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EMBA-SEM I Question And Answers

Marketing Management

Q.1 Explain pricing policy.

Ans. :

Pricing policy

Product cost, demand for the product and competition are the three major factors affecting pricing decision. When data about these factors are collected, before fixing up the product price by adopting an appropriate pricing method, the existing pricing policy must be reviewed and updated taking into consideration, the changed business environment, if any.

The existing pricing policy is to be periodically reviewed and updated in relation to other policies like selling methods, advertising policy and production policy and programme. For example, it may be necessary to reduce the product price to enable fuller utilization of plant capacity, more quickly. One of the reasons for not utilizing the installed capacity fully may be the existing imbalance in the installed production facilities. Such an imbalance may be due to the reason that the capacity of different equipment of a plant does not match. In such cases, the following alternatives are available to the manufacturing organisation to rectify the imbalance in the existing production facilities:

1. To sub-contract part production which is restricting the production.
2. To install balancing equipments with higher output potential.
3. To introduce shift working.
4. If there is consistent imbalance in the production facilities, entire plant can be replaced by installing new automatic plant.
5. Idle equipment may be sold so that entire attention can be diverted to fully utilized equipments.

In all such cases, production will increase and the increased volume of production may be sold by a suitable reduction in product price. There can be many such cases of changing business environment which may affect short-term and long-term objectives. The following table gives some marketing objectives and their pricing implications:

Marketing Objectives and Pricing

Marketing Area	Marketing Objective	Pricing Implication
Product	Improved quality acceptance	Higher cost necessitating price increase or resulting in lower profit
Advertising and promotion	Stronger support	Increased advertising and publicity budget resulting in lower profit or price increase.
Distribution	Additional selling points	Possibly higher distribution costs
Consumers	Greater acceptance	Increased advertisement and publicity efforts, possibly higher distribution cost resulting in less profit or higher price.

PRICING METHODS

There are several methods available for product pricing. Cost, demand and competition are the three major determinants of pricing. Depending upon the degree of each of these three major determinants the organization is ready to fix the price for the product. For pricing, the organization will have cost statements, demand schedules and competitors’ prices. Of the several methods available, usual methods of pricing followed by the majority of organizations are :

(1) Cost plus pricing

(2) Marginal cost pricing

(3) Going rate pricing

(4) Customary Pricing and

(5) Target pricing or pricing for a rate of return.

Of these methods, going rate pricing and customary pricing are competition-oriented methods because prices here are fixed on the basis of prices charged by competitors. Other three methods are cost-oriented methods because prices here are fixed on the basis of costs. There are several kinds of costs like historic cost, standard costs, marginal cost, target cost, activity base cost.

In the target pricing, price is continuously adjusted for the changing costs. For this, there are three popular policies:

(1)   Revise price to maintain a constant percentage mark-up over costs.

(2)   Revise price to maintain profits as a constant percentage of total sales.

(3)   Revise price to maintain a constant return on invested capital.

Cost-plus pricing

Under this method, Price = Total cost + Profit,

i.e., Price = Material cost + Labour cost + Overhead + Profit.

In this method of pricing, full cost plus a predetermined percentage will be fixed to be the price.

Hence, cost plus pricing is also known as full cost pricing. Since a standard mark-up (profit) is added to the cost to arrive at the price, the method is also known as mark-up pricing method.

This method is popular due to the following reasons:

(1)    Full cost is usually historical or actual cost and price fixation is justifiable on this count.

(2)    Where determination of full cost is rather difficult, there, standard cost could be used in place of historic cost. Standard cost is a predetermined cost which is calculated from management’s standards of efficient operation and the relevant necessary expenditure.

(3)    Predicting about the shape of demand curve is difficult and therefore response to a price change also cannot be easily predicted. Hence, full- cost pricing is a safer method.

(4)    Overhead cost usually involves huge proportion of fixed cost. An organization will usually prefer to recover this cost as a part of cost considered for price fixation, rather than recovering on a long term basis.

(5)    This method enjoys the competitive stability since it has the approval of most of the members of the industry.

