The Marketing Environment - 2

By Roger Jordan,2014-05-17 01:30
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In strategic planning, the appraisal of a firm's strengths, weaknesses, opportunities and threats is often referred to as a SWOT Analysis.

    2. The Marketing Environment

The Context of Marketing

Whatever its orientation, an organisation does not exist in a vacuum. External

    factors have a capacity to affect a firm’s ability to “create and keep profitable

    customers” – that is the whole basis of the Managing in the Competitive Environment

    theme! All marketing activities must therefore begin with an effective appraisal of

    the operating environment within which strategic decisions must be made. But, how

    are we to map this operating environment?

In general, marketers draw a distinction between two levels of environmental

    analysis. The immediate environment encompasses intermediaries, competitors,

    suppliers and customers. On a broader level, there is also the macro environment,

    determined in the main by a combination of technological, cultural, legal, political,

    economic and demographic factors. These latter factors are sometimes referred to

    collectively as STEP Factors, classified according to socio-cultural, technological,

    economic and political-legal characteristics.

The Immediate Environment

1. Intermediaries

Intermediaries are independent organisations or individuals involved in the

    promotion, selling or distribution of a firm’s goods or services to end-users. Three

    types of intermediary can be identified, each with a potential to cause problems:-

Resellers: Those involved in making products or services available to the end-users.

    Problems can arise here if the reseller selected is inappropriate, or if the reseller

    becomes too close to the end-users and is therefore able to dictate terms and


Distributors: This category includes warehouse operators, transport companies and

    all those involved in delivering goods to their destinations. Problems here may arise

    from poor stock control, with out-of-stock situations leading to disappointed

    customers and less repeat business.

    Marketing services agencies: Those who manage advertising, market research, communicative and consultancy activities for an organisation. Such intermediaries

    may possess great expertise in certain areas, but they can be a serious weakness

    too if their knowledge of the customer or competitive environment is less than


2. Competitors

Few organisations today have NO competitors at all. Rather, the tendency appears

    to be toward increasingly intense competition. This has led many to suggest that a

    key characteristic of a marketing orientation must nowadays be a competitor

    orientation also.

Competitors come in many shapes and forms, some common examples including:-

Direct Competitors: Those who produce strongly similar products or services, usually

    operating through similar distribution outlets (e.g. Coca-Cola vs Pepsi, Sainsbury vs

    Tesco, etc). Competition such as this can prove the most costly to manage,

    decreasing product differentiation requiring ever larger marketing budgets in order to

    convince customers that a firm’s own particular product has the greatest “benefits”

    (i.e. has added value).

Indirect Competitors: Organisations providing very similar products or services, but

    seeking to satisfy different customer needs (e.g. Kwik-Save vs Tesco). Although

    generally considered complimentary (or at least less of a threat!), such competitors

    can nevertheless encroach on a firm’s target market and, at times, may even be

    producing an inferior quality product which damages an industry’s reputation as a


    Substitutes: Sometimes, the form of the product or service may be quite different but, in essence, still satisfies the same customer need. A customer can cover a wall

    with either paint or wallpaper, for instance, or receive distributed music via either a

    CD or the Internet normally quite separate industries, but each meeting the same


New Market Entrants: Potential new competitors come in all shapes and sizes. They

    may be firms seeking to expand their range of products or services into new sectors

    (e.g. supermarkets providing financial services), or else they may be organisations

    within a sector seeking to gain control over new areas (paper mills now often own

    paper merchants too). Sound product differentiation and customer loyalty can serve

    as effective barriers to entry, but dissatisfied customers can leave the door wide

    open for new competitors to enter the market.

3. Suppliers

Suppliers represent a component in the organisation’s immediate environment

    because they provide the raw materials, services and resources needed to operate.

    Changes in the supply environment can affect a firm considerably, perhaps even

    critically. Problems may arise where there are shortages of supply, where the

    supplier is larger and more powerful than the organisation itself, or where the

    supplier’s brand is very well known and in demand from the organisation’s customers.

    Marketers must therefore monitor the supplier environment very closely, seeking

    where possible to establish mutually beneficial interdependent relationships.

4. Customers

    Customers are, quite obviously, a crucial component in an organisation’s immediate operating environment. That is the whole ethos of the marketing orientation. Customer needs and behaviour patterns must be continually monitored and appraised as a basis for strategic planning.

    Marketers need to know and understand as much as possible about their customers. Who are they? Where to they live? What are their needs/requirements? What criteria do they apply when choosing between products and services? We will return to these issues again in Session 6!

