CHAPTER FOUR

MARKETING ENVIRONMENT

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

1.      Define marketing environment.

2.      Identify and explain the internal marketing environmental factors.

3.      Identify and explain the external micro marketing environmental factors.

4.      Identify and explain the external macro marketing environmental factors.

MARKETING ENVIRONMENT DEFINED

Marketing organization can be likened to organisms. Like every other organism, marketing firms are created, they have life, they operate in an open environment, and thus depend on other organisms to survive while other organisms also depend on them in order to survive and exist.

Technically, marketing environment refers to anything living within or outside marketing firm, be it a person, institutions, natural or artificial forces, that is capable of influencing the marketing goals, decisions and activities in positive or negative manner.

CLASSIFICATION OF MARKETING ENVIRONMENT

Marketing environment can broadly be classified into two: internal marketing environment and external marketing environment.

THE INTERNAL MARKETING ENVIRONMENT

The internal marketing environment refers to all factors within the marketing firm that can influence the organization goals, decisions, and activities in a positive or negative manner. The marketing manager can control the internal environmental factors to a large extent. The internal marketing environmental factors include the company, management, resources, department, and union. These are explained below.

i.        The company: What distinguish one company from others are basically the company’s name, mission, goals, and products. The company’s name (also called corporate brand) is a major enduring asset of an organization, and often outlast the company’s specific products and facilities. Though it takes time to build a corporate band, careful analysis should be done in selecting business name.

The following guidelines should be followed when selecting the company’s name. The brand name should be easy to pronounce, recognize and remember (the re-branding of First Inland Bank to FinBank in 2008 is a good example); it should suggest something about the product’s benefits and features; it should not contradict the culture (s) of the target market (e.g. Coco Cola was the first name suggested for Coca Cola but because it means ‘anti muhammadin’ in an Arabic dilect, the brand name was modified to meet the company’s global target market); it should be capable of registration (e.g. the name should not be 100% similar to existing brands).

Mission statement of an organization states why the organization exists and what the organization does. Thus, a mission statement is expected to be an enduring statement of purpose that clearly distinguishes one business from related ones. Table 4.1 demonstrates two examples:

Table 4.1:   Selected Mission Statements

BANK NAME	MISSION STATEMENT
United Bank for Africa (UBA)	To be a role model for African business by creating superior value for all our stakeholders, abiding by the utmost professional and ethical standards, and by building an enduring institution.
Fidelity Bank	To make financial services easy and accessible to our customers.

ii.      The management team: This refers to a group of individuals that are assigned with the responsibility of piloting the affairs of an organization on a day-to-day basis. The success of every organization, small or big, depends on the quality of its management team. And the quality of a manager or management team is a reflection of the soundness and effectiveness of his/their decisions. Thus, the antecedents and inclinations of managers should be considered before they are employed because the overall performance of the marketing organization or department depends on their decision. This explains the reason why the managers of ailing organizations are often fired and replaced with managers that have succeeded in other companies.

iii.    The resources: This refers to all human and material inputs of a marketing firm/department. Human resource has to do with the quality of the marketing employees. How knowledgeable and skillful are the marketing employees such as strategists, salespeople and agents? Are they up-to-date in terms of computer literacy? Are they highly motivated by the organization? A knowledgeable and motivated employee is likely to perform better than an employee that is not motivated.

Material resources refer to office paraphernalia, capital/equity and cash reserves. A company with very high equity can explore business opportunities faster than its competitors in the same industry. For example, after issuing initial public offer in March, 2008 DAAR Communication Plc (owners of AIT and Ray Power) was able to beef up her capital base which it invested in latest technologies and staff acquisition, training and development. The company was able to convert from analogue media to full digital media in 2008, being the first broadcasting media to beat 2011 deadline set for all media companies operating in Nigeria to convert to full digital broadcasting. This made DAAR Communication to be considered by FIFA to broadcast the 2009 Under 17 World Cup hosted by Nigeria.

iv.    The employees and their unions: This refers to workers unions within the organization. How effective is the union and to what extent can the union’s actions or inactions hamper the marketing organization or department’s performance or damage its image? The marketing firm should at all time contain the actions of the worker’s union through dialogue to avoid work stoppages through picketing and strike.

