Marketing and Organisation’s Micro- and Macro-environment

Marketing and Organisation’s Micro- and Macro-environment Marketing Macro Organisation Marketing and the organisation’s micro- and macro-environments 1. The micro-environment The term micro-environment denotes those elements over which the marketing firm has control or which it can use in order to gain information that will better help it in its marketing operations. In other words, these are elements that can be manipulated, or used to glean information, in order to provide fuller satisfaction to the company’s customers. The objective of marketing philosophy is to make profits through satisfying customers. This is accomplished through the manipulation of the variables over which a company has control in such a way as to optimise this objective. The variables are what Neil Borden has termed ‘the marketing mix’ which is a combination of all the ‘ingredients’ in a ‘recipe’ that is designed to prove most attractive to customers. In this case the ingredients are individual elements that marketing can manipulate into the most appropriate mix. E Jerome McCarthy further dubbed the variables that the company can contr ol in order to reach its target market the ‘four Ps’. Each of these is discussed in detail in later chapters, but a brief discussion now follows upon each of these elements of the marketing mix together with an explanation of how they fit into the overall notion of marketing. 1.1 The ‘four Ps’ and the marketing mix The ‘four Ps’ stands for: Product Price Place and Promotion Product and price are obvious, but perhaps place and promotion need more explanation. Place, it is felt, might better be termed ‘placement’ because it comprises two distinct elements. The first element is channels of distribution that is the outlets and methods through which a company’s goods or services are sold. Thus a channel can be certain types of retail outlet or it can be salespeople selling a company’s industrial products through say a channel which comprises buyers in the chemical industry. The other part of place refers to logistics that relates to the physical warehousing and transportation of goods from the manufacturer to the end customer. Thus, placement might be a better descriptor as it refers to the placing of goods or services from the supplier to the customer. In fact, place has its own individual ‘mix’ which is termed the ‘distribution mix’. Promotion also has its individual ‘mix’ that is called the ‘promotional mix’. This comprises advertising, selling and sales promotion. In fact promotion is a misnomer, because in advertising agency circles the mention of promotion usually means ‘sales promotion’. Some writers are now separating selling away from promotion and calling it ‘people’ because it is too important an element of marketing to be lumped in with promotion, although in reality it is still promotion (through word of mouth). This fifth P (people) are those who contact customers on a regular basis with the objective of ultimately gaining orders and these people comprise the salesforce. We can thus see that selling is a component part of overall marketing. There are two more Ps for service marketing, but these are dealt with later. 1.2 Models of marketing Figure 1 attempts to sum up what is meant by marketing at a very simple level. In fact it is one of the earliest models ever attempted to explain the meaning of marketing. Information Firm Customer Operation Figure 1 Simple diagrammatic representation of marketing In Figure 1 we see information coming from customers to the supplying company. This information is noted and goods or services are supplied to customers in line with customer needs. The information flow represents an exchange of ideas whilst the operation flow represents an exchange of meanings. Figure 2 is perhaps a more precise diagram of what is meant by marketing and one which we can begin to understand from what has already been said. Marketing Sales Research Forecasting Buyer Behaviour Supplier Customer Product Price Distribution Promotion Personal Segmentation selling targeting positioning Channels Logistics Advertising Sales promotion Figure 2 Model of the process of marketing This more complex model better explains what we are now beginning to understand about marketing. The bottom line represents the elements of the marketing mix over which a company has control. These elements are manipulated in such a way as to best suit customers’ needs and tastes and this represents an operational flow where things have to be done in order to arrive at the optimum marketing mix. Remember that there are sub-mixes within the individual elements of the marketing mix. This bottom line also equates to the earlier notion of the four Ps, or rather the five Ps, as personal selling has been separated from promotion and becomes ‘people’. The top line represents an information flow from the market to the firm. Data is collected through discussions and interviews with customers on and informal and formal basis. A whole range of techniques is available for this process and this is collectively termed marketing research. A more advanced strategic model that incorporates marketing research is embodied in a marketing information system (MkIS) and this is dealt with in a later lecture. In addition, data is collected from customers in relation to their likely future purchases and this is known as sales forecasting. Another raft of techniques is available for the subject of sales forecasting which lies at the very heart of marketing and business planning. Thus we begin to see how marketing orientation works. Customers are the starting point and sales forecasting and marketing research determine their likely requirements and tastes. This information is processed internally within the organisation and products and promotional messages are devised to suit customers’ needs, to allay their purchasing fears and to reinforce their expectations. Goods and services are supplied as and when required in the quantities needed and when they are requested not later and not earlier. This latter point is reinforced, because modern marketing dictates that customers demand their goods as needed and this lies at the base of the latest notion of ‘just-in-time’ manufacturing which relates to raw materials and components. This is covered later in the text and it has tremendous implications for modern marketing. 