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Louise Ripley

 
Introductory Marketing
Environments
Chapter 4 Armstrong/ Kotler Marketing: An Introduction

Analyzing the Marketing Environment
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I. The Company's Microenvironment

The environments in which you will have to market your new product are a major factor in determining your strategy. In a real-life Marketing Plan you would spend a solid amount of time researching these environments. For the purpose of your Marketing Plan, do enough informal and secondary research to have a good idea of what will affect your product launch. 

Marketing Plan Hint - When writing the SWOT analysis for your Marketing Plan, the INTERNAL environments are where you get the information for your STRENGTHS AND WEAKNESSES; the EXTERAL environments are where you find your OPPORTUNITIES AND THREATS, and hence the name SWOT.

Micro Environment

The Company
The Marketing Concept tells us that in an ideal world, the whole company will work together to profitably meet the needs of the consumer. As the Marketing Manager for a new product, you have to deal with things over which you have some direct control - the product itself, its price, its promotion, and where it is sold (distribution/place). It also means that you cannot just work within the walls of the Marketing Department; you have to get out and talk to the rest of the company, break down the artificial barriers that keep a company from working as a team. This will include all other functional areas of the company that touch on any issues of analysis, planning, implementation and control, and this means pretty much everyone. 

Some of the questions you are asked below to think about will not end up directly in your Marketing Plan, but thinking about them and talking about them on the Discussion Group will help you get a better idea of what your company and your product are all about. 

Internal Environments
What does Top Management have to say about all this? Are they on-side, do you have a champion?
What happens when you have a new product all ready to go and the Finance department says they can't get you the funding?  
Did you talk to Research and Development before you started down the road to producing something that's never been made before? 
Will Purchasing be able to handle the volume of orders you are expecting in your first two months? Nothing kills sales faster than a company that can't fill orders. 
What are you going to do when you talk to Manufacturing and they tell you they can only produce the product using three thingamajigs instead of the two you had planned on? 
And how about the people in Accounting? Have you had coffee with them recently and talked to them about how costs are going to be allocated? It may make a difference in your strategic planning. 
Exercise: Plan
Internal Environments
Which other parts of the company do you expect will have the most effect on your Marketing Plan? Who can help you? Who might possibly sandbag your efforts? How will you deal with them? 
Post your answer in the Moodle Discussion Group.

Suppliers
Organizations and people who provide what you need to produce what you make

When General Motors shuts down a plant, more people lose their jobs than just the workers at GM. There are thousands of companies that supply GM, and when GM has problems, they have problems. This is why in Detroit, Michigan, USA, GM's home town, they say, "What's good for General Motors is good for the nation." It is true for a lot of Canadians too, as many of them work in GM plants here.
Exercise: Lab
Suppliers
Visit a manufacturing company, or retail store, or any organization that buys supplies from someone else. Ask them, and report back - What is the single biggest problem they have with suppliers?
Post your answer in the Moodle Discussion Group. 
Marketing Plan Hint - When thinking about your suppliers in your Marketing Plan, consider what will be the balance of power. Will you have to purchase materials that are in great demand by other companies as well, or will you be one of the few customers your supplier has? It makes a difference in your expected relationship with that supplier. If you are short of money and/or credit rating right now, what can you promise a supplier later on in the future if they help you out now? 


Marketing Intermediaries (Place - Channels of Distribution)

This is the area where I did my doctoral research. It involves trucks and warehouses, slotting fees and shelf space, in-house sales forces and outside agents, and all the fascinating issues of power and control.

Traditionally the balance of power in the channels relationship between Arrow shirts and the retailers who sold them lay with Arrow, a huge manufacturer on whom a retailer was dependent for a popular product. But some years ago, fed up with Arrow's restrictions on selling their shirts on sale, a group of retailers in western Canada banded together and told Arrow that if they couldn't mark the shirts down then no one in the area would carry the shirts. Arrow relented and now you can buy an Arrow shirt on sale. 

