SESSION 3

UNDERSTANDING MARKETING ENVIRONMENT

Analyzing the Macro environment

Needs:
Companies manage to create solutions to either untapped/ unmet customer needs. E.g. air travel industry in India low fair airlines are drawing new customers and increased usage rate. They provide cheap, no-frill air transport services.

Trends: Fad / Trend/ Megatrends.

Fad: unpredictable, short-lived without social, economic and political significance. E.g. kids toy made out of Krrish character got response because of timing of market placing; excitement was short lived. Trend: direction or sequence of events that show momentum and durability. More predictable than Fads. Reveals the shape of the future market structure/ opportunities. E.g. increase in health consciousness and change in product consumption pattern. Megatrends: large implications due to the social, economic, political and technological changes and for relatively longer period. E.g. Role of young population segments in the overall consumption pattern etc.

PEST framework for Environmental Auditing

Political/Legal factors

Political/legal structure Political alliances & stability Monopoly restrictions Taxation policies Employment policies Foreign Trade regulations Environment protection laws Trade Union Laws RTI Act etc. Business cycles Inflation rates Investment levels Employment & Health standards GNP trends Nature of competition Trade blocks

Socio-Cultural factors Demographics

Lifestyles Attitudes Behaviour Psychographics

Economic factors

Technological factors

Industrial focus on R&D

Speed of technology transfer Shorter Product Life cycles Inorganic growth

Global forces affecting Marketing Environment

Substantial growth in cross-national transportation, communication and financial transactions leading to rapid growth of World Trade & Investment Balancing of disparities across developed & developing economies. Movement of manufacturing capacity & operations to lowercost countries. Rise of Trade blocks like EU and NAFTA. Rapid adoption of Global lifestyles and cross-cultural patterns. Increasing cross-border organic/inorganic growths. Diversifications Enhancement of learning curves of firms and customers.

MARKETING ENVIRONMENT
Demographic/ Economic

Intermediaries
Logistics

Technological/ Natural

Product Place Target Consumers Promotion Price

Political/ Legal

Competitors

Social/ Cultural

Macroenvironment
The BIG Picture
Demographic
Economic Natural Technological Political Social Cultural

Demographic Environment
Worldwide Population Growth
Population Age Mix Ethnic Markets Educational Groups Household Patterns Geographical Shifts in Population Shift from Mass to Micromarkets

Global Demographic Environment

World population is growing at a faster rate. It exceeds 6.6 billion and will grow to 8.1 billion by 2030. Main contributors are countries like India and China. Relatively high birth rates in Pakistan (14 years comprises 40% of the population; out of which 14% are 4 years i.e. approx 173 mn market) P&G launched Pampers (disposable diapers) in 2000. Cloth nappies were mostly used and the concept of disposable diapers were nonexistent. Larger % of birth takes place at home instead of hospitals. P&G adopted the concept of Mobile clinic to provide baby-care education. Market share shoot up drastically.

Global Demographic Environment

Global Economic Environment

Food, housing and transportation are major spending areas.

Engels Law: Proposed by Ernst Engel

Different spending patterns at different income levels

Changes in economic variables like income, cost of living, interest rates, savings and borrowing patterns have brought greater impact on markets. Low income level

More devoted towards savings Increase in spending on gas, electricity and public health care & other services. Decline in spending on Food; spending on housing remains constant Higher percentage spending on Food

Further increase

Global economic crisis (20072009) subprime US loan crisis.

Global Economic Environment

Kumbhakarna Syndrome:

Indian companies like Madura Garments (division of Aditya Birla group) have
targeted affluence of Indian Middle class by regularly launching new brands. Introduce many foreign brands at premiums price range of 2000 2,500 and older brands could only fetch Rs. 750. Older brands lost their leadership positions.

Older brands of readymade premium shirts like Indus League, Indus Nation, Ironwood and Raymonds Park Avenue, Parx and Manzoni commanded during pre-1990s.

Global Demographic Environment

Economic Environment Madura Garments: Overview

1989 launched Louis Philippe

1990 Van Heusen Post 1990:

Allen Solly (introduced concept of Friday dressing in India)

Esprit Peter England Byford, Elements, and SF Jeans.