1.3 The place of marketing alongside other elements of business Marketing is but one function within business. Arguably it is the most critical function because it interprets customers’ needs and requirements into products and services and repeat business without which a business cannot continue. In fact a modern view of marketing puts customers in the centre and marketing as the interpretative function surrounding the customer with other major functions of business around this as shown in Figure 3. The idea is that all functions of business should be geared towards the satisfactions of customers’ requirements and this has led to the new notion of customer care. Figure 3 The place of marketing in the modern organisation At a more traditional level, marketing is often found alongside other major functions within business and Figure 4 illustrates this relationship. This organisation chart does not, of course, refer to all business organisations and to a large extent it is the ‘ideal’ theoretical structure. Companies tend to evolve and develop in a non-textbook manner, and in practice many different organisation charts can be found as a result of all kinds of illogicalities that defy modern management thinking. Such illogical functions might well exist because of the forceful personality of a head of department, whose department has assumed a position of power within an organisation through his or her own personal disposition, and there is no managerial justification for putting it in such a position of power in line management. An example could be the material control department that might report direct to the managing director rather than being a sub-function within the purchasing depart ment. Another example, quite commonly found, is a situation where a sales director can be found in the line alongside a marketing director. In such a situation, it might be a forceful sales director in a sales driven organisation who will not assume the responsibility for marketing, but who is too powerful to put into a subordinate position under marketing. With this background in mind, a ‘textbook’ organisation chart might be as shown in figure 4 (next page): Board of directors (responsible for policy making) Company Secretary General Manager Corporate Strategy Production Marketing Research Development Purchasing Finance Human Resource Management Management Services (Computing) Figure 4 A Traditional Organisation Chart In this organisation chart we can see the place of marketing alongside other major functions of line management. At the top there is the board of directors who are responsible for giving the organisation its strategic direction. Members of the board are not necessarily full-time employees of the company. Indeed, in many larger companies, they tend to be from outside the organisation and the expertise they lend to the board can be on a variety of criteria. Such people might, for instance, be strategy experts, financial experts, people who lend distinction to an organisation (e.g. somebody with a title) and people who are there because they are on the board of directors of other companies and can bring a cross fertilisation of ideas, financial linkages and potential inter-firm dealings. The general manager is the person who translates policy into tactics and is responsible for the day-to-day operations of the company. In most companies the general manager is a member of the board of directors and in such cases his or her title would then be managing director. The company secretary is responsible for legal and administrative matters in addition to serving as the secretary to the board of directors. This person also ensures that board meetings take place at intervals stipulated in the company’s articles of association, and that policies that are decided are implemented. For this reason, the role of company secretary is a lateral relationship and is not in the line of command. This also applies to the relatively new function of corporate strategy whose function may be carried out by general management, but is often a separate, relatively small, function whose role it is to ensure that all subdivisions in the organisation have a plan (e.g. a marketing plan) and that each of these plans fits into the overall corporate plan without there being any mismatches (e.g. marketing might plan to market more than the firm can produce). The major line functions are responsible for translating strategy into tactics in terms of the organisation’s everyday operations and this includes such matters as manufacturing, training and recruitment, design and selling. As was discussed in the first chapter, marketing is a relatively modern function and it encompasses the function of selling (although as discussed earlier, in many organisations the two functions are sometimes separated). In many organisations, heads of these line functions are sometimes members of the board of directors in which case they would then have ‘director’ behind their title (e.g. marketing director, financial director). In such cases their responsibilities would cover both strategic matters (being a member of the board of directors) and tactical matters (being a functional head of department). 2 The proximate macro-environment The term macro-environment denotes all forces and agencies external to the marketing firm itself. Some of these forces and agencies will be closer to the operation of the firm than others, e.g. a firm’s suppliers, agents, distributors and other distributive intermediaries and competing firms. These ‘closer’ external constituents are often collectively referred to as the firm’s proximate macro-environment to distinguish them from the wider external forces found, for example, in the legal, cultural, economic and technological sub-environments. This consists of people, organizations and forces within the firm’s immediate external environment. Of particular importance to marketing firms are the sub-environments of suppliers, competitors and distributors (intermediaries). These sub-environments can each have a significant effect upon the marketing firm. 2.1 The supplier environment This consists of other business firms or individuals who provide the marketing firm with raw materials, product constituents, services or, in the case of retailing firms, possibly the finished goods themselves. Firms, whether they be retailers or manufacturers, will often depend on numerous suppliers. The buyer/supplier relationship is one of mutual economic interdependence, both parties relying on the other for their commercial well-being. Although both parties are seeking stability and security from their relationship, factors in the supplier environment are subject to change, such as industrial disputes which will affect delivery of materials to the buying company, or a sudden increase in raw material prices which forces suppliers to raise their prices. Whatever the product or service being purchased by the marketing firm, unexpected developments in the supplier environment can have an immediate and potentially serious effect on the firm’s commercial operations. Because of this, marketing management, by means of the marketing intelligence component of its marketing information system, should continually monitor changes and potential changes in the supplier environment and have contingency plans ready to deal with potentially adverse developments. 