We always say that all four of Marketing's P's are equally important, but Place (channels of distribution) is perhaps most crucial:

We've all bought something that was more than we wanted to pay for it, but we wanted it and so we bought it (paying $8.50 to park in Parking Structure II when you already pay a hefty fee for a yearly parking pass, but in another area of campus)
We've all bought something that wasn't quite right but we had to have it and so we took what was there (your new car has everything you want but not automatic windows and you decide to get it anyway)
The sad thing here is that advertising research shows that often we remember products BETTER when we hate their ads, and when we go to the store, we may forget that we hate the ad but we remember the product enough to buy it
But no one has ever bought something that wasn't there to buy; we're not talking here about ordering something that has run out of stock, or buying on the Internet where you don't see a physical product, but rather of a situation where the good simply wasn't available to be bought

Exercise: Plan
Place
Who holds the power in your Marketing Plan product's channels of distribution? With whom will you need to establish relationships? 
Post your answer in the Moodle Discussion Group.

 

Marketing Plan Hint - read this section in Distribution carefully in the Marketing Plan instructions. Students tend to overlook it or to do it wrong. You must at the early stages of your Plan do some investigation into how other companies currently distribute products similar to the one you are proposing to market.

Competitors

Companies offering your target market similar goods and services. Imagine you are the owner of a men's suit manufacturing company called YourLuxury suits and work your way through the exercise below:

Your Product: Men's Suits
Your Brand: YourLuxury
Your Price: $2,000 range
Your Target Market: Well-to-do gentlemen

Your Competition
All  Goods, Services, Experiences, Investments, etc. Ultimately everything in the world is a competitor for the dollar that a customer might spend at your store. Instead of buying a new suit, your gentleman might spend his money on 
YourLuxury suit
Rolex watch
Fixing living room windows
Week in Hawaii
Repairing family sedan
Donating to charity
New sports car
Ice cream cones (many of them)
Gambling at Casino Royale
Pouring money down a rat hole

Anything is a possible alternative to his spending his money in your store. He might buy one of the first five items for around $2,000. He might donate the money to charity. He might put the $2,000 in the bank to start saving for a red sports car. He might fritter away every cent of the $2,000 on small items like ice cream cones; he might blow the whole $2,000 on a fast night at the gaming tables, or he might just pour it all down a rat hole (which my father used to contend he would have just as much fun doing as gambling). Whatever your guy does with his $2,000, it still means that that $2,000 won't get spent in your store if he does something else with it. You need not include these wilder fringe categories of competition in your list of competitors, but you need recognize that in a sense, all expenditures are "competition" for you. 

Generic Competition - The Generic market is narrower. Generic competitors offer substitute goods which may be very different physically and conceptually from yours but which meet a common need. 

YourLuxury suit

Rolex watch 
Weekend in Hawaii
Saving for a sports car

The Rolex watch, the weekend in Hawaii, the sports car are all luxury goods. At some level they meet the same need that a luxury suit does. 

Product Competition - Here the products are more similar, either physically or conceptually and your category gets narrower.

You can have Distant Product Competitors such as: 

YourLuxury suit
Moore's Suits
Hudson's Bay Menswear
Value Village

but let's face it, at $2,000 for your suit, you don't have any real competition from any of these other places. It is a level of competition, but you rejected this level when you chose your target market. 

And finally you have Close Product Competitors such as: 

YourLuxury suit
Yves St. Laurent suit
Lou Miles suit
Georgio Armani jacket
(I don't think you can get a whole suit for only $2,000 anymore)

Here your competition is very narrow -- only expensive men's suits. In a product market, your potential customer has decided what product he wants, and now he's choosing between brands -  yours or someone else's? This is your direct competition. It's an easier market to compete in. You know something about men's suits, particularly luxury suits. You know how to compete. You may not know how to compete with a Hawaiian vacation.

Note that there are "latent" competitors as well as current one. There are other companies out there who already produce what you are planning to; these are current competitors. What about companies that may start up business because, seeing you come out with your product, they sense there is a market there - these are "latent" competitors. 

THERE IS ALMOST* ALWAYS COMPETITION If you are producing something that has never been made before, for which you can find no direct competition, then your competition is just at a broader level. You can NEVER say that you have NO competition. In one class, a group came up with an idea for a device for a car that did not exist at the time (it now does - a computer assisted map device to tell you where you are). They thought they had no competition until they realized that a car buyer would have to choose between their expensive product and say, an upgraded stereo system, leather bucket seats, tinted windows.... there is ALWAYS a competitor for your potential customer's money. What you choose to consider your direct competition makes all the difference in what your marketing strategy will be. 


*The reason I say "almost always" is that there are some new emerging theories of business which maintain that for some companies, competition is not relevant but this is beyond the scope of this introductory course. For this course, assume that there will always be competition. 

