What are the various environmental factors that affect marketing strategy, policies of a firm? Describe in detail.
Environmental Factors affecting Marketing strategy
It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up of:
1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc.
3. The macro-environment e.g. Political (and legal) forces, Economic forces, Sociocultural forces, and Technological forces. These are known as PEST factors.
The environmental factors can be broadly classified into the following categories.
1. Political and legal Environment
2. Economic Environment
3. Social Environment
4. Technological Environment
The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as:
1. How stable is the political environment?
2. Will government policy influence laws that regulate or tax your business?
3. What is the government's position on marketing ethics?
4. What is the government's policy on the economy?
5. Does the government have a view on culture and religion?
6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?
India suffered political instability for a few years due to the failure of any party to win an absolute majority in Parliament. However, political stability has returned since the previous general elections in 1999. However, political instability did not change India's economic course though it delayed certain decisions relating to the economy. The political divide in India is not one of policy, but essentially of personalities. Economic liberalisation (which is what foreign investors are interested in) has been accepted as a necessity by all parties including the Communist Party of India (Marxist). Thus, political instability in India, in practical terms, posed no risk to foreign direct investors because no policy framed by a past government has been reversed by any successive government so far. You can find a comparison in Italy which has had some 45 governments in 50 years, yet overall economic policy remains unchanged. Even if political instability is to return in the future, chances of a reversal in economic policy are next to nil.
As for terrorism, no terrorist outfit is strong enough to disturb the state. Except for Kashmir in the north and parts of the north-east, terrorist activity is either non-existent or too weak to be of any significance. It would take an extreme stretching of the imagination to visualise a Bangladesh-type state-disrupting revolution in India or a Kuwait-type annexation of India by a foreign power. Hence, political risk in India is practically non-existent..
Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at:
1. Interest rates.
2. The level of inflation Employment level per capita.
3. Long-term prospects for the economy Gross Domestic Product (GDP) per capita, and so on.
The economic environment includes the structure and nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, global economic linkages, economic policies etc.
A widely used classification of economies is on the basis of per capital income, i.e., the average annual income per person. Accordingly, countries are broadly classified as low income, high income economies and the middle income economies. Low income economies are those economies with very low per capital income.
There are mainly two categories of high income economies, namely, industrial economies and software pool. Middle income economies fall in between the low income and high income economies. The middle income economies are subdivided in to lower middle income and upper middle income economies. Low income is just an indication of deprivation people in developing countries. Low income prevents access to basic necessities, not only better and modern amenities. The term recession is depression in an economy which leads to stagnation and poor incomes. Within the category of low income economies.
The national income data can also be quite helpful for business. In order to undertake long-term investments and to formulate business policies it is quite essential for a dynamic management to do a thorough analysis of changes occurring in the national income. Since national income reveals, on the one hand, the structure of the economy and, on the other, the possible directions of change in the future economic policy of the government, national income data in the hands of an expert managerial economist can prove a life-line for business. It is quite vital for a firm aspiring to capture or retain leadership in business, as it is perhaps one of the most essential ingredients for any business forecasting exercise. The national income data can also be successfully used for determining the product diversification programme and undertaking technological innovations. National income statistics is, thus, a wealth of information, but its usefulness depends on keenness to observe and probe as well as patience to analyse.
1. Monetary policy. It refers to the credit control measures adopted by the central bank of an economy (in India, the Reserve Bank of India). These are of two kinds : Quantitative or selective controls. Quantitative or general controls include bank rate variations, open market operations and varying reserve ratios. They aim at regulating the overall level of credit in the economy through the commercial banks. Bank rate is the minimum lending rate at which the central bank discounts bills and securities held by commercial banks borrow less from the Central bank. On the other hand, commercial banks raise their lending rate. This reduces the money supply in the economy. Reduction in money supply reduces demand for goods and services in the economy, resulting in the check on price rise. Open market operations refer to the sale and purchase of securities by the central bank. When the central bank aims to control inflation it sells securities in the open market, thereby reducing reserves of commercial banks. When the central bank aims to control inflation it sells securities in the open market, thereby reducing reserves of commercial banks. This reduces credit in the market. The reduction in money supply helps in checking price rise. Changes in reserve ratio can help combat inflation. The portion of deposits which a commercial bank has statutorily to keep with the central bank as deposit is called the reserve funds. In order to reduce credit by the commercial banks, many a time the central bank increases the percentage of such deposits. Increase in reserve ratio reduces the bank advances, thereby reducing demand for goods and services, and checks price rise. Selective credit controls are used to encourage or discourage specific types of credit for particular purposes. In order to check the speculative activity in the economy, the central bank changes the margin requirements to be charged by the commercial banks on those activities.