Marginal cost pricing

In cost plus pricing, price is fixed based on total cost of product. But this total cost of the product has two components, viz. a variable cost component and a fixed cost component. Under marginal cost pricing, fixed cost component of the total cost is excluded and prices determined on the variable cost component only. This variable cost component is usually known as marginal cost, or incremental cost. The assumption in the marginal cost pricing is that fixed costs remain unchanged by increasing output by one more unit, the marginal cost of a product will consist of variable costs only. Thus, for price fixing, instead of cost ‘marginal cost’ will be considered. Similarly instead of ‘profit’, ‘contribution’ will be considered. Contribution will be fixed in such a way that it fully covers the fixed cost as well as the desired profit. Under marginal cost pricing, price will be fixed as follows:

Price = Total marginal cost + Contribution

i.e., Price = Material cost + Labour cost + Variable Overhead + Contribution

Note: Usually, material cost and labour cost will be variable costs and if there are fixed components, the same will be included in the fixed overhead.

Marginal cost pricing is also popular because of the following reasons:

(1)   Unlike fixed costs, variable costs are controllable in the short-run and as such, prices fixed based on marginal costs are never rendered uncompetitive because of higher fixed overhead element.

(2)   Cost-volume-profit analysis and break-even analysis based on marginal costing method will enable the management to fix prices quickly to suit the changing need of the market.

(3)   This method is more suitable for pricing over the life-cycle of a product, which requires short-run marginal cost and separable fixed cost data relevant to each particular stage of the cycle, not long run full cost data.

(4)   In multi-product, multi-process and multi-market concerns, marginal cost pricing is more efficient than cost plus pricing.

Going rate pricing

Going-rate pricing is a method of competition-oriented product pricing method. Here, price of a product is fixed on the basis of competitor’s prices. While fixing price in relation to the prices of competitors, depending upon the pricing objectives of an organization, factors such as the structure of the industry, level of the present capacity utilization in the organization, selling and administration cost of the organization visà- vis that of competitors’, customers’ perception of the products of the organization compared to those of competitors’ etc. are to be considered carefully. When ‘market leaders’ change their prices others usually “follow the leader” rather than their own cost or demand for the product changes.

When costs are difficult to measure and in the absence of any costing system in the organization or when competitive response is uncertain going-rate pricing is usually adopted by organizations.

Customary pricing

Sometimes, price of a product may remain stable and become more or less fixed without any deliberate action by sellers. When such a price remains for a considerable period of time, it will be referred to as the customary price of the product. However, when there is a change in quality or in quantity of the product, there may be a consequential significant change in the cost of the product, necessitating the revision of the price. A customary price may remain even when the product model is changed.

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Q.3 Explain the importance of consumer behavior for marketers.

Ans. :

CONSUMER BEHAVIOUR AND MARKETING

The consumer is continually exposed to new experiences and different influences and as the circumstances change, new needs and wants are invoked in the customers. It is the essence of marketing centres to identify and satisfy these needs and wants. They also need to recognize what influences these needs and how consumers go about satisfying them.

Consumer behaviour can be formally defined as the acts of individuals directly involved in obtaining and using economic goods and services, including the decision processes that precede and determine these acts.

The consumer behaviour is very complex and for the marketing to be successful, it is not sufficient just to recognize what customers require. It is equally important to recognize why it is required. Some of the questions that relate to consumer buyer behaviour are:

1. Who constitutes the market?
2. What does the market buy?
3. When does the market buy?
4. Who participates in the buying?
5. How does the market buy?
6. Where does the market buy?

TYPES OF CONSUMERS

All consumers can be classified into the following two types – personal and organizational. When a person is buying a product for his own or for family use, he represents a personal consumer. All individuals thus fall in the category of personal user. All business firms, government agencies and bodies, non-business organizations such as hospitals, temples, trusts etc. are all organizational consumers.

The consumer is the key word and it is the identification and satisfaction of consumers’ requirements that form the basis of the modern marketing concept. It is important to recognize the types of customers to study consumer behaviour. The consumers are classified on the following basis.

1. Social classes: Social stratification is prevalent in all human societies. Social classes are relatively homogenous divisions in a society, which are hierarchically ordered, and whose members share similar values, interests and behaviour. Social stratification as defined by social scientists in US has come up with the following major social classes: Upper Uppers, Lower Uppers, Upper Middle, Middle, Working Class, Upper Lowers and Lower Lowers.

2. Age groups: People of varying groups buy different goods and services. Thus, based on the age groups we get the following stratification: Bachelors, newly married, full nest I, full nest II and full nest III based on age of children, empty nest I and II, solitary survivor.

