Significance of External Environment in Marketing - Research Paper Example

Introduction “The marketing environment consists of external forces that directly or indirectly influence an organization’s acquisition of inputs (human, financial, natural resources and raw materials, and information) and creation of outputs (goods, services or ideas)” (Pride and Ferrell 2008. p 64). Pride and Ferrell (2008) further elaborates to include six such external forces that exert crucial influence not only on the process of marketing of an organisation as such but also on the very disposition of the organisation itself in wider terms. These forces include competitive, economic, political, legal and regulatory, technological and socio cultural (64-90). Different accounts have conceived of these external forces under different terminologies all of which, nevertheless, conceptualise the same phenomenon in different ways. For instance Paliwoda (2003) thinks SLEPT provides a more useful and feasible way of summarising those external forces. SLEPT signifies Social, Legal, Economic, Political and Technological (p 618). However differently produced and presented these accounts offer a more analytical perspective of the macro-environmental factors to be considered in the marketing strategies of an organisation. The emergence, development and existence of this macro-environment is primarily a result of processes and changes that happen outside the organisation and are thereby beyond the limits of its control. In other words an organisation or a firm is inherently located within, and thus influenced considerably by, external forces broadly called as environmental factors which are outside the controlling power of the organisation itself. The institutions and other forces lying outside the existence of the organisation can actually influence the marketing possibilities of its products to the extent these forces have a direct or an indirect interest in the objectives of the organisation. Still further this impact is also depended upon the larger spectrum of different possibilities and impossibilities through which a product in itself is identified and sold through. Although remaining outside the direct or even indirect control of the organisation these external forces need to be taken care of and responded well in the organisational strategies so as to minimize the negative impacts of such influences. Such an accommodation also enables the organisation to address these environmental factors sufficiently to adapt itself and its products to its larger location. An organisation that has a management perspective towards environmental factors adopts aggressive measures towards not only to understand and respond to them but also to affect those larger processes. This paper is a brief attempt towards understanding the components of the macro-environment that marketers need to watch and adapt to when developing marketing plans and strategies. In this process it mainly undertakes a discussion about the four common factors or processes considered to be crucial in determining this external environment, namely, the political and legal, the economic, the socio-cultural and technological. The paper also initiates a discussion about how factors related with the local ecology influence the marketing process of an organisation. The paper is divided into four sections including this introduction. In the next section I shall discuss the significance of considering the external environment in marketing strategies especially in the context of the emergence of the practice of environmental scanning. In the third section a detailed discussion about each of these four components of the macro-environment with respective instances relating to them is undertaken. I shall also consider with equal importance the ecological factors in this section. The third section concludes the discussion. Significance of external environment in marketing The immediate issues that the marketing management has to deal with emerge from within the organisation itself, those typically dealing with the company and the product, which are external to the customers. Nevertheless an analysis of the larger environment, where both the company and the product has to be positioned and located, has to address the intricate and interrelated components of this externality. “Each level [of this external environment] has important implications for marketing, but dealing with the deeper levels of the environment is perhaps a more difficult strategic challenge, due to their increasing breadth and complexity, and their decreasing proximity to the company itself” (Peattie and Charter 2003. p 730). The given fact is that the dynamic and complex environmental factors can cause uncertainties, pose novel threats and create opportunities for the organisation. Pride and Ferrell (2008) shows the instance of the situation created by political uncertainties in the Middle East and the hurricanes in US which eventually led to escalating fuel costs and plummeting prices of sport utility vehicles. While this remained so the situation turned out to be fortuitous for some firms, like Nissan, Honda etc., as a result of people turning towards more fuel efficient vehicles (64-65). The emergence of the concept PEST analysis and later environmental scanning are other reflections of the significance attributed to the external factors in marketing field. Although environmental scanning is a relatively new concept in marketing studies its practice reflects a definite continuum from the early PEST (Political, Economic, Social and Technological) analysis. Environmental scanning includes monitoring, gathering information and analysing the marketing environment of a company for strategic reasons. Environmental scanning provides with a constant monitoring mechanism of a firm’s external environment in order to keep in track with, and thus to respond to, the development of any issue of strategic importance that can have serious consequences on the organisation’s performance (Brownlie 1987; Churchill