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Structure 3.1. Introduction 3.2. Environmentalscanning 3.3. Analyzingtheorganizationsmicroenvironment. 3.4. Companysmacroenvironment.

MarketingEnvironment

3.5. Differencebetweenmicroenvironmentandmacroenvironment. 3.6. Summary Terminalquestions AnswerstoSAQsandTQs 3.1.Introduction. A marketing oriented company always keeps tab on its external environment carefully to analyze opportunitiesand threats. Thisexternal environment influences companys strategies in two levels i.e. external macro environment and external micro environment. The macro environment involves politicalandlegal,economicandnatural,socialandculturalandtechnologyenvironment.Themicro environmentconsistsofsupplychain,customerandcompetitor.Thesefactorsareuncontrollableby theorganization.Eventhebestcompanyfacesthreatifoneoftheexternalenvironmentsisadverse toit.Amoderatecompanywillbesuccessfuliftheexternalenvironmentfavorsit.Hencemarketing companiesshouldmonitortheexternalenvironmentcarefullyandcontinuously.

LearningObjectives Afterstudyingthischapteryoushouldbeableto

1. Theneedofenvironmentalscanning. 2. Howexternalmicroenvironmentaffectsthecompanysstrategies. 3. Theinfluenceofexternalmacroenvironmentoncompanysplans. 4. Thedifferencebetweentheexternalmacroandmicroenvironment. 5. Theroleoforganizationsinternalenvironmentindealingwithopportunitiesandthreats.

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3.2.Environmentalscanning Thisistheprocessofgathering,analyzingandforecastingofexternalenvironmentsinformationto identifyopportunityandthreatsthatcompanyfaces. Needforenvironmentalscanning: Ithelpsin 1. Identifyingtheopportunitiesthatcompanyhasinimmediatefuture. 2. Identifyingthethreatsfacedbythecompany. 3. Demandforecasting 4. Developingappropriatebusinessplans. 5. Adjustingthecompanystrategyinchangingcompetitiveenvironment. 3.3.Analyzingtheorganizationsmicroenvironment Marketingdepartmentletalonecannotsatisfyalltheneedsofcustomer.Thereforeitisessentialto integratethefunctionsofsuppliers,publics,companydepartmentsandintermediariesincreatingthe valuetothecustomer.Theseforcesareknownasorganizationsmicroenvironment. Microenvironment:Theforceswhichareveryclosetocompanyandhaveimpactonvaluecreation andcustomerservice Figure3.1 Forcesinthemicroenvironment

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Micro Environment

3.3.1. Thecompany Rememberinthepreviousunitwediscussedaboutthestrategicandmarketingplanning.Deducinga strategicplanintospecificmarketingplanrequirecoordinationofotherfunctionslikefinance,Human resource, production, and research and development. For example, Safe Express, a leader in the supply chain management solution wants to hold its position in the US $90billion Indian logistics market.Companyplanstoexpanditsserviceareasinthecomingmonths.Tomeetthetargetsofthe marketingplan,otherdepartmentsofsafeexpressalsoexpandingtheirhorizon.Companyiscoming out with logistics parks in different cities plans to hold seven million square feet of warehousing capacityinthenextthreeyearsandinvestingRs10billioninthreeyearstomeetthattargets.The above example shows that companys marketing plan should be supportedby the otherfunctional departmentactivitiesalso. 3.3.2.Intermediaries Marketing intermediaries: The firms which distribute and sell the goods of the company to the consumer.

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Marketingintermediariesplaysanimportantroleinthedistribution,sellingandpromotingthegoods andservices.Stockinganddelivering,bulkbreaking,andsellingthegoodsandservicestocustomer are some of the major functions carried out by the middlemen. Retailers, wholesalers, agents, brokers,jobbersandcarryandforwardagentsarefewintermediariestoname.Retailersarefinallink betweencompanyandcustomers.Theirroleinthemarketingofproductisincreasingeveryday. 3.3.3. Publics These are microenvironment groups, which helps company to generate the financial resources, creating the image, examining the companies policy and developing the attitude towards the product. Wecanidentifysixtypesofpublics 1. Financial publics influence the companys ability to obtain funds. For example, Banks, investmenthousesandstockholdersarethemajorfinancialpublics. 2. Mediapublicscarrynewsandfeaturesaboutthecompanye.g.DeccanHerald 3. Advertisementregulationagencies,telecomregulationagency(TRAI),andinsuranceregulation agency(IRDA)ofthegovernment 4. Citizenactiongroups:Formedbytheconsumerorenvironmentalgroups.Forexample,people forethicaltreatmentofanimals(PETA)orGreenpeace. 5. Generalpublics:acompanyshouldbeconcernedtowardsgeneralpublicsattitudetowardsits productsandservices. 6. Internalpublics:Employeeswhohelpincreatingproperimageforthecompanythroughwordof mouth.

