MACROENVIORNMENT -

MACROENVIORNMENT -IN MARKETING-

  MBA / BBA MARKETING MANAGEMENT QUESTION PAPER 2020 PUNE UNIVERSITY

ALL YOU NEED TO KNOW - DETAILED ANALYSIS -  FACTS - EXPLAINED WITH EXAMPLES

 

The major external and uncontrollable factors that influence an organization's decision making, and affect its performance and strategies. These factors include the economic factors; demographics; legal, political, and social conditions; technological changes; and natural forces. • Specific examples of macro environment influences include competitors, changes in interest rates, changes in cultural tastes, disastrous weather, or government regulations.

What is Macro Environment ? Macro environment is basically referred to the area of external business operations of a particular organization. The components of a macro environment have to be well analyzed before planning the course of marketing programmes as it affects the very performance of a product or an organization. All the factors affecting the performance of a firm in the macro environment are referred to as the components 

Macro Environment is the external environment factors greatly influenced the business success, strategies and decision making. These factors are uncountable by the business organizations. The wider and broader set of economical conditions is known as macro environment.

Marketing environment consists both internal and external environmental factors affect the organization success. Business Managers have challenges to develop such marketing strategies that minimize the risk caused by these macro factors both in present and future.

How Macro Environment Factors affect Business

There are 6 macro factors that affect business environment positively or negatively. Marketers must assess macro factors for developing sound marketing strategy. There are many strategic analysis tools (PEST, SWOT, Porter’s 5 Forces) to assess these macro environmental factors. PESTLE Analysis tool is widely used in the business community to find out opportunities and threats. Once understand the outcome, marketers can utilize opportunities and minimize threats.

FORCES IN COMPANY’S MACROENVIRONMENT

1. DEMOGRPAHIC ENVIRONMENT

• Demography is the study of human populations in term of sizes, density, location, age, gender, race, occupation, and other statistics. The demographic environment is a major interest to marketers because it involves people, and people make up markets.

Demographic Forces Demographic forces relate to people. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers.

 The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies. Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on.

if the region is dominated by matured and senior adults like that in US, marketers will never try to sell any youth-centric product over there. Instead, they will either think of some commodity that will appeal to the majority of the demography or move out from the place. At the same time, if the region is flooded with youths, the same heads will think of attracting the population towards their product.

 

Migration trends reveal another significant characteristic of demography. For example, if marketers find that a major proportion of population migrates from rural to urban areas within the country; they can immediately make the commodities available within their reach while conducting campaigns and strategizing communications in all areas.

 2. ECONOMIC ENVIRONMENT •

The economic conditions of the economy and the performance of a business have a very close relationship. A business depends on the economy for all its inputs and factors of production. It also sells its products and services in the same market.

 A market is never in one stable condition. It is always in a flux. If there is a boom in the market then all businesses will benefit from the favorable conditions. The income will be higher, rate of interests will be low, new capital will be available etc. Also, the opposite is also true in case of a bust.

 The economic environment consist of factors affecting consumers purchasing power and spending patterns both across and within their world markets.

 

  Economic Forces The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns.

Economic Cycles

Companies are enormously sensitive to occurrence of changes in an economy. Economic factors include inflation rate, currency exchange rate etc.

 Examples

 During bad times most of the consumers do not buy new cars, avoid eating out or building a new house for them and vice-versa. However, we must understand that not all the industries are affected negatively with the changes in economy. During bad times most of the families cut down their expenses, they compromise on quality and brands in order to remain in their budget. They limit their savings by cutting down their extra expenses without affecting their standard of living. In the same way companies also cut down their expenses when their sales are down.

US economy was quite strong in the late 90s, and during that time it was quite easy to sell luxurious and branded items. Currently, the economy fluctuates between increasing strength, stagnation, or slight decline. Due to this reason Downturns in the economy affects badly to any Firms.  For example during downturns, car manufacturers observe decline in their profit margin and in order to remain in the market they had to cut down their prices and offer low interest rates while financing. Generally, in good economic times, there is a great deal of demand, but this introduces a fear of possible inflation. Therefore, in the US, Federal Reserve raises interest rate in order to prevent economy from “overheating”. Due to this increase in interest businesses avoid investing and in result, people tend to make less money.