and Iacobucci 2002; Diffenbach 1983). On a rather simple account the environmental effects on the marketing possibilities of a concern emerge because the environment determines the physical and the imaginary space within which the company as well as its customers exists. They depend for their resources on this environment. In the next section I shall discuss each of the individual components of this macro-environment. Section 3 The Political and legal factors The political and legal realm within which a company operates and markets its products is significant on various respects. The local as well as the global political climate exert deeper influences on the marketing environment to the extent that stability in the local political order and continuity in that order from the global to the local reflects upon the company’s operations. The stability factor is also important as the changing governments may have different priorities and this will invariably be reflected upon their policies and attitudes towards businesses being conducted within their territory. For instance the local political turmoil, quite usual and regular in many developing countries, leaves companies operating in those contexts in complete uncertainty about their very existence. The same case is bound to happen, albeit less intensely, in the case of democratic republics where there is no stability of governance or there is an absence of continuity from the previous government policies. While the larger political context and the history of political activities in a local arena is enough to provide a basic idea in this context these shall be scanned with regard to the micro details in order to understand the possibilities of any political disturbances that may directly or indirectly affect the company’s operations. Another fundamental pre-requisite in this regard pertains to the nature of the very political structure itself and the basic policies followed. For instance countries following pro-liberal policies provide with an environment favourable for conducting businesses as opposed to countries against liberal policies. The political context stays in continuum with the legal realm also as many of the policies and attitudes of the larger local political context are reflected in the local laws. This pertains to the environmental laws, taxation policies, anti-monopoly laws, employment and other labour and wage related laws, laws providing for the safe working conditions, license related laws and procedures, import-export restrictions, laws pertaining to holidays and other leave eligibilities etc. The Economic factors The economic situation of a country has great influence in determining the life conditions of its population as well as their consumption patterns, spending habits and purchasing power. The economic situation also contributes to the existence and expansion possibilities of an organisation. For instance the local interest rates considerably influence the cost of capital thereby determining the extent to which a firm has possibilities to expand and grow. The economic factors include the level of economic growth, the inflation-deflation rates of the local economy, rates of unemployment, the per capita GDP and income levels including the disposable income, business cycles, the local exchange rates and trade balance etc. Thus the economic factors of the marketing environment signify the overall economic situation prevailing within the country including the economic policies followed by the government and the constitution of the capital sector. The economic factors in this context differ from other controllable factors such as the 4 Ps of marketing including product, price, place and promotion. One clear instance on this occasion would be the direct relation between the levels of income and the spending patterns which has a direct influence on the marketing possibilities of a product. The balance of payments, which reflects the net difference between the values of goods bought and sold within the economy, is another major indication in this regard. In order to enhance the possibilities of local producers and marketers enter into certain business fields many governments follow a policy of restricting the entry of foreign business enterprises in that field. Such a policy also helps the local government to reduce the unemployment levels considerably. For example the Mexican government has placed stringent measures to reduce the import of foreign automobiles and part thereby targeting to stimulate the local automobile manufacturers. Similarly in India restrictions are kept in place on importing the raw materials and several products of rubber and oil in order to facilitate the local people who are engaged in the cultivation, development and marketing of these products within the domestic market. The socio-cultural factors The socio-cultural factors of the environment mainly includes the demographic factors, the values, attitudes and customs of the local people, the lifestyles and the social and cultural heterogeneity of the local population, and the local cultural structures. The structure and changes in the local demographic combination in terms of the age distribution, class, religious and ethnic combination, the educational levels and the very size and distribution are important elements of the marketing environment. These elements have direct and indirect influence on the marketability of the products as most products have specificities in terms of their usage and their consumption. For instance the major targeted population for cola products consists of early adult- later adolescent people. Such specificities apply at different levels with different intensities to many products in terms of their consumption by people belonging to different age, religious, and gender categories. The preference for standardised and non-standardised products varies depending upon the educational levels and the level of awareness of the local population. The customs and values are also important in this context since, as