Organization and the Marketing Environment
by
Charles Lamson
This post returns to the functionalist approach to the role of marketing. It assumes that the firm is an organism whose main goal is to survive by taking advantage of the opportunities and by avoiding the threats that are present in the environment, including responding to competitor actions. The organization is purposive. In order to survive, decision makers seek to attend rationally to environmental problems and opportunities. The problem-solving process involves analyzing the current situation, developing goals and strategies to achieve those goals, and, finally, providing feedback to gauge whether goals have been successfully achieved. The organizational problem solving process is analogous to the individual problem-solving process. For example, any individual who wishes to solve any problem must consider where they are, where they want to be and how to get there. The individual questions and related organizational terms are shown in table 1.
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Table 1. Marketing Strategy Process: Problem-Solving Process
Levels of Planning: From Corporate to Business Plans
It may be useful to consider firms as organisms for the sake of analysis, but it must be recognized that these are extremely complex organism. For example, Wal-Mart has a turnover of hundreds of billions of dollars and employs hundreds of thousands of workers. Such complex entities can be organized in different ways, including functional, divisional and matrix forms of organization. A common procedure is that those at the top level of the organization conduct a corporate-level strategic analysis that, in turn, will inform analysis at the business level. Functional plans, including the marketing plan will be drafted at each level. For example, it can make sense for a vehicle manufacturer to divide its businesses into cars and trucks as it could be argued that these face quite different market places and challenges. for such a business the top team will devise a corporate plan which will set out the vision and mission of the organization in addition to spelling out the goals for executives in the Strategic Business Units (SBUs) comprising trucks and cars. The executives in each SBU will then work within the constraints established by the corporate plan in setting more precise objectives and in devising strategies of how to achieve these objectives. The corporate marketing plan will be a subset of the main plan focusing on providing the long-term direction of the organization regarding the markets and needs that will be served and will set goals for the SBUs. Managers within each SBU will devise more specific marketing objectives and programs in the light of this plan.
Marketing Audit: External and Internal Analyses
The marketing audit involves a systematic and comprehensive analysis of the business marketing environment. Why begin with the environment? If a systems approach is used as a starting point, it is possible to view the organization as an organism which must adapt to changing environmental conditions or die. Organizations are engaged in a battle for survival, which has a dual imperative to meet the needs of customers (Hooley and Lynch, 1985: Kohli and Jaworski 1990: Narver and Slater 1990) and to fend off the competition. The logic is simple. How otherwise could a firm know where it wants to be and compute how it wants to get there if it does not know where it is now and how it got there?
Taking the perspective of the organization, if it is to survive in the long run, managers must continually scan the environment to obtain early warning of opportunities that can be taken advantage of, as well as of potential threats to survival. The process of matching is summed up in the simple acronym Strengths, Weakness, Opportunities and Threats (SWOT) analysis. Managers seek to identify the most relevant opportunities and threats that are present in the external environment and to match these with perceived internal strengths and weaknesses.
Auditing the External Environment
Consider a brewery that is considering investing in the Chinese market. How are its managers to decide which environmental issues are relevant? There is an acronym available which can help in summarizing the key elements of the environment that are of importance to the marketer. Managers should analyze:
PEST + C + C
The task is to examine the likely impact of the:
In addition to:
This list is not comprehensive. For example, one glaring omission is the physical environment. However rudimentary it is, it is still useful. Before proceeding to look at these different aspects of the environment in detail, it is appropriate to consider some general environmental trends.
Chinese Beer Market: A Case For Expansion
Consider this case from the point of view of a major brewing company which is wishing to establish an operation in China. PEST + C + C are used below to identify the different factors which can influence the decision to invest market development.
Analyzing the P: Political and Legal Environment
Government regulation and legislation are major aspects of the contemporary business scene and must be paid due attention to by any organization. No corporation is beyond the law, as Microsoft has found out in being brought before the US courts to explain alleged antitrust violations involving its Windows Web browser. Countries differ in the extent that they bind their nationals in webs of legislation. In the US the Federal Trade Commission (FTC) is the main body which regulates restraint of trade and enforces rules against unfair methods of competition and deceptive business practices. The FTC had many of its powers removed during the Reagan administration. However, in addition to the huge amount of federal legislation, organizations must also cope with state legislation. By comparison with the US, the tendency in the UK is for voluntary codes of practice for the regulation of the media and advertising.