3. Occupation and economic circumstances: This also produces a wide range of customer types based on their purchasing capacities.

4. Life style: People of different lifestyles produce a variation within people of the same sub culture, social class, or occupation.

VARIOUS PARAMETERS AFFECTING CONSUMER BEHAVIOUR

Consumer behaviour is affected by a wide variety of variables like cultural, social, personal, and psychological. The combination of these various factors produce a different impact on each individual.

Consumer Behaviour Variables

1. Culture is the most fundamental determinant of a person’s wants and behaviour which has been obtained by the person as a set of values, perceptions, and preferences from family and other key institutions.
2. Subculture provides more specific identification and socialization within the culture and includes religions, racial groups and geographic regions. Subcultures make up important market segments.
3. Social class has a hierarchical order with members of a class sharing similar views, interests, and behaviour.
4. Reference groups consist of all groups having a direct or indirect influence on the person’s attitude or behaviour. Reference groups expose an individual to new behaviour and lifestyles. They influence the person’s attitudes and self-concept.
5. Family is the most important consumer-buying organization and the members of the family constitute the most influential primary reference group.
6. Roles and statuses-Activities which a person has to perform determine his role and the role of a person carries a status.
7. Age and stage in life cycle Consumption of goods and services is based on the family life cycle as well as the psychological life cycle.
8. Occupation influences the person’s consumption pattern by controlling his purchase power.
9. Life style is the individual’s pattern of living in the world as expressed in activities, interests, and opinions.
10. Personality and self concept is described in terms of traits like self confidence, dominance, autonomy, defensiveness, sociability, and adaptability.
11. Motivation is needed to sufficiently drive the person to act. They can be of two types – biogenic arising from tensions of hunger, thirst, discomfort etc. and psychogenic arising from feelings like need for recognition, esteem or belonging.
12. Perception is the process by which an individual makes a selection, organizes, and interprets information to obtain a meaningful picture of the world.
13. Learning changes an individual’s behaviour arising from experience.
14. Beliefs and attitudes are acquired through doing and learning and these in turn influence the buying behaviour.

IMPORTANCE OF CONSUMER BEHAVIOUR FOR MARKETERS

Consumer behaviour helps the Marketing Manager to understand the purchase behaviour and preferences of different customers. In marketing terminology, specific types or group of consumers who buy different products (or variation of the same basic product) represent different market segments.

For successful marketing to different segments, the Marketing Managers need to know about appropriate marketing strategies which can be decided only when all factors affecting consumer behaviour are recognized.

To survive in the ever changing market scenario, the firm has to be aware of the latest consumer trends and tastes. Consumer behaviour gives clues and guidelines to marketers on new technological frontiers which they should explore.

Since the consumer behaviour can be influenced to some extent by specific elements of the marketing strategy, the marketer must give significance to recognize those influencing factors. Once they are identified, a marketer can study and even manipulate these factors. Thus, the importance of consumer behaviour is that the behaviour of a person can be understood and influenced to ensure a positive purchase decision.

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Q. 4. Explain the procedure in Marketing Planning.

Ans. :

Market-oriented strategic planning is the managerial process of developing and maintaining a feasible balance between the organization’s objectives, skills, and resources and its changing market opportunities. Strategic planning aims at shaping the company’s business and products to yield target profit and growth.

The Marketing Manager plays a vital role in strategic planning process. He defines the business mission, analyses the environmental, competitive, and business situation, and finally develops objectives, goals and strategies.

The planning procedures that happen at various levels are as below:

1. Corporate strategic planning: These are plans made by the corporate head quarters to guide the entire enterprise.
2. Division planning: It covers the making of decisions on the amount of resources to be allocated to each division.
3. Business unit strategic plan: Each business unit devises a strategic plan to carry that business unit into a profitable venture.
4. Product marketing plan: Each product line or brand within a business unit develops a marketing plan for achieving its objectives in the market.