2. Fiscal policy. Fiscal policy refers to the deliberate changing of taxes and government spending for the purpose of keeping the actual GNP close to the potential full employment GNP. If the potential GNP is exceeded it causes inflation, while if the actual GNP falls short of the potential it causes recessionary conditions.
When inflation is due to excess purchasing power in relation to the amount of goods and services available in the economy, the basic remedy for controlling inflationary conditions is to drain away excess purchasing power. In such a case, fiscal policy should aim at taking rupees out of the income-expenditure stream. As a result of this policy the aggregate demand will reduce, leading to control of price rise. There are two approaches for accomplishing this : (1) To restrain or reduce government spending and create a surplus budget (where tax revenue exceeds government expenditure). The cutback on government expenditures would reduce aggregate demand originating in the public sector; and its spillover effect I rest of the economy would also dampen aggregate demand. (2) To increase taxes on business and consumers without increasing government expenditure. Obviously, its impact would also be to create surplus budget and dampen the aggregate demand. Depending on which of the approaches are used, there will be differential impact on public and private sectors. However, both these approaches can also be used simultaneously.
Inflation has attracted sufficient attention of economists and policy makers. India is pursuing a policy of planned economic development. One of the prime considerations in the strategy of growth has been to ensure that growth takes place in an environment of price stability, which was considered crucial for both-steady growth and even distribution of the gains of growth. Any increase in prices was likely to affect investment planning and income distribution in the economy. Hence, efforts to contain and or avoid the same were an integral part of the planning process. The transmission of inflation-ary impulses in the economy is affected by various factors e.g. the differences in sectoral relations in the economy, nature of markets, both of products and services, the extent of linkages between these markets, the pattern of income and asset distribution, levels of concentration of corporate and trade-union's power and the effectiveness of the intermediation of financial institutions, rate of growth in nominal wages and labour productivity, structure of capital formation and, finally, the rate of development, etc. Inflation is defined as the persistent rise in the general price level. The question arises as to what should constitute the appropriate measure to reflect the general price level. In order to analyse the general price level, percentage annual changes in (i) Wholesale Price Index (WPI), (ii) Gross Domestic Product (GDP) at market prices, deflator, (iii) GDP (at factor cost) deflator and (iv) cost of living index (CLI) for industrial workers are usually considered. Because of wide coverage, the GDP deflator (both at market prices and factor cost) should be considered as the most appropriate index of inflation because the deflator covers commodities as well as services, whereas the other two indices reflect movement only in commodity prices with different 'Baskets'. Inflation rate has dropped from being among 10% during 1991 to 5.91% during 2004.
The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include:
1.What is the dominant religion?
2.What are attitudes to foreign products and services?
3.Does language impact upon the diffusion of products onto markets?
4.How much time do consumers have for leisure?
5.What are the roles of men and women within society?
6.How long are the population living? Are the older generations wealthy?
7.Do the population have a strong/weak opinion on green issues?
A society's culture includes its values, its ethics and the material objects produced by its people. It is the accumulation of shared meanings and traditions among members of a society. A culture can be described in terms of its ecology (the way people adapt to their habitat), its social structure and its ideology (including people's moral and aesthetic principles). Culture refers to the set of values, ideas and attitudes that are accepted by a homogeneous group of people and transmitted to the next generation. Subculture refers to the norms and values of subgroups within the larger or national culture. African American, Hispanics, and Asians represent sizable subcultures. It is inappropriate to think in terms of stereotypes when marketing to these subcultures. African Americans represent the largest racial/ethnic subculture in the united states. While price-conscious, they are motivated by product quality and choice. Indian consists of people who are either Aryans and Dravidians to a large extent. Current research indicates that stereotypes are misleading. Christians are the subculture in India where as in United States, it is the culture by itself. Asians are the fastest growing subculture in the United States. The growth of this subculture is due primarily to immigration. Like Hispanics, Asians represent a diverse subculture including Chinese, Japanese, Asian-Indians, and many other nationalities. Two groups of Asians have been identified:
Assimilated Asians are conversant in English and exhibit buying patterns very much like "typical" American consumers.
Non-assimilated Asians cling to their native languages and customs.