The Macro Environment

1. Socio-Cultural Factors

    The socio-cultural environment is determined by social, cultural and demographic characteristics. The prevailing cultural beliefs and attitudes of a society are a major source of clues as to likely preferences for products and services, often past across generations via parents and grandparents. Conversely, major social changes can have a dramatic effect upon marketing activities. In Western societies, for instance, the growing role of women in the workplace helped stimulate the markets for labour-saving devices; greater disposable income for teenagers saw the market for music products expand rapidly; and so on.

    The changing demographic profile of a population can also serve as a predictor of consumer demand. Mothercare, for example, saw a decline in birth rates recently

    and responded by expanding its range to include more products for older children; at the opposite end of the age scale, Saga have reacted to increasing life expectancy

    and pensioner affluence by introducing a vast array of products for older consumers, ranging from adventure holidays to financial services. Similarly, changes in the ethnic mix of the UK population in the 1970s in particular have led to the development of a healthy market in specialist cosmetic and hair care products.

2. Technological Factors

    Technological change brings both opportunities and threats, new products and processes holding a vast potential to change the ways in which an organisation functions. Technology can provide better ways of satisfying existing needs (records become CDs), identify latent needs (the non-stick frying pan, bin-liners), enable new customers to be reached (the Internet), and generally alter patterns of demand (teleworking affecting the demand for office catering and cleaning services). At the business level, technology also alters the nature of competition in an industry (the

Internet vs “snail mail”, the revolution in high street banking, etc) and it can even

    affect the nature of marketing activities themselves (EPOS, the Internet).

3. Economic Factors

The environment in which an organisation operates is very much determined by

    macro-economic factors. A recession can dramatically reduce total income and

    expenditure levels in the economy, in turn affecting consumer demand. Higher taxes,

    interest rates and inflation similarly serve as disincentives to consumer confidence

    (and therefore spending!), whilst economic growth and prosperity can generate

    increased spending and an overall “feel-good-factor”.

4. Political and Legal Factors

Finally, political-legal changes (the two are often inseparable!) also shape the

    character of the operating environment. Consumer protection legislation may

    prevent suppliers taking advantage of consumers (“rip-off Britain?”) or ensure healthy competition; trade barriers and patent regulations protect businesses and

    individuals; and so on. However, legislation may also yield unforeseen threats and

    opportunities too. On the one hand, airport deregulation provided opportunities to

    new market entrants in the budget sector (e.g. EasyJet). At the same time, though, this created problems for the major carriers which had previously been public sector

    monopolies (British Airways).

Assessing the Operating Environment

As we have seen, changes in the environment may pose a threat to one organisation

    (electronics affecting demand for slide-rules) whilst providing an opportunity for

    others (calculators). What is the significance of this for strategic marketing planning?

Each organisation has, quite simply, a particular matrix of strengths and weaknesses.

    When the environment changes, the organisations presented with opportunities are

    those with the necessary skills and resources to develop new products and services

    on the back of these changes. Thus, to make sense of a company’s strengths and

    weaknesses, it is necessary to consider also its particular capabilities in order to

    determine whether the change witnessed will constitute either an opportunity or a


In strategic planning, the appraisal of a firm’s strengths, weaknesses, opportunities

    and threats is often referred to as a SWOT Analysis. Despite the name, however, analysts usually begin by considering environmental opportunities and threats before

    determining whether there is likely to be a strategic fit between these factors and the organisation’s own strengths and weaknesses.

Strengths and weaknesses are normally analysed by reference to competitor

    characteristics there’s no point in being good at something if someone else is

    better! They are also very much considered in the present tense “We’ll have the best distribution network in two years time” is not a strength today. Opportunities and threats are, however, evaluated by reference to the near future an opportunity which has past, or is today being seized by a competitor, is an opportunity missed.

SWOT Analysis has already been covered elsewhere on the course. So, let’s just

    think about some of the questions which might be asked of the marketer during a

    typical SWOT:-

    1. What trends and changes are there in the environment?

    2. What are our company’s distinctive strengths and weaknesses?

    3. Comparing the answers to the above, which trends and changes represent

    company marketing opportunities and which are likely to be marketing


    4. How can the company best capitalise on these market opportunities or,

    alternatively, minimise the potential threats i.e. how can we best achieve a

    strategic fit?

In addressing these questions, the marketer has a particular set of skills and/or

    techniques at his or her disposal:

    ? Forecasting of both environmental changes and market size and potential.

    ? Analysis of company marketing strengths and weaknesses.

    ? Competitor analysis/intelligence.

    ? Analysis and forecasting of customer needs.