v.      The departments: The marketing department and other functional areas within an organization such as research and development, production, personnel, and finance must work in harmony if marketing goals and that of the organization must be realized. The activities of any of these departments can affect marketing performance positively or negatively. For example, marketers can hardly sale a defective products produced by the production department.  Thus, all the departments within an organization should be supportive of one another so as to create a synergy. When there is synergy, the whole is said to be greater than the sum of its parts (e.g. 2+3=10 or 2x5>2+5).

vi.    The marketing mix: This refers to the 7Ps of marketing, namely product, price, place, promotion, people, physical evidence, and process. The 7Ps are set of tools employ by marketers to influence customer behavior.   

THE EXTERNAL MARKETING ENVIRONMENT

The external marketing environment refers to all factors outside the marketing organization that can influence its goals, decisions, and activities in a positive or negative manner. The corporate manager  cannot control external environmental factors but can adapt to them. The external marketing environmental factors can further be categorized into two groups: micro environment and macro environment.

i.        Micro environment

The micro environment consists of factors that affect company marketing operations on day-to-day basis.  Compare to macro environmental factors, marketing firms or departments interact regularly with the micro environmental factors. The micro environmental factors include the suppliers, customers, competitors, shareholders, creditors and local community. These are explained below.

a.      Suppliers: This refers to business organizations from whom the company buys her raw materials for production, stationery for writing, and diesel for lightening, etc. Marketers must create and build good relationships with the suppliers. This is because supply or raw material shortages either through hoarding or strike can cause production stoppage in the short run and damage the company reputation in the long run.

b.      Customers: People are in business because of consumers. With intense competition among businesses, customers have become kings and must always be treated as such. Thus, marketers’ marketing efforts must be geared toward satisfying and building strong relationship with the consumers. Marketers should always bear in mind that a dissatisfied consumer may not only defect or switch to competitors’ product, but he/she is likely to ‘bad-mouth’ or spray negative statements about the company that will further discourage many customers from buying the company’s product.

Five types of customer markets exist. The consumer market is made up of individuals and households that buy goods and services for consumption. The business market is made up of companies that buy goods for further processing into final product. The reseller market is made up of wholesalers and retailers that purchase goods and services for resale at a profit. The government market consists of government agencies that buy goods and services to provide public service. The international market consists of individual, business, reseller, and government buyers in foreign countries. Marketers must watch each of these markets for opportunities.

c.       Competitors: These are business organizations that produce and sell similar goods and services like a given company. Because of the close similarities in the goods or services produced, the companies use same supplier/inputs and target same customers. This generates competition among companies. To beat competition, marketers must seek competitive intelligence in order to gain competitive advantage. Competitive intelligence involves gathering adequate information about all competitors and consumers. The competitors’ market share, pricing, promotion, product development, and distribution strategies should be analyzed by a rival company so as to counter attack with more effective or aggressive strategies. On the other hand, information about the needs, taste, preferences, sex, age, religion, and culture of the consumers, etc. can assist a company in tailoring its goods and services toward satisfying and delighting the consumers better than its competitors.

To mitigate the unfavourable effects of competition, especially by large corporations on the small companies, there is now a paradigm shift towards ‘co-opetition’. By co-opetition, two or more companies doing business in the same industry cooperate and compete with each other simultaneously. That is, two or more independent companies usually form alliance and cooperate together in some identified business activities, but they still compete in other areas not covered by alliance. The advantages that accrue to companies that opt for co-opetition is usually greater than the benefits derived by companies that either embrace co-operation or competition strategies separately.     

d.      Shareholders: These are owners of a marketing firm or the organization in which a marketing department exists. Shareholders are basically interested in dividends, and capital gains from price appreciation in the stock market. When dividends are not declared, the shareholders may become uninterested in the company and will sell their shares in the stock market. This action will certainly cause prices of the company’s stock to fall in the stock market thereby scaring away potential investors from investing in the company.

