Chapter 5: The Marketing Environment

CHAPTER OVERVIEW

This chapter focuses on the factors that affect the organisation’s ability to develop and
maintain transactions with target customers. Changes to the macroenvironment factors
of demographics, economics, natural environment, technology, politics and culture,
shape the company’s opportunities and threats as do changes in the micro-environment.
The micro-environment includes the company’s suppliers, its marketing intermediaries,
its customers, its competitors and its publics. It also includes the arrangements of the
organisation, which shape the strengths and weaknesses of the company.
A key idea within this chapter is that, as far as possible, it is useful for the company to
be proactive about changes to the marketing environment rather than merely being
responsive to these changes. Those who are better able to predict and manage these
changes can gain a competitive advantage.

CHAPTER OBJECTIVES

1. List and discuss the importance of the elements of the marketing organisation’s micro-
environment, including the marketing organisation, marketing intermediaries, customers,
competitors and publics.
2. Explain the broad concept of the organisation’s macro-environment.
3. Outline the key changes occurring in the organisation’s macro-environment, including shifts
in the demographic, economic, technological, political, cultural and natural environments.

CHAPTER OUTLINE

Today’s marketing organisation is not always a profit-oriented organisation.

Additionally there are newer forms of marketing organisations. These range from
networks to franchise organisations and virtual organisations.
Marketing environment: ‘The actors and forces outside marketing that affect marketing
management’s ability to develop and maintain successful transactions with its target
customers’ (p. 162). To be successful, an organisation must adapt its marketing mix to
trends and developments in this environment. The marketing environment has a micro-
environment and a macroenvironment.
Microenvironment: ‘The forces close to the organisation that affect its ability to serve its
customer—the organisation, market channel firms, customer markets, competitors and
publics’ (p. 162).
Macroenvironment: ‘The larger societal forces that affect the whole microenvironment
– demographic, economic, natural, technological, political and cultural forces’ (p. 162).

The marketing organisation’s microenvironment

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Marketing management has the task of attracting and building relationship with
customers by creating customer value and satisfaction. However, marketing
management does not accomplish this task alone. Its success will depend on other actors
in the organisation’s micro-environment – other departments, suppliers, marketing
intermediaries, customers, competitors and various publics (se Figure 5.1, p. 163).
The Marketing Organisation

In designing marketing plan, marketing management takes other organisation

groups into account – groups such as top management, finance, research and
development (R&D), purchasing, manufacturing and accounting. All these
interrelated groups form the internal environment (see Figure 5.2, p. 163).
Marketing managers must work closely with other departments in the
organisation, i.e. finance, R&D, purchasing, operations, and accounting and
finance. Together these sections of the organisation have an impact on the
marketing department’s plan and actions.
Marketing Intermediaries

Marketing intermediaries ‘help an organisation to promote, sell and distribute its

goods to final buyers; they include resellers, physical distribution firms,
marketing services agencies and financial intermediaries’ (p. 164).
Resellers are distribution channel firms that help the organisation find customers
or make sales to them. These include wholesalers and retailers who buy and
resell merchandise. Selecting and working with resellers is not always easy.
Manufacturers and importers have far fewer small, independent resellers from
which to choose.
Physical distribution firms: ‘Warehouse, transportation and other firms that help
the organisation stock and move goods from their points of origin to their new
destination’ (p. 164). The marketing organisation must determine the best ways
to store and ship goods, balancing such factors as cost, delivery, speed, and
safety.
Marketing services agencies: ‘Marketing research companies, advertising
agencies, media firms, marketing consulting agencies and other service
providers that help the organisation target and promote its products to the right
markets’ (p. 164).
Financial intermediaries: ‘Banks, credit companies, insurance companies and
other businesses that help finance transactions or insure against the risks
associated with the buying and selling of goods’ (p. 164).
Customers

The marketing organisation must study its customer markets closely. The
organisation can operate in five types of customer markets, shown in Figure 5.3,
p. 165:
1. Consumer markets: individuals and households that buy goods and services
for personal or household consumption.
2. Business markets: organisations that buy goods and services for further
processing or for use in their production process.

