Everything you need to know about the factors affecting marketing environment.
Marketing environment is a study of all the external atmosphere of the organization affecting all the internal factors within the organization which ultimately requires attention of the Marketing management for sound decision making in the long run as well as short period.
Philip Kotler- “A Marketing Environment consists of forces external to the marketing managements function of the firm that affects the marketing management’s ability to develop and maintain successful transactions with its target customers.”
The factors affecting marketing environment can be studied under the following heads:-
A. Global Environment- 1. Regional Trading Blocs 2. Technological Advances 3. Shift from Communism to Free-Market Economy 4. Globalization of Markets B. Domestic Environment- 1. Political Issues 2. Sociological Issues 3. Economic Environment 4. Natural Forces
Some of the other factors affecting marketing environment are:-
A. Social and Cultural Influences- 1. Demographic Factors 2. Cultural Factors 3. Technological Influences 4. Economic Environment 5. Political and Legal Environment B. Micro Environment- 1. Internal Factors 2. Influence of Other Groups C. Macro Environment- 1. Economic Environment 2. Demographic Environment 3. Socio-Cultural Environment 4. Political and Legal Environment 5. Technological Environment.
Factors Affecting Market Environment: Global Environment, Domestic Environment, Socio and Cultural Influences and a Few Others
Factors Affecting Marketing Environment – 4 Major Factors
The major environmental factors affecting marketers are the following:
1. The Global Environment:
i. Regional Trading Blocs:
It is becoming apparent that nations can gain greater advantages through alliances with each other for increased trade. A number of countries are giving up their concept of self-reliance or bilateral trade agreements to join trading blocs comprising a large number of countries.
The notable ones are the European Community (EC-92), Association of South East Asian Nations (ASEAN), and North American Free Trade Association (NAFTA). The triad of Europe, Japan and the United States dominates the world economy today. However, most countries in the world participate in some type of trade bloc extracted from Papadopoulos (1992).
Marketers should develop a good understanding of the trade blocs before they develop marketing strategies for them. They should understand the taxation, political and legal systems and also regulations on advertising, product standards and distribution. The requirement of ISO 9000 certification for entering the EC market is a notable example. Environmental protection and intellectual properties rights are other issues that need due attention.
ii. Technological Advances:
Advances in technology have changed the way business used to be conducted. The most significant development is advancement in electronics, leading to computerization of every aspect of business. Computerization of rail reservations, banking, scheduling, inventory, pay-roll, accounting and production has greatly facilitated business.
Another interesting development is the availability of databases. We have databases covering a large number of areas, including product market, import-export, companies, art, science and medicine. Any information can be obtained with the press of a button. Computers have made the task of searching and scanning much lighter and speedier.
A customer can sit in front of a computer terminal and design his own car or fridge and get it fabricated and delivered to his house on the same day, thanks to flexible automation. Consider the example of Japan’s National Bicycle Industrial Company Dealers fax National a set of specifications based on a customer’s requirements for model, color, components and personal measurements.
Computers take in and process the specifications and print out custom blueprints from which the customer’s bicycle is created out of cut-to-fit and common parts. There are 11 million combinations possible of various parts to create a bicycle. Robots do most of the welding and painting while skilled workers complete the assembly work, including silk-screening of the customer’s name onto the frame. Within a day this one-of-a-kind bicycle is finished, packed, and ready for shipment.
Home-shopping through online services and the internet are already in vogue in developed countries. Even cable networks have been offering home-shopping services. Currently, efforts are on to develop remote shopping using virtual reality. It uses computer-generated three-dimensional images and a variety of instruments to create the illusion that its user is wandering through a store.
Interactive video monitors are being tested to enable consumers to give specifications for custom products and also to order products currently not in stock. Intelligent labels that can be updated seven days a week and 24 hours a day that could help retailers cross-sell and up-sell merchandise are also entering the market.
The following example illustrates the extent to which service companies customize their services to build individual relationships through information technology (IT). If you check into any Ritz-Carlton hotel anywhere in the world, you will be greeted not only by the doorman but also by a number of small, pleasant surprises.
The hotel does not ask the name of your employer, your home address, whether you want a non-smoking room, or if you prefer a non-allergenic pillow. All of this information would have been recorded during your previous visit to Ritz-Carlton.
To your delight, the desk clerk greets you by name when you phone for a morning wake-up call and asks if you will, as usual, prefer breakfast in your room. When you awaken the next day, your favorite newspaper, The Wall Street Journal, is outside your door. Indeed, you sense that the hotel staff is somehow able to anticipate and respond to your every need, providing you with a feeling of satisfaction that comes from being among people who care about you as an individual. ‘Why would I ever stay anywhere else?’ you wonder.
