What is Marketing Environment? Definition, Components, Importance

What is Marketing Environment?

Marketing Environment is the combination of Internal factors (customers, shareholders, retailers, employees & distributors) and the External factors (demographical, cultural, social, legal and political, economic, natural and technological environment) and forces outside marketing that affect top-level management’s ability to develop and maintain successful relationships with its target customers.

The marketing firm operates within an unpredictable and dynamic external environment. It is the task of the marketing-oriented organisation to link the resources of the organisation to the requirements of customers.

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Marketing Environment Definition

A company’s marketing environment consists of the actors and forces outside of marketing that affect marketing management ability to build and maintain successful relationships with target customers. – Kotler and Armstrong

Marketing environment is that which is external to the marketing management function, largely uncontrollable, potentially relevant to marketing decision-making and changing and/or containing in nature. – Cravens et. al

The marketing environment of the task environment and the broad environment. The task environment includes the immediate actors involved in purchasing, distributing and promoting the offering. The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. – Philip Kotler

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Concept of Marketing Environment

The marketing environment of an organisation consists of a wide variety of forces that are within and/or external to the organisation. These internal and external forces influence the organisation’s operations and its marketing strategy. It comprises both tangible and intangible factors; some of these are controllable and some others are beyond the organisation’s control.

The marketing environment is perennially changing and plays a pivotal role in offering new opportunities and threats to businesses. A marketer’s task is to meticulously identify the environment and formulate a marketing mix.

The ultimate motto of environmental analysis is to create a strategic response in relation to environmental changes. An organisation can achieve its objective with strategic planning in order to capitalise on environmental opportunities.

Organisations operate within an unpredictable and dynamic external environment. It is the task of the marketing-oriented organisation to link the resources of the organisation to the requirements of customers.

There are two types of environmental factors in which an organisation operates. Some of these factors are external and the organisation has little control over them. The other type of factors comes from within the organisation and can be controlled. Hence, the marketing environment can be divided into two major components, which are:

• Macroenvironment
• Microenvironment

Macroenvironment

It consists of demographics and economic conditions, socio-cultural factors, political and legal systems, technological developments, etc. These constitute the general environment, which affects the operations of not just an organisation but other players too in the same industry.

Let us understand the effect of various elements of the macroenvironment with the help of a few examples. The economic environment of a market is a result of existing interest rates, inflation rates, exchange rates, trade cycles and growth rates.

For example, in the 1990s, the cost of a loaf of bread was 12 but in 2021, it costs around 35. Similarly, the interest rate on savings deposits in 1998 was 12% which has come down to approximately 3% in 2021.

The social environment of a market depends on the demographics of a market and the cultural and social aspects of society. Population growth, market composition, life expectancy, changing lifestyle, etc. all affect the overall social environment.

For instance, due to women’s empowerment and improvement in the education level of girl children, the participation of women in the economy has increased which has helped in increasing the overall economic activity level.

Microenvironment

It comprises suppliers, consumers, marketing intermediaries, etc. These are specific to the said business or organisation and affect its operations on a short-term basis. Let us understand the effect of various elements of the micro-marketing environment with the help of a few examples.

The suppliers of a company are extremely important because the company depends on suppliers for uninterrupted production. In most cases, the companies form alliances or network or formal/ informal partnerships with suppliers.

Next, the customers of a company are also important part of the overall microenvironment. The companies need to take care of various aspects of their customers such as language, culture, ethics, purchasing capacity, etc

For instance, organisations like Nestlé markets Maggi Noodles in Beef flavour in many parts of the world but not in India. It is so because Beef is not consumed in most Indian states. Marketing intermediaries also affect the business of a company.

Marketing intermediaries are usually involved in the distribution and promotion of products. They also have tremendous impact on the demand and sales of products.

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Components of Marketing Environment

The Components of marketing environment are the combination of the internal and external environment component of the business. While the external environment has less or no control while the internal environment can be controlled.

There are two types of marketing environment:

1. Internal Marketing Environment
2. External Marketing Environment

Internal Marketing Environment

The marketing strategy of every business organisation is influenced by a large number of internal factors within the organisation. This Internal environment is regarded as a pivotal component of the business environment as these elements can influence the activities decisions and operations of the organisation.

In other way, the internal environment refers to all members in the organisation, their culture, the events and various factors within an organisation that can affect the decision-making process in the organisation These members imply all those entities that are inextricably linked to the organisation such as the employees, channel partners, vendors or suppliers, shareholders, managing director, board of directors, etc.

The internal factors that are within the control of the organisation are as follows:

Vision, mission and objectives

While the mission of an organisation elucidates the company’s business and the purpose for its existence, the vision sheds light on its future position. The objectives infer to the ultimate motto of the company and the methods employed to meet those objectives.