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 3. Reseller markets: organisations that buy goods and services in order to resell
them at a profit.
4. Government markets: government agencies that buy goods and services in
order to produce public services or transfer those goods and services to others
who need them.
5. International markets: overseas buyers including consumers, producers,
resellers and governments.
Each market type has special characteristics that call for careful study by the
seller.
Competitors

Every organisation faces a wide range of competitors. The marketing concept

states that, to be successful, an organisation must provide greater customer value
and satisfaction than its competitors. No single competitive marketing strategy is
best for all organisations. Each marketer should consider its own size and
industry position compared with those of its competitors.
Publics

The organisation’s marketing environment also includes various publics. Every

organisation is involved with seven types of publics.
Public: ‘Any group that has an actual or potential interest in, or impact on, an
organisation’s ability to achieve its objectives’ (p. 165).
1. Financial publics influence the organisation’s ability to obtain funds. Banks,
investment houses and shareholders are the major financial publics.
2. Media publics are those that carry news, features and editorial opinion. They
include newspapers, magazines and radio and television stations.
3. Government publics – management must take government development into
account. Marketing management often needs to consult the organisation’s
lawyers on issues of product safety, truthful advertising or resellers’ rights.
4. Citizen-action publics – consumer groups, environmental groups, minority
groups and other public interest groups may question an organisation’s
marketing decisions.
5. Local publics – every organisation has local publics such as neighbourhood
residents and community protection organisations.
6. General publics – a marketing organisation needs to be concerned about the
general public’s attitude towards its products, services and activities. The
public’s image of the organisation affects its buying.
7. Internal publics – an organisation’s internal publics include its wage earners,
salaried and commission employees, volunteers, managers and the board of
directors. When employees feel good about their organisation, this positive
attitude spills over to external publics.

The marketing organisation’s macroenvironment

The organisation and its suppliers, marketing intermediaries, customers, competitors
and publics all operate in a larger macroenvironment of forces that shape opportunities

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and pose threats to the organisation. The macroenvironment consists of the six major
forces shown in Figure 5.5, p. 169: demographic forces, economic forces, natural
forces, technological forces, political forces and cultural forces.
Demographic Environment

Demography ‘is the study of human populations in terms of size, density,

location, age, sex, race, occupation and other statistics’ (p. 169). The
demographic environment is of major interest to marketers because it involves
people, and people make up markets. An understanding of demographic trends in
domestic and important international markets is vital. Here are some important
trends.

Changing age structure of the population

The global population is ageing. It is estimated by 2050 the number of
older people in the world will exceed the young for the first time in
history, with 21% of the population aged over 60 (see Figure 5.6, p 170).
Australians are becoming older, on average, because Australian women
are having fewer babies. Table 5.1, p. 171, compares the population
structure, fertility rates and life expectancy for a range of countries. This
table shows European countries and Japan tend to have smaller
proportions of younger people, whilst the developing Southeast Asian
countries tend to have more young people. One of the most important
demographic trends in most developed countries is the changing age
structure of the population. There were two major impacts on the
populations of developed countries I the late twentieth century, apart
from immigration – the slowdown in the birth rate and the increase in the
number of older people.
Marketers pay attention to major demographic groups in addition to
major demographic trends. These groups may emerge through the impact
of historical events such as way and other catastrophes, or through the
changing composition of a country’s population over time. The baby
boom generation and Generation X (those born between 1965 and 1976)
are of particular interest to marketers.
Baby boom: ‘The major increase in the annual birth rate following World
War II and lasting until the early 1960s. The ‘baby boomers,’ now
moving into middle age, are a prime target for marketers’ (p. 173).
The changing age structure of the population will result in different
growth rates of various age groups during the new decade, and these
differences will strongly affect marketers’ targeting strategies. The
growth trends for six age groups are summarised below for Australia.
1. Children. The number of preschoolers stood at 7% of the population
in 1995, creating a valuable market of under five year-olds. Markets
for children’s toys and games, clothes, furniture, preschool and day-
care centres and fresh food are enjoying a short boom after years of
‘bust.’ There are about 1.5 million Australians aged between seven
and twelve who spend a total of $369 million in pocket money,