Ritz-Carlton tries to deliver exactly what each and every individual customer wants. It has a planned strategy that embodies a management system that combines focus on individual customer’s needs, IT, flexible processes, empowered employees and continuous learning about customers’ needs by observing them over time.
In fact, the staff at Ritz-Carlton discreetly records on small pads of paper the unique habits, preferences and dislikes of each of its guests. This information is then transferred into a corporate-wide ‘guest-history database’ which is used to service customers during their successive visits.
Advances in telecommunication and IT have reduced the barriers of time and place for business. Companies have dedicated satellites across the globe to pass information from one division to another. A company like American Express, which has the largest number of credit cards in circulation, claims that they could service customers in any part of the globe within eight hours, thanks to satellite communication.
Improvements in optical fiber technology, video-phone and tele-conferencing facilities are likely to make air travel across the globe redundant. It is possible for customers and suppliers to transact business anytime from any part of the globe.
Research on superconductivity, bio-technology and ceramic material are likely to bring about major improvements in the quality of life. Already, advances in electronics are resulting in market egalitarianism.
Luxury and comfort are now within the reach of even the common man with the development of a number of smart products -‘… intelligent washing machines, microwaves, cameras, camcorders, automobiles. Toss a load of clothes into a fuzzy washer and press start, and the machine begins to churn, automatically choosing the best cycle. Place chili, potatoes, or lasagna in – a fuzzy microwave and push a single button, and it cooks for the right time at the proper temperature…’
There are ‘smart toilets’ available in Japan that have bidets that spray warm water, and gadgets that blow warm air to dry and also dispense scent. According to Davis and Davidson (1991) new models in the field of medicine analyze urine and measure body temperature, weight, blood pressure and the pulse rate.
From the examples discussed so far, we see that consumers select from a confusing array of new and increasingly complex products, and they complain because of inadequate product service and a high rate of product obsolescence. A decade ago, possessing a black and white television was considered a status symbol. Today the color television has become a necessary item. Cooking used to be a simple affair for our grandmothers.
The modern kitchen is full of gadgets like gas stove, pressure cooker, electric mixer, electric grinder, microwave oven and water filter. Imagine the effect on the lifestyles of modern housewives if these items were to be banned due to change in government policies!
As technology changes, consumers, competition and markets change. Technology also directly affects companies by the way of new methods, tools, and techniques for marketing management, and impacts marketing decision areas including new products, pricing, distribution and promotion.
India is not far behind, considering some of the new developments. The following attempt by Pond’s is a case in point. Pond’s has launched its interactive cell under the name of Pond’s Institute which offers makeup advice through interactive touch-screen kiosks and through a telephone helpline. Pond’s consumers will also be able to access advice through a 24-hour web-site, (www(dot)pondsinstitute-india(dot)com).
According to a Ponds’ spokesperson, Pond’s is using technology innovatively as a marketing communication tool to contact the consumer directly at the retail level. The centre provides, informs, guides and advises customers on the various aspects of beauty skin care.
Let us look at some examples of the effect of technology on marketing mix decisions. With the advent of automatic teller machines (ATMs), banking can be done literally any time of the day or night. Already, some Indian banks have introduced ATMs at a few branches.
Thanks to the AIDS (Acquired Immune Deficiency Syndrome) scare, today we have disposable thermometers, disposable syringes and so on. The use of one razor set for the entire life-time too is gone with disposable razors coming in. We even have disposable cameras and disposable cigarette lighters in the market.
Vending machines sell milk these days. Milk is also available in tetra-packs where it can be preserved for many days. One can make soda or soda drinks at home with the soda machine. This incidentally, cuts cost on bottling and distributing and, at the same time, involves the customer in the end stages of manufacture, which should probably improve consumption.
Companies that are proactive are able to anticipate technological changes likely to affect their operations and have the advantage of being the first to pass on any benefits arising out of new technologies to consumers. Companies that are caught napping find that the competition has walked away with a sizeable chunk of the market with their new high-tech products. Metal Box Company, makers of tin containers, faced such a situation.
While they were happy supplying tin containers, the packaging industry moved to plastic containers and tetra-packs, thereby eroding the market for tin containers. Another company that got into trouble was the Gramophone Company of India which sells gramophone records under the trade name, His Master’s Voice (HMV).