It is obviously in the organization's interests to be mindful of government actions that may have an effect on its operations. Within the European Union (EU) there is a huge range of national and supranational legislation which may be directly relevant, on issues ranging from government budgetary policies to legislation on packaging and labeling and on deceptive advertising. Larger companies have legal departments which can be consulted on a wide range of issues. Smaller companies may seek to actively exert an influence on government policy but may lack the resources to do so. In the UK this can be achieved by banding together under an umbrella such as the Association of Independent Companies or the Forum for Private Business which lobby government in the collective interests of their members. In the discussion of the Chinese beer market, the potential investor should become familiar with the national and regional laws which regulate the brewing industry in China. Investors might also wish to consider the effects which political changes might have on the regulatory framework in the medium term.
Analyzing the E: Economic Environment
The economic environment is of key importance to marketers. Aggregate consumer expenditure on goods and services is a major indicator, as is growth in personal disposable income. One major development since the 1960s has been the growth in the electronic circulation of capital. The evidence so far is that this development has contributed to the destabilization of international markets, which have seen massive swings in the fortunes of stocks and currencies as electronic cash pours in and out of stocks and currencies at the press of a button.
Since the end of the 1960s governments have perceived the rate of inflation as the major economic indicator to control. Increasingly, observers have become worried the prospect for the return of deflation, a phenomenon which has not been witnessed since the 1930s. Marketers are keen to track market indicators such as growth in aggregate demand (the total demand for final goods in an economy at a given time), consumer spending and changes in consumer demographics.
With respect to the investor which is considering opening a brewery in China information would be sought on inflation, interest rates, employment trends and wage rates, particularly within those areas that might effect production and the market place.
Analyzing the T: Technological Environment
The global technological environment has witnessed major change and this change is set to continue. Even the most remote parts of the globe can be reached via satellite with visual and aural communications, by phone, television and spy satellites. In 'developed' countries the installation of fiber optics networks has led to the development of video-conferencing. Changes in technology have had a profound effect on organizational structure, leading to the creation of more distributed forms of organization. With the advent of various 'loyalty' cards, retailers and others are able to observe and track consumer purchase behavior and react to each consumer and are almost in a position to treat each consumer as an individual. Technological know-how is a major barrier to entry into many mass-market operations. 
With respect to the brewing company seeking an investment opportunity in China, one would need to analyze the technologies currently used by potential competitors in China. Is the technology mored advanced? Do consumer tastes demand particular technological solutions? On the other hand, one might enquire as to whether the technological infrastructure could support planned operations.
Analyzing the Socio-Cultural Environment
Aspects of change in the socio-cultural environment are of major importance to marketers, especially, those aspects which impinge on individual's sense of identity. These include changes in social class which are considered in a later post in addition to changes in the cultural mix and the creation of new subcultures. For example, in Europe already the ageing population known as the 'grey market' is having a marked impact on the marketing strategies of producers and retailers.
One important demographic change in China has been the reduction in the population of those under 20 - the 'little emporers' who have resulted from the governmental one child policy. some of the demographic changes which have been taking place in china have been discussed above, most notably that related to the 'little emperors'. However, other social factors are highlighted in the brewing case. for example, baiju fulfills an important social function which the government hopes to replace with beer. Other important social factors to take into account are guanxi, guo quing and houmen which collectively signify how business is done in practice in China.
Guanxi refers to the importance of networking and relationships and is a means of getting round the formidable obstacles presented by red tape. the right guanxi with distributors is a key to market success. Guanxi is linked to the concept of 'houmen' or the 'back door' as a means of smoothing relations with state bodies. Guo qing is a blanket term for distinctively Chines characteristics of which a foreigner should be aware. For example, they should be aware of the 'one-child' policy and of the Chinese preference for prosperous sounding brand names (Mak, 1998).