e.       Creditors: These are business organizations that supply the company with goods on credit. It also comprises individuals and financial institutions that advance loans to a marketing firm. It is important for marketers to establish good relationships with their creditors by settling their debts as and when due. Failure of a marketing firm or department to meet her financial obligation may result in denial of credit facilities and even litigations.

f.        Local community: This represents the marketing firm’s immediate physical environment. Companies can damage the quality of their immediate environment through pollution; they can also cause other negative externalities such as cacophonies. All these can provoke the local community into taking actions that may not be in the good interest of the company. Thus, companies should be socially responsible by recruiting some of their employees from the local community, and sponsoring local community development projects. By being socially responsible, the local community will see the company as theirs and will be ready to protect it instead of attacking it.

ii.      Macro environment

Macro environment can be described as the larger societal factors or forces that affect the marketing goals, decisions and activities. The larger macro environmental factors can shape business opportunities and pose threat to a marketing firm. It is of great importance to note that while the micro environmental actors can be identified, analyzed and interpreted for appropriate decision by all management levels, the macro environmental forces can only be adequately analyzed and interpreted for appropriate decision making by the top management. This is because changes in the macro environmental forces may require the alteration of the entire organization goals, and this is within the realm of top management.

The macro environmental forces include political, economic, socio-cultural, technological, legal, ecological, natural, and demographic forces (PESTLEND). These factors are explained below. 

a.      Political forces: Political stability of a given country is very critical to the success of business enterprises. This is because frequent changes in government could mean inconsistencies in government policies, which can hamper organizations’ long-term marketing goals. For example, the privatization and commercialization policies of Babangida’s administration was discontinued by Abacha’s administration between 1993 and 1998. The policy was reinvigorated by the Abdulsalami’s regime and subsequently inherited by Obasanjo’s democratic administration. The privatization exercise presented opportunity to some local companies to diversify or expand their businesses through friendly acquisition of state-owned-enterprises. To exemplify, Dangote Company diversify into cement production when it acquired Benue Cement Company Plc in 1990’s.  Ocean and Oil Nigerian Plc expanded her oil business when it acquired Unipetrol Nigeria Plc. However, the sale of one of the state owned petroleum refineries to Dangote groups in 2007 by Obasanjo’s administration was revoked in the same year by Yar’Adua’s administration. This spells how devastating change in government could be. Furthermore, foreign direct investment in Nigeria were adversely affected during Late President Yar’Adua’s hospitalization in Saudi-Arabia for fears of change in government. Similarly, when the All Progressive Congress’s candidate, General Muhammadu Buhari won presidential election and assume power in Nigeria in May 2015, new economic policies were introduced which affected some companies positively, and others negatively. Companies importing goods into the country were adversely affected due to withdrawal of waiver of import duties and banning importation of certain goods that could be produced in Nigeria. However, the allocation of 30 percent of the 2016 budget to capital project as against 10 percent under PDP government could create 20 percent more jobs for construction companies in the private sector and unemployed youths.      

b.      Economic conditions/environment: This refers to macro-economic variables such as tax rates, inflation rate, interest rates, employment levels, etc. Each of these variables could either present business opportunities or threat for marketing firms or companies’ marketing department, thus the need for their continuous monitoring.

Economic cycles can also affect a firm’s marketing activities positively or negatively. During economic boom, factors of production including labour are fully employed, hence consumers earn enough incomes to buy goods and services. The reverse is the case during recession. 

c.       Socio-cultural environment: Socio-cultural issues have to do with values, norms and beliefs that shape people’s perceptions, behaviuor and decisions about the world in which they live. Culture can simply be described as a way of life of a group of people: how they dress, eat, greet, worship, welcome and celebrate the birth, mourn and bury the death, conduct marriage, etc. All these variables have a lot of implication for companies. First, the business name, product and general operations must be in consonance with the culture of the host community and target market. Second, is the fact that some cultural values, called core values, are static and not open to change, for example, getting married, burying the death, working, worshipping, etc. Hence, businesses must identify and adapt their products and services to the core values of their target markets.