As HMVs expertise was restricted to gramophone records, the company took quite some time to fight back when the market switched to cassettes. It was a different ball-game altogether for the company, fighting pirated cassettes with lower prices.
iii. Shift from Communism to Free-Market Economy:
As is evident with the disintegration of the USSR, countries the world over are giving up their socialistic and Marxist ideologies in favor of free market economy and private enterprises. The result has been privatization of the public sector, less regulation of most industries, and development of pro-competitive policies to encourage innovation and efficiency in different sectors of the economy. This has led to the birth of a global market.
Countries that had earlier talked about ‘self-reliance’ are giving up their ideals in favor of a market-driven economy. The days when foreign investments were unwelcome are gone. Countries are vying with each other to woo multinationals to invest in them by offering tax benefits and other incentives. There are no entry or exit barriers for global companies. There are no restrictions on the amount of money that can be repatriated. There are no foreign exchange regulations to harass the multinational companies.
In this changed scenario, countries can no longer take shelter under bi-lateral trade agreements and political alliances to keep up their export earnings. This has been proved in the case of Indian exports to Russia. All those who operated under the protection of the rupee—rouble exchange system, are finding it difficult to compete in the hot-currency market. They have to become globally competitive if they have to win back the Russian market.
Public sector units are purported to be white elephants—inefficient and lacking profit orientation. On the other hand, privatization is projected as a cure for most of the evils and inefficiencies of society. However, privatization is not without problems. With the privatization move initiated by the government, greedy exploiters have started entering every sector. Prices of basic services like health, education, etc., have skyrocketed.
Nevertheless, there is a shift from communism and socialism to free market.
iv. Globalization of Markets:
With the flow of products/services, people, money and information across countries without much interference by governments, more and more companies are going global. With global sourcing and global markets, companies are able to gain competitive advantage over other companies. Most of the sports shoes sold in Europe, bearing American brand names, are actually manufactured in Taiwan.
The one hundred per cent American car, made by General Motors and bearing the label ‘Made in America’, has most of its parts sourced from various parts of the globe. For example, Sundaram Fasteners supplies radiator caps to General Motors.
Satellite television and other information systems have made us all global citizens. The whole world is becoming one market. If any country tries to control the flow of goods from one country to another, the goods find entry through the grey market. An example of this is the number of smuggled watches and other electronic gadgets sold in India.
Thus, in a sense, it can be said that when a country relaxes many rules and regulations, it simply means that it has reached a stage where it cannot control anymore and hence the decontrolling process.
Companies can no longer expect to get protection from the government. Whether they like it or not, they will have to incorporate the global perspective, i.e. global competition and sourcing, in their strategic and operational planning processes.
The following excerpt, from the article on globalization by Theodore Levitt (1993), clearly brings out the need for incorporating the global perspective in strategy formulation – ‘(The new commercial reality) is the emergence of global markets for standardized consumer products on a previously unimagined scale of magnitude. Corporations geared to this new reality benefit from enormous economies of scale in production, marketing and management. By translating these benefits into reduced world prices, they can decimate competitors that still live in the disabling grip of old assumptions about how the world works.’
2. The Domestic Environment:
Due to the changes in the global environment, India has also got into the change spiral and is periodically spinning out shocks and surprises for business and industry.
The major factors to be considered by marketers are given below:
i. Political issues
ii. Sociological issues
iii. Economic factors
iv. Natural forces.
i. Political Issues:
The Indian governmental objectives include – (i) equitably distributing essential commodities at an affordable price to consumers, (ii) maintaining a healthy competition within the business system, and (iii) preventing deceptive and fraudulent marketing practices. In India a majority of services and basic industries come within the ambit of the public sector. The private sector, which is considered to be catering to only the urban rich, has always been treated as evil and in need of regulation.
Theoretically, regulations exist to protect companies from each other, to protect the consumer and to protect the society from the actions of business enterprises. While we shall look at some of the acts in force in India, for a detailed discussion on these issues see Rao (1988).
The Industries Development and Regulation (IDR) Act has been the framework of the government’s industrial policy in India. Various rules and regulations have been developed from the IDR Act which have placed restrictions on capacity, product mix, brand names, location, technology, labor intensity, types of machinery, etc. Since 1982 there has been a relaxation of many of these regulations. Domestic and international competition have been selectively allowed.
The Indian Patents Act was introduced with the twin objectives of – (i) encouraging inventions in general, and (ii) promoting inventions on a commercial scale to benefit industry.
The Foreign Exchange Regulation Act (FERA) is another act that had set severe limitations on companies in terms of their portfolio of products and use of their marketing and other resources to the full. The situation, now, has changed due to relaxation of rules.