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 according to Wilson MLI Research.
2. Youths. The number of 10 to 19 year olds consists of 2.6 million
consumers who buy or strongly influence purchases of products
ranging from health and beauty aids, clothing and food to stereo
equipment, cars, family travel, entertainment and secondary and
tertiary education.
3. Young adults. This group declined during the 1990s as a result of the
reduced fertility of the 1970s. Marketers who sell to the 20 to 34 age
group – furniture-makers, life insurance organisations, banks, sports
equipment, footwear and apparel manufacturers – can no longer rely
on increasing market size for increases in sales.
4. Early middle age. The baby-boom generation continues to move into
the just-under-40 to just-over-50 age group, creating huge increases.
This group is a major market for larger homes, renovations, new cars,
clothing, entertainment and investments.
5. Late middle age. The 40 to 64 age group had grown by 26% by the
end of the twentieth century. T his group is a major market for eating
out, travel, clothing, recreation and financial services.
6. Retirees. In 1995 this group included about 12% of all Australians.
This group has a demand for retirement communities, quieter forms
of recreation, single-portion food packaging, life-care and health-care
services and leisure travel.

The changing family

The ideal of the two-children, two-car suburban family has lost much of
its lustre judging by population demographics. People are marrying later
and having fewer children. Despite the recent ‘echo boomlet,’ the
number of married couples with children will continue to decline. The
number of marriages peaked in 1971 in Australia and, despite a growing
population, this level has only recently been reached again.
There has been a rise in the number of one- and two- person households
as a result of ageing, increasing childlessness among couples and the
increase of one-parent familles. The number of working mothers has
also increased. Women account for almost 44% of the almost 10 million
civilian workers in Australia.

The geographic shifts in population

Australians are mobile, with a large number of people moving each year.
Among the major trends are the following:
Movement to the sunshine state and the state of excitement. During the
1980s the population in the west (Western Australia) and the north
(Queensland) grew, while many of the southern states lost population.
These shifts will continue through the present decade.

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 Movement from rural to urban areas. Australians have been moving
from rural to metropolitan areas for more than a century. The largest
cities account for most of the sales of expensive apparel, perfumes,
luggage and works of art.
Movement from the city to the suburbs. In the 1960s Australians made an
exodus from the inner cities to the suburbs. Australians living in the
suburbs engage in more casual, outdoor living and greater neighbourhood
interaction; they have higher incomes and younger families.

A better educated and more white-collar population

The population is becoming better educated. The percentage of
Australians completing high school has risen dramatically. By 1996 some
600 000 Australians were in the process of completing higher education
at a university – most studying for a Bachelor’s degree. Many more were
completing tertiary studies through the national technical and further
education network (TAFE).

Increasing ethnic diversity

A significant component of the growth in the Australian population is
accounted for by overseas migration. Over the last 20 years it has added
about 40% to the total population. At least 58% of Australia’s population
are second-generation Australians with the remaining 42% either born
overseas or having one parent born overseas. Many nationalities are
involved, with each group having specific wants and different buying
habits. All these demographic developments, together with lifestyle and
other changes in the population have transformed the Australian
marketplace from a mass market into more fragmented micromarkets.
Economic Environment

Economic environment consists of ‘factors that affect consumer buying power

and spending patterns’ (p.180). Markets require buying power as well as people.
Total buying power depends on current income, prices, savings and credit.
Marketers should be aware of major trends in income and of changing consumer
spending patterns.

Changes in income
During the 1980s Australians and New Zealanders experienced the
‘consumption society’ to the full. Several failures associated with the
deregulated banking industry saw the business community fall into ill
repute. The years 2001 to 2003 saw the failures of Enron Corporation,
HIH Insurance, Ansett Airlines, and One.Tel. This and the terrorism
threats after September 11, 2001 have made consumers cautious. Despite
these events, incomes have risen in many important segments.
Marketers must also pay attention to income distribution. At the top are
the upper socio-economic class, the middle socio-economic class, lower
socio-economic class, and those below the poverty line. Value marketing

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 has become the latest trend as markets look for ways to offer today’s
more financially cautious buyers greater value – just the right
combination of product quality and food service at a fair price.