Some of the noted vision and mission statements are as follows:

Mission Statements

1. Tesla: To create the most compelling car company of the 21st century by driving the world’s transition to electric vehicles.
   
   
2. Nike: Create ground-breaking sports innovations, make our products sustainably, build a creative and diverse global team, and make a positive impact in communities where we live and work.
   
   
3. MVMT (Common mission and vision statement): We were founded on the belief that style shouldn’t break the bank. Our goal is to change the way you think about fashion by delivering premium designs at radically fair prices.
   
   
4. IKEA: To create a better everyday life for many people.
   
   
5. Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.
   
   
6. Google: To organize the world’s information and make it universally accessible and useful.

Vision Statements

1. Tesla: To accelerate the world’s transition to sustainable energy.
   
   
2. Nike: Bring inspiration and innovation to every athlete* in the world.
   
   
3. Amazon: To be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.
   
   
4. LinkedIn: Create economic opportunities for every member of the global workforce.
   
   
5. Disney: To entertain, inform and inspire people around the globe through the power of unparalleled storytelling, reflecting the iconic brands, creative minds and innovative technologies that make ours the world’s premier entertainment company.
   
   
6. Facebook: Connect with friends and the world around you on Facebook.

Organisational structure

The hierarchal composition of the organisation ascertains the way in which activities are directed so as to reach the ultimate goal. These activities entail the delegation of the task, coordination, the composition of the board of directors and degree of supervision. The organisation’s structure can be in the form of matrix structures, functional structures, divisional structure, bureaucratic structures, etc.

Corporate culture

Corporate culture or organisational culture refers to the set of values, beliefs and behaviour that an organisation holds. The corporate culture of the organisation determines the way in which employees and management interact and manage internal affairs.

Human resources

Human resource is considered as the most valued asset of the organisation. The success or failure of an organisation predominantly hinges on the human resources of the organisation.

Suppliers

For the production of goods or services, an organisation requires a wide variety of raw materials as inputs. The individuals or companies that supply such inputs are called suppliers. Success of the organisation depends upon the smooth and continuous supply of inputs in required quantities on reasonable terms. Hence, suppliers assume importance.

Suppliers provide businesses with the materials they need to carry out their business activities. A supplier’s delivery will directly impact the business it caters to. The dependence on the supplier will definitely be more when the degree of inputs is more.

Physical resources and technological capacity

Physical resources pertain to the tangible assets possessed by the organisation that plays a pivotal role in determining the competitive calibre of the company. Moreover, technological capabilities imply the technical expertise of the organisation.

Internal environmental factors bear an immediate impact on the organisation. Furthermore, these factors can be altered based on the needs and circumstances, so as to adapt to the dynamic business environment.

Intermediaries

Normally, it is not possible for majority producers to sell their goods or services directly to the consumers. Organisations need the services of a number of intermediaries to move their products to the consumers

Intermediaries directly help in the free flow of goods and service between organisations and their target markets. These intermediaries render important services and play an indispensable role hence, become an indispensable part of the system.

External Marketing Environment

The external marketing environment takes into account all the external factors that can impact the organisation’s existence, and are beyond the organisation’s control. This external marketing environment factors exert a considerable influence on any organisation’s marketing strategy.

The major macro marketing environment forces to deal with are political, economic, sociocultural, technological, legal and environmental. Let us discuss these factors below:

• Demographic Environment
• Social and Cultural Environment
• Legal Environment
• Political Environment
• Economic Environment
• Technological Environment

Demographic Environment

Demography environment is the study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics and its characteristics.

Marketers are always interested in population-related growth indices because the eventual market growth rate in the long run largely depends on the growth of population.

Social and Cultural Environment

Of all the elements making up the macro environment, perhaps social and cultural environment factors are the most difficult to evaluate, and hence pose the greatest challenge to the marketing organisation.

Social and cultural change manifests itself in changing tastes, purchasing behaviour and priorities of consumers and marketers need to understand and identify these changing trends.

Legal Environment

Organisations are bound to work within the legal framework as enshrined by the laws of the countries they operate in. Organisations have to weigh in the implications of all the legal provisions related to their business.

Organisation must have a good working knowledge of the major laws protecting consumers, competitions and organisations. Laws, such as the Consumer Protection Act, Intellectual Property Rights, FEMA, or Labour Laws, can considerably affect the business’s operations.

Political Environment

The political environment can be one of the less predictable elements in a marketing environment. Organization need to regularly monitor the changing political scenario because political change can impact a firm’s marketing.