Trademark laws are intended to protect property rights of names that the owner has established in the consumer’s mind. In India it is a criminal offense to copy someone else’s trademark.
Packaging of products is regulated by the Standard Weights and Measures Act and the Packaged Commodities Regulation Act. The first enforces the metric system of weights and measures and sets standards and penalties for non-compliance and means for enforcement.
The latter requires that all consumer products show on their package (as ultimately sold to the consumer) the date of manufacture and in some cases the date of expiry; the maximum retail price excluding local taxes; the net content, and the name and address of the manufacturer.
Food products in India are covered by a number of acts – Vegetable Oils Products Order covering oils and fats, Prevention of Food Adulteration Act, Fruit Products Order covering canned and bottled fruit products, and the Drugs and Cosmetics Act.
In the case of textiles there are a number of acts and measures. One of them requires textile mills to print the composition of the fabric on the selvedge.
In India most of the products are levied varying rates of sales taxes, octroi, excise duty, entry tax and so on. All these make it difficult to maintain the retail price which is paid by the consumer. Many of the consumer durable items like color TVs, refrigerators, etc., are classified as luxury items and are subjected to heavy taxes. Hence their prices are substantially higher than in many other countries.
The other type of regulation that affects pricing is price control. This has been evident over the years in the case of sugar, paper, cement, steel, fertilizers and other essential commodities in India. Dual pricing is followed to help the economically disadvantaged section of the population. The Essential Commodities Act and the Monopolies and Restrictive Trade Practices (MRTP) Act, and their resultant rules and procedures place a number of restrictions and regulations which affect marketing decisions on distribution.
The Prize Competitions Act does not permit lotteries, or games of chance to be run for product promotion. The Drugs and Magic Remedies Act prohibits the advertisement of remedies for certain diseases like asthma and venereal diseases, and disallows exaggerated claims made for the performance of medicines.
The Consumer Protection Act of 1986 defines the rights of the consumer in relation to the manufacturer and the trade. A consumer may get his defective goods replaced or price refunded or secure compensation for any loss if he proves that his purchase arose out of an unfair trade practice by the trader or manufacturer.
With the far-reaching and fundamental changes initiated by the government in the areas of industrial policy, fiscal and financial policies, exchange and trade policies, and with the abolition of unnecessary controls and the opening up of the economy, the Indian industry is passing through a period of massive change, transition and adjustments.
For the first time, the industry is sensing global opportunities and planning for quality improvement and exports. At the same time, a number of companies that thrived under protectionism are getting exposed to global competition, and are not able to cope with the demands of the new economic order.
Indian entrepreneurs who have got used to the protection offered by industrial licensing, government determined capacities of production, price controls, restrictive monopoly rules and a sellers’ market are finding it difficult to adjust to the large-scale delicensing, price deregulation for key sectors, opening up of areas which were banned for the private sector and an open invitation to foreign investment.
Companies that had diversified into unrelated areas, just because licenses were available, are facing problems from various quarters. Companies having uneconomical plant sizes are at a disadvantage compared to plants operating on a global scale.
In order to survive the onslaught of global competition, a number of Indian companies are tying up with foreign companies for upgrading their technical know-how. There may soon be a number of tie-ups for marketing Indian products in other countries as well. For example, Tata Tea has tied up with Tetleys to market its tea globally.
Industry and government are related to each other in many ways, and this condition is unlikely to change. This is largely due to the powerful role of numerous regulatory agencies as well as a public mood that is anti-big business and therefore supportive of new legislative efforts to regulate it.
Hence, every company should also have its own code of ethics and have the broader societal objectives in mind, and not violate related rules and regulations. Companies also need to forecast changes in the government, its mood and its policies. so that they do not get taken by surprise.
ii. Sociological Issues:
The social environment affects the functioning of virtually everything in a society, and sets its priorities as well as the directions of change. The major change that affect marketers include – (i) changing population characteristics (demographic and socio-economic), (ii) changing consumer values and lifestyles, and (iii) social issues such as consumerism. Many companies invest a lot of money on research to understand these changes so that they can forecast the impact of each one on their marketing operations.
a. Changing Population Characteristics:
Changing population characteristics, such as income, education and age levels, geographic distribution, and population growth affect the demand for products and services. In terms of numbers India is the largest market among non-communist countries and the second largest in the world, the largest being China.