 

Exercise: Plan
Competitors
Who are your competitors? your latent competitors? your generic competitors? your direct competitors?
Post your answer in the Moodle Discussion Group.

 

Marketing Plan Hint - When listing "Threats" in the Marketing Plan, do NOT just list "competition;" it is always a threat for just about any company. It's such a serious threat that you cover competition in a section all on its own. If competition is a particularly major threat for your company, for example in a situation where competitors can easily enter the market (see Penetration Pricing), list that particular specific threat, but leave the majority of discussion of competition for the Competition section. 

Financial Media Government Citizen Action Local General Internal

Note that a public is any group that has an interest in what your organization does and note that THEY decide if they are publics, not you. For a case dealing with these various publics, see UnHip Fries

Exercise
Publics in Unhip Fries
Look again at the Unhip Fries case, and think back on your answers in the unit on Marketing and Society. How would your answer differ if you were a member of one of these Publics?
Post your answer in the Moodle Discussion Group.  
   
Customers
Consumer - individuals and households that buy goods and services for their own personal consumption. More on these in the Learning Unit on Consumer Buyer Behaviour
Business - also known as Industrial markets or B2B markets, they buy goods and services for further processing or for use in their own production process. More on these in the Learning Unit on Business Buyer Behaviour
Reseller - buy goods and services for repackaging and selling at a profit. We will look at these in more detail in the Learning Unit on Place
Government - buy goods and services to produce public services or transfer them to needy constituents. The number-one user of advertising in Canada is the government
International - buyers in other countries. There is a chapter in the text on International Marketing, but basically the whole text and course emphasizes global marketing

 

Exercise: Plan
Customer
Which one of these five types will you choose as your customer? To make the project easier, you will be choosing only one.
Post your answer in the Moodle Discussion Group.

II. The Company's Macroenvironment

The macroenvironments are for the most part uncontrollable by the company. Things happen and the company must be prepared to react. 

Marketing Plan Hint - When writing the SWOT analysis for your Marketing Plan, the EXTERNAL environments are where you get the information for your OPPORTUNITIES AND THREATS; The INTERNAL environments are where you find your STRENGTHS AND WEAKNESSES, and hence the name SWOT.

Demographic Environment
Demography is the study of human beings  - how many, where they live and how densely populated, age, sex, race, occupation. Changes in demographics have a major impact on marketing. Remember throughout the course but particularly in this Unit that we refer mostly to the North American market. These environmental factors particularly will be vastly different in different countries and cultures. Even the North American market is made up of very different consumer experiences. In an Introductory course we must generalize sometimes or we'd never get through all the material. But keep it in mind. 

Changing Age Structure of the Population  In 1996, David Cork and Susan Lightstone wrote a book called The Pig and the Python: How to Prosper From the Aging Baby Boom (Toronto: Stoddart Books). The python is the consuming public; the pig (lump in python) is the clump of Baby Boomers as they move through the age demographics and affect thousands of product markets. It's still relevant today.

When the Baby Boomers were young, women worked, shopped, danced (even vacuumed if you believe the ads) in shoes like this red high heel
Now these are the popular women's shoes: low sturdy heel, square rather than narrow pointed toe -- think about the size of a target market that includes the Baby Boomers; then think about one reason why the style of shoes has changed recently.  
Exercise
Shoes
Chunky shoes didn't used to be in style, ever. What effect have the baby-boomers had on shoe fashion? If you can't figure this one out and if your mother is younger than 40, go ask your grandmother.
Post your answer in the Moodle Discussion Group.

The Changing Canadian Household The traditional suburban family of dad, mom, 2 1/3 children, dog, and station wagon is fast disappearing. Consumer behaviour models now list "single parent" as a major life-stage variable in marketing (it's about time) and yet many companies continue to use images of the family to promote their goods and services. 

Geographic Shifts in Population People are moving all over the world and  migration patterns affect the flow of goods and wants. With the increased popularity of American fast food, China, once traditionally a country with almost no heart disease, now is catching up with American rates of that disease -- a dubious achievement. People in different geographical areas often eat  distinctly different foods. While in Newfoundland on a strike support visit, I ate cod tongues for lunch. 

A Better-Educated, More Professional Populationcreasing Diversity At one time, only 13% of Canadians held post secondary degrees. Now it is 64%. YOU are part of that change, coming to school at York University.