d.      Technological environment: Technology is fast changing. Many products we use today were not available few decades ago. Abubakar Tafawa Balewa did not use ATM to withdraw in banks in 60’s, neither did Obafemi Awolowo use GSM cell phones to make calls in Nigeria or use internet to send mails to political and business associates in 80’s. Companies that use latest technologies to carry out production are likely to produce better products, enjoy economies of scale, and thus gain competitive advantage above its competitors that stick to old and outdated technologies. Of importance to note is that new technologies create new markets, new business segments, and reduce production/operation cost. However, technology can push an existing successful business out of market. Remember how Micro-Soft Computers made the popular IBM Company unpopular. Also remember how AIT is making the popular NTA unpopular in Nigeria, and how MTN, Glo, and Zain have made the popular NITEL unpopular.

e.       Legal forces: The legal forces are concerned with various laws that affect businesses. The law dictates how marketing activities can be conducted in a given country. Marketers must be conversant with the legal system as it affects marketing conducts and the entire company so as to avoid outright closure of their businesses and arrest of the marketers by the law enforcement agencies. There are several laws – consumer protection law, packaging and branding laws, promotion laws - put in place for marketers to abide by.

f.        Ecological forces: Production and marketing activities have, overtime, affected the environment negatively in terms of environmental pollution (air, water, and land), ozone depletion, global warming, solid waste, and human diseases with their attendant consequences like flood, earthquakes, colossal death of sea and land animals, blockage of drainage or sewage systems, and lost of many lives to man-caused natural disasters and diseases such as cancer and diabetes. Therefore, ecological forces of marketing are concerned with how to protect man’s environment through marketing activities and how not to allow marketing activities to destroy man’s environment. In other words, the need to use new marketing strategies like phosphate free, sugar free, refillable bottles, recyclable packaging, ozone friendly, environmentally friendly/harmless, and green ingredients, etc. to either eliminate or minimize the negativities of marketing activities on the environment (atmosphere, land, sea, animals, and people). The alternative names for ecological forces are green forces/marketing and environmental marketing.                       

g.      Natural environment: This refers to all natural resources in the oceans, atmosphere, and land. Some of these natural resources are renewable while many are non-renewable. Examples of the renewable resources are forest trees, fishes and agricultural raw materials. Resources such as air, oil, quarry, water, etc are non-renewable. It is a fact that the world natural resources are drying up because of man’s action, mainly production activities. Large industries emit a lot of smoke into the atmosphere, reduce the quality of the air and destroy lives, cause global warming which is partly blamed for the shrinking of the world raining season and global food scarcity in 2007/2008. They also pollute the water and destroy the aquariums there by depriving the local communities’ source of livelihood. A case at hand is the throwing of the people of Niger Delta into abject poverty because their land is destroyed by air and water pollution by Multinational oil companies.

In Nigeria, one of the booming businesses is the Pure or Packaged Water business, and the source of their water is mainly boreholes. Of great concern is that when many boreholes are drilled in a given area, they cause the drying up of underground water and subsequently deprive all well users with daily needed water. Some geologists attributed the collapse of many buildings in Nigeria to the drying up of the underground water. As an advisory note, it is important for companies to use non-renewable resources wisely. Companies can jointly sponsor replacement projects of the renewable resources for the benefit of the generations unborn. Concisely, marketers must imbibe the societal marketing concept.

h.      Demographic forces: By definition, demography is the statistical study of human population and its distribution characteristics in terms of size, density, location, age, gender, race, religion, and occupation. The demographic forces are important to companies and their marketing units because they involve people who make up the market. Nigeria is the tenth most populated country in the world, and first in Africa. Perhaps this is the reason behind the rush by the Newly Developed Countries (NDC) such as China, Taiwan, India, and other tiger nations into the Nigerian market. Since Nigeria population is estimated to be growing at 3 million persons per annum, it means that the Nigerian market is also growing rapidly. The high population growth presents greater market opportunities for small and large companies. However, it is not the size of the population that actually constitutes a market but rather the purchasing power of the people. Hague-Rahman (2007:1) describes the demography of Nigeria as:

 Nigeria, with its young democracy, a population of 125 million people (now over 140 million) made up of 250 ethnic groups, diverse languages and religious faiths, faces enormous challenges today. As one of the 20 poorest countries in the world, Nigeria has to put up with a worsening poverty situation particularly among the rural communities. About 72% of the population is now classified as poor and more than 35% of the population is living below the US$ 1 per day poverty level. Poverty is particularly widespread in rural areas where 40% of the rural population live below the poverty line.