The strategic-planning, implementation, and control process can be summarised as follows:

Planning Process

Corporate and division strategic planning :

The corporate establishes the framework within which divisions and business units prepare their plans. This is done by defining the mission, policy, strategy and goals of the company. The corporate head quarters undertakes four planning activities:

1. Defining the corporate mission: Every company has a mission or purpose and a well-worked-out mission statement, encourages and motivates the employees with a shared sense of purpose, direction and opportunity.
2. Establishing strategic business units (SBUs): The company has to establish strategic business units on the basis of the following three dimensions: customer groups, customer needs and technology.
3. Assigning resources to each SBUs: The senior management studies the company’s portfolio and classifies its business by profit potential. After the company’s strategic business units are identified, appropriate funding is assigned to each unit.
4. Planning new businesses and downsizing older business: New businesses can be of the following types – intensive growth opportunities (to achieve further growth within the company), integrative growth opportunities (to build or acquire businesses related to the company’s current business) or diversification growth opportunities (adding new businesses that is totally unrelated to the company’s current business).

Business strategic planning :

This occurs in the following steps:

1. The unit defines its specific mission.
2. It performs overall evaluation of company’s strengths, weaknesses, opportunities, and threats (SWOT analysis)
3. It develops specific goals based on the SWOT analysis;
4. It develops a strategy to achieve the goal.
5. It develops detailed supporting programs to help in the strategy.
6. It implements the clear strategy and well-planned supporting programs.
7. It keeps a track of the new developments and results and controls the strategy accordingly.

Product marketing planning:

Each product level (product line, brand) must develop a marketing plan for achieving its goals. A marketing oriented company attaches great significance to gathering information on which plans are based. Their activities centre around– customer needs and satisfaction.

The Marketing Manager deals with the following questions:

1. Who are our customers?
2. What do they buy?
3. How do they consider value?
4. When do they buy?

ELEMENTS OF MARKETING PLANNING

The planning role of the marketing management comprises the determination of marketing objectives together with a choice of strategies and tactics to achieve these objectives and a time scale for their implementation and achievement. For obtaining this, the marketing plan must comprise of the following:

1. Executive summary and table of contents: The marketing plan should comprise of a brief summary of the plan’s main goals and recommendations. This should be followed by a table of contents.
2. Current marketing situation: This should contain relevant background data on sales, costs, profits, market, competitors, distribution, and the macro environment.
3. Opportunity and issue analysis: This requires the Product Manager to identify the major opportunities/ threats, strengths/weakness, and issues facing the product line.
4. Objectives: After the Product Manager has summarized the issues the financial plan and the marketing objective are set.
5. Marketing strategy: The Product Manager outlines the broad marketing programs to accomplish the plan’s objectives. In determining the strategy, the Product Manager talks with the purchasing and manufacturing people to determine whether they will be capable of meeting the target volume levels set.
6. Action programs: It devises special marketing programs to achieve the business objectives. It must be dealing with the following questions: What should be done? Who should do it? How much will it cost?
7. Projected profit-and-loss statement: This is essential to forecast the plan’s expected financial outcomes. On the revenue side, this budget shows the forecasted sales volume in units and average prices. On the expenses side, it shows the cost of production, physical distribution and marketing. The difference between revenues and sales is the projected profit.
8. Controls: The final section of the marketing plan outlines the controls for monitoring the plan. This deals with reviewing the results of goals and budgets set for each month or quarter. Some control sections include contingency plans which outline the steps the management takes to respond to specific adverse developments like strikes etc.

MARKETING MIX AND MARKETING PLANNING

All the elements of marketing mix (the 4Ps) are arrived upon and implemented in the broad framework of a marketing plan. The marketing plan, like any other planning process, is an interactive process and is done on a continual basis of constant monitoring, redefinition, adaptation, and re-evaluation of objectives and strategies.

The concept of the Product Life Cycle (PLC) is briefly introduced to understand how the components of the marketing mix change during different phases of the life cycle of the product. The PLC of a product involves with the stages corresponding to the life phases of infancy, growth, maturity and decline. The belief is that sales are low during the introductory stage, rapidly rising during the growth stage, reach the peak during maturity stage and start declining during the final stage. Different products will take different spans of time to pass through the cycle of introduction, growth, maturity and decline. The marketer should seek and identify the stage in the life cycle from the conditions in the market. For this, it is recommended to try and foresee the next stage and work back to establish the current stage.