Increasing Diversity In Toronto, where you once had to bring canned chiles up from the Mexican-influenced southwest of the United States because everything gastronomic in Toronto was basically related to grey roast beef and mashed potatoes, you can now buy at your local grocery store burritos hot enough to singe your tongue, and the ingredients to make authentic Indian, Thai, Lebanese or many other dishes. Many companies are capitalizing on increased multiculturalism to promote their goods and services.  

Exercise: Plan
Demographics
What demographic factors specifically affect your Marketing Plan product? 
Post your answer in the Moodle Discussion Group.

Economic Environment
Many things affect consumer purchasing power and spending patterns. 

Changes in Income and Spending - The fact that for most consumers rising income has only barely kept pace with inflation means that consumers have become more value conscious. Social class makes a difference. The rich don't worry too much about current economic events. The middle class keeps trying to have "the good life" and can generally keep up if they are careful about spending. The lower middle class has a great deal of difficulty keeping up with the consumer choices presented to them by Marketing.

1980's - consumption frenzy
1990's - "squeezed consumer"
2000's - value marketing
2010s - ??? What would you call it?

A Paradox of the New Economy - changes in technology were supposed to mean we had more leisure time but for most of us we now work more hours and have less leisure time

Exercise: Plan
Economic 
What specific economic factors affect your Marketing Plan product?
Post your answer in the Moodle Discussion Group.

 

Marketing Plan Hint - When listing Threats in your Marketing Plan, do not just list a poor economy as one of the Threats. A poor economy usually affects most all businesses negatively. Find a specific economic event which specifically affects your company and not others. An example: in a declining economy, Dollar Stores and other discount stores will often do a brisker business as more people turn to cheaper ways to buy the same things they still need to buy. 

 


Natural Environment
Exercise: Plan
Natural 
At whose expense do you produce your products? Name one element in the Natural environment that will affect your Marketing Plan product; explain why it is classified in that environment (there may not be a Natural environmental factor).
Post your answer in the Moodle Discussion Group.

 

Marketing Plan Hint - When listing Threats in your Marketing Plan, for many products the Natural Environment will not be a threat and you can safely say "Not Applicable.". A threat from the Natural environment has to relate specifically to natural resources needed by the company, or things that will be affected by the marketing of your product. An example: a company making high-quality solid wood furniture would be affected if there were a forest fire in the area that supplied the wood. Check your textbook for four major trends in the natural environment. 

 


Technological Environment
 
Exercise: Plan
Technological
Name one element in the Technological environment that will affect your Marketing Plan product; explain why it is classified in that environment.
Post your answer in the Moodle Discussion Group. 

 


 

Political and Social Environment
 
Exercise: Plan
Political 
Name one element in the Political/Legal environment that will affect your Marketing Plan product; explain why it is classified in that environment.
Post your answer in the Moodle Discussion Group.


Cultural Environment
Core cultural values are hard to change; marketers find it easier to change secondary values
Exercise: Plan
Cultural 
Name one element in the Cultural environment that will affect your Marketing Plan product; explain why it is classified in that environment.
Post your answer in the Moodle Discussion Group.

Reviewing the Environments

Exercise
Different Environments
What is the difference between an internal and an external environment? This is not a simplistic question with a like-wise-simple answer - think it through: what main things make an environment internal or external? 
Post your answer in the Moodle Discussion Group.
 

Here's an exercise to help you understand what kind of thing belongs in each environmental area. With this one, you have to match one-on-one-and-only-one. That is, you can't use one environment more than once, and you can't leave any out. There may be more than one correct answer.

Exercise
Matching Environments & Ads
Click here to go to another matching exercise that involves matching the macro-environment variables - age, family, geography, education, economic, natural, technological, political/legal, social/cultural - with real-life ads. 
Post your answer in the Moodle Discussion Group.

Caution: this linked page of full colour ads may take a while to download


III. Responding to the Marketing Environment

Taking an Environmental Management Perspective means the firm will take aggressive steps to affect the environments in which it operates rather than waiting to be affected by those environments.

Exercise: Plan
Environmental Management Perspective
 
For your Marketing Plan product, are there any environments that you feel you ought to aggressively work to control, rather than waiting for them to affect you?
Post your answer in the Moodle Discussion Group.
 

Other Units

Introduction Strategy Society Environments Research Buyers
Segmentation Product Price Place Promotion The Marketing Plan

Return to Course Syllabus

AP/ADMS 2200 3.0 Introductory Marketing
York University, Toronto
M Louise Ripley, M.B.A., Ph.D.