3.3.4.Competitors A company should monitor its immediate competitor. The product should be positioned differently andabletoprovidebetterservices.

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3.3.5.Suppliers Suppliers are thefirst link in the entire supply chainof the company. Hence any problems or cost escalation in this stage will have direct effect on the company. Many companies adopted supplier relationmanagementsystemtomanagethemwell. 3.3.6.Customers Acompanymayselltheirproductsdirectlytothecustomerorusemarketingintermediariestoreach them.DirectorindirectmarketingdependsonwhattypeofmarketsCompanyserves.Generallywe candividethemarketsintofivedifferentcategories.Theyare a. Consumermarket. b. Businessmarket c. Resellermarket d. Governmentmarketand e. Internationalmarket Youwillcometoknowaboutthesefivedifferentmarketsfromthefollowingexample. MRFatyrecompanysellsitsproductdirectlytoconsumer(incaseofurgency,customerpurchases directlyfromshowroom)i.e.operatesinconsumermarket.Itoperatesinbusinessmarketsbyselling tyrestocompanieslikeMarutiUdyoglimited.MRFalsosellsTYREstoBMTCandKSRTC,transport organizationsofKarnatakagovernment.IfMRFsellstyreinAfricanorAmericancountriesthenitis operating in the international market. If MRF buys the old tyres, retreads it and sells it to the consumerataprofitthencompanyisoperatingintheresellermarket. SelfAssessmentQuestions1 1. Politicalandlegalenvironmentbelongstoenvironment. 2. Suppliersarepartofmarketingintermediaries a. True b.false 3. Newspaperisanexampleof a. Citizenactionpublics b. Internalpublics
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c. Generalpublics d. Mediapublics 4. Inmarket,companybuygoodsandservicestoresellataprofit. 5. Retailersarefinallinkbetweenand 3.4.Companysmacroenvironment. Figure3.2Forcesinthemacro environment.

Macro Environment

3.4.1.DemographicEnvironment. Demography:Thestudyofpopulationcharacteristicslikesize,density,location,gendercomposition, agestructure,occupationandreligion. Demographystatisticshelpscompaniestodeveloptheirproductsinbetterway.Thesestatisticsare alsousedindevelopingpropersupplychain,communicatingproductinformationandchangingthe productattributes.Demographicenvironmentisanalyzedonthebasisofthefollowingfactors. 1. Agestructureofthepopulation

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2. Maritalstatusofthepopulation 3. Geographicdistributionofthepopulation 4. Educationlevel 5. Migration 6. Occupation. Age structure of the population: from thefollowing table you cangeneralize that India is having 48%populationwhoareagedlessthan21and28%ofthepopulationareinthebracketof2125. Many marketing companies are focusing on these two segments. For example, Radio Indigo, FM radiostationfromJupitercapitalventureoperatesinBangaloreandGoa,playsinternationalmusic. Radioindigotargetsyouthsegmentwholikewesternmusic. TABLE 3. 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO TOTALPOPULATION Agegroup AllAges 04 59 1014 1519 2024 2544 4564 6579 80+ LessThan18 Lessthan21 Agenostated Population 1,028,610,328 110,447,164 128,316,790 124,846,858 100,215,890 89,764,132 284,008,819 139,166,661 41,066,824 8,038,718 422,808,543 492,193,906 2,738,472 Percentage 100.0 10.7 12.5 12.1 9.7 8.7 27.6 13.5 4.0 0.8 41.1 47.9 0.3

Source:C2andC14Table,India,CensusofIndia2001.