 During the time of recession, rate of unemployment tends to rise which causes consumers to spend less. And this often results in a “bad circle,” with more unemployed people and those who lost their jobs due to the recession. Some companies use this situation very wisely and take this opportunity to invest in growth since the things can usually be bought more cheaply.

3.  

NATURAL ENVIRONMENT

•The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities.

  Natural Forces The natural environment consist of many amenities that attract tourists, such as conserve natural habitats, resources, endangered species, minimize environmental impact, recycling, energy efficient products and clean air. The natural environment involves natural resources needed as inputs by marketers or that are affected by marketing activities.

 4. TECHNOLOGICAL ENVIRONMENT •

 In the times we live in, technology is constantly changing it is important that the business can keep up with the changes. Technology does not only confine to computers and IT services. It includes products, manufacturing processes, techniques etc.

 The technological developments can be a huge advantage for a firm. But at the same time of the technology used by the firm becomes obsolete due to such developments, then it can also be a threat to the firm.

The technological environment is perhaps the most dramatic force now shaping our destiny. Forces that create new technologies, create new product and market opportunities.

The skills and knowledge applied to the production, and the technology and materials needed for production of products and services can also impact the smooth running of the business and must be considered. The marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market opportunities.

Technological Factors

Technological factors are those variables rely on current, available and change in technology. These factors may be technological products and process.

 The changing trends in the advancement of technology are very rapid. These technological changes can affect business negatively or positively, if not responded properly. These changes can positively improve business productivity, cut costs and minimize production and distribution cost.

 Example

 For example, Federal Express demand lowered with the invention of Fax Machine. Record stores have vanished due to no business as people are more towards downloading songs from internet (illegally getting it from friends –  

 5. POLITICAL ENVIRONMENT •

The political environment of a country is the combination of three branches of the government – legislature, executive and the judiciary. The political environment of a country will mainly depend on the political beliefs and ideologies of the party in power at the state and central levels.

 The legal environment refers to the rules, laws, regulations, and judgments etc. that affect the functioning of a business. And this will also include the taxation laws and the Budget for the given year. So stable legal and political government is really important if the business and the economy as a whole has to succeed.

 The political environment consist of laws, government agencies, and pressure groups that influence and limit various organizations and individuals in the given society.

Political Forces Political factors are those factors that business has to be more careful and influence the business more than other factors. Political factors means how and in which manner and in what degree a government interfere in business. Political factors includes government regulation and legal issue and both formal and informal rules under which business has to operate its work. Some examples of political factors:  Stable political environment  Tax and labor policy of government  Government's economic policy  Involvement of government in different trading agreement

Political Factors 

In external environment, political factors are Government actions, rules and regulation. Change in political situation can be a very sensitive issue to a company. Political factors that affect business are uncontrollable like political stability, current and impending legislation. The only solution is to conduct environmental analysis. It will help to know the threats and opportunities and take precautionary measures as desired.

 

Example

 

More stringent measures are to be made regarding car leases through the consumer lobby group in congress. The tobacco industry has been receiving too much attention from the government albeit on a negative note which makes it the next target. The American firms will find it more difficult to export goods due to the stringent laws that are being put in place to avoid aiding the enemy. Despite the fact that policies being made are to benefit an industry by realization of higher profits, the same could impact negatively on the nation.

 6. CULTURAL ENVIRONMENT •

 The social values and culture of an environment play a huge role in the functioning of the company. So when the social environment changes it can have a direct or indirect effect on the company.

 For example in recent time society has seen a shift, and people no longer retire at 60. They work five to ten years more after sixty. So this has had a huge impact on companies.

 Cultural forces also have a significant impact on the success of a company in the long run. Especially in a country like India where the cultural influences are strong and complicated.

 The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors.