Figure 5.9 shows the average weekly expenditures of households on

major categories of goods and services. Consumers at different income
levels have different spending patterns, some of the differences noted by
Ernst Engel more than a century ago. Figure 5.10 shows that the size and
blend of household income and expenditure relates to social and
demographic characteristics of the members of the household
Engel’s laws: ‘Differences noted more than a century ago by Ernst Engel
regarding family spending patterns in response to increased income;
categories studied included food, housing, transportation, health care and
other goods and services’ (p. 182).
Natural Environment

Natural environment involves ‘natural resources that are needed as inputs by

marketers or which are affected by marketing activities’ (p. 182). During the
1960s public concern about damage to the natural environment began to grow.
These concerns have continued to grow during the past three decades. Marketers
should be aware of four trends in the environment.
1. Shortages of raw materials. Air and water, which may seem to be infinite
resources, are becoming polluted. Many parts of the world are also facing
water shortages. Renewable sources need to be used wisely. The food supply
can also be a major problem because the amount of farmable land is limited,
and because more and more of it is being developed for urban areas. Non-
renewable resources such as oil, coal and various minerals pose a serious
problem.
2. Increased cost of energy. One non-renewable resource, oil has created the
most serious problem for future economic growth. The major industrial
economies of the world depend heavily on oil and, until economical energy
substitutes can be developed, oil will continue to dominate the world
political and economic picture. Electric and solar substitutes have been
researched, but as of yet only are used in very small markets.
3. Increased pollution. Despite its best efforts, industry will almost always
damage the quality of the natural environment. However, this can create
opportunities for products to help save the environment, smoke stack
scrubbers, recycling centres, high-temperature incinerators, and landfill
systems.
4. Government intervention in natural resource management. The governments
of different countries vary in their concern and efforts to promote a clean
environment. Various government agencies play an active role in
environmental protection. For example, the state Environmental Protection
Authorities (EPAs) in Australia were created to deal with pollution.
Technological Environment

The technological environment is perhaps the most dramatic force now shaping
our destiny. Technology has released medical wonders and advanced

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 communication, however, it has also created mass means of destruction. Every
new technology replaces an older technology, creating new markets and new
opportunities.
Technological environment: ‘Forces that affect new technologies, creating new
product and market opportunities’ (p. 184).

Fast pace of technological change

Many of today’s common products were not available 100 years ago.
Scientists are currently working on a wide range of new technologies that
will revolutionise our products and production processes. The most
exciting work is being done in biotechnology, converging micro
computing and communications technologies, miniature electronics,
robotics and materials science. The challenge in each case is to make
practical, affordable versions of the products.

High R&D Budgets

The largest spending on R&D by any country occurs in the United States.
The American government has traditionally supplied almost half of those
R&D funds ($US302 billion per annum), which provide a rich source of
new product and service ideas. In Australia, both the federal and state
governments are striving to ensure that organisations spend more on
R&D by providing tax breaks and grants among other measures.

Concentration on minor improvements

As a result of the high cost of developing and introducing new

technologies and products, many organisations are making minor product
improvements instead of gambling on major innovations. Even basic
research organisations such as Du Pont, Bell laboratories, Glaxo
Welcome and Pfizer are being cautious.

Increased regulation

As products become more complex, the public needs to know that they
are safe. Thus government agencies investigate and ban potentially
unsafe products. Such regulations have resulted in much higher research
costs and in longer times between new product ideas and their
introduction.
Political Environment

Marketing decisions are strongly affected by developments in the political

environment. The political environment ‘consists of laws, government agencies
and pressure groups that influence and limit organisations and individuals in a
given society’ (p. 185).

