The assignment for this essay was to “…briefly explain in your own words, each of the various external environments that affect marketing. In your opinion, which of the external environments has had the greatest impact on consumer’s abilities to shop and consume products? For this part, do not quote the book. I want you to think this one through and give your own logic and ideas behind your answer.” I received a 10/10 for the below essay.
There exist five external environmental factors, social, economic, technological, competitive and regulatory forces, that affect an organization’s overall performance and marketing strategy. These environmental forces affect all departments of a business and also affect the firm’s relationship with its customers, suppliers and all other stakeholders. Analyzing a firm’s environment and forming a plan, with consideration paid to the environment, requires knowledge of both the past and current state of the environment, as well as identifying trends so as to better predict the future state of the environment.
A good place to start discussing an organization’s environment is social forces, which focuses on who composes a certain population and what they value. Understanding the demographic composition of a population is crucial to compiling an effective marketing strategy as it helps us understand the end consumer better. Intuitively, a 20 year old and 80 year old will have different desires and needs, even though they may share some basic needs in common. Obviously, both will need food, but both may also highly desire a Cadillac. Although there are exceptions, a demographic analysis will help marketers understand who they are targeting and allow them to use generalized information about that category of people (for instance, in general, a 20 year old will be more receptive to a new technology, such as an iPod, than an 80 year old). Culture is the second half of social forces, it encapsulates the ideas, values, and attitudes of a group. I believe this part of social forces is more important for marketing than demographics as it tells us more about the personality of the population and allows to segregate a population into more categories with more information on its’ consumer preferences than simple demographics.
Economics forces are highly important to a proper marketing plan as it details the limits of consumer purchases. A group with an annual average income of $20 USD will only seek to fulfill basic needs, whereas a group with an income of $100,000 USD will purchase additional goods beyond just the bare necessities due to their larger disposable income. The state of an economy (a state’s country’s or global) is very important as it will influence a consumer’s confidence in the future. A poorly performing overall economy will encourage consumers to hoard their money more than a plentiful economy and thus limit consumer purchases (although it may increase revenue for financial services, such as high-yield savings accounts). A consumer’s individual income is even more important than the general economy as a person who just received a huge bonus or raise, and is not experiencing an increase in costs will be more likely to splurge on luxury items (for instance, the tuition reimbursement check I just received and the merit and promotional increases, and bonus I will soon receive aided in my decision to purchase a Macbook Pro laptop over this past weekend). Understanding the state of the total economy and individual incomes plays a role in deciding what types of items and features to advertise.
Although my generation (I’m 23) is experiencing a huge increase in technological advances, it is not unexpected. Throughout history, technology changes and improves more and more with each passing generation. Intuitively, technology should improve rapidly as time increases because each new piece of technology can build on past generations’ inventions and ideas. To this extent, I do not believe technology is the most important part of a marketing strategy, as the most popular item in the marketplace is many times not the “best” from a technology standpoint. One of the main reasons the Microsoft operating system is the world’s most used is because they captured the business portion of the market, which allowed them to then target consumers on the basis that they were already using Microsoft at work so why not also use it at home. As many technology experts will support, Microsoft’s operating system is usually not the fore-runner from a technology standpoint, however it continues to be the dominant company in the industry.
Regulatory forces are important to note and abide by, as breaking a law may prove costly in terms of lost resources and a tarnished public image (although there are instances where the fee is a small price to pay for the level of exposure an illegal act may create, for instance the ruckus that was recently caused in Boston by the cartoon show Aqua Teen Hunger Force may outweigh the $2 million fee, although the viewer ship statistics do not support this idea). There are many laws in place to protect consumers and companies in nearly all areas of business (accounting, advertising, safety, quality, pricing, and so on). As all companies have access to the same information on regulations and laws, I do not see regulatory forces playing a large role in creating competitive advantages for firms.
Competition is the final external environment force I will discuss and in my opinion, the most important to focus on from a marketing standpoint. Marketers must pay close attention to competition in most industries, as most industries have many competitors. There are monopolistic companies, however even they need to integrate marketing into their business plan, as understanding your consumers will increase customer satisfaction and thus decrease resources devoted to customer complaints or product defects. Even water and sewer utilities will increase their efficiency by adjusting their service to meet individual consumer needs; the problem is they don’t have to.
Industries with many competitors, must ensure their product advantages are well-known, otherwise consumers are more likely to substitute with competitors products. This is a point Apple highly succeeds in focusing on the ease of use of its hardware and software. The computer industry is greatly differentiated in these two sub-categories; with the majority of the industry separated by hardware and software companies. Apple on the other hand manufactures its hardware and creates their software in one integrated product. Most of the market has many hardware companies and many software companies but Apple performs both these functions within Apple so that the two areas can communicate with each other. Apple’s marketing team ensures we understand that their system is easy to use because of this communication, visa vi their commercials that emphasize features such as a camera being built in rather than having to be added on after the fact. There also exists industries in which there are similar products, for instance cereals, for which product differentiation, and focus on the differences of benefits of buying that brand must be known to the end consumer or else they will simply go with the cheapest option.
Further, a new company must examine the current market place to determine if there are available opportunities. Research into the consumers and companies in an industry will add a cost which companies must take into account when considering new markets. I currently work in the Tax, Income and Account Openings and Maintenance department of the Global Services division within the State Street Corporation. While we allow our clients to open accounts in over 100 markets, State Street must determine how many of its’ clients are interested in opening accounts in a new country and the resources implementing a new market will require. Of course, if Brown Brothers Harriman or Mellon Bank or any of State Street’s competitors provide access to a certain market to its’ clients to which State Street does not, it may force State Street to re-evaluate their opinion.
Organizations must consider all five external environmental factors in relation to their business. Depending on the company and it’s industry, a certain organization may focus on certain factors more so than others; however it is my opinion that examining the types of competition and barriers to entry of a marketplace plays the most crucial role for most organizations, new-comers and established veterans alike.