2.2 The distributive environment Much reliance is placed on marketing intermediaries such as wholesalers, factors, agents and distributors to ensure that their products reach the final consumer. To a casual observer, it may seem that the conventional method of distribution in any particular industry is relatively static. This is because changes in the distributive environment occur relatively slowly, and there is therefore a danger of marketing firms failing to appreciate the commercial significance of cumulative change. Existing channels may be declining in popularity over time, while new channels may be developing unnoticed by the marketing firm. Nowhere has this ‘creeping’ change been more apparent over recent years in the UK and other parts of the world than in the retailing of fast moving consumer goods (fmcg). In the 1960s well over half of all fmcg retail trade was accounted for in the independent sector plus a further large proportion to the Co-operative Societies. Nowadays, the sector represent ed by the larger food multiples has well in excess of this proportion. 2.3 The competitive environment Management must be alert to the potential threat of other companies marketing similar and substitute product whether they are of domestic or foreign origin. In some industries there may be numerous world-wide manufacturers posing a potential competitive threat and in others there may only be a few. Whatever the type, size and composition of the industry, it is essential that marketing management has a full understanding of competitive forces. Companies need to establish exactly who their competitors are and the benefits they are offering to the market. Armed with this knowledge, the company will have a greater opportunity to compete effectively. 3 The wider macro-environment Changes in the wider macro-environment may not be as close to the marketing firm’s day-to-day operations, but they are just as important. The main factors making up these wider macro-environmental forces fall into four groups. Political and legal factors Economic factors Social and cultural factors Technological factors (Often referred to as the ‘PEST’ factors in the marketing analytical context, a useful aide-memoire, although in some texts it is sometimes referred to as ‘STEP’). To this is sometimes added ‘Competitive factors’ and although ‘PEST’ analysis relates to a specific organisation ‘Competitive factors’ tend to be subsumed under ‘Economic factors’. Such a PEST analysis means listing all possible points that may affect the organisation under review under each of the P.E.S.T. headings. Recently, some texts have added ‘L’ (standing for legal) and ‘E’ (standing for environmental) to this classification, making the acronym ‘PESTLE’. Even more recently, some writers have incorporated yet another ‘E’ (standing for ecological) with the new acronym ‘STEEPLE’. 3.1 The political and legal environment To many companies, domestic political considerations are likely to be of prime concern. However, firms involved in international operations are faced with the additional dimension of international political developments. Many firms export and may have joint ventures or subsidiary companies abroad. In many countries, particularly those in the so-called ‘Third World’ or more latterly termed ‘Developing Nations’, the domestic political and economic situation is usually less stable than in the UK. Marketing firms operating in such volatile conditions clearly have to monitor the local political situation very carefully. Many of the legal, economic and social developments, in our own society and in others, are the direct result of political decisions put into practice, for example the privatization of state industries or the control of inflation. In summary, whatever industry the marketing firm is involved in, changes in the political and legal environments at both the domestic and international levels can affect the company and therefore needs to be fully understood. 3.2 The economic environment Economic factors are of concern to marketing firms because they are likely to influence, among other things, demand, costs, prices and profits. These economic factors are largely outside the control of the individual firm, but their effects on individual enterprises can be profound. Political and economic forces are often strongly related. A much quoted example in this context is the ‘oil crisis’ caused by the Middle East War in 1973 which produced economic shock waves throughout the Western world, resulting in dramatically increased crude oil prices. This, in turn increased energy costs as well as the cost of many oil-based raw materials such as plastics and synthetic fibres. This contributed significantly to a world economic recession, and it all serves to demonstrate how dramatic economic change can upset the traditional structures and balances in the world business environment. As can be seen, changes in world economic forces are potentially highly significant to marketing firms, particularly those engaged in international marketing. However, an understanding of economic changes and forces in the domestic economy is also of vital importance as such forces have the most immediate impact. One such factor is a high level of unemployment, which decreases the effective demand for many luxury consumer goods, adversely affecting the demand for the industrial machinery required to produce such goods. Other domestic economic variables are the rate of inflation and the level of domestic interest rates, which affect the potential return from new investments and can inhibit the adoption and diffusion of new technologies. In addition to these more indirect factors, competitive firms can also pose a threat to the marketing company so their activities should be closely monitored. It is therefore vital that marketing firms continually monitor the economic environment at both domestic and world levels. Economic changes pose a set of opportunities and threats, and by understanding and carefully monitoring the economic environment, firms should be in a position to guard against potential threats and to capitalize on opportunities. 