Environmental Analysis 01/19/05

Objectives Why is environmental analysis important? What constitutes the marketing environment?

Importance of environment The success of a marketing organization depends on its ability to adapt to its environment Changes in environment increase uncertainty and environmental analysis helps reduce this uncertainty Failure to exploit/adapt to change leads to marketing failure

Fads vs. Trends Fads Trends Make your money and run! It’s all about products Trends What drives consumers to buy products? Lasts an average of ten years or more Crises do not make sweeping changes to trends “You can’t create a trend; you can only observe it. And you can’t change a trend. You can only change people’s minds about believing in it.” Source: “Clicking” by Faith Popcorn and Lys Marigold, pg. 12

Marketing Environment Two types based on controllability and impact The macro environment consists of broad trends in industries, global markets, and technologies Micro environment is defined by 5 C’s Company Consumers Competition Channels of distribution Constituents

Macro environment Demographic environment Increasing number of working women Increasing number of non-traditional families in the US Aging of the population Geographical shifts

Generation Y (Echo Boomers) Age Distribution in U.S. Generational Cohorts* Baby Boomers (82 million people born 1946-1964) Generation X (45 million people born 1965-1976) Generation Y (Echo Boomers) (72 million people born 1977-1994 Woodstock, Kennedy Assassination, Vietnam Fighting aging: skin care, adventure vacations, health foods Divorce, AIDS The MTV generation; more cynical; honesty and irreverence in advertising The Internet, 9/11 Relate well to causes; teen markets * Events occurring when people first became economic adults (usually ages 17 – 21) and its affect on their lifelong attitudes and values.

Macro Environment Socio-Cultural environment Desire to lead longer and more enjoyable lives has led to increasing vegetarianism, low tech-medicine and meditation 9/11 changed our perceptions of air travel and hurt the airline industry Political-Legal/ Regulatory environment Emphasis on natural environment has forced companies to become more “green” Increased rigor in corporate accounting and reporting (Sarbanes-Oxley Act) has resulted in a surge of hiring of auditors and increased business for consulting firms

Macro-Environment Economic environment Slowing economy and recession has led to downsizing, reduced marketing expenditures, price slashing Globalization Overseas revenues increasingly important for US firms

Macro environment Technological environment The Internet affects all aspects of marketing including product/production, communication, pricing, promotion, channels In terms of technology, the Internet has definitely affected several businesses and forced them to rethink and redesign their offering Trends in biological research have led to better drugs and medicines, disease resistant crops, genetically modified foods

Macro environment The macro-environment is not controllable and usually affects the entire economy; all companies in a given industry

Micro environment Company Customers Competitors Channels Constituents Financial, Human resources (E.g. Google.com) Customers Changes in wants, demands, behaviors (E.g. Krispy Kreme) Competitors New threats, potential entrants (E.g. Amazon.com) Channels New channel members (E.g. Cars.com) Constituents Consumer watch groups (E.g. PETA) Shareholders (E.g. Disney)

Micro environment The micro environment is relatively more controllable and its impact can be company specific For both micro and macro environments, forecasting trends is critical to marketplace success

Data Sources for environmental analysis Internal sources such as company records, customer surveys, financial records External sources such as syndicated data, trade publications, news media But… Data is NOT equal to information Too much analysis leads to paralysis

Environment analysis and strategic planning A marketing planner understands environment based on a thorough analysis of the Five C’s and the macro environment There are two reasons why environment analysis is done BEFORE strategy planning: Environment analysis involves information search. Information reduces uncertainty. Strategy planning before understanding the marketing environment will lead to “confirmation bias,” which is a tendency to look for information that confirms one’s ideas.

Managing the environment It is important to take a proactive approach to managing the microenvironment and the macro environment to affect changes that are favorable for the company. How? Hire lobbyists , run “advertorials”, file law suits and complaints, and form agreements.

Key Points Managing environmental complexity is critical to marketing success An environmental analysis is done before strategy planning in order to reduce confirmation bias Marketers must try and be proactive rather than reactive to the marketing environment