Chapter 02
Analysing the external
environment’s influence
on marketing
Chapter outline
• The marketing environment
• Understanding the external environment
• Opportunities and threats
• Environmental management
• Social factors
• Demographic factors
Chapter outline (cont.)
• Economic factors
• Technological factors
• Political factors
• Legal factors
• Competitive factors.
• Physical forces
The marketing environment
Target market = a homogenous group of
consumers that managers feel are most likely
to buy a firm’s product/s
Marketing’s involvement in the environment
can be described at two levels:
• The internal environment
– direct control and responsibility (marketing
environment)
– no control, but limited influence (business
environment)
• The external environment
– neither influence nor control
The marketing environment
Understanding the external
environment
 Environmental scanning = to continually collect
and evaluate environmental data and information
 Opportunity = an area of a consumer need that a
firm can utilise profitably.
 Threat = a challenge posed by an unfavourable
trend or development that could harm the firm
Methods of environmental
scanning
• Ongoing process with specific timeframes.
Activities:
• Study current events by attending seminars and
conferences
• Analyse speeches of political leaders
• Read the analyses of management consulting
firms and financial institutions
• Collect demographic data from government
departments
• Analyse trade figures
• Following discussions on social media and blogs
• Collect information on economic indicators.
Opportunities and Threats
• A SWOT analysis considers four questions:
• Is this environmental variable of trend:
– An opportunity (O)?
– A threat (T)?
• How can we deal with it?
– Do we have the strengths required to utilise the opportunity or
overcome the threat (S)?
– What are our weaknesses if we do attempt to utilise the
opportunity or overcome the threat (W)?
• Opportunities and threats are normally found in the
external environment
• Strengths and weaknesses originate in the internal
environment
Environmental management
Environmental management: When a firm
implements strategies to respond to the
environment within which it operates
Potential sources of opportunities or
threats:
• Technology – Internet threatens travel
agents, publishers, the Post Office
• Legislation – Consumer Protection Act
• International competition – Walmart and
Zara entering South African markets
Environmental management
Social
Demographic
Economic
Technological
Political
Legal
Competitive
Social factors
• Consumer values
• The changing role of families and gender
• New social trend or fad?
• Today’s pre-teens
• Teenagers
• Generation Y
• Generation X
• Baby boomers and prime timers
• Older consumers
• Black diamonds
• Survivors
Demographic factors
Demographics = the study of people’s vital statistics:
age, race or ethnicity and location
Demographic trends:
•
•
•
•
•
•
•
GDP risen by 31% since 1994
Population growth is slowing
Life expectancy: 53 years (men); 55 years (women)
Fertility has declined
Most populous province: Gauteng 22.4%
25% live in shacks/informal dwellings
54% urban versus 46% rural.
Universal Living Standards Measure
• Non-racial measurement to describe South
African consumer market
• Group similar people together
• Distinguishes in terms of social class/living
standard regardless of ethnicity, income or
education
• Variables:
– Access to hot running water and a flush toilet
– Ownership of various appliances (microwave, fridge
etc)
– Utilisation of services e.g. domestic work, DSTV
– Where people live: house, townhouse, rural
LSM Groups
Using LSM to understand markets
• Monthly household income
• Shopping patterns
• Education and literacy
• Language.
Economic factors
• Inflation = a general rise in prices
without a corresponding increase in
wages
• Recession = a period of economic
activity when income, production, and
employment tend to fall
Technological factors
• Pervasive influence
• Failure to analyse technological
environment can be disastrous
• Emergence of new technologies
• Impact of Internet
– Internet Trade is over R30 billion per
year
– Limitless information available
– Opportunity or threat?
Political factors
• Basic consumer rights (consumerism):
– Right to basic needs
– Right to safety
– Right to be informed
– Right to choose
– Right to be heard
– Right to redress
– Right to consumer education
– Right to healthy environment
Political factors
• Self-regulatory agencies:
– Advertising Standards - Authority South
Africa (ASA)
• Advantages of self-regulation
• Code of Advertising Practice
• Fair adjudication
Legal factors
Laws
promoting
competition
Laws
limiting
competition
Laws
protecting
consumer
rights
Legal factors (cont.)
• Central government legislation
– Privacy and data protection
– The Consumer Protection Act
– Tobacco Products Control Act
– The Competition Act
– The Electronic Communications and Transactions Act
– The National Credit Act
• Provincial government legislation
• International agreements
– World Trade Organisation - GATT
– South African Customs Union - SACU
– Southern African Development Community - SADC
Marketing implications of legislation
• Government interference = raised cost
of doing business = increased prices to
customers
• Cost of compliance with:
– Consumer Protection Act: R1 billion
– Companies Act: R3 billion
• Vodacom compliance with CPA:
– Re-train all frontline staff
– Revise contract terms and conditions
– Re-engineer business processes
Competitive factors
• Encompasses the number of
competitors, relative size and degree
of interdependence in the industry
• Increasing international competition
• Firm’s organisational culture
Physical forces
• Climate change
• Pollution
• Scarce resources
• Recycling and non-wasteful packaging
• Environmentally-friendly ingredients