Natural Environmental Factors

Changing Role of Government

Higher Pollution Levels

Natural Environment

Shortage of Raw Materials

Increased Costs of Energy

Natural Environment

Shortage of raw materials: By 2030 More than 1 of 3 humans will not have water to drink. Reduction in renewable resources like forest will create serious threat to the environment. Nonrenewable resources like Oil, coal and minerals will pose serious problem of supply. Higher Pollution Levels:

Disposal rate of chemicals and nuclear wastes worldwide poses a serious danger for the nature. Dangerous chemical pollutants in the soil and food supply, plastics materials.

Natural Environment
Increased

government intervention:

Govt.s of different countries vary in their concern and efforts to

protect environment.

German govt. have stringent regulations for Industry wastes.

In May 2005, GE launched $90 mn

Ecomagination campaign to create products for a better world i.e.

cleaner aircraft engines,

locomotives, and fuel technologies Increased

costs of Energy.

Technological Environment
Accelerating Pace of Change Unlimited Opportunities for Innovation

Issues in the Technological Environment

Varying R & D Budgets

Increased Regulation

Political-Legal Environment

Regional Groupings

European Union (EU) NAFTA

Safety Information Choice Representation Redressal Consumer education

Consumerism

Ethics & Social Responsibility Increased Legislation & Enforcement

Political-Legal Environment

Political environment relates to the relation between

governments and the business whereas Legal environment

relates to the laws and regulations associated, more specifically, with consumers and business practices.

Organizations can outperform other organizations and can achieve sustainable competitive advantage, if they can

manage their relationships with the government and

regulatory bodies better than the competitors (Hillman, Keim and Schuler, 2004).

Political-Legal Environment
In certain countries, legislations (which are technical statements) are difficult to interpret and business firms hire Industry Lobbyists to build relations with the local government bodies by:

Business Firms

Lobbying, Strategic affairs, political advisory firms, PR firms (Indian companies like Credence Consulting)

represent client (firms) to government decision makers.

Provide strategic advice to clients on how to design their political campaign. To provide administrative support to the clients (Moloney and Jordan, 1996).

Government

Microenvironment (Internal Environment)

Influencers

Intermediaries/Channels Publics
Competitors Suppliers

The Internal Environment

The Internal Environment has to do with the other employees in your company. It includes all departments within the company. When all departments are pulling in the same direction, the company has a legitimate chance for success.

Global Environment: Overview

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INDIAN MARKETING ENVIRONMENT

Comparison of Macro-Economic Parameters

GDP (Rs in billion) GDP Growth Per capita GDP (Rs) Forex reserves ($ bn) Inflation (% change in WPI) Agriculture contrib. to GDP Industry contrib. to GDP Services contrib. to GDP Exports ($ bn) cont. to GDP Imports ($ bn) cont. to GDP
All figures are for 2004 Source: Capitaline & The World Factbook 2005

27,600 8.5% 25,836 107.44 5.5% 23.6% 23.4% 48.0% 69.18% 89.33% China 13.8% China 52.9% China 33.3% China 583.1% Singapore 0% Singapore 32.6% Singapore 67.4% Singapore 174%

China 552.4% Singapore 155.2%

SOCIAL PARAMETERS: Comparison

INDIA Life expectancy Infant mortality rate (per 1,000 births) Adult literacy (%) Population over 60 years (%)
All figures are of 2002

SINGAPORE CHINA 79.6 years 3 92 11.1 71.1 years 31 85 10

61 years 67 57 7.7

Source: World Health Report, WHO & UN

Indian Demographic Environment: Population Age Mix

RURAL
0-19

URBAN
1.17 million (Persons) 0.62 million (Males) 0.56 million (Females)
1.48 million (Persons) 0.79 million (Males) 0.70 million (Females) 0.19 million (Persons) 0.094 million (Males) 0.097 million (Females)

TOTAL
4.63 million (Persons) 2.43 million (Males) 2.20 million (Females)
4.85 million (Persons) 2.49 million (Males) 2.36 million (Females) 0.76 million (Persons) 0.38 million (Males) 0.39 million (Females)
Source: Census 2001

Age group
20-59

3.46 million (Persons) 1.81 million (Males) 1.64 million (Females)

3.37 million (Persons) 1.70 million (Males) 1.66 million (Females) 0.57 million (Persons) 0.28 million (Males) 0.29 million (Females)

Age group
60+

Age group

Note: 54% of Indias population is <25 years; and 80% of Indias population is <45 years