Elements of Marketing Mix

The table below describes different elements of marketing mix for coping with the different PLC stages

Stage in PLC	Product	Pricing	Promotion	Distribution
(1) Introduction	Resolve product deficiencies	Highest	Create awareness of product’s potential, stimulate primary demand	Selective Distribution
(2) Growth	Focus on product quality, variation of Product introduction, Product adjustments for further brand differentiation	High	Selective advertising of the brand. Heavy advertising to create image	Extended Coverage
(3) Maturity	Simplify product-line	Moderate	Build and maintain image. Facilitate sales promotion	Seek close dealer Relationships
(4) Decline	Seek new product users.	Low	Primary demand may be created again	Selective

Role of Advertising in the Marketing Mix

Since there exists only few firms which directly compete with each other in the same market, each of them desires to increase their share by increasing demand through advertising rather than reducing prices. This approach is preferred because the firm can achieve a competitive edge in advertising because it has a very wide reach and establishes an image that cannot be obtained otherwise.

Role of Price in Marketing Mix

Pricing decision is carefully coordinated with decisions on product, promotion and distribution on the basis of the target market strategy. This is so because the chosen target market gives overall direction in determining marketing mix. Competitors are more likely to react to a lowering of price than to an increase in advertising expenditure because such a lowering is highly visible and is often associated with the onset of cut throat competition.

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Q. 2. Explain the different Marketing Environments and the role of Culture and Subculture.

Ans. :

MARKETING ENVIRONMENT

Rather than establishing what the organization can produce and then going out and ‘selling’ it, the marketing-oriented firm first finds out the genuine needs and wants of consumers and then attempts to produce products and services that satisfy these requirements. In a wider sense, the marketing concept is more an attitude of mind or a customer-oriented business philosophy, rather than merely a functional area of management.

Although a clear understanding of consumer’s requirements is of paramount importance in putting such a business philosophy into practice, there are also other factors to consider. The marketing firm operates within a complex, dynamic, external macro-environment. It is the task of the marketing –oriented firm to link the resources of the organization to the requirements of consumers within the framework of opportunities and threats presented by this macro-environment. Hence, the marketing firm not only has to put consumer’s requirements at the top of its list of priorities, but it also needs continually to adjust to environmental factors.

Kotler defines the general marketing environment as follows:

A company’s marketing environment consists of the actors and forces that affect the company’s ability to develop and maintain successful transactions with its target customers.

Such a definition includes all environmental forces outside of the firm’s marketing management function. This would also include inter-departmental influences.

Russ and Kirkpatrick call the interaction between the marketing department and other functional areas of management the intra-firm environment. It is important, in order to understand the influences of external environment forces, to appreciate that, although the marketing function is the channel through which the firm adapts to change in external conditions, marketing’s ability to carry out this role is also influenced by internal factors.

The general marketing environment, therefore, consists of all the factors and forces influencing the marketing function. This includes both internal and external forces. Internal forces, i.e., the intra –firm environment, are largely within the control of the firm. It is the generally uncontrollable forces outside the firm in the macro-environment that pose the most important sources of opportunities and threats to the company.

Kotler reserves the term ‘macro-environment’ to denote other external forces such as demographic, economic, political, technological, and socio-cultural forces. The term ‘macro-environment’ denotes all these forces and agencies external to the marketing firm. Some of these outside factors and forces will be somewhat ‘closer’ to the firm than others, for example immediate suppliers and competitors.

THE MACRO-ENVIRONMENT

The only real certain thing in this world is change. Sometimes change occurs so slowly that it is virtually imperceptible. We are often unaware that change is occurring until it is too late to do anything about it. At other times change is so rapid that, even though it is obvious, we find it difficult to react quickly enough. Although none of us possess the power to foresee the future, we can be sure that it will be different from today, and that change is a fact of life. We have little power to stop it, and the sensible course of action is to welcome change and attempt to adapt to it.

In order for a firm to be able to adapt successfully to changing circumstances, management needs to have an understanding and appreciation of the factors and forces influencing such changes, Ideally, a firm should be in a position to adapt to changes as they are occurring, or even in advance. Firms should attempt to capitalize upon change rather than merely reacting to it. By identifying environmental trends soon enough, management should be able, at least in part, to anticipate where such trends are leading and what future conditions are likely to result from such changes.

Unless firms are able to identify and react to changes quickly enough, they are likely to be dictated to by circumstances beyond their control. Instead of being part of the changes occurring, and leading the market, they will, of necessity, be forced into being market followers. Instead of adapting to change and even going some way towards influencing events, events will instead influence them, perhaps in an unfavourable way.