More than 50% of the population do not have access to safe water and 10% of the population (or 12 million people) are undernourished. Thirty five percent of children under 5 years old are underweight and 42% are stunted compared to 30% and 41% respectively in sub-Sahara Africa. The problems of malnutrition are compounded as more than 5% of the rural population are affected by HIV/AIDS and more that 50 million Nigerians suffer from a combination of protein energy malnutrition, Vitamin A deficiency, iron deficiency anemia and iodine deficiency diseases. The majority of these are women and children. Currently, the incidence of poverty is 58% in female-headed households, more than double the level of 27% recorded in 1980.

A critical assessment of the described demography of Nigeria reveals many market opportunities. For example, as much as 60-70 million people in Nigeria needs safe drinkable water and protein, vitamins, iron and iodine. Perhaps, this explains the reason why Peak Milk claims to be fortified with 28 vitamins and minerals; Cowbell also claims to be fortified with 28 vitamins and minerals; Indomie is branded as “tasty nutrition, good for your body” and rich in vitamin A (good for eyes), vitamin B (good for brain), protein (good for kidney), and calcium (good for bones).

 

STABILITY OF THE MARKETING ENVIRONMENT

The stability of environment in which enterprises operate exists in different degrees.

1.      Stable environment: This is a marketing environment in which various forces of economic, technology, law, and culture remain stable from year to year.

2.      Slowly evolving environment: This is a slowly evolving marketing environment in which smooth and fairly predictable changes take place.

3.      Turbulent environment: A marketing environment in which major and unpredictable changes occur often.

4.      Complex environment: A marketing environment that could be stable, slow evolving, or turbulent.

Relationship between Controllable and Uncontrollable Variables

The relationships existing between controllable and uncontrollable variables are explained below:

1.      The controllable variables (employee, company resources, the management team, departments and marketing mix) can be manipulated by the company. In contrast, the uncontrollable variables cannot be manipulated the company or marketers. Therefore, companies and marketers are expected to use the controllable variable to study and understand the uncontrollable variables, and then adapt to them (i.e. the uncontrollable variables).

2.      The controllable variables are areas where the company may have strengths and weaknesses. The uncontrollable variables represent either opportunities or threat to the organizations. Therefore, companies and marketers must carry out SWOT analysis in order to match company’s strength with environmental opportunities, and decrease the company weaknesses in the face of environmental threats.  

ENVIRONMENTAL/SCOT ANALYSIS

Environmental analysis is a strategic tool used by marketers to identify and evaluate external and internal organizational factors that influence the organizational goals, activities as well as survival and growth strategies. Environmental analysis can also be regarded as the process of evaluating all external and internal elements that can affect the performance of the organization, and evaluating the level of threats or opportunities from the external elements, and weaknesses/challenges or strengths from the internal elements. Environmental analysis is a times called SWOT or SCOT analysis.   

SWOT/SCOT

SWOT or SCOT is an acronym for Strengths, Weaknesses or Challenges, Opportunities, and Threats.  SW or SC is related to the internal environment, while OT is related to the external environment. SWOT or SCOT is the outcome of environmental analysis.

SELF-ASSESSMENT QUESTIONS

1.      “Marketing firms do not operate in vacuum.” Illuminate.

2.      Discuss the extent to which the internal environmental factors can shape the decision and destiny of marketing organizations.

3.      Your company’s manager felt that since it is impossible to control the external environmental factors, the company should turn a blind eye on them. As a marketing manager, discuss the appropriateness or otherwise of this decision on the marketing department and entire organization. (2010 Exam Question, IBBUL).

4.      With relevant examples, explain the following:

a. stable marketing environment;

b. turbulent marketing environment.