Interestingly, the Indian middle class is increasing at a rapid rate. Currently it is estimated that 200 to 250 million people in India fall under this category.
b. Changing Consumer Values and Lifestyles:
There is a marked change in the values and lifestyles of the younger generation as compared to the older. The older generation was brought up in a shortage economy with low disposable income. They believe in hard work and that rewards come slowly in life. Hence, they are quite cautious about the way they spend their hard-earned money. In their purchases they expect value for money. Self-indulgence is considered a sin. Living on borrowed money is considered shameful.
However, the younger generation of Indians has grown up in a relatively progressive economy with rising household income. Increased purchasing power in younger hands, coupled with the broadening of the market for consumer goods and services, has transformed the scene. This generation is more status conscious and wants to enjoy life to the maximum. Over and above the functional benefits of products, purchases are becoming more a form of self-expression and identity. There is a gradual shift from drift to credit.
Due to a number of hire-purchase schemes introduced in India by financial institutions and manufacturers, more and more people are going for credit purchases.
Major shifts are taking place in rural India with the advent of TV. The rural population has started to emulate its urban counterpart. Already toothpaste, talcum powder, etc., have entered; the rural market in a big way, and a large potential still remains untapped. Thus, there has been a change from a fatalistic attitude of the people to a materialistic one.
Though bride-burning continues to occupy the headlines of newspapers, a silent revolution is taking place, especially in the urban middle-class families. There is a change from the husband-dominated family and society to a greater role for women and their equality with men. It has also become a necessity for the middle-class women to work in order to maintain the standard of living.
c. Social Issues:
Social issues arise out of concern for product quality and safety, planned obsolescence, wasteful and deceptive packaging, product differentiation and warranties. The promotion of a product can be questioned for a number of factors – questionable personal selling techniques, deceptive advertising, cost of advertising, promotion directed to vulnerable groups (such as children and lesser educated consumers), and use of advertising to foster ‘unreal’ perceived differences between products.
Distribution decisions raise social issues about the level of service, especially in fair-price shops for the economically disadvantaged. Pricing decisions have historically been circumscribed by laws dealing with hoarding and unfair price discrimination. Another issue is of the methods of marketing research, which has been challenged in western countries as an invasion of privacy.
But the consumer movement in India has not become strong enough to challenge corporate giants. Nevertheless social issues, often transmitted via news media, or consumer movements, can exert pressure on the government, which may eventually bring about laws to protect the consumer. In this process the social environment ultimately also determines the role of marketing within society.
The social forces arising from specific issues are often powerful. The rise of consumer issues has typically resulted from a broadening gap between consumer perception of and consumer expectation from the market-place. The Consumer Protection Act (COPRA) 1986 has brought about a certain level of awareness about the rights of consumers. The following case illustrates how people have started taking advantage of consumer courts.
Madhu Ben in Kalol district of Gujarat went to the consumer court saying that LIC (Life Insurance Corporation) was not paying the full amount for the double benefit policy, for which she was a nominee, after the death of her husband. Her husband had died of dog bite. LIC, in its defense, said that as per its rules the victim should die within 60 days of the accident to be eligible for the double benefit. In this case, Madhu Ben’s husband had died on the 62nd day and hence was not eligible for the benefit.
However, the court ruled that LIC should pay the double benefit as the case appeared genuine and also expressed its displeasure at the inconsiderate stance of the company LIC has then reviewed its policy and extended the death-line up to 120 days.
In sum, the social environment comprises people’s characteristics, their culture and values, and their specific concerns. The priorities and directions for change emanate from the social environment, posing threats as well as untold opportunities for perceptive marketers.
iii. The Economic Environment:
The economic environment, with all its uncertainties, penetrates the business environment. Macro-economic conditions are of interest to every top-level business manager—whether in marketing or otherwise. Inflation, supply of basic materials, economic growth rate, interest rates, the money supply, balance of payments and the changing value of the rupee are some examples. Each of these factors has some impact on a company since the company is part of an industry and the industry is part of the total economy.
The economic reforms, initiated by the Government of India in the 90s, have led to a marked reduction in inflation, growth in export, improvement in the balance of payments, and a rapid rise in foreign exchange reserves. However, overall economic growth is still low and the budget deficit is higher than projected. The economy is expected to grow faster in the coming years.
There are econometric models of the economy available for many developed countries, which are used to forecast economic changes. These forecasts are used as input to the model for forecasting different industry demands which, in turn, are used to forecast company demand. In India, there are problems of getting reliable and accurate data on time.
iv. Natural Forces:
Usually the sale of soft drinks increases during hot weather, just as the sale of tea and coffee increases during winter. During the rainy season the incidence of cold is high and cold remedies sell well. In general, natural resources, climate, physical barriers and terrain are natural factors that affect marketing decisions. Depleting oil reserves are forcing many countries to ration out petrol and are also encouraging the use of fuel-efficient vehicles. Some countries also require energy-efficiency labeling for products.