in many contexts have occurred, many belief systems frame the attitudes of their followers towards different products differently. For instance the fashion wears that the women mainly in the west use regularly do not have a solid market place in the Middle Eastern countries with a Muslim predominated population as it implements severe restrictions on women’s dressing patterns. Also the common and general attitudes of the local population towards certain products influence the environment considerably. Certain cultural structures such as the diet and nutritional levels and food consumption and habits, the local housing patterns and conditions are also important elements in this regard. The consumption patterns are also further influenced by the age distribution and the density of population. Technological factors Another major aspect of the macro-environment is the technological factor since the state of technological advancement of a country can have deeper impacts on the marketing function of an organisation operating within that country. The major technological factors in this context include the infrastructural facilities available in the forms of road, rail and air transportation facilities, the production and marketing technology available, the availability of a competent distribution network, availability of certain standardised products necessary in the production itself, availability of certain preliminary requirements such as electricity, water etc. The state of technology attained by a society can also determine its consumption patterns and create demands for different and newer products. For instance a society that is technically competent enough has a higher demand for latest electronic products including micro computers and laptops, mobile phones of higher standards, and other similar products. The state of technology can also make certain products out of fashion in the market. For instance clay tiles and asbestos sheets are no more used as widely in many societies that follow the latest construction technology. The efficacy in transporting products from one side of the territory to the other side and the availability of a competent dealer network in all the potential places are other important elements in this context. Without having these pre-requisites the organisation will not be able to satisfy the demands of the customer successfully. On most occasions the organisation may not be either placed in a condition or willing to market their products directly through their own showrooms and might look forward for competent local dealers. Their products are primarily sold through these dealers’ showrooms. Technology has also a greater role in determining the demands for specific products in the areas of agriculture, housing and construction, interior designing etc. With new products replacing the earlier ones there is a constant change occurring in the demand levels. Ecological factors In his observations of the existing models of analysing the macro-environment Capra (1983) suggests that the tradition in marketing theory of following these mechanistic economic models usually dismisses the ecological contexts and the actual physical space within which the business and marketing takes place. Within the sphere of marketing there are mainly to ways of influencing the marketability of a product in this context. The first is in the forms of local ecological concerns influencing the local consumption habits and such concerns influencing the very perception about certain products. The wide campaigning against the consumption of cola drinks in many Third world regions is one instance in this regard. The major allegation against the company is that it pollutes and literally drains the local water resources causing the local farmers wither to struggle for additional resources or go in search of other places. On certain instances the people have changed their major occupation itself shifting from agriculture and cultivation towards other services and wage labour occupations. The use of chemical fertilisers is another instance in this context; that such usage can be hazardous for the local populations’ health and result in irreversible damages for the local ecology have resulted in the banning of several chemical fertilisers in many countries including USA and UK. Conclusion It is obvious from the above discussion that external factors are important determinants of the macro-environment within which the marketing possibilities of an organisation are defined and materialised. The above discussion facilitates an understanding why we need to shift our concentration from the conventional PEST analysis towards a thorough market environmental scanning on order to provide ourselves more accuracy in the analysis of this environment. The above discussion was in no way meant to be an exhaustive nor does it cover all the major elements that influence and play a crucial role in determining the environment of an organisation. Although the factors are clearly categorised under major titles they do not operate independently. They are related with each other in a complicate web of inter relatedness and each of these factors has multiple layers of operation. References Pride, William and O.C. Ferrell, 2008. Marketing. Florence, KY: Cengage Learning. Peattie, Ken and Martin Charter, 2003. “Green Marketing,” in Baker. M. J. ed., The Marketing Book- Fifth edition, New York, London: Butterworth-Heinmann: 610-636. Paliwoda, Stanley J. 2003. “International marketing – the issues,” in Baker. M. J. ed., The Marketing Book- Fifth edition, New York, London: Butterworth-Heinmann: 726-755. Brownlie, D., 1987. “Environmental analysis,” in Baker, M.J. (ed.) The Marketing Book- Forth edition, Oxford: Butterworth-Heinemann. Churchill, G. and Iacobucci, D., 2002. Marketing Research: Methodological Foundations, Mason, OH: South-Western. Diffenbach, J., 1983. “Corporate environmental analysis in large US corporations,” Long Range Planning, 16(3): 107–16. Capra, F. (1983) The Turning Point, Bantam. Read More