In terms of its speed of response, and its ability to react to changing conditions, we can generally classify three types of firm:

1. Firms that identify and understand the forces and conditions bringing about changes. Such firms adapt and move in line with such changes. To a certain extent, such a firm may itself play a part in influencing events.
2. Firms that fail to adapt to changes early enough to become part of that change. Such firms have little opportunity to influence events, but are usually forced to react to changes eventually, out of the necessity to survive.
3. Firms that fail to realize change has occurred, or refuse to adapt to changing circumstances. Such firms are unlikely to survive in the long term or, if they do, are unlikely to prosper.

The competitive environment

There are very few firms that are fortunate enough to have no competitors. Except in the case of the centrally planned economies, of which, of course, there are fewer and fewer as they increasingly turn towards free-market mechanisms. On the other hand, there are very few markets which possess all the characteristics of what the economist calls a ‘perfectly competitive’ market structure where no company has any differential advantage and where all products are homogenous and companies therefore must accept the market price. Rather, most markets fall somewhere in between these two extremes but are characterized by intense competition. In some markets the market structure is dominated by three or four very large companies with a number of medium and smaller sized companies all vying for position. In such competitive market structures, in an attempt to reduce price competition and to secure a competitive advantage, companies will seek to make their products and services stand out in some way from their competitors. This attempt to differentiate product/services from those of competitors is a key feature therefore of modern marketing. Differentiation can be achieved in many ways, but essentially the extent to which differentiation is successful or otherwise is the responsibility of the marketing function. So, for example, the marketer will seek to gain a competitive edge through, say, branding, or perhaps packaging. Innovative distribution, or excellent customer service can also be used to differentiate the company’s offering from those of competitors. Clearly, marketing decision therefore must reflect and indeed be based upon an analysis of the competitive environment. In fact, the competitive element of a company’s environment is probably one of the most important elements in the development of marketing strategies and plans, and therefore in affecting the extent of a company’s success, or otherwise, in the market place. Traditionally, economists have distinguished between market structures with different degrees of competition. As already mentioned, at one extreme we have the monopolistic market structure where there is only one supplier and hence little or no competition. We have also suggested that this type of market structure is increasingly rare apart from the centrally planned economies or where for some other reason an industry is state run or protected. Also, as already mentioned, as the other extreme is the perfectly competitive market structure where products are undifferentiated between competitors. In the ‘real world’ though the economists ‘oligopolistic’ (a market structure with a few relatively large companies) or ‘monopolistic competition’ (a market structure with many competitors and hence where product differentiation of some kind is crucial) are more realistic.

Supplier environment

Suppliers are other business firms and individuals who provide the resources needed by the marketing firm to produce goods and/or services. Nearly every firm, whether engaged in manufacturing, wholesaling or retailing, is likely to have suppliers. Large firms such as Marks and Spencer or the Ford Motor Company are likely to have numerous suppliers. For example, Ford must obtain glass windscreens, headlamp units, brake pads, tyres, steel sheet, fabric for interior upholstery and a number of other materials in order to produce cars. While some of these product constituents will come from major manufacturers such as British Steel, Pilkington’s Glass, Lucas and Dunlop, other components, ranging from industrial fasteners to engine gaskets, will often be supplied by a large number of smaller, less well known companies.

As we will appreciate, Ford depends on possibly hundreds of suppliers for its manufacturing capability and commercial prosperity. In the same way, hundreds of firms depend on Ford for orders. The firms that supply Ford with finished components are also likely to be supplied with raw materials or semi processed goods by a host of other suppliers.

Purchasing is regarded as a very important management function in many organizations. The reason for this is that firms must be able to purchase product and services at an acceptable price and quality. The firm must also ensure that its suppliers are capable of offering an acceptable level of service on such matters as delivery, reliability, stock availability, servicing arrangements and credit facilities.

The buyer-supplier relationship is one of economic interdependence. Both parties rely on each other for their commercial well being. Changes in the terms of the relationship are usually based on negotiation rather than on ad hoc unilateral decisions. Such relationships are usually long term, with each party realizing its dependence on the other. Both parties are seeking security and long-term stability from their commercial relationship. This is not to say that factors in the supplier environment do not change. Suppliers may be forced to raise their prices and may also be affected by industrial disputes which, in turn, will affect delivery of materials to the buying firm. Some suppliers may find themselves in financial difficulty and be forced into liquidation. In an attempt to limit the effect of such factors, many buying firms use a ‘multiple sourcing’ purchasing policy. This avoids over-dependency on any one supplier and reduce the vulnerability of the buying firms.