Legislation regulating business

Legislation affecting business has increased steadily over the years. This
legislation has been enacted for many reasons. The first is to protect

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 organisations from each other. Business executives all praise competition
but try to neutralise it when it threatens them.
Laws passed to define and prevent unfair competition are enforced by the
Australian competition and consumer commission (ACCC) or, if a
foreign organisation is involved, the Foreign Investment Review Board.
Even the Australian Constitution is involved. Section 93 of the
Constitution affects most organisations positively by ensuring that they
can trade freely between the states.
Individuals can take an organisation to task under state legislation for
what they consider to be misleading advertising or other dubious
activities. The federal Trade Practices Act has the greatest impact and is
discussed more in Chapter 21.
A second purpose of government regulation is to protect consumers from
unfair business practices. The third purpose of government regulation is
to protect the interests of society against unrestrained business behaviour.

Changing government agency enforcement

To enforce the laws, several federal and state regulatory agencies have
been established. They can have a major impact on an organisation’s
marketing performance.
Federal
National Organisations and Securities Commission
Australian Department of Primary Industry
Australian Competition and Consumer Commission
Australian Telecommunications Commission
Australian Customs Service
Civil Aviation Safety Authority
National Health and Medical Research Council
Australian Trace omission (Austrade)
State
Weights and Measures Departments
State Power Commissions
Environmental Protection Authorities
Consumer Affairs Departments

Increased emphasis on ethics and socially responsible actions

Written regulations cannot possibly cover all potential marketing abuses,

and existing laws are often difficult to enforce. However, beyond written
laws and regulations, business is also governed by social codes and the
rules of professional ethics.
Cultural Environment

Cultural environment is made up of ‘institutions and other forces that affect

society’s basic values, perceptions, preferences and behaviours’ (p. 188). People
grow up in a particular society that shapes their basic beliefs and values. They
absorb a worldview that defines their relationships to themselves and others. The
following cultural characteristics can affect marketing decisions.

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 Persistence of cultural values

People in a given society hold many beliefs and values. Their core beliefs
and values have a high degree of persistence. Most Australians and New
Zealanders believe in working, getting married, giving to charity and
being honest. These shape more specific attitudes and behaviours found
in everyday life. Secondary beliefs and values are more open to change.
Believing in marriage is a core belief; believing that people should get
married early is a secondary belief. Marketers have some chance of
changing secondary beliefs.

Subcultures

Each society contains subcultures – groups of people with shared value

systems based on common life experiences or situations. Catholics,
teenagers and working women all represent separate subcultures whose
members share common beliefs, preferences and behaviours.

Shifts in secondary cultural values

Although core values are fairly persistent, cultural swings do take place.
Consider the impact of popular music groups, movie personalities and
other celebrities on young people’s hairstyles, clothes, and sexual norms.
The major cultural values of a society are expressed in people’s views of
themselves, of others and of organisations, society, nature and the
universe.
People’s views of themselves. People vary in the emphasis they place on
serving themselves versus serving others.
People’s views of others. More recently, observers have noted a shift
from a ‘me society’ to a ‘we society’ in which more people want to be
with, and serve, others.
People’s views of organisations. People vary in their attitudes towards
corporations, government agencies, trade unions, universities and other
organisations.
People’s views of society. People vary in their attitudes towards their
society: from patriots who defend it, to reformers who want to change it,
to malcontents who want to leave it.
People’s views of nature. People vary in their attitudes towards the
natural world. Some feel ruled by it, others feel in harmony with it and
still others seek to master it.
People’s views of the universe. Finally, people vary in their beliefs about
the origin of the universe and their place in it. Although most Australians
follow a particular set of religious beliefs, religious conviction and
practice have been declining through the years.
Responding to the Marketing Environment

Many companies view the marketing environment as an ‘uncontrollable’

element to which they must adapt. They passively accept the marketing

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environment and do not try to change it. They analyse the environmental forces
and design strategies that will help the company avoid the threats and take
advantage of the opportunities the environment provides.
Other companies take a proactive stance toward the marketing environment.
These firms take aggressive actions to effect the publics and forces in their
marketing environment (e.g. hire lobbyists, stage media events, run advertorials,
press lawsuits and file complaints with regulators).
Marketing cannot always affect environmental forces – in many cases, it must
settle for simply watching and reacting to the environment.

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