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Businesses need to critically examine the environment in which they operate. Marketers need to understand the marketing environment and modify their marketing plans so as to maximise opportunities and minimise threats. Businesses are constantly being influenced by their external and internal environments.


External Influences

The factors within the external marketing environment are fairly broad in nature and are usually beyond the control of the business. These factors include:


General Economic Conditions

Economies do not experience constant growth. In fact, the level of economic activity fluctuates – from boom to contraction to recession to expansion and then back to boom conditions. These activities have an enormous impact on both business and customers. They influence a business’s capacity to compete and customers’ willingness (and ability) to buy.


A boom is a period of low unemployment and rising incomes. Businesses and customers are optimistic about the future. It is during this time that business will increase their production lines, invest in plant and equipment and try to increase their market share. Customers are willing to spend because they feel secure about their jobs and source of income. This phase is often referred to as ‘the good times’. The marketing potential during this phase is large, with sales responding to all forms of promotion.


A contraction is a period of slowly rising unemployment with incomes stabilising. During this phase, both businesses and consumers become more cautious. If this phase lasts a long time, businesses and consumers become pessimistic, resulting in reduced consumer spending which in turn forces businesses to reduce the level of investment. It is during this phase that business closures become more common. Consumers become more price conscious – they look for value and products that are more functional and long lasting.

During this phase, marketers need to modify their marketing plans to reflect the changes in consumer spending. Marketing plans should stress the value and usefulness of a product.


A recession is where unemployment reaches high levels and incomes fall dramatically. Both businesses and consumers lack confidence in the economy and a mood of deep pessimism persists. Spending is reduced. The marketing plan during this phase should concentrate on maintaining existing market share. Survival becomes the main objective.


In the expansion phase, unemployment levels slowly start to fall and incomes once again begin to rise. This is the ‘recovery stage’. Business and consumers begin to regain their lost confidence. Marketing plans need to take advantage of this rise in ‘prosperity’. Increasing market share should once again become an important objective.

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Government Policy and Regulations

Depending on the prevailing economic conditions, the government will put in place policies that expand or contract the level of economic activity. These policies directly or indirectly influence business activity and consumer spending, and therefore, will have an impact on the marketing plan.

Government regulations can have a more direct and immediate impact on the marketing plans of a business. Regulations are made up of laws and regulatory bodies that can influence business behaviour.

Marketplace Laws

Fair trading laws are based on the principles of equity, fairness and honesty. They aim to create a fair and informed marketplace. They also recognise that traders, as well as consumers, can suffer loss through the actions of unfair or unscrupulous operators.

Misleading or deceptive conduct

The fair trading laws say that misleading or deceptive conduct is unacceptable, regardless of whether your business supplies consumer goods or deals commercially with other businesses. Conduct is considered misleading if it creates a misleading overall impression.

Acting without Conscience

This means acting in an unscrupulous or unprincipled manner. It is prohibited in relation to goods and services which are supplied to personal or domestic use. This is when conduct has the effect of placing one party at a serious disadvantage, such as where the stronger party has greater bargaining power and uses this to take advantage of the weaker party.

The Commonwealth Trade Practices Act

This act was designed to promote competition by prohibiting certain practices that are harmful to competition. It is also concerned with the protection of consumers and deals with product safety and information, conditions and warranties in consumer transactions and actions against manufacturers and importers of goods. Conduct prohibited by the Trade Practices Act includes misleading or deceptive conduct, and making false representations about products. The penalties for breaches of the Act include fines, injunctions and criminal proceedings.


Overseas Influences

Businesses, in relatively small economies have argued for government protection against larger, more economically powerful overseas businesses which are able to manufacture and sell their products more cheaply. Some government protection has usually come in the form of either a tariff, a tax on an imported product, or a subsidy, a payment from the government to the business to help lower the price.

Due to these protective measures, many business do not fully experience the full impact of competition and in some ways, become complacent and inward-looking rather than export-oriented. Businesses, in today’s marketplace, need to become more internationally competitive and export-oriented. With the rapid expansion of globalisation, marketers need to alter their focus from domestic to global.


Demographic Patterns

Demographic factors are population characteristics that affect customer spending and include:

(a) Age – in many countries, the average age is steadily increasing.

(b) Family size – families are having fewer children and there has also been an increase in single-parent households

(c) Ethnicity – Since the mid-1970s there has been an increase in the number of people migrating from all different countries. As a result, the population is very multicultural and diverse. This will alter consumers’ tastes and preferences.

(d) Income - Over the last decade there has been a steady increase in the number of households with two incomes as more and more women enter the workforce. As a result there has been an increase in household incomes which in turn has lead to increased demand for holidays, leisure products, childcare facilities, second cars, etc.

Another significant trend regarding income and consumer spending power is the increase in teenagers’ personal incomes. According to research, teenagers are a lucrative market and exert considerable influence over household spending.

(e) gender

(f) marital status


Technological Change 

Revolutions in technology – computers, internet, satellites, robotics – all are changing not only how business are organised, but also how products are marketed. Developments in technology can influence the marketing plan in the following six ways.

1. New products – Research and development in forever leading to a range of new products. Businesses are constantly looking for ways to improve existing product lines or develop new ones.

2. Cheaper products – Technology influences the types of products that businesses can offer. More efficient manufacturing has resulted in less expensive products.

3. New marketing methods – Technology has changed the way in which businesses promote their products. Product launches and advertising on the Internet are among the more common techniques.

4. Speedier delivery - Technological changes in transportation has allowed businesses to distribute their products faster and further a field.