Floods, cyclones, earthquakes and eruption of volcanoes are nature’s way of showing anger against mankind. Even here, men have developed early warning systems, e.g. forecasting a cyclone that may hit a production site.
Environmentalists are increasingly becoming powerful in compelling governments to enact legislation to protect nature. Concern for nature has become a public issue as people talk about ecological imbalances, depletion of ozone layer, and so on. Hence industrial pollution is viewed seriously and companies should take proactive measures to curb it.
Factors Affecting Marketing Environment – Social and Cultural Influence, Technological Influences, Economic, Political and Legal Environment
In the wider environment, sometimes termed the macro environment, the company is faced by a complex set of uncontrollable variables that collectively shape its markets, its resources and the competitive climate, and that pose challenges and opportunities that may determine the success or failure of the company as a whole.
A simplified matrix of the four major sets of influence normally identified within the macro environment – social, technological, economic and political influences. These four broad categories are conventionally used as generalised headings, each of which encompasses a wide variety of variables, e.g. the social category includes factors at work in society in general, such as demographic and cultural influences.
Further, the variables involved may work at different levels of aggregation – sectoral, regional, national and international – and they are likely to be interrelated across the four quadrants, e.g., changes in economic factors like investment may affect technological issues such as innovation (hence the arrows linking the quadrants).
The letters denoting the four quadrants form the simple mnemonic STEP, often employed as a basic structure for STEP-analysis in outlining environmental forces relevant to business problems. A more detailed examination will now be made of these four sets of environmental influences.
Factor # 1. Social and Cultural Influences:
Though sometimes difficult to pinpoint, these constitute, literally, the society-wide influences and changes that can affect the marketing environment.
For convenience, they will be divided into two broad areas:
i. Demographic factors and
ii. Cultural factors.
i. Demographic Factors:
These concern the population aggregates and patterns within a society – population size and make-up. While these factors change only slowly, and are statistically predictable, they nevertheless exert powerful effects on the volume and nature of demand for most products and services. Furthermore, they are the building-blocks of the patterns of lifestyle within a society, and constitute the circumstances in which consumers enact their commercial and social roles.
Some of these factors will have obvious influences on companies and services in particular markets – for example, the demand for baby-clothes, cots, nursery products, maternity and antenatal services will be directly correlated with birth-rate statistics.
Not surprisingly, birth-rate will influence, with a time-lag, the demand for kindergarten facilities, primary education, toys and playthings, preschool clothes, and paediatric medicine. In like manner, an ageing population – a common phenomenon in industrialised countries – results in increased demand for age-related products and services such as sheltered accommodation, mobility aids, large-print books, preretirement counselling and geriatric nursing.
Other factors will exert influences that are less obvious and may vary geographically, or across social groups – especially over time, demographic factors will exhibit multiple influences that may present marketers with either opportunities or threats.
General Demographic Trends:
Certainly in the UK and other industrial countries, recent years have witnessed major movements within the demographic landscape. It is worth noting that, though such changes appear general, and even international, they may not yet be described as irreversible.
Some of the common factors in these demographic movements are:
a. Population Age Distribution:
Many countries have experienced in recent times a slowing in the birth-rate, after a period of high birth statistics in the 1950s and 1960s (the ‘baby- boom’ post-World War II period). This, combined with an extension of life expectancy related to medical, dietary and economic improvements, results in a rightward shift in the population profile – the classic symptoms of an ageing population.
Some of these changes have far-reaching economic implications of interest to policy-makers e.g., the increasing burden of the retired sector (even the ‘super-old’ – 80 years and above) on social services, and the problems of the projected decline in the workforce pool – French government economic planners now view policy on this issue as a major priority.
b. Household/Family Composition:
In many countries there have been major changes in household and family size and make-up. Social and economic changes have led to later marriages, with fewer children. Workforce participation among married women has increased significantly, and many married women nowadays succeed in managing a return to work and career development after maternity breaks.
Career couples, with no children, are now quite commonplace – indeed, they have been labelled by advertisers as ‘Dinkies’ (dual income, no kids), an advertising target group of some apparent interest!
Alongside these changes, the number of non-family households has increased substantially. Some of these households are made up of young careerist adults, or adults choosing bachelorhood, while others represent adults that are divorced or widowed.