Indian Demographic Environment: Household pattern

Household pattern in India Total Number of Households (in million) Type of Census Houses (%) Permanent (Pakka) Semipermanent Temporary (Kaccha)

Total Rural

1.91 million 1.38 million

51.8 41.1

30.0 35.7

18.1 23.1

Urban

0.53 million

79.3

15.4

5.2

Source: Census 2001 (Household survey)

Indian Economic Environment

Income Distribution
Income Class
Households

1995-1996
Estimated Population Households

2006-2007
Estimated Population

The Rich The Consuming Class The Climbers The Aspirants The Destitute

1.2 mn 32.5 mn 54.1 mn 44 mn 33 mn

7 mn 186 mn 312.2 mn 253.9 mn 190.4 mn

5.2 mn 75.5 mn 81.7 mn 20.2 mn 16.5 mn

30 mn ( 328%) 432 mn ( 132%) 472 mn ( 51%) 117 mn ( 54%) 95 mn ( 50%)

Categories of Indian Consumers Destitute (Annual HH Income of

Rs. 16,000) not active participants in market exchange for wide range of products.

Aspirants (Rs. 16,000-Rs. 22,000) new entrants into consumption systems due to increase in real income.

Climbers (Rs. 22,000-Rs. 45,000) have desire, willingness to buy but limited cash.
Consuming Class (Rs. 45,000-Rs. 2,15,000) majority of consumers; have money & willingness to spend. Rich (above Rs. 2,15,000) have money and owns wide range of products.

Consumer class classification is based on National Council of Applied Economic Research (NCAER)
Source: The Marketing White Book 2003-04, Business World.

Indian Economic Environment

Indian Economic Environment

Indian Social and Cultural Environment

30 different languages and over 200 mother tongues in India Cultures & Sub-cultures. Regional differences in language, customs, social systems, values, habits, religions and caste systems. Customised research on consumption behaviour and attitudes towards products & services cultural diversity and regional differences. Changing role of Women segment in India.

Indian Social and Cultural Environment

Indian Food Industry

Food industry catering to tastes for food approach.

Fast life no time for healthy home made food

packaged/instant-meal approach.

Diversity and complexity of flavours/ and meals across

India.

Very low per capita consumption on chocolates, soft

drinks & chips compared to the world markets.

Healthcare Industry

Parallel Industry gyms, dieticians and health/diet foods to take care of irregularities and problems with weight due to Food Industry.

Survey Insight In case of joining a gym 42% people do not continue for more than 3 weeks though they opt for the annual package.

Indian Retail Industry- formats

Traditionally, in India retail formats were designed to

display and carry clothes for body in shape but now most
of the varieties are for oversize clothes, says Ajay Chandwani, CEO, Percept Retail stores.

At stores categories and levels in each categories assortments are more often designed by manufacturers/ retail groups rather than based on shoppers response.

Indian Impulse market

Research by Amul Ice Creams customers prefer health benefit of milk from the ice creams thus, campaign real milk, real ice cream initiated.

Most consumers take just 4 seconds to browse over food packaging before making a choice of the brand.
Indian consumers go through 3-step process of eat-treat-retreat.

Indian Impulse market

cont

Biscuits like Marie grab n go approach

(planned purchase) strategies of companies are

to replenish.

Cookies planned and browsed for strategies

are to enhance category interaction.

Ice creams largely impulse strategies are to

drive more impulse purchase.

Consumption & Happiness

Consumers are comparatively more satisfied with their lives compared to previous generation.

More likely to believe that their lives have improved.

Much more likely to expect improvements from the present situations in the future.

Gender behavioural differences

When Men try a garment 80% times they buy

whereas women try varieties, take time and

reject/ do not buy most of the times.

Women in US dont like bending down for

categories at the lower portion of the rack

products kept at comfortable heights, their sales

grew exponentially.

Rural India

Increasing affluence and easy availability of credits creating growing capacity to spend. Urban Cable operators are signing up with rural subscribers Guwahati is the 2nd highest subscribing city after Ludhiana. 6,50,000 villages average population of 1,100 villagers across India. Indias 700 million villagers account for the majority of consumer spending in India more than $ 100 billion a year. 75% of rural market is still untapped. Forecast By 2009-10, Urban HH number will grow by 4% while rural HHs are expected to grow by 11%. Today, 25% of Urban India is spending as much as 75% of rural India shows still untapped potential of rural market.