3.3 The socio-cultural environment This is perhaps the most difficult element of the macro-environment to evaluate, manifesting itself in changing tastes, purchasing behaviour and changing priorities. The type of goods and services demanded by consumers is a function of their social conditioning and their consequent attitudes and beliefs. Core cultural values are those firmly established within a society and are therefore difficult to change. They are perpetuated through family, the church, education and the institutions of society and act as relatively fixed parameters within which marketing firms are forced to operate. Secondary cultural values, however, tend to be less strong and therefore more likely to undergo change. Generally, social change is preceded by changes over time in a society’s secondary cultural values, for example the change in social attitude towards credit. As recently as the 1960s, personal credit, or hire purchase as is sometimes known, was generally frowned upon and people having such arrangements tended not to discuss it in public. Today, offering instant credit has become an integral part of marketing, with many of us regularly using credit cards and store accounts. Indeed, for many people it is often the availability and terms of credit offered that are major factors in deciding to pu rchase a particular product. Marketing firms have also had to respond to changes in attitude towards health, for example, in the food industry people are now questioning the desirability of including artificial preservatives, colourings and other chemicals in the food they eat. The decline in the popularity of smoking is a classic example of how changes in social attitudes have posed a significant threat to an industry, forcing tobacco manufacturers to diversify out of tobacco products and into new areas of growth. Changes in attitudes towards working women have led to an increase in demand for convenience foods, ‘one-stop’ shopping and the widespread adoption of such time-saving devices as microwave cookers. Marketing firms have had to react to these changes. In addition, changes in moral attitudes from the individualism of the ‘permissive society’ of the 1960s and early 1970s to the present emphasis on health, economic security and more stable relationships, are all contributory factors to a dynamically changing socio-cultural environment that must be considered by companies when planning for the future. 3.4 The technological environment Technology is a major macro-environmental variable which has influenced the development of many of the products we take for granted today, for example, television, calculators, video recorders and desk-top computers. Marketing firms themselves play a part in technological progress, many having their own research department or sponsoring research through universities and other institutions, thus playing a part in innovating new developments and new applications. One example of how technological change has affected marketing activities is in the development of electronic point of sale (EPOS) data capture at the retail level. The ‘laser checkout’ reads a bar code on the product being purchased and stores information that is used to analyse sales and re-order stock, as well as giving customers a printed readout of what they have purchased and the price charged. Manufacturers of fast-moving consumer goods, particularly packaged grocery products, have been forced to respond to these technological innovations by incorporating bar codes on their product labels or packaging. In this way, a change in the technological environment has affected the products and services that firms produce and the way in which firms carry out their business operations. 4 Other macro-environmental factors The macro-environmental factors discussed are not intended to be an exhaustive list, but merely to demonstrate the main areas of environmental change. Other sub-environments may be important to marketing management, for example, in some countries the religious environment may pose an important source of opportunities and threats for firms. In the UK, demographic changes are considered important by a number of firms. In general, the UK population has been stable at approximately 56 million for a number of years, but the birth rate is falling, while people are living longer. Firms that produce goods and services suitable for babies and small children (e.g. Mothercare) have seen their traditional markets remain static or decline slightly. Such companies have tended to diversify, offering products targeted at older age groups. A larger older sector of the population offers opportunities for firms to produce goods and services to satisfy their particular needs. The over-55 age group is the modern marketer’s current major opportunity. In all advanced economies such as the Australia, UK and USA it is this age group that has the largest disposable income, and special products and services such as holidays and pension-related financial services are being marketed to this sector. 5 Summary The company’s micro-environment has been discussed in terms of variables over which it has control relevant to the marketing mix. This led to a description of marketing and its various sub-divisions including information from the market-place in terms of forecasting and marketing research. Marketing was then looked at alongside other business functions and its place in line management was noted. The company’s proximate macro-environment was then examined under supplier, distributive and competitive environment environments and finally the wider macro-environment was examined under the headings: political and legal, economic, socio-cultural and technological environments. This can best be summed up by looking what has been covered in terms of a number of layers in the environment from customers, to marketing and resources of the company, to the organisation’s proximate macro-environment and finally to its wider macro-environment. This is illustrated in Figure 5. Figure 5 An Organisation’s various environments The outer layer consists of the wider macro-environmental PEST factors. The next layer concerns the proximate macro-environment factors cited under section 2. This also includes the organisation’s ‘publics’ that is a public relations term dealt with later, but which essentially means any group of individuals who are affected by or are in touch with the company in any context (e.g. those who supply finance or those who live near the company’s manufacturing plant). The next layer is the organisation’s strategic marketing planning and control system. The tactics that deliver the strategy are the four Ps and these are in the next layer. The final inner circle is the most important and it is customers from which all planning must start. The phrase of being a ‘customer led’ organisation is at the very heart of marketing orientation and indeed tactics of customer care help to cement long term customer relationships.