Social / Cultural Forces Social factors are related with the society. How the society behaves and thinks about any things. Firm has to do its business than it must have to give more important or focus on social factors. Business cannot exist without society because it is a part of it. Social factors are very from country to country, it depends upon following region, thinking of people etc. Social factors includes  Lifestyle of people  Demographics  Fashion  Trends  Religious factors  Population growth rate

Social Factors

Organizations can be affected by demographics change and change in customs.

 Example

The demand for baby food has decreased because of birth control. The demand for prepared food has increased with the increase in number of working women. This is an opportunity for few organizations such as fast food restaurants but on other hand it is a problem for manufacturer of furniture with the increase of unmarried singles, as some people don’t buy furniture until their marriage.

The social structure of a place gives an idea about the predominant culture and psychographics of the target audience. Organisations need to know if the area has a mixed population of various communities, for example, most metropolitan cities or it has a major share of a local population like the Marathi in Maharashtra, Bengalis in West Bengal, etc.

 Socio-cultural aspect also talks about the eating habits of the people. As an example, people living in the western world prefer to have high protein food like beef, ham, etc. which is why their burgers come in that fashion. However, people living in the tropics live on chicken, mutton and eggs so do their burgers. Hence, eating habit and consumption pattern reveals a lot about the probable likes, dislikes, and preferences of consumers. are very susceptible to change in laws and interpretations done by courts.  

Example

 For instance, some people have sued McDonald’s blaming McDonald’s hamburger lead them to obesity. There is not much that firms can do about several laws. For example, some laws require organizations to make disclosure to customers about the applied interest rate they will be paying for product purchased on instalments.

8. Inflation

Stating explicitly whether the amount being referred is in actual dollar or any other currency to be the adjusted figure will be necessary. This is because with time a number of economies have faced inflation crisis which has impacted on the real value of their currencies. For example, a single dollar spent in 2007 will have a different value when compared with a dollar in 1960. Therefore, it is becoming increasingly important to state whether a quoted amount is inflation adjusted.

 Example

 By use of an example, we suppose that inflation between 1960 and the year 2007 was 1000% on average, this would imply that the cost would be about ten times more than 47 years ago. However, using the same scenario if inflation from the year1960 to the year 1984 was 500/% cumulatively, this would mean that the value is fifty cents of the 1960 dollar and if pitted against the 2007 dollar, it would be $2. Notably important is the fact that inflation is not even but irregular. The cost of some services and products are seen to be on the rise beyond the average rate of inflation currently. This is apparent especially within the education sector and the healthcare industries. However, the prices of computers, are seen to decline in value, of money that is made in payment for quality and in absolute numbers as well. For instance, a computer costing $1000 on average but in two-year times the value goes down to $800. Thus, in two years the computer had depreciated in value by a figure of 20% which could possibly be 30% instead if the value is based on speed index together with other factors of performance. Therefore, the net deflation within that period is almost 38.5.

9. Ecology

 Ecology and physical environment play a huge part in the performance of any business. This is especially true for manufacturing/production companies. Let us take the example for global warming.

This change in our physical environment has started affecting the rainfall in certain regions. This in turn may affect the crops and cause a shortage in raw materials such as jute, cotton, rubber etc.

Weather conditions, topographical elements, geographical location, climate changes and other ecological factors are a very important element in the macro environment of a business.

Another vital aspect of the macro environment is its physical setting. This includes the geographical location, the presence of ecology and biodiversity, temperature, weather and climate and predominant seasons. By having a concrete understanding of all these features, marketers will know where to sell what kind of products.

For example, products like heaters and electric blankets will never be of any use to equatorial and tropical regions; although these are the highly populated zones in the world. Again, air conditioners or coolers will never appeal to the Western countries, living in the temperate zone. Therefore, before launching a product, successful companies study the environment and ecology of a place to know about the needs and demands of its inhabitants.