The distributive environment

Many firms, particularly in industrial markets where products are often buyer-specified market and deliver their products direct to the final customer. Other firms use some form of intermediate distribution system. The distribution system is then made up of one or more ‘middlemen’ who can be individuals or other organizations. They range from agents, distributors, factors and whole sellers to retailers.

Because of the seeming permanence of the distributive environment at any point in time, many firms make the mistake of thinking it is static. In fact, distribution channels change and evolve just like any other facet of business life. As Davidson explains:

Distribution channels resemble the hour hand of a watch. They are always moving, but each individual movement is so small as to be invisible in isolation. The cumulative movement over a number of years can, however, be massive.

Because distribution channels change relatively slow, it is easy for manufacturers to respond too slowly to their evolution. Existing channels may be declining in their popularity of efficiency, while new potential channels of distribution may be developing, unnoticed by the marketing firm.

Political Environment

To an increasing extent, the operation of business firms is influenced by the political framework and processes in our society. Marketing management must be alert to changes in the political attitudes or ‘climate’, which depend on the policies of the government of the day. The political environment cannot be examined in a vacuum. Political philosophies on their own are nothing without action. The outcome of political decisions can be seen in the legislation and economic policies of government. In this sense, you will appreciate that, although for clarity of exposition we are examining the various macro-environmental forces in isolation, in reality they are very much interrelated. Many of the legal, economic and social developments in our society and other countries are nothing more than the result of political decision put into action. For example, in the 1980s the Conservative Party favoured a monetarist approach to the management of the UK economy. It attached great importance to the control of money supply and hence government public expenditure. The general philosophy of the Conservatives was one of ‘self-help’ and free enterprise, preferring to see business in the hands of private share holders rather than being owned by the state. Its main concern was with the reduction of the level of inflation which seen as being vital to long-term economic growth and stability. Expenditure on services such as education and social services was generally reduced as a percentage of total expenditure doing the Conservatives’ 18 years in office. Business, entrepreneurship, private ownership and profit were seen as being a good thing, vital to the country’s future prosperity.

Economic environment

Marketing management must understand the effects of the mainly economic variables that are likely to affect their business operations. We see in the mass media that inflation is rising or falling, that exchange rates are affecting the value of the currency or influencing the level of interest rates. We hear discussions on the level of unemployment, industrial output, or the current state of the balance of payments. Such economic factors are of concern to marketing firms because they influence costs, prices and demand.

Although world economic forces are of paramount importance to marketing firms, particularly those involved with either importing or exporting, domestic economic forces usually have the most immediate impact. The level of domestic unemployment affects the demand for many consumer products, especially those classed as ‘luxury goods’. This in turn affects the demand for many industrial products, particularly manufacturing plant such as machine tools. The rate of inflation and the cost of borrowing capital affect the potential returns from new investment and inhibit the adoption of new technologies. Governments of every persuasion attempt to encourage economic growth through various policy measures. Tax concessions, government grants, employment subsides and capital depreciation allowances are some of the measures that have been used.

The marketing firm needs to monitor continually the economic environment at both the domestic and international level. The ‘ebb and flow’ of economic forces and the policies that governments use to attempt to manage their economics could have a significant impact on a firm’s business operations. As with all other environmental factors, economic factors can be viewed as a source of both opportunities and threats to the marketing firm. By carefully monitoring and understanding the economic environment, a firm management should be in a better position to capitalize upon the opportunities and to do something about reducing the threats.

Technological environment

Technology is a major environmental influence upon the marketing firm. It affects not only the firm’s operations and product, but also consumers’ life styles and consumption patterns. Management must be aware of the impact of technological changes. As Wilson explains in relation to electronics:

The development of the microprocessor and its large production has revolutionized information collection, processing and dissemination which in turn is affecting the whole spectrum of marketing activity.

