Lesson 1, Topic 1
In Progress

Analysing Macro Environment

Lakshmi Datti December 23, 2021

Needs and Trends

Enterprising individuals and companies create new solutions to similarly unmet needs. Let’s distinguish among fads, trends, and megatrends.

  • A Fad is “unpredictable, short-lived, and without social, economic, and political significance.”
  • A direction or sequence of events with momentum and durability, a trend is more predictable and durable than a fad; trends reveal the shape of the future and can provide strategic direction. A trend toward health and nutrition awareness has brought increased government regulation and negative publicity for firms seen as peddling unhealthy food.
  • A megatrend is a “large social, economic, political, and technological change [that] is slow to form, and once in place, influences us for some time—between seven and ten years, or longer.”

Identifying the Major Forces

Firms must monitor six major forces in the broad environment: demographic, economic, social-cultural, natural, technological, and political-legal – which lead to new opportunities and threats. For example, explosive population growth (demographic) leads to more resource depletion and pollution (natural), which leads consumers to call for more laws (political-legal), which stimulate new technological solutions and products (technological) that, if they are affordable (economic), may actually change attitudes and behavior (social-cultural).

(1)       The Demographic Environment

The main demographic factor marketers monitor is population, including the size and growth rate of population in cities, regions, and nations; age distribution and ethnic mix; educational levels; and household patterns.

(2)       The Economic Environment

Purchasing power depends on consumers’ income, savings, debt, and credit availability as well as the price level. As the recent economic downturn vividly demonstrated, fluctuating purchasing power strongly affects business, especially for products geared to high-income and price-sensitive consumers. Marketers must understand consumer psychology and levels and distribution of income, savings, debt, and credit.

(3)       The Sociocultural Environment

From our socio-cultural environment, we absorb, almost unconsciously, a world view that defines our relationships to ourselves, others, organizations, society, nature, and the universe.

  • Views of ourselves. Some “pleasure seekers” chase fun, change, and escape; others seek “self-realization.” Some adopt more conservative behaviors and ambitions.
  • Views of others. People are concerned about the homeless, crime and victims, and other social problems. At the same time, they seek those like themselves for long-lasting relationships, suggesting a growing market for social-support products and services such as health clubs, cruises, and religious activity as well as “social surrogates” like television, video games, and social networking sites.
  • Views of organizations. After a wave of layoffs and corporate scandals, organizational loyalty has declined. Companies need new ways to win back consumer and employee confidence. They need to ensure they are good corporate citizens and that their consumer messages are honest.
  • Views of society. Some people defend society (preservers), some run it (makers), some take what they can from it (takers), some want to change it (changers), some are looking for something deeper (seekers), and still others want to leave it (escapers). Consumption patterns often reflect these social attitudes.
  • Views of nature. Business has responded to increased awareness of nature’s fragility and finiteness by making more green products, seeking their own new energy sources, and reducing their environmental footprint. Companies are also literally tapping into nature more by producing wider varieties of camping, hiking, boating, and fishing gear such as boots, tents, backpacks, and accessories.

(4)       The Natural Environment

Steel companies and public utilities have invested billions of dollars in pollution-control equipment and environmentally friendly fuels, making hybrid cars, low-flow toilets and showers, organic foods, and green office buildings everyday realities. Opportunities await those who can reconcile prosperity with environmental protection. For example, transportation is second only to electricity generation as a contributor to global warming, accounting for roughly a fifth of carbon emissions. Vancouver-based Westport Innovations developed a conversion technology—high-pressure direct injection—that allows diesel engines to run on cleaner-burning liquid natural gas, reducing greenhouse emissions by a fourth

(5)       The Technological Environment

Marketers should monitor the following technology trends: the accelerating pace of change, unlimited opportunities for innovation, varying R&D budgets, and increased regulation of technological change. In some cases, innovation’s long-run consequences are not fully foreseeable. Cell phones, video games, and the Internet allow people to stay in touch with each other and plugin with current events but also reduce attention to traditional media as well as face-to-face social interaction as people listen to music or watch a movie on their cell phones.

(6)       The Political-Legal Environment

The political and legal environment consists of laws, government agencies, and pressure groups that influence organizations and individuals. Sometimes these create new business opportunities. Mandatory recycling laws boosted the recycling industry and launched dozens of new companies making products from recycled materials. On the other hand, overseas governments can impose laws or take actions that create uncertainty and even confusion for companies.