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Maritalstatusofthepopulation: TABLE3.2:POPULATIONBYMARITALSTATUSANDSEX:INDIA2001 NumberofPersons(in'000) Persons 1,028,610 512,668 468,593 44,019 / 3,331 Males 532,157 289,619 231,820 9,729 988 Females 496,454 223,048 236,773 34,290 2,343 PercentagetoTotal Males 100 49.8 45.6 4.3 0.3 Females 100 54.4 43.6 1.8 0.2

Maritalstatus Total NeverMarried Married Widowed Divorced Separated

Source:C2andC14Table,India,CensusofIndia2001 HalfoftheIndianpopulationfallsintothenevermarriedcategory.Thisprovidesanopportunityfor organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage group and shaadi.com arefew to name in this industry. These companies are offeringend to end solutiontothecustomerswhoarelookingforlavishweddingintheexoticlocationsbothindomestic andabroad. Geographicaldistributionofthepopulation Table3.3Ruralurbandistributionofthepopulation Population Persons Males Females Rural Urban
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1,028,737,436 532,223,090 496,514,346 742,617,747 286,119,689 42

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%Urbanpopulation

27.8%

RuralIndiawith74crorepopulationisabiggestmarket.Companiesaretryingtogetapieinthis untapped market. For example, DCM Shriram limited, opened Hariyali bazaars in rural market. Thesebazaarsofferqualityagricultureinputs,financialservices,andfarmoutputservices. Educationlevel:Morethan3crorepeopleinIndiaeitherhavegraduationorpostgraduation.This has led to the growth of many sunrise sectors. This educated population fuelled the growth of information technology (IT), information technology enabled services (ITES), and biotechnology industries. TABLE3.4:NUMBERANDPERCENTLITERATESBYLEVELOFEDUCATION:INDIA2001 AbsoluteNumbers(000') Levelofeducation Persons Literate Literate without educational level$ BelowPrimary Primary Middle Matriculation/Secondary High secondary/ 24,596 13,220 560,688 20,023 144,831 146,740 90,227 79,230 Males 336,534 11,361 81,148 83,525 55,940 51,202 Females 224,154 8,662 63,683 63,215 34,286 28,028

Intermediate/PreUnivercity/ 37,816 SeniorSecondary Non technical diploma or certificate not equal to 386 degree

259

128

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Technical degree

diploma

or 2,901 766

certificate not equal to 3,667

Graduateandabove

37,670

25,533

12,137

Migration:Geographicalshiftinthepopulationisbecominganinterestingareainthedemographic studies.TheTable6,listoutthevariousreasonsformigration. TABLE3.5:NUMBEROFMIGRANTSBYPLACEOFBIRTHINDIA2001 Migrations by Place of Percentage birth 1,028,610,328 307,149,736 258,641,103 181,799,637 76,841,466 42,341,703 6,166,930 29.9 84.2 70.3 29.7 13.8 2.0

Category A. B. TotalPopulation TotalMigrations

B.1 Migrantswithinthestateofenumeration B.11 Migrantsfromwithinthedistricts B.12 Migrantsfromotherdistrictsofthestate B.2 MigrantsfromotherstatesinIndia B.3 Migrantsfromothercountries

Source:TableD1India,CensusofIndia2001. TABLE3.6:REASONSFORMIGRATIONOFMIGRANTSBYLASTRESIDENCEWITHDURATION (09YEARS)INDIA2001 Reason migrations for

NumberofMigrants Persons Males 32,896,986 Females 65,404,356

PercentagetoMigrants Persons 100.0 Males 100.0 Females 100.0

Totalmigrants

98,301,342

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Reasonformigration: Work/Employment Business Education Marrige Movedafterbirth Moved households Other with

14,446,224 1,136,372 2,915,189 43,100,911 6,577,380 20,608,105 9,517,161

12,373,333 950,245 2,038,675 679,852 3,428,673 8,262,143 5,164,065

2,072,891 186,127 876,514 42,421,059 3,148,707 12,345,962 4,353,096

14.7 1.2 3.0 43.8 6.7 21.0 9.7

37.6 2.9 6.2 2.1 10.4 25.1 15.7

3.2 0.3 1.3 64.9 4.8 18.9 6.7

Source:TableD3,CensusofIndia2001 Marketers started identifying the niches in the migrated communities and offered their goods and services.Forexample,Nandhini,anAndhrarestaurantinBangalorecateringtothefoodneedsofthe Andhracommunity.Patrika,aRajasthanbaseddailynowavailablethroughoutthecountry. Occupation: TABLE 3.7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIAL CATEGORIES, INDIA2001 Industrialcategory Totalmainworkers* Agricultural&alliedactivities Mining&quarrying Manufacturing Electricity,gasandwatersupply Construction MainWorkers('000s) Percentage(%) 312,972 176,979 1,908 41,848 1,546 11,583 100.0 56.6 0.6 13.4 0.5 3.7 9.4 45