The impact of new information technology has been particularly marked in the marketing research area. For example, it is now possible to design and administer questionnaires via computer terminals. In the past this method has been used on a limited basis, but is being more and more frequently used. Computer assisted telephone interviewing (CATI) has revolutionized the speed with which surveys can be completed. Responses are fed immediately into a computer and a report ‘hard copy’ can be available immediately after the final interview is completed As Thomas explains:

On-line interviewing is now in widespread use in the larger data gathering market research firms. Interviews, using telephones, work from a questionnaire which is displayed on a VDU and responses are keyed straight into the computer.

Sales forecasting has always been, and always will be, an important marketing activity. Until recently, the majority of firms tended to use subjective or judgmental sales forecasting methods. The development of computers and available software programs has brought the use of sophisticated forecasting techniques within the reach of all companies. Technology also affects the way in which goods are distributed and promoted. Containerized freight and automated warehousing have increased the efficiency with which products can be distributed. Sales representatives can now use audio-visual equipment for presentations and demonstrations. Technology is also affecting marketing at the retail level. Electronic point-of scale (EPOS) data capture is now used by the major retailers. The ‘laser check out’ automatically records consumer purchases and is used to analyse sales and to control and re-order stock. Operation of the laser checkout system depends on the electronic reading of codes. Many fast-moving-consumer-goods (FMCG) manufacturers have responded to these developments by incorporating ‘bar codes’ on their product labels.

Technology has influenced the development of products themselves. Genetic engineering aerosol cans, digital television, compact disc players-video recorders, word processors and instant cameras have all come into widespread use over the past few decades. While older industries are in decline, whole new industries sometimes referred to as the ‘sunrise industries’, have developed and grown to take their place. These new industries have capitalized on developments in the technological environment (e.g. information technology, biotechnology and aerospace).

The role of culture

A society’s culture is completely learned way of life which is handed down from generation to generation. Cultural influences give each society its own peculiar attributes. Although the norms and values within a society are the result of many years of cultural conditioning, they are not static. It is cultural changes, and the resulting revised norms and values within a society, that is of particular interest to the marketing firm. Nowhere is the aspect more poignant than when the company is marketing internationally.

The English anthropologist, E.B. Taylor, defined culture as:

That complex whole which includes knowledge, belief, art, morals, law, custom, and any other capabilities and habits acquired by man as a member of society.

Taylor’s definition is an accepted classic in defining some of the major facets of culture, and in emphasizing that culture is very much a learned phenomenon. British culture has historically been largely materialistic, derived as it is from the Protestant work ethic of self-help, hard work, thrift and the accumulation of wealth. Arguably, other Western cultures such as the United States, Germany and Japan are even more materialistically oriented. This factor is often thought to be one of the reasons for these countries’ superior economic performance. Cultural values do, however, change over time, and a number of Western core values are currently undergoing major changes. Some of the changing cultural values are particularly prevalent among the young include:

1. A questioning of materialism and its values.
2. A decline in respect for authority and the law.
3. A belief in the rightness of militancy and conformation.
4. A desire for innovation and change.
5. A shift towards informality

Sub-cultural influences

Within each culture are numerous sub-groups with their own distinguishing modes of behaviour. In the United States black Americans represent the largest racial/ethnic sub-culture. In the UK it is the Asian community. American marketing firms realize that it is impossible to treat such a large group of consumers as a homogeneous mass, a number studies though indicate that their consumption habits are significantly different from those of the remainder of Americans. As a result, American firms are now designing products and advertising campaigns aimed specifically at this large minority markets. This has now also happened in the UK.

Indeed, although the UK is more culturally homogeneous than the USA, firms can no longer ignore the cultural differences of the ethnic population. Ethnic heterogeneity is slowly being recognized by more enlightened firms as potential source of marketing opportunities. Cannon highlights a number if interesting examples of marketing opportunities and problems related to sub-cultures.

1. Products may need to meet special religious needs (e.g. kosher foods).
2. Marketing intermediaries may be different (e.g. the importance of small, Asian-run, shops)
3. Consumer tastes may differ (e.g. Cadbury Typhoo’s poundo Yam, aimed mainly at consumers of Caribbean origin)
4. Language can be a problem in marketing communications (e.g. in the UK, 77 per cent of Pakistani origin women and 43 percent of Pakistani-origin men cannot speak working English).

The culturally aware marketing firm will recognize that sub-cultures represent distinct market segments and will seek to increase their awareness of the needs, attitudes and motivations of sub-groups.

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