The political environment consists of laws, government agencies etc that influence and restrict and limit the various organizations and individuals in a given society.

Economic Environment

The economic environment of the countries also exerts a great influence on the marketing decisions as it affects the purchasing power of the consumer. Economic environment, implies all those macroeconomic factors such as income distribution, level of saving, debt and credit available to consumers, and also the stages in the business cycle.

Economic environment determines the strength and size of the market. The purchasing power of consumers relies on current income, prices, savings, the circulation of money in the economy and credit facilities available. Situations in economic environment offers an opportunity and also poses threats to organisations.

Technological Environment

Technology has accelerated the pace of change in the marketplace. Technological life cycles are shortening day by day and the introduction of new products has become a normal phenomenon of the marketplace.

Companies are open to exploiting unlimited opportunities in the field of marketing to provide better products and services. Companies such as Sony, 3M, Samsung, and Wipro have increased their research and development budgets manifold to always be ahead of their competitors.

Read: Marketing Management Philosophies

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Features of Business Environment

On the basis of the above discussion the features of business environment can be summarized as follows:

• Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning.
  
  
• It covers factors and forces like customers, competitors, suppliers, government and social, cultural, political, technological and legal conditions.
  
  
• The business environment is dynamic in nature, which means, it keeps on changing.
  
  
• The changes in business environment are unpredictable. It is very difficult to predict the exact nature of future happenings and the changes in economic and social environment.
  
  
• Business environment differs from place to place, region to region and country to country.

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Purpose of Marketing Environment

• To know the prevailing trend, observe it and know the strengths of organisation.
  
  
• To discern which events and trends are favourable from the standpoint of the firm, and which are unfavourable
  
  
• To figure out the opportunities and threats hidden in the environmental events and trends
  
  
• To project how each factor of the environment will be at a future point of time
  
  
• To gauge the scope of various opportunities and ascertain which of these may be more favourable

Analysing the Marketing Environment

• To scan the marketing environment and fathom as many factors or forces as possible
  
  
• To monitor and observe any changes that are conducive for the organisation
  
  
• To identify threats that may affect the working of the organisation
  
  
• To capitalise on the possible opportunities and even initiate appropriate measures to mitigate the threats

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Importance of Marketing Environment

1. Determining Opportunities and Threats
2. Giving Direction for Growth
3. Continuous Learning
4. Image Building
5. Meeting Competition
6. Identifying Firm’s Strength and Weakness

Determining Opportunities and Threats

The interaction between a business and its environment would identify opportunities for and threats to the business. It helps the business enterprises in meeting the challenges successfully.

Giving Direction for Growth

The interaction with the environment leads to opening up of new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

Continuous Learning

Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in the realm of business.

Image Building

Environmental understanding helps business organizations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.

Meeting Competition

It helps the firms to analyze the competitors’ strategies and formulate their own strategies accordingly.

Identifying Firm’s Strength and Weakness

Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

Marketing Environment in India

India is home to an estimated 1 billion people which makes India the second most populous nation in the world. A majority of our population; roughly 70% resides in rural areas, thought that trend is slowly shifting due to migration to urban areas, predominantly due to rapid urbanisation. India’s most populated urban cities are Mumbai, Chennai, Kolkata, New Delhi, Hyderabad, Bangalore, etc.

A detailed study of Indian marketing environment is a must as the marketing environment varies from nation to nation. The Indian marketing environment can be subdivided into economic, social, legal, distribution and cultural components. India has a congenial business environment that usually attracts multinational companies (MNCs) far and wide.

Owing to its massive market size and positive business climate, scores of American giant organisations including General Electric, General Motors, McDonald’s, Kellogg’s, and Microsoft have recently entered the Indian market.

The Indian economy had witnessed radical policy shifts in the early 1990s. The new economic reforms, such as Liberalisation, Privatisation and Globalisation (LPG) aimed at augmenting the Indian economy and making it globally competitive.

However, any company that seeks to enter the Indian market must gauge the market conditions and policy or market-related issues here before beginning its operations here. Organisations have to study the marketplace properly, decipher the country’s economic and political situation, and understand the cultural diversity and attitudes of consumers.

The Indian marketing environment is complex and diverse. It is essential to for organisations to formulate marketing strategies and even the products or services that suits local preferences. As India has a fast-evolving market environment, it is crucial for organisations to perpetually reassess their marketing strategy and plan.

An ideal way to deal with perplex Indian market is by investing and hiring local resources. In the prevailing Indian market, scenario organisations are pitching for Go Green and promoting the environmentally friendly concept. For instance, Idea promoted Save Paper. Likewise, many organisations are promoting the Go Green campaign.

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