If note is taken also of the growing number of single-parent families, it is hardly surprising that a researcher definition of ‘head of household’ is far from the straightforward matter it might have been thirty years ago. Significantly, these household changes have had a major effect on the pattern of demand for a wide range of everyday goods and services.
c. Geographical Shifts:
Many ‘post-industrial’ societies, such as the UK and the US, have witnessed in recent years a major decline in traditional industrial regions and a parallel growth in ‘new territory’ regions based on service industries, e.g., the US Sunbelt and Silicon Valley phenomena. Other countries are experiencing similar movements of people and investment associated with rural depopulation and accelerated urbanisation and industrialisation.
Though these phenomena are different, and may even coexist across regions within any one country, their economic and commercial impact may present common symptoms and problems. The marketer must reflect on the medium-term effects of such changes and consider how company development and investment plans are affected by them.
ii. Cultural Factors:
Culture within any society is the complex of elements that reflect the society’s beliefs and values, perceptions, preferences and behavioural norms. These elements of culture express themselves in people’s attitudes and behaviour, in their general lifestyle and in their working lives. Culture is therefore all-embracing and multidimensional, such that neat and exact definitions are difficult and elusive, and better left to specialists such as sociologists and anthropologists.
For the marketer, however, it is necessary to understand that culture will vary within and between societies, so that cultural norms may vary between countries, regions and culture groups or subcultures.
Within a society, culture may be most distinguishable by the prevalent core beliefs and values that people hold, which express themselves in family and friendship relations, in social conventions and rites, in social institutions and the social order itself.
Such longstanding facets of culture change very slowly, as they are the product of family upbringing, the education system, national history and political development, religion, and a multiple of other influences such as aesthetic developments, communications and the media.
Below these prevailing core values may be identified a variety of secondary beliefs and values, which tend to be less durable, less universal and more situational. These may be tied in some way to core beliefs, but reflect the development of individual or group choices and feelings, e.g., a belief in education may be rooted in core values, whereas attitudes for or against private education will be an expression of secondary values and beliefs.
These secondary-level beliefs and values are therefore more likely to vary within society, to change over time, and be open to change and persuasion. Furthermore, they may be recognisable within the development of subcultures within a society. Subcultures develop in many ways and for different reasons, though they usually entail a grouping of people with common interests, experiences or motivations.
Subcultures may therefore be associated with age groupings (the ‘youth culture’), regional affiliations (Lancashire versus Yorkshire), religious or ethnic associations, or even situational facets of lifestyle (working mothers, single parents, students).
Secondary beliefs and values may sometimes exhibit society-wide changes over time, effecting a gradual change in the society’s general orientation, e.g., in attitudes to work and leisure, an increased interest in self-development and choice, a growth in voluntary sector participation, ecological concern, consumerism, etc.
Environmental awareness is an interesting reflection of how society-wide concerns have delivered a powerful message to governments and business leaders.
While the ‘greening’ of consumers has achieved comparable progress across a spread of international markets, the acceptance of ‘green’ consumerism in the UK was perhaps most notably marked by the 1988 publication of The Green Consumer Guide (Victor Gollancz), which recorded bestseller status and earned for its authors, John Elkington and Julia Hailes, a place in the United Nations Environmental Programme Global 500 Roll of Honour, announced on World Environment Day in June 1989.
That the book market has sustained multiple reprints and a much-welcomed follow-up title, The Green Consumer’s Supermarket Shopping Guide, testifies to the growing interest in ‘green’ products among the general public and, equally gratifying, among consumer goods manufacturers and retailing groups.
Factor # 2. Technological Influences:
Technology is the touchstone of economic progress, a leading source of competitive advantage commercially, and an indispensable part of everyday lifestyle for the modern consumer. Technology as a term is perhaps misleadingly general, as the technologies encompassed are highly disparate and may vary from the most apparently obscure improvement or technique to the substantive breakthroughs associated with quantum leaps in science and engineering.
What cannot be denied is that technology is a major driving force for change, everywhere. Furthermore, technological change appears to be multiplicative, so that the rate of change increases. A simple illustration of this would be to consider the major changes that have taken place in the last twenty or more years – within the lifetime of the average business studies student – through innovations in the fields of information technology, biotechnology, fibre optics, aerospace and materials science.
Though developments in these fields have followed different, sometimes faltering, paths, they have in some way combined to produce major changes and challenges, and to raise the commercial stakes of success and failure.
The commercial realities of technology was provided by Schumpeter, an American economist, who styled technology as a force for ‘creative destruction’, sweeping aside old products and their providers and replacing them with new competitors and technologies – a dynamic process that has been more recently expounded in the ‘five forces’ model of Michael Porter, another economist.
