Marketing environment consists both internal and external environmental factors affect the organization success. Business Managers have challenges to develop such marketing strategies that minimize the risk caused by these macro factors both in present and future.
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Macro Environment is the external environment factors greatly influenced the business success, strategies and decision making. These factors are uncountable by the business organizations. The wider and broader set of economical conditions is known as macro environment.
How Macro Environment Factors affect Business
There are 6 macro factors that affect business environment positively or negatively. Marketers must assess macro factors for developing sound marketing strategy. There are many strategic analysis tools (PEST, SWOT, Porter’s 5 Forces) to assess these macro environmental factors. PESTLE Analysis tool is widely used in the business community to find out opportunities and threats. Once understand the outcome, marketers can utilize opportunities and minimize threats.
In external environment, political factors are Government actions, rules and regulation. Change in political situation can be a very sensitive issue to a company. Political factors that affect business are uncontrollable like political stability, current and impending legislation. The only solution is to conduct environmental analysis. It will help to know the threats and opportunities and take precautionary measures as desired.
More stringent measures are to be made regarding car leases through the consumer lobby group in congress. The tobacco industry has been receiving too much attention from the government albeit on a negative note which makes it the next target. The American firms will find it more difficult to export goods due to the stringent laws that are being put in place to avoid aiding the enemy. Despite the fact that policies being made are to benefit an industry by realization of higher profits, the same could impact negatively on the nation.
Companies are enormously sensitive to occurrence of changes in an economy. Economic factors include inflation rate, currency exchange rate etc.
During bad times most of the consumers do not buy new cars, avoid eating out or building a new house for them and vice-versa. However, we must understand that not all the industries are affected negatively with the changes in economy. During bad times most of the families cut down their expenses, they compromise on quality and brands in order to remain in their budget. They limit their savings by cutting down their extra expenses without affecting their standard of living. In the same way companies also cut down their expenses when their sales are down.
US economy was quite strong in the late 90s, and during that time it was quite easy to sell luxurious and branded items. Currently, the economy fluctuates between increasing strength, stagnation, or slight decline. Due to this reason Downturns in the economy affects badly to any Firms. For example during downturns, car manufacturers observe decline in their profit margin and in order to remain in the market they had to cut down their prices and offer low interest rates while financing. Generally, in good economic times, there is a great deal of demand, but this introduces a fear of possible inflation. Therefore, in the US, Federal Reserve raises interest rate in order to prevent economy from “overheating”. Due to this increase in interest businesses avoid investing and in result, people tend to make less money.
During the time of recession, rate of unemployment tends to rise which causes consumers to spend less. And this often results in a “bad circle,” with more unemployed people and those who lost their jobs due to the recession. Some companies use this situation very wisely and take this opportunity to invest in growth since the things can usually be bought more cheaply.
Organizations can be affected by demographics change and change in customs.
The demand for baby food has decreased because of birth control. The demand for prepared food has increased with the increase in number of working women. This is an opportunity for few organizations such as fast food restaurants but on other hand it is a problem for manufacturer of furniture with the increase of unmarried singles, as some people don’t buy furniture until their marriage.
Technological factors are those variables rely on current, available and change in technology. These factors may be technological products and process.
The changing trends in the advancement of technology are very rapid. These technological changes can affect business negatively or positively, if not responded properly. These changes can positively improve business productivity, cut costs and minimize production and distribution cost.
For example, Federal Express demand lowered with the invention of Fax Machine. Record stores have vanished due to no business as people are more towards downloading songs from internet (illegally getting it from friends – Even US President has confessed this act).
Organizations are very susceptible to change in laws and interpretations done by courts.
For instance, some people have sued McDonald’s blaming McDonald’s hamburger lead them to obesity. There is not much that firms can do about several laws. For example, some laws require organizations to make disclosure to customers about the applied interest rate they will be paying for product purchased on instalments.
Stating explicitly whether the amount being referred is in actual dollar or any other currency to be the adjusted figure will be necessary. This is because with time a number of economies have faced inflation crisis which has impacted on the real value of their currencies. For example, a single dollar spent in 2007 will have a different value when compared with a dollar in 1960. Therefore, it is becoming increasingly important to state whether a quoted amount is inflation adjusted.
By use of an example, we suppose that inflation between 1960 and the year 2007 was 1000% on average, this would imply that the cost would be about ten times more than 47 years ago. However, using the same scenario if inflation from the year1960 to the year 1984 was 500/% cumulatively, this would mean that the value is fifty cents of the 1960 dollar and if pitted against the 2007 dollar, it would be $2. Notably important is the fact that inflation is not even but irregular. The cost of some services and products are seen to be on the rise beyond the average rate of inflation currently. This is apparent especially within the education sector and the healthcare industries. However, the prices of computers, are seen to decline in value, of money that is made in payment for quality and in absolute numbers as well. For instance, a computer costing $1000 on average but in two-year times the value goes down to $800. Thus, in two years the computer had depreciated in value by a figure of 20% which could possibly be 30% instead if the value is based on speed index together with other factors of performance. Therefore, the net deflation within that period is almost 38.5.
PEST Analysis is a strategic tool for macro environmental analysis. We all know that macro factors are uncontrollable, but a better undemanding is unavoidable for business expansion. This understanding will minimize business risk and give a competitive advantage over competitors.