Wholesale, retail trade & repair work, Hotel and 29,333

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restaurants Transport,storage&communications 12,535 4.0 2.0 10.0

Financialintermediation,Realestate,businessactivities 6,109 Otherservices 31,131

Source:Industrialclassificationdatabasedonsample AgricultureisthemainoccupationofthepeopleinIndiabuttheshareofotherservicesisgrowing rapidly.TheotherservicecategoryincludesITandITES.Employeesofthesecategorieshavehigh disposableincome.Thishasledtotheopeningofspecialtystoresandmanufacturingoftheluxury itemsinthecountry. 3.4.2.PoliticalAndLegalEnvironment. Governmentpolicies,legislations,regulations,andstabilitywilldirectlyaffectthebusiness.Therefore it is inevitable for the firm to closely monitor this environment. The political and legal forces are groupedintothefollowingfourcategories. Monetaryandfiscalpolicies:Thesepoliciesregulategovernmentspending,moneysupplyandtax legislations. 1. Sociallegislationsandregulations.Environmentalprotectionactwhichspecifiestheemission level. 2. Governmentrelationshipswithindustries:Governmentsubsidiesandchangeintariffratewill havedirectimpactontheparticularcompany. 3. Legislations related to marketing: Following are the list of legislations which affect marketing activitiesofthecompany. Table3.8 Companiesact1956. Consumerprotectionact Paymentofbonusact. Industrialdisputeact1957 Minimumwagesact Environmentalprotectionact

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Industries development and regulation act.

Tradeunionact

Contractlaw The contract labor (regulation and abolition)act1970.

Factoriesact1948 Salespromotionemployeesact1976

Shopsandestablishmentact1953 Trademarksact1999 Designsact2000

Copyrightact1957 Patentsact1970 Foreignexchangemanagementact1999

3.4.3.EconomicAndNaturalEnvironment: Consumerspendingpattern AccordingtoNationalsamplesurvey200506, 1. Monthlypercapitaconsumptioninruralarea:Rs625. 2. Monthlypercapitaconsumptioninurbanarea:Rs1,171. 3. Foodexpenditureinmonthlypercapitaconsumption:53%(Ruralarea) 4. Foodexpenditureinmonthlypercapitaconsumption:40%(urbanArea) Theabovedatashowsthatmostoftheexpenditureinmonthlypercapitaincomegoestothefood expenditureonly.Marketersinthenonfoodcategoryshouldpromoteheavilytochangethisspending pattern. Companies in the food category should note that food expenditure in monthly per capita expenditure is coming down. Hence extra efforts are required by these companies to sell their products. Interest rate: when interest rates are high, consumer tend not to make long term purchase like housing.Iftheinterestrateislowpeopleputtheirmoneyinalternativefinancialoptionswherethey getbetterreturn. Inflation: Higher the inflation rate lesser will be the purchasing power of the consumer. Hence governmentalwaystriestocontroltheinflationwithinthelimit.