To illustrate the competitive force wielded by technology, it is worth observing that many manufacturers have been affected by technology development remote from their own field. Major sectors of the metalworking industry were made obsolete by the development of digital electronics. Weighing machines of all types, typewriters and cash registers are all examples of this.
For many companies, these technological changes have been difficult to detect, especially during periods of erratic economic growth which can conceal the real causes of falls in business activity. Developments in digital electronics have not only changed the form of products, but have also changed the way they are designed and manufactured.
Computer-aided design not only permits more intricate designs, but also allows these to be manufactured without greatly increased costs. As a result, companies able to invest in these technologies have been able to introduce new products more quickly and competitively. These technologies have also enabled an increase in the variety of products available to the customer. For example, even low-cost items such as plastic patio chairs are nowadays available in dozens of styles.
Factor # 3. The Economic Environment:
The economy is a total system within which material and energy inputs are processed and converted to finished goods and services for distribution and final use. As in economic accounting terms all companies and organisations are part of the system, they have a direct interest in monitoring economic developments and guiding their policy decisions accordingly.
Most performance-centred companies nowadays incorporate economic data analysis into their business plans and marketing programmes, generating and inputting the relevant information as part of a formal Marketing Information System (MKIS).
The logic of this is that the current and projected events and trends in the economy – so-called macroeconomic variables – will likely affect the overall level of demand for goods and services, and related aggregates such as stock levels, prices, capacity utilisation and the like. In other markets, often tied to primary resource supplies and distribution, e.g. petroleum, companies make a practice of studying the microeconomic variables within their immediate market or sector.
While microeconomic factors will obviously vary for companies in different sectors, macroeconomic aggregates will present a common backcloth for all companies. Furthermore, as international communications and trade links develop, it is becoming more necessary to talk of the world economy – many Head Offices of large multinationals now operate around the clock, controlling operations across a spread of markets.
While economic globalisation is being advanced through international and investment trade links, at the intermediate level regional trade blocs such as the EC, NAFTA, and ASEAN have superimposed a marked zoning influence within the trade statistics of many member countries.
In the UK, for example, EC trade links now account for almost 60 per cent of overseas trade compared with a 30 per cent share in 1971. The aftermath of 1992 and the Single European Act provides a topical illustration of the realities of the economic environment for companies within both the UK and the wider European Community, since the free movement of goods, services and people is likely to pose major changes within national markets formerly assured as ‘home territory’.
The economic environment is therefore a complex network of international, domestic and regional influences and dependencies that shape the market potential facing companies. Company performance itself will depend critically on the quality of preparation and decision making that is brought to bear on this potential.
While cross-sectional data may give a clue to current economic events, a firmer appraisal to underpin major decisions such as plant investment or international expansion would require methodical analysis of relevant indices, showing turning-points, trends and projections, with accompanying commentary and qualifications.
Larger companies will retain in-house economists and planners for such purposes, or enlist the services of outsiders such as economic consultants, merchant bankers or venture capitalist organisations.
Factor # 4. The Political and Legal Environment:
The economic policies cited in the previous section are but one aspect of the political environment, which comprises the controls and checks instituted by central and local government, government agencies and quasi-official bodies. Also of relevance will be the growing influence of international laws and agreements, and at a more local level the activities of various professional and trade bodies, pressure groups and voluntary associations.
Although such a regulatory environment may appear to change only slowly, and clear frameworks of rights and representations will usually exist, it is still necessary for marketers to be aware of the policy interpretations of the status quo, and to be attuned to the likely direction and nature of changes to the system.
As company stakeholders may sometimes pursue particular interests and grievances through the ‘political’ system, it is in the interests of companies to frame policies that minimise stakeholder grievances and generally support a record of commercial good practice and social responsibility. In short, companies should seek to demonstrate good corporate citizenship by upholding the letter and the spirit of the law, and generally behaving in a responsible and responsive manner.
The marketing interpretation of such a stance would squarely equate with marketing excellence, and in practical terms might relate directly to a corporate mission statement that guides company activity from higher strategic issues, such as market choice, to everyday performance standards in respect of quality, service levels, customer protocol and the like.
While such autonomous standards of performance are to be commended, some markets and trades have developed general voluntary codes of conduct and control, supported and monitored by a central membership body. Practice within established professions such as medicine and accountancy has long been controlled by strict codes of professional behaviour – professionals within the Chartered Institute of Marketing now have to abide by the new Code of Practice drawn up to support the recent vesting of Charter status.
Self-regulation aside, most governments have developed a body of legislation and enforcement frameworks in respect of industry and trade.