Environmental Analysis

1. Environmental Analysis 01/19/05

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

3. 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

4. Fads vs. Trends • Fads • 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

5. 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

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

7. 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.

8. 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

9. 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

10. 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

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

12. Micro environment • Company • 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)

13. 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

14. 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

15. 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.

16. 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.

17. 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