FACTORS INFLUENCING THE MARKET ENVIRONMENT AND CHALLENGES OF THE BUSINESS ENVIRONMENT

FACTORS INFLUENCING THE MARKET ENVIRONMENT:

 

 

Consumers (the market)

 

·         The people who buy goods and services offered by the business in order to satisfy their needs and wants.

·         Business use Maslow’s hierarchy to persuade consumers to buy.

·         Consumer tastes and habits will change over time. Responding to consumers – through satisfaction and preference surveys àdirection of consumer’s changing tastes and habits

 

Suppliers

 

·         Businesses or individuals that provide the business with inputs to the production process.

·         Management has no control over this variable but can influence the price of supplies by buying in bulk and obtaining a lower price for the products.

·         Inputs needed by business from suppliers are (raw materials, stock, equipment), capital and labour.

 

 

Intermediaries

 

·         Firms which help, sell promote and distribute their goods to the final consumer

·         Includes retailers, wholesalers, brokers, agents and franchising

·         Businesses can influence intermediaries in many ways ð intermediaries can close the gap between producer and consumer by bringing goods within easy reach of the consumer.

 

Competitors

 

·         Important to offer what consumers want.

 

 CHALLENGES OF THE MARKET ENVIRONMENT

 

COMPETITION

Competitors are those businesses that produce the same or similar goods and services.

The challenge is for management to develop strategies to deal with competition by:

·         Offering exceptional service

·         Reducing prices

·         Offering a range of different products

·         Improving quality

 

SHORTAGE OF SUPPLY

It is essential for businesses to have a regular supply of materials that are inputs in the production process. The work of the purchasing manager is to:

·         Identify reliable suppliers

·         Establish a good relationship with suppliers

·         Negotiate the best deals

·         Constantly check for new suppliers

·         Enter into contracts with suppliers to secure raw materials of a good quality in sufficient quantities

The challenge is to find reliable suppliers at the best prices. The business needs to plan and communicate well so that any change in goods and services needed is fulfilled on time.

 

CHANGES IN CONSUMER BEHAVIOUR

Businesses need to be aware that consumers easily change their tastes and habits.

·         Consumers are mainly influenced by changes in fashions and new technology

·         If consumers are buy less of a product, this can have a serious effect on, and can even threaten, the long-term success of the enterprise

·         If consumers increase their demand the business has to be ready to take advantage of the opportunity

·         Losing a market for a product will have a negative effect on profits and employment

 

The challenge is for businesses to:

·         Keep up with changes in consumer tastes and demand by doing research

·         Find ways to influence consumer demand

·         Conduct advertising campaigns and consumer surveys

 

DEMOGRAPHICS

Businesses need to understand the demographics and psychographics of the target market.

Define the terms demographics and psychographics.

 

Demographics are the characteristics of customers who buy products or services, such as their age, educational and income levels.

Psychographics is the study of social and cultural aspirations, viz. beliefs, attitudes, values and behaviours.

The challenge is for businesses to:

·         Collect information about the target market

·         Interpret the information correctly

·         Use the data to develop a marketing strategy

 

SOCIO-CULTURAL FACTORS

Socio-cultural changes include:

·         The increase in urbanisation and other population shifts leading to changes in lifestyles

·         Awareness of environmental issues

·         Demand for healthy foods such as organically grown foods

·         New technology

·         Availability of scarce resources

·         Changing values regarding the role of all population groups in society and business

 

Businesses must understand:

·         The different cultures, religions and social norms of the area in which they operate

·         That social changes have a major impact on the market environment

·         That consumers can change their needs and wants

 

The challenge is to gather information about changes and to respond to them by adapting practices to maintain and increase its customer base.

 

1.      Choose one option from the alternatives in brackets that will make the sentence true.

1.1  A monopoly is the situation when there is (only a few/only one) supplier of a good or service.

1.2  The total production of a firm is called its (outputs/inputs).

1.3  Suppliers provide all the (outputs/inputs) for a business.

1.4  Information about the population, such as age, gender and income levels, is called (psychographics/demographics).

1.5  The classification of customers according to their attitudes and aspirations is called (psychographics/demographics).

2.      Discuss how ‘regulators’ and ‘strategic allies’ influence the market environment.

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