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Changes in income: The rise in the salaries of the employees, improved performance of stock marketand better industrialgrowth led to the change in the incomepattern in India. Many Indians becamemillionairesandbillionaires.Percentageofbelowpovertylineisdecreasing,buttheconcern isrichandpoordivideisgrowing. NaturalEnvironment: Environmentalconcernsaregrowingovertheyears.Governmentsincreasedregulationstomanage the natural resources. Marketers should awareof suchtrends in the naturalenvironment. Someof thefactorswhichorganizationsshouldkeepavigilare a. Inadequaterawmaterials b. Globalwarmingandpollutionlevelsand c. Regulatoryworld. a. Inadequate raw materials: We are over depending on Middle East countries for petroleum products.Automobilecompaniesareimprovingtheirtechnologiesandalsoplanningtocomeout withhybridcarswhichusealternativefuels. b. Globalwarmingisabigissuetoday. c. RegulatoryworldTheIndiangovernmentthroughenvironmentalprotectionact,makingstringent rules on emission and environment standards. Companies, particularly in automobiles should adheretothosenorms,whichareexpensiveandtimeconsuming. 3.4.4.Socialandculturalenvironment: 1.Workingwomenandriseofmetrosexualman.: NumberofwomenwhoareworkinginIndiais increasing. This segment is looking towards products which help them in bringing better work life balance.MTRafastfoodgiantinsouthIndiastartedofferingreadytoeatproductstothissegment. Theseproductsareinstantinnaturewhereawomandipsaproductinthehotwaterfor23minutes andserves.Metrosexualityisanothernewphenomenon,whereinamanalsoassumestheroleof womenlikepurchasinghouseholditemsandhelpinginkidseducationetc.Itmademarketerstask moredifficultonpositioningtheirproducts. 2.Timeshortpeople: Thissegmentinvolvespeoplewhoworklonghoursandhavelesspersonal time. These people are looking for products which satisfy them quickly and conveniently. For
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example,Easybill,fromHerogroupoffersonestopsolutiontoconsumertopaytheirutilitybillsand dootherfinancialtransactions. 3.4.5. Technologyenvironment 1. Growth of information technology and biotechnology industries: Information technology has revolutionizedthelivesofthepeople.Itboughtdramaticchangesinthewayorganizationsoperates. It helped in cost reduction, automation, better communication and efficiency in the organizations. Indianbanksfewyearsagousetotakelengthytimetoprocessthecustomerrequestsreduceditto fewhoursbecauseofinformationtechnology. 2.Nanotechnology:Thetechnologyinwaiting,whichisexpectedtoreducethesizeandcostofthe materials. SelfAssessmentQuestions2 1. Demographicenvironmentisthestudyofcharacteristics. 2. Inflationisstudiedinenvironment. 3. Readytoeatproductistargetedtoworkingwomensegment a.Yes b.No

4.Whichofthefollowingisnotthemacroenvironmentvariable? a.Technologyenvironment b.Competitiveenvironment c.Socialandculturalenvironment d.Demographicenvironment 5.isthemajoroccupationinIndia.

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3.5.DifferencebetweenMicroenvironmentandMacroenvironment. Table3.9 Macroenvironment Size Control Large Cannotbecontrolled Microenvironment small Can be controlled to some extent Uncertainty complexity Examples Veryhigh High Political, social, low low cultural, Customer, publics, competitors,

technology, demography and suppliersandintermediaries. naturalenvironment PEST (Political and legal, economic and natural, social and cultural, and technology environment)Analysis: Table3.10 Factors 1. Politicalandlegalenvironment a. Monetarypolicy b. Fiscalpolicy c. Environmentalpolicy d. Lobbygroups 2. Socialandculturalenvironment a. Gender b. demographics c. workculture 3. Economicandnaturalenvironment a. Income b. Spendingpower c. Inflation
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d. Interestrate e. Rawmaterials f. Taxation 4. Technologyenvironment a. Entrybarriers b. Growthoftechnology c. Transferoftechnology

3.6. Summary

1. Environment scanning is necessary to understand opportunities and threats faced by the

company.

2. Micro environment factors like marketing intermediaries, suppliers, competitors, publics and
customersinfluencescompanysstrategies.Thesearecontrollabletosomeextent.

3. Population variables like age, gender, marital status and occupation helps the company to
assessthemarketandchangeordeveloptheirofferings

4. Shortage of raw material and increase in the income disparity are immediate concerns of the
organizations.

5. Workingwomenandtimeshortpeoplechangingthesocioculturalenvironmentofthecountry. 6. Technologyishelpingcompanytoreducecost,increasetheefficiencyandsavetime. 7. Microandmacroenvironmentaredifferentiatedonthebasisofsize,complexity,anduncertainty.

TerminalQuestion 1. Explaintheneedofenvironmentscanning. 2. Discusstheforcesinmicroenvironmentandtheirinfluenceoncompanysstrategies. 3. BringoutthedifferencebetweenMacroenvironmentandmicroenvironment. 4. WriteanoteondemographicenvironmentinIndia. 5. Discusstheimportanceofpoliticalandlegalenvironmentstudywithexamples.

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AnswersToSelfAssessmentQuestions SelfAssessmentQuestions1 1. Macro 2. False 3. Mediapublics 4. Resellermarket. 5. Companyandcustomers SelfAssessmentQuestions2 1. Population 2. Economicandnaturalenvironment. 3. Yes 4. Competitiveenvironment. 5. Agriculture. AnswertoTerminalQuestions

1. Refer3.2 2. Refer3.3. 3. Refer3.5. 4. Refer3.4.1 5. Refer3.4.2.

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