Analyzing the Competitive Environment
While the direct competition must be analyzed, it is also important to assess any competition that may come from substitutes and alternatives. In analyzing the competitive environment the degree of industry concentration is important to know. In the Chinese beer case, the industry still tends to be relatively fragmented, with a large number of breweries. The top ten brewers still account for less than 20 percent of all output. Added to this is the knowledge that the idea of competition is new to producers in this sector, but that the competition is learning quickly. Indirect competition comes from substitutes for beer, e.g. other alcoholic and non-alcoholic drinks.
Analyzing the Customer Environment
From a marketer's point of view the customer environment is the most important one to consider. The rise of the global market may be regarded as a major opportunity for marketers. One simple calculation involves estimating potential demand for products by obtaining data about relative consumption patterns around the world. Two factors are important, per capita consumption and overall consumption. While the former provides information on the individual use rate, which may aid decision makers in estimating the scope for market development, decision makers are also interested in the overall market size.
For example, estimates of per capita consumption of beer in China range betwee 14 litres(l) and 19 l, which is low when compared with Western Europe, where it is of the order of 70 l per head. Consumption in those countries where beer and not wine is the traditional choice is even higher, e.g. in the Czech Republic around 160 l per person! Despite the relatively low levels of per capita beer consumption, the Chinese market, at 25 billion litres (Plato Logic, 2005), has overtaken the US market to become the largest beer market in the world. Importantly given the size of the Chinese population, this indicates strong potential for further sustained growth in this market. However, marketers need to know a lot more than patterns of aggregate demand. It is also very important to have sufficient knowledge of the market so as to be able to segment the market place. Just as in Europe, geographical variation between different regions must be taken into account, as these reflect wide differences in wealth, consumption patterns and tastes. In particular, there is likely to be a marked difference in consumption between urban and rural areas; beer consumption in urban centers such as Shanghai and Beijing is reported to be three to four times the national average.
While geography provides a basic menas of segmenting the market place, this could be greatly enhanced if marketers could combine this knowledge with that about the demographics of consumers, constituting age and gender differences in consumption of beer, and socio-economics, or income. The brewery would also wish to know more about the way in which beer is consumed in China. For example, is it an everyday drink or something which is reserved for special occasions? Other questions might include:
Implementing Strategies
In terms of implementing strategies the marketer must fashion a unique marketing mix, which is aimed at the market place. The basic ingredients of the marketing mix (or the '4 Ps') are:
In the Chinese beer example, the brewer may wish to concentrate on serving the needs for beer of 20-30 year old single males, living in urban areas.
The product is not only the beer itself, although it would be a good idea for the product development team to conduct some marketing research blind taste tests to see how favorably the market responded to the beer. Additionally, the team should consider important elements such as the packaging, e.g. should this beer be in a can or a bottle? If this was to be a premium beer and if the market perception was that premium beers only come in bottles, then it may be a mistake for the team to consider launching its beer packaged in a can. The product is not only the physical product, image also matters.
Price conveys much information about the perceived quality of the product.. If this beer is to be perceived as a prestige product then it is important to find out what the market expectation for the likely price potential customers would expect such a prestige product to be. This can be difficult, as setting a price which is below expectation can have just as damaging an effect as too high a price for prestige products.
Promotion, or marketing communication, will include advertising, public relations and sales promotions. Once the beer is in a position to be launched, it may be a good idea to invite journalists who work for newspapers and broadcast media and, in particular, those who are favorites of the target market to inspect the beer being marketed. This could involve a tour of the production facility and tasting demonstrations showing the superiority of the brand over others. It could generate some useful publicity for the new brand, although care needs to be taken to minimize unwanted effects which could achieve much higher publicity. For example, it would be a major blow if the journalists thought that the beer was inferior to others. Hopefully, that would not be the case, provided sound research had been undertaken beforehand.
Place, or channels of distribution of the beer, is vitally important. If it is to be a premium beer then should it be widely distributed or sold only through exclusive outlets? If it is to be sold through exclusive outlets then there would need to be a built-in extra margin on price to secure the additional premium demanded by such outlets. A good system of physical distribution would need to be in place.
*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 56-66*
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