 Conclusion 

 macro environments has a significant impact on the success of marketing campaigns, and therefore the factors of these environments should be considered in-depth during the decision making process of a strategic marketer. The company is surrounded by a complex environment. The Macro Environment consists of a large variety of different forces. All of these may shape opportunities for the company, but could also pose threats. Therefore, it is of critical importance that marketers understand and have an eye on development in the Macro Environment, to make their business grow in the long term.

 10.             Case Study-

CASE STUDY ON RELIANCE INDUSTRIES •

Reliance Industries Limited (RIL) is an Indian conglomerate holding company headquartered in Mumbai, Maharashtra, India. The company operates in five major segments: exploration and production, refining and marketing, petrochemicals, retail and telecommunications. • The group is present in many business sectors across India including petrochemicals, construction, communications, energy, health care, science and technology, natural resources, retail, textiles, and logistics.

• RIL is the second-largest publicly traded company in India by market capitalization and is the second largest company in India by revenue after the state-run Indian Oil Corporation. The company is ranked No. 99 on the Fortune Global 500 list of the world's biggest corporations, as of 2013.

RIL contributes approximately 14% of India's total exports.

  Is Mukesh Ambani falling out with the Narendra Modi government? Mukesh and Reliance Industries Ltd (RIL) have been at the receiving end of a couple of “strong” government decisions -- the biggest one being to keep gas price hike in abeyance. UPA-II had set April 1 as the date for the hike, but left it to the next government to take a final decision later. “It was expected that no sooner does Narendra Modi come to power, the hike would be announced. But that has not happened, giving the first indication that all was not well between Mukesh and the government,” said a source in the BJP. Sources also speculate that the government may be buying time before helping RIL. An e-mail sent to RIL late evening did not elicit any response. “It is too short a notice,” said the spokesperson. That has not happened in the first 45 days of Modi’s rule. This is being read as proof of a “rift between RIL and the Modi government”. That Reliance decided to hit back by deferring investments in fresh fields like the R-cluster in KG-D6 Block is also being taken as proof of a “fall from grace’ for RIL and Mukesh Ambani. A second reason, cited by sources in the BJP, for the alleged fallout between Mukesh and the government is linked to the CAG reports on 2G that indicated that RIL had rigged conditions in its favour to bag the 4G contract, and which it used to launder money. There is an AAP angle to this allegation, too. Supreme Court lawyer and AAP member Prashant Bhushan has filed a petition for the cancellation of RIL’s 4G deal. Coming in

handy for Bhushan was the Modi government’s decision to bring back black money stashed away abroad in six months, for which the government set up a special investigation team (SIT).

 . The AAP troubleshooter forwarded a loaded letter to SIT on Black Money, alleging that Mukesh Ambani was a common money launderer, who used the 4G contract route to turn black money to white. “Reliance is laundering its ill-gotten profits from KG Basin through Singapore and depositing the same into accounts of Mr. Mukesh Ambani,” Bhushan wrote in his letter to ML Meena, member secretary, SIT on Black Money. “There have been two detailed CAG reports that says RIL is involved in inflation of capital expenditure, over-invoicing and siphoning of money from the KG Basin D6 Block. There is clear indication that such amounts are being laundered and funneled back into Reliance companies,” he said. The latest proof that RIL and the Modi government are not on the same page and that Modi will not go out of his way to smoothen things out for RIL is the $579million fine the government has slapped on RIL for continuous shortfall in KG Basin gas production. Gas price hike deferment led RIL and its other partners in KG-D6 basin Niko Resources and British Petroleum to file arbitration against the government, which many considered as an arm-twisting exercise. Nonetheless, the new government has made it amply clear over the last two months through various announcements that it is not in favour of a sharp rise in gas price.. The oil ministry also slapped an additional penalty of $579 million for natural gas production shortfall from KG-D6 block for the financial year 2013- 14. The penalty in the form of disallowing costs incurred on the field is for missing the target in 2013-14. With this, the total costs disallowed to RIL will increase to $2.375 billion. Another recent document which was passed by oil ministry to the cabinet committee also indicated that RIL should not be allowed new gas price for KG-D6 produce until it is able to meet the shortfall in gas output over the last four years.