Culture is part of the external influences that impact the consumer. That is, culture represents influences that are imposed on the consumer by other individuals.The definition of culture offered by Engel is "that complex whole which includes knowledge, belief, art, morals, custom, and any other capabilities and habits acquired by man person as a member of society." From this definition, the following observations can be made:
Culture, as a "complex whole," is a system of interdependent components. Knowledge and beliefs are important parts. In the U.S., we know and believe that a person who is skilled and works hard will get ahead. In other countries, it may be believed that differences in outcome result more from luck. "Chunking," the name for China in Chinese, literally means "The Middle Kingdom." The belief among ancient Chinese that they were in the center of the universe greatly influenced their thinking. Other issues are relevant. Art, for example, may be reflected in the rather arbitrary practice of wearing ties in some countries and wearing turbans in others. Morality may be exhibited in the view in the United States that one should not be naked in public. In Japan, on the other hand, groups of men and women may take steam baths together without perceived as improper. On the other extreme, women in some Arab countries are not even allowed to reveal their faces. Notice, by the way, that what at least some countries view as moral may in fact be highly immoral by the standards of another country. For example, the law that once banned interracial marriages in South Africa was named the "Immorality Act," even though in most civilized countries this law, and any degree of explicit racial prejudice, would itself be considered highly immoral.
Culture has several important characteristics:
(1) Culture is comprehensive. This means that all parts must fit together in some logical fashion. For example, bowing and a strong desire to avoid the loss of face are unified in their manifestation of the importance of respect.
(2) Culture is learned rather than being something we are born with.
(3) Culture is manifested within boundaries of acceptable behavior. For example, in American society, one cannot show up to class naked, but wearing anything from a suit and tie to shorts and a T-shirt would usually be acceptable. Failure to behave within the prescribed norms may lead to sanctions, ranging from being hauled off by the police for indecent exposure to being laughed at by others for wearing a suit at the beach.
(4) Conscious awareness of cultural standards is limited. A hardcore southindian can be easily distinguished when handling a fork and knife in eating out in north India.
(5) Cultures fall somewhere on a continuum between static and dynamic depending on how quickly they accept change. For example, Indian culture has changed a great deal since the 1950s, while the culture of Saudi Arabia has changed much less.
It should be noted that there is a tendency of outsiders to a culture to overstate the similarity of members of that culture to each other. In India, there is a great deal of heterogeneity within our culture; however, people often underestimate the diversity within other cultures. For example, in Latin America, there are great differences between people who live in coastal and mountainous areas; there are also great differences between social classes.
Subculture refers to a culture within a culture. For example, African Americans are, as indicated in the group name, Americans; however, a special influence of the African American community is often also present. For example, although this does not apply to everyone, African Americans tend to worship in churches that have predominantly African American membership, and church is often a significant part of family life. Different perspectives on the diversity in U.S. culture exist. The "melting pot" metaphor suggests that immigrants gradually assimilate after they arrive. Therefore, in the long run, there will be few differences between ethnic groups and instead, one mainstream culture that incorporates elements from each will result. The "salad bowl" metaphor, in contrast, suggests that although ethnic groups will interact as a whole (through the whole mix of salad) and contain some elements of the whole (through the dressing), each group will maintain its own significant traits (each vegetable is different from the others). The "melting pot" view suggests that one should run integrated promotions aimed at all groups; the "salad bowl" approach suggests that each group should be approached separately.
Subculture is often categorized on the basis of demographics. Thus, for example, there is the "teenage" subculture and the "French- Indian" subculture in Pondicherry and “Portugese- Indian” subculture in Goa. While part of the overall culture, these groups often have distinguishing characteristics. An important consequence is that a person who is part of two subcultures may experience some conflict. For example, teenage native Indians experience a conflict between the mainstream teenage culture and the orthodox Indian ways. Values are often greatly associated with age groups because people within an age-group have shared experiences. For example, it is believed that people old enough to have experienced the American Depression are more frugal because of that experience.
Regional influence, both in the United States and other areas, is significant. Many food manufacturers offer different product variations for different regions. Joel Garreau, in his book The Nine Nations of North America, proposed nine distinct regional subcultures that cut across state lines. Although significant regional differences undoubtedly exist, research has failed to support Garreau’s specific characterizations.
4. Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points:
1. Does technology allow for products and services to be made more cheaply and to a better standard of quality?
2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc?
3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc?
4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?