Chodoe Pty Ltd is an organisation manufacturing a range of cereal products throughout Australia. Its biggest seller, Crunch-A-Licious, is a high-energy chocolate cereal marketed at children under the age of 15. The purpose of this essay is to analyse the macro-economic environment surrounding the cereal industry and identify the relative forces and trends that pose both opportunities and threats in the process of successfully marketing its product.
Successful marketing planning initially consists of a clear understanding of the external environment. An analysis of the macro-environment is crucial to the identification of threats and opportunities which may affect the company’s marketing strategy.
The macro-environment consists of the larger societal factors that affect the whole market environment. These factors include demographic, economic, natural, technological, political and cultural forces. To be successful, an organisation must remain flexible and adapt its marketing strategy to the relevant trends and developments in the macro-environment (Kotler, Brown, Burton, Deans & Armstrong 2010).
According to Solomon et al (2009, p.222), “demographics are statistics that measure observable aspects of a population including size, age, gender, race, income, education, occupation and family structure.”The identification of demographic trends not only helps marketers to better understand the composition of consumers within each market segment, but helps to identify potential opportunities and threats to the organisation’s marketing plan. Main demographic trends that have been identified include the changing age structure of the population, changing family structures, geographic shifts in the population, better educated consumers and increased ethnic diversity (Kotler et al, 2010).
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While all of these trends have the potential to affect Chocdoe Pty Ltd, the issue of significance is the ageing population. Like many developed countries, Australia’s population is growing older as a result of factors such as decreased fertility and increased longevity. According to the Australian Bureau of Statistics, the median age of the Australian population has increased by 4.8 years over the past two decades, from 32.1 years in 1990, to 36.9 years in 2010 (ABS Website, 2010).
The implications of this trend not only have the potential to adversely affect society and the economy as a whole, but also represent a potential threat to organisations such as Chocdoe Pty Ltd targeting younger consumers. United Nation projections expect the percentage of consumers aged 14 and under to decrease from 18.4% in 2010 to 16.3% in 2050. Crunch-A-Licious is marketed at consumers within this age group and product profitability may therefore suffer as a result of a reduced market base.
Understanding the economic environment is vital to the success of any marketing plan. “The economic environment consists of factors that affect consumer buying power and spending patterns (Kotler 2010, p149).” Some of these factors include monetary policy, employment, and the stages of the economic cycle. As with any market, consumer expenditure poses both a major threat and opportunity to organisations within the cereal industry.
Put simply, consumers need sufficient purchasing power to afford their desire for industry products. Changes in the economic environment, such as a sudden change in government monetary policy, will directly affect the amount of disposable income consumers have on a day to day basis, and thus, their spending patterns in relation to the type of cereals or breakfast products they purchase.
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Another factor affecting consumer income is the stage of the economic cycle. During times of prosperity, consumers buy more goods and services. This creates an opportunity for marketers to boost profits by taking advantage of the increased willingness of consumers to spend. Recessive stages of the cycle, on the other hand, are characterised by falling levels of demand, employment and income (Solomon et al, 2009).
As with most markets, economic recession poses a significant threat to the cereal industry as lower income and employment affect consumer spending patterns and reduce overall demand. The challenge to marketers is to therefore maintain steady sales by attempting to convince consumers to purchase Crunch-A-Licious over competitor products. As lower levels of income push consumers to opt for cheaper breakfast alternatives, this may be easier said than done. One only needs to look at the global financial crisis to see how economic conditions of even one economy can affect the profitability of firms across the globe.
“The natural environment involves resources that are needed as inputs by marketers or which are affected by marketing activities (Kotler 2010, P151).” Awareness of the environment has steadily increased over the past two decades. Growing concerns in this area include:
• Increased pollution
• Increased government intervention
• Shortages of raw materials
• Increased energy costs; and
• Increased consumer awareness
Pollution has become a worldwide problem. Increasing levels of public concern for pollution has vast implications to organisations. More and more environmentally concerned consumers are condemning firms and business practices that damage the environment. This means businesses need to be proactive in their approach to developing ecological sustainable strategies. Organisations can adopt a ‘green marketing approach’. For Chocdoe Pty Ltd, this means “producing products whose production, use, or disposal is less harmful to the environment than the traditional versions of the product (Hawkins, 2001, p88).” The public response to this type of approach has proved to be more than encouraging.
Increased government intervention has also been a key contributor to the growth of the ‘green movement’. As laws and regulations tighten, companies are forced to adopt more environmentally friendly practices in order to comply. The proposed carbon tax is a leading example of how companies will be charged for carbon outputs, thus compelling them to cut harmful emissions and adopt more environmentally sound practices. It seems that leadership, not punishment is the best policy for sustainable results. Instead of opposing regulation, marketers should seek to adopt a position of environmental stewardship and ensure business decisions protect or improve the environment.
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Industrial expansion and ever increasing levels of demand has meant that renewable resources such as air and water are becoming increasingly scarce, while non-renewable resources such as oil, coal and various minerals have become seriously depleted. According to Kotler (2010), companies making products that require these increasingly scarce materials face large cost increases, even if they do remain available. Furthermore, these costs may be difficult to pass onto consumers.