5. Product obsolescence – As new products are developed, existing products soon become obsolete and ‘out of fashion’.

6. Competitive advantage – A business that is quick to apply new technology is able to develop new products which will give the business an advantage over its competitors.


Changing Customer Attitudes and Values

Societal changes can have an enormous influence over the marketing plans of a business as they can influence the types of products consumers want. Societal changes are changes to the lifestyle, social values, beliefs and customs of society. Unfortunately, these changes are very difficult to accurately measure or predict. The main societal changes that influence marketing are:

1. Concern for the physical environment. People are becoming more concerned with ‘quality of life’ issues, especially the physical environment. Businesses that adopt a ‘green’ philosophy and produce environmentally friendly products may encourage consumers to choose their products over businesses that ‘create’ pollution. Recycling, waste management and environmental protection are all sensitive issues, and consumer needs and feelings should be taken into account within the marketing activities.

2. Health conscious consumers – People are becoming more health conscious in regard to what they eat. ‘less fat’, ‘no added sugar’, ‘no preservatives or colouring’, ‘natural’, are all ways of promoting products.

3. Convenience – The increase in two income households has resulted in greater emphasis on time-saving and convenience. This has lead to the influx of ready-to use products, easy payment plans, and products packaged in a variety of sizes.


Activities of Competitors

Marketers need to be aware of the different types and amounts of competition that exists in the market place. Occasionally, a business may be unaware of the competition until it starts to lose market share or market penetration to rival producers and then it may be too late to recover.

The action of competitors who are in the process of implementing their own marketing plans can have a big impact on other businesses. Businesses need to monitor the marketing activities of competitors and ascertain what effects these activities are having in the market place. These include changes in prices, packaging, warranties, service, advertising, even distribution methods.


Alternative Marketing Methods

Businesses are always looking for new and different ways to promote and distribute their products. The purchasing of products from a store or a supplier is the oldest and most common form of distribution. Non-store retailing is retailing activity conducted away from the traditional store. Methods such as door-to-door selling, mail-order catalogues, party plan and vending machines are all non-store retailing and have been used for a number of years.

However, with rapid changes in electronic communication and the development of the ‘super-highway’, marketers are now exploiting electronic marketing. Two of the most rapidly developing methods are telemarketing and internet marketing.

Telemarketing - This is the use of the telephone to make a sale. The usual line is: ‘but wait, if you ring this number in the next 30 minutes we’ll throw in a set of steak knives absolutely free’. This type of marketing seems to target those consumers who are home during the day – the bored housewife/hubby, the young unemployed – where the offer for something free, entices/seduces the consumer to purchase that item

Interactive Technology and Internet Marketing - Current research suggests that businesses are moving away from the telephone and onto the internet for product communication. Businesses today are increasingly using the World Wide Web (WWW) as a promotional tool.

It is relatively easy and inexpensive for any business to obtain a domain name and a Web Site and begin marketing its products via the internet. On-line shopping, whilst still in its early stages of development, holds a number of interesting marketing alternatives. It is just a matter of consumers accessing shopping catalogues via the internet, selecting a product, punching in their details and having the item delivered the next day.


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Businesses do have some degree of influence over internal forces. Each factor needs to be analysed to ensure the success of the marketing plan.

Analysis of Business Resources

Staff - the statement that ‘people are our most important resource’ is very accurate for all areas of business and especially within the marketing plan. Despite the importance of advertising and sales promotion, ‘personal contact’ can be instrumental in making a sale.

It is important that the right people are recruited, and for this reason, human resource strategy of a business should always complement the marketing strategy.

Assets – It is no use developing a set of marketing objectives that are unrealistic and cannot be achieved. Marketing plans need to work within the set limits of the business’s existing asset base. Businesses may be required to purchase new equipment and/or buildings. This may involve some form of debt or equity finance. Over the long term, the physical assets of a business can be built up to achieve a larger market share, deeper market penetration or geographical expansion.


Analysis of Market Share

Market share analysis helps to identify whether changes in sales were due to uncontrollable external influences or to some internal weakness in the marketing strategy. If the business’s market share is decreasing and there is no discernible external cause, then the marketing strategy needs to be modified.


Analysis of Product Characteristics

Analysing a product’s characteristics can give us an understanding of the product and its potential. Often products can have other uses as well as those for which it was originally designed. The product can also be analysed in relation to its competitors’ products. This allows for a direct comparison to be made and weaknesses or strengths to be identified. One effective method used to analyse the product is to have the consumer complete a market research survey, providing information from the consumers’ perspective.


Analysis of Advertising

Advertising is a promotional activity, and like any marketing strategy, the effectiveness of the advertising needs to be analysed. A cost-benefit analysis should be carried out, where the cost of the advertising needs to be weighed against the expected benefit of increased sales.


Analysis of Price

The pricing of the product can be crucial to the success of the business, and needs to be looked at constantly. The pricing strategy is the price set for a business’s products in relation to the prices of competing products. A business needs to analyse its pricing strategy carefully, for it may be that a business has priced its product incorrectly and will need to readjust the price as sales figures are evaluated. When determining the price of the product, you need to look at the gross profit margin, especially the extra sales that are needed to maintain current profit levels.


Financial Capacity

The financial capacity of the business needs to be taken into account when developing marketing objectives. It is totally useless to plan a $20,000 product promotion when the business financial capacity can only afford $2,000. Research and development of new products is an area that can put a lot of strain on the financial capacity of a business. Sometimes, businesses can get assistance from government agencies.