organization that helps the flow of goods and services from production point to the consumers i.e. consumption point. Marketing intermediaries may be agents, distributors, wholesalers, retailers, transportation agencies, etc.
Competitors. Competitors are those who produce the same and serve the same group of customers. Every business has to face competition. To succeed a business firm must deliver greater value to the customers than its competitors.
Macro environment refers to all external and uncontrollable factors that influence the business organization. They are the forces that shape opportunities and pose threats to the business. For a business to sustain and succeed in this ever-changing marketing environment, it is necessary to understand the dynamics of the macro environment.
The variables of the macro-environment are economic, demographic, socio-cultural, political & legal, natural, technological, and competitive environment.
Economic Environment. This is a significant macro-environment variable that affects the marketing business and consumers. The economic environment largely affects the customers purchasing and spending power. The purchasing power of the customers is influenced by the level of income, level of employment, the economic policy of the government, rate of inflation, etc. E.g. the higher the level of income, the higher will be the purchasing power.
Demographic Environment. The demographic environment studies the population and its distribution. For the marketing organization population is the primary market – requires thorough study. The study of a nation’s demography involves mainly two ways, (i) total population and its growth, greater the population size bigger the market for products and services, thus higher the demand. (ii) structure of population distribution, is the makeup of composition of the population. It involves the study of people’s geographical area, age, education, marital status, sex, etc.
Socio-Cultural Environment. The socio-cultural environment is made up of society’s beliefs, knowledge, costumes, culture, values, taste, habits, lifestyle, society’s demography, etc. These characteristics are changing and differ from person to person and society to society. Similarly, their choice of products or services differ, thus marketer also needs to understand the socio-cultural environment for successful marketing.
Technological Environment. Today technology is the fastest-changing factor. The development of IT, medicine, miniaturization, transportation, banking services, etc. has revolutionized the way of marketing. It provides both threats and opportunities, thus businesses need to be updated.
Political & Legal Environment. The political & legal environment consists of an interacting set of laws, rules, regulations, government agencies, and pressure groups that influence and constrain the conduct of various organizations and individuals in society. The marketer needs to consider these political and legal factors while planning marketing plans and programs such as health & safety law, climate law, etc.
Natural Environment. The natural environment consists of natural resources that are essential input for marketers and also affected by marketing activities. It naturally gives us opportunities and threats too. As we know, resources are limited, marketers need to be aware of the consequences of the nonavailability of natural resources and alternatives solutions to the problems should be determined.
Competitive Environment. The competitive environment is another major variable of the macro environment of the marketing environment. Now the competition is an unavoidable part of every type of business, it is important to understand the various aspects of the competitive environment. To compete in this environment the marketing strategy should be based on customer satisfaction, competitive differentiation, and goals of the company.
Importance of Understanding Marketing Environment
Proper understanding of the marketing environment holds greater importance in today’s competitive world. As the market is changing rapidly, having proper information on various aspects related to the marketing environment is important for the sustainability and growth of the business organization.
The organizations that sustain and succeed the most are the ones that take into account the various aspects of the marketing environment. In this reference, some of the major importance related to understanding the marketing environment are listed as follows:
- Proper analysis of the marketing environment helps in the planning of various marketing-related activities.
- It enables the business to compete more effectively and efficiently against its rivals.
- It helps in the identification of the strengths and weaknesses of the business.
- It also helps in identifying the opportunity and threats provided by the ever-changing marketing environment.
- Understanding the marketing environment is a major catalyst in helping organizations to take advantage of emerging strategic opportunities.