Market environment and business environment are marketing terms that refer to factors and forces that affect a firm's ability to build and maintain successful customer relationships. The business environment has been defined as "the totality of physical and social factors that are taken directly into consideration in the decision-making behaviour of individuals in the organisation."
The three levels of the environment are the internal micro environment – the internal elements of the organisation used to create, communicate and deliver market offerings; the external market environment – the external elements which affect the sourcing and distribution process of a product from the supplier to the final consumer; and the external macro environment – larger societal forces that affect the survival of the organisation, including the demographic environment, the political environment, the cultural environment, the natural environment, the technological environment, and the economic environment. The analysis of the macro marketing environment aims to better understand the environment and thus adapt to the social environment to achieve the purpose of enterprise marketing.
Internal environment The internal environment "consists of those relevant physical and social factors within the boundaries of the organization or specific decision unit that are taken directly into consideration in the decision-making behavior of individuals in that system".Duncan, R.B., 1972. Characteristics of organizational environments and perceived environmental uncertainty. Administrative science quarterly, pp.313-327. This includes all departments such as management, finance, research and development, purchasing, business operations and accounting. Each of these departments influences marketing decisions. For example, research and development has input as to the features a product can perform and accounting approves the financial side of marketing plans and budgets for customer dissatisfaction. Marketing managers must watch supply availability and other trends dealing with suppliers to ensure that the product will be delivered to customers in the time frame required in order to maintain a strong customer relationship. These internal factors can be controlled by the organization to a certain extent. Internal environmental factors are in control of a business organization.
External environment The external environment includes the "relevant physical and social factors outside the boundaries of the organization or specific decision unit that are taken directly into consideration". The external environment can be further broken into micro and macro environments.
Micro environment The micro-environment consists of customers, partners, and competitors. The most important aspect of the micro-environment is the customer market.Holm, M, Kumar, V & Rohde, C 2012, 'Measuring size of profitability in complex environments: an interdisciplinary contingency framework', Journal of the Academy of Marketing Science, vol. 40, no. 3, pp. 387-401. There are different types of customer markets including consumer markets, business markets, government markets, international markets, and reseller markets. The consumer market is made up of individuals who buy goods and services for their own personal use or use in their household. Business markets include those that buy goods and services for use in producing their own products to sell. This is different from the reseller market which includes non-business activities that purchase goods to resell as is for a profit. These are the same companies mentioned as market intermediaries. The government market consists of government agencies that buy goods to produce public services or transfer goods to others who need them. International markets include buyers in other countries and include customers from the previous categories.
Partners include marketing intermediaries, financiers, and advertising agencies. Marketing intermediaries refer to resellers, physical distribution firms, marketing services agencies, and financial intermediaries. These are the people who help the company promote, sell, and distribute its products to final buyers. Resellers are those who hold and sell the company's product. They match the distribution to the customers and include places such as Wal-Mart, Target, and Best Buy. Physical distribution firms are places such as warehouses that store and transport the company's product from its origin to its destination. Marketing services agencies are companies that offer services such as conducting marketing research, advertising, and consulting. Financial intermediaries are institutions such as banks, credit companies and insurance companies.
Competitors are also a factor in the micro-environment and include companies that offer similar goods and services. To remain competitive, a company must consider who its biggest competitors are while assessing its own size and position within the industry. The company should develop a strategic advantage over its competitors.
The final aspect of the micro-environment is the public, which includes any group that has an interest in, or affects, the organization's ability to meet its goals. For example, the financial public can hinder a company's ability to obtain funds, affecting the level of credit available to the company. The media public includes newspapers and magazines that can publish articles of interest about the company, as well as editorials that may influence customers' opinions. The government public can affect the company by passing legislation and laws that place restrictions on its actions. The citizen-action public includes environmental groups and minority groups that can question a company's actions and bring them into the public spotlight. The local public, including neighborhood and community organizations, may also question a company's impact on the local area and its level of responsibility for its actions. The general public can affect the company because any change in public attitude, whether positive or negative, can cause sales to rise or fall, as the general public often forms the company's customer base. Finally, employees within the company also form part of the public, as they are involved in the organization and production of the company's products.
Macro environment
The macro-environment refers to all forces that are part of the larger society and that affect the micro-environment. It encompasses factors such as demography, the economy, natural forces, technology, politics, and culture, among others. The purpose of analyzing the macro marketing environment is to gain a better understanding of the external environment and to adapt to social changes through the enterprise's marketing efforts in order to achieve its marketing objectives.
Factors affecting an organization in the macro environment are known as PESTEL: Political, Economic, Social, Technological, Environmental and Legal.
Demography refers to the study of human populations in terms of size, density, location, age, gender, race, and occupation. This helps marketers to divide the population into market segments and target markets. An example of demography is classifying groups of people according to the year they were born. These classifications include baby boomers, who are born between 1946 and 1964, Generation X, who are born between 1965 and 1980, millennials, who are born between 1981 and 1996, and Generation Z (also known as zoomers), who are born between 1997 and 2012. Each classification has different characteristics and causes they find important. This can be beneficial to a marketer as they can decide who their product would benefit the most and tailor their marketing plan to attract that segment. Demography covers many aspects that are important to marketers including family dynamics, geographic shifts, workforce changes, and levels of diversity in any given area.
Another aspect of the macro-environment is the economic environment. This refers to the purchasing power of potential customers and the ways in which people spend their money. Within this area are two different economies: subsistence and industrialized. Subsistence economies are based more on agriculture and consume their own industrial output. Industrial economies have markets that are diverse and carry many different types of goods. Each is important to the marketer because each has a highly different spending pattern as well as a different distribution of wealth.
The natural environment is another important factor of the macro-environment. This includes the natural resources that a company uses as inputs that affect its marketing activities. The concern in this area is the increased pollution, shortages of raw materials and increased governmental intervention. As raw materials become increasingly scarcer, the ability to create a company's product gets much harder. Also, pollution can go as far as negatively affecting a company's reputation if they are known for damaging the environment. The last concern, government intervention can make it increasingly harder for a company to fulfill its goals as requirements get more stringent.
The technological environment is a rapidly evolving component of the macro-environment. This includes all developments from antibiotics and surgery to automobiles and credit cards. The development of these markets can create new markets and give new uses to products. It also requires a company to stay ahead of competitors and update its own technology as it becomes outdated. Companies that fail to adapt risk losing competitive position.
To understand different spending patterns, marketers also take into consideration the development of digital technology and its effect on market growth and employment. It is key for a marketer, especially in a digitally dominated market, to anticipate demand in order to capitalize on potential market growth. Technology has developed to the extent where purchase patterns can be analysed in order to forecast future demand.
The political environment includes all laws, government agencies, and groups that influence or limit other organizations and individuals within a society. Marketers need to be aware of these restrictions as they can be complex. Some products are regulated by both state and federal laws. There are even restrictions for some products as to who the target market may be; for example, cigarettes should not be marketed to younger children. There are also many restrictions on subliminal messages and monopolies. As laws and regulations often change, it is important for marketers to monitor. As laws and regulations often change, they create barriers that can influence the way in which companies can market their business across the digital community in particular. When conducting business in the United Kingdom, the government is committed to ensuring the best possible platform to start and grow a UK digital business, therefore Internet Governance becomes a vital force in the management and control of the growth of the internet and its usage.