SWOT Analysis

Exercise: List the strengths and weaknesses of your own organisation as they relate

    to requirements for competitive success in the current marketplace. Now, think

    about the environmental influences likely to affect the organisation in the next few

    years and identify the ones you consider most significant in terms of requiring an

    effective response.

Responding to the Environment: Relationship Marketing

Marketing techniques are generally seen in terms of attracting new customers and

    preventing existing ones from “defecting” to the competition. In today’s increasingly competitive environment, however, firm’s are frequently now turning to their

    marketing functions and demanding they do far more than merely act as a stimulus

    to encourage a purchase response. The term relationship marketing has come

    into use to denote the new emphasis on responding to environmental opportunities

    and threats by seeking to build higher levels of customer commitment via

    exceptional customer service over a substantial timeframe and treating customers as

    individuals rather than as merely small segments of larger markets.

The Aijo (1996) paper in the Course Reader explores the philosophy of relationship

    marketing in more depth and the environmental forces shaping its growing

    prominence. In essence, though, the central idea is that the marketing orientation

    marks a shift from market share thinking to share-of-customer thinking (Peppers &

    Rogers, 1993). But, what do we mean by this?

Imagine it is St Valentine’s Day. Florists everywhere will be competing for business,

    trying to sell as many flowers as possible to customers largely unknown to them in

    the normal course of trading. They’ll probably promote their products aggressively n

    the couple of weeks before St Valentine’s Day and rely heavily on various forms of

    special offers and advertising. The aim throughout will be to attract as large a share

    of the market as possible.

Now try to think of this from the perspective of relationship marketing. The florist

    adopting this business strategy will probably focus instead on getting a larger share

    of the individual customer’s patronage. Superior customer service, better gift-

    wrapping, efficient delivery services, a more welcoming retail environment, etc. All

    of these things make it more likely that the customer will return in the future, rather

    than defecting to the competition, and he/she may very well increase his or her

    expenditure on flowers on this particular occasion in preference to other forms of gift.

Relationship marketing today goes beyond even these obvious benefits of cultivating

    a long-term relationship with the customer, however. As Christopher and McDonald

    (1995) observe, the success of such a strategy can often be dependent on forging a

    whole range of long-term strategic relationships with other key parties whose

    influence could be crucial (e.g. suppliers, employees, distributors). Kotler (1996)

    calls this megamarketing, noting the need for high levels of trust between interested parties and the potential this creates for all to benefit from the resultant

    higher level transactions.

Relationship marketing is a huge topic, which we’ll return to throughout this course.

    For the moment, though, the key thing to remember is the fact that relationship

    marketing, like the marketing orientation itself, is a business philosophy rather than

    a specific subdiscipline a philosophy resulting from, and requiring a detailed ongoing knowledge of, prevailing and anticipated environmental conditions.


The second case study, “Competing within a changing world”, explores the

    information used by one company, Rolls Royce, in re-aligning its business to

    changing market demands. The study poses five initial questions to assist in your


    1. Describe the difference between a primary and a secondary market.

    2. Compare the market structure for aero-engines with another market of your

    choice. Use the five forces analysis to undertake this activity.

    3. Explain how: (a) relationship marketing and (b) change management, is

    helping Rolls Royce to grow its market share.

    4. Looking at the five forces analysis, identify and describe three problems faced

    by Rolls Royce.

    5. Using the case study, evaluate how five forces analysis could be used by a

    business organisation to develop a new strategic focus.

Building on the above, a few further issues to reflect upon:-

    ? Thinking about the environmental forces Rolls Royce are responding to, are

    they factors in the immediate environment, the macro environment, or some

    combination of the two?

    ? Linking back to Lecture One, do you think Rolls Royce satisfies the criteria for

    a marketing oriented organisation? If so, how important is environmental

    awareness in achieving this?

    ? The case study explicitly states that Rolls Royce are re-organising with a view

    to pursuing a relationship marketing philosophy. How successful do you think

    the new organisation and corporate culture will be in establishing longer term

    relationships with customers and key partners? Is this the only viable

    response which could have been made to prevailing environmental conditions?

    Five Forces Analysis

The case study on Rolls Royce introduces a paradigm known as Five Forces

    Analysis, a variation on the traditional SWOT approach. The so-called “five forces”

    are competitive rivalry, power of buyers, power of suppliers, threat of entry and

    threat of substitutes.

Exercise: Conduct a Five Forces Analysis of your own organisation and compare the

    results with the SWOT Analysis you conducted earlier. Is either technique superior,

    are they just variations on a theme, or do you perhaps need both techniques to get a

    comprehensive picture of your organisation’s current market position?

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