Although these resources do not form direct inputs into the production process of Crunch-A-Licious, the increasing price of such commodities as water, oil and energy will almost certainly affect the company indirectly through such things as higher transportation and overhead costs.
The technological environment is perhaps one of the fastest changing factors in the macro-environment. When most people think about technology, they tend to think about new and innovative high-tech products. According to (Ferrell 2011, p107), “technology actually refers to the way we accomplish specific tasks or the processes we use to create the things we consider as new.”
The technological environment poses both threats and opportunities for organisations. In order for companies to remain competitive, they must be innovative and keep up with the fast pace of technological change. If they fail to do so, they run the risk of losing market share or becoming outdated and obsolete.
The technological changes that have perhaps had the greatest impact on the business world are the emergence of telecommunication technologies, the internet and E-commerce. These technologies have not only facilitated communication between businesses and consumers, but between businesses themselves. They have helped to link organisations and consumers from all corners of the globe, without the barriers of time or distance and at a fraction of the cost. Whether it be through cost-savings, efficiencies, or the development of new business relationships, all involved in this revolution have benefitted. By taking advantage of these technologies, Chocdoe Pty Ltd can not only develop better and more efficient relationships with suppliers, but reach a significantly more extensive customer base.
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Another factor contributing to a company’s market attractiveness and competitive position is the technology involved in the manufacturing process. Efficient and innovative processes can help a company drastically reduce costs and increase total output from a given amount of inputs. Although this may not be a primary concern for companies in the cereal industry such as Chocdoe, marketers should always be looking for ways to streamline the manufacturing process in order to reduce costs and increase the value of their product to customers.
“The political environment consists of laws, government agencies and pressure groups that influence and limit various organisations and individuals in a given society (Kotler et al 2010, P154).” Some firms take a proactive stance and seek to influence governments and elected officials for their own benefit. This is often achieved through public protest and lobbying. Most, however, “view political factors as beyond their control and do little more than adjust the firm’s strategies to accommodate for changes in those factors (Ferell 2011, P106).”
One of the main political factors influencing a firm’s marketing operations is the legislative environment. “Legislation affecting business has increased steadily over the years to protect organisations from each other, and to protect consumers from unscrupulous businesses (Kotler 2010, P154).”
For Chocdoe, Food Standards Australia and New Zealand (FSANZ) is the main federal regulatory body governing the production and sale of foods such as cereal in Australia. The main responsibility of this organisation is to develop and administer the Australian New Zealand Food Standards Code, which specifies food safety and primary production and processing standards. Enforcement and interpretation of the code is the responsibility of state/territory departments and food agencies throughout Australia (FSANZ, 2011).
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Apart from the law, businesses are also governed by social and ethical codes. Recent times has seen the emergence of many industrial and professional trade associations suggesting, and sometimes requiring members to comply with specific policies, guidelines and codes of ethics. “Organisations have also been increasingly influenced by public interest groups operating at the national, state and local levels over the past two decades (Kotler et al 2010, P155).” These groups have the potential to draw unfavourable and sometimes damaging attention to a company’s reputation.
Marketers need to ensure they fully understand and comply with the main laws, regulations, policies and codes protecting competition, consumers and society. Companies should not only encourage employees to act ethically, but be proactive and look for ways to protect consumers and the environment. If they fail to do so, it can prove to very costly, not only in financial terms, but also to the firm’s reputation.
The last external force influencing marketers is the cultural environment. The cultural environment refers to the “characteristics of the society, the people who live in that society and the culture that reflects the values and beliefs of the society (Solomon 2009, P104).” Every society holds a different set of cultural values and beliefs that influence almost every facet of the way in which we live.
A successful marketing plan needs to encompass the core norms, customs and conventions of the society in which the organisation does business. This is because “cultural forces profoundly affect the way people live and help determine what, where, how, and when customers buy a firm’s products (Ferrel 2011, P108).” Although core values are fairly persistent, shifts in secondary values and beliefs do occur. In order to stay competitive and ensure the company is marketing towards the largest possible market, it is important for marketers to identify and predict trends and shifts in secondary core values and beliefs as a means of identifying new opportunities or threats (Kotler 2010).
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One such cultural shift that is taking place in Australia is the rising concern for general health and wellbeing. Crunch-A-Licious has traditionally been marketed in Australia as a high-sugar tasty breakfast treat that appeals to kids because of its taste, not its nutritional value. A rise in health conscious consumers, particularly parents looking for more healthy breakfast alternative for their kids may pose a significant threat to the ongoing profitability of Chocdoe. In saying this, a possible opportunity for Chocdoe may be to change the formula of Crunch-A-Licious so that it is a more ‘health friendly’ product while still keeping the same sweet taste that kids have grown to love. This will almost certainly reduce the risk of losing customers to healthier breakfast alternatives of competitors.
In conclusion, analysis of the macro-environment is crucial to the identification of threats and opportunities which may affect the company’s marketing strategy. All the macro-economic factors discussed pose threats and opportunities to the company. Marketers of Chocdoe Pty Ltd must understand each and every parameter of the Macro Environment and be flexible to the changes in the environment. As these factors are external to the business and cannot be controlled, ability of being flexible to the changes in these factors will provide competitive advantage to the firm.