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Troy's report

Assignment 2 - Report topic:

"The marketing environment... consists of the actors and forces outside marketing that affect marketing management's ability to develop and maintain successful transactions with its target customers." Kotler et al (1998) pg 100

In this assignment you are required to choose one industry from the two in your stream and identify and discuss the actors and forces currently active in that industry AND the likely effect/impact that these actors/forces will have on that industry in the next 12 months.


Index

1 Cover page

2 Index page

3-8 Part 1 ' The macroenvironment

8-14 Part 2 ' The marketing mix

15 Bibliography

Inroduction

Within this report the macro-forces of an industry will be analysed, continuing on to compare the marketing mix of two organisations within that industry. All organisations - with their suppliers, customers, competitors, and publics - have a macroenvironment. This environment consists of macro forces that act on and affect the organisation and are generally outside their control, as opposed to the micro forces which also affect the organisation, but are generally under their control. The marketing mix is the term used to describe how an organisation goes about developing a product and selling it to the market.

The industry chosen is soft drinks which industry falls into the category of fast-moving-consumable-goods (FMCG's), as it is a product that is consumed, and is fast-moving. These won't sit in a supermarket or convenient store for long, as they are constantly being purchased. Other examples of a 'FMCG' are canned foods, ice cream, soup, cereal, potato chips and a whole lot more.

Part 1

There are six main macro forces making up the "macroenvironment." These are:

  • The demographic environment - which is the study of human populations in terms of size, density, location, age, sex, race, and occupation 1. Studies in this area, for example, can show the changing age structure, which is necessary, as marketeers need to understand who makes up the market, thus allowing them to make the most effective decisions for the marketing mix.
  • The economic environment ' which has an effect on consumer purchasing power and spending. For example, if the average income drops, then there is likely to be less buying power 2.
  • The natural environment ' involves natural resources that are needed as inputs by marketers or which are affected by marketing activities 3. An example of this is the non-renewable resource, where companies will face increasing prices, as the shortage becomes more of a problem. Also natural disasters can cause a sudden change in needs.
  • The technological environment ' this can create new markets and opportunities, as well as replace older ones. It can be of great benefit to society, but also of great disaster e.g guns 4.
  • The political environment ' consists of laws, government agencies and pressure groups that influence and limit organisations 5. An example of this is the new legislation passed that now products need to label all information, including how they are made.
  • And the cultural environment ' which is made up of institutions and other forces that affect society's basic values, perceptions, preferences, and behaviours 6. An example is of people who are patriotic and may only buy products manufactured by their own country as they believe it's for the better.

An organisation must carefully watch and respond to changes in these forces as they all can shape opportunities and also create threats.

The ways in which the macroenvironment may effect the soft drink industry will now be discussed with reference to the above definition. It isn't necessary to assume that all these macro forces will have an obvious effect on the industry, however it's more than likely most of them will.

Demography can and will affect the soft drink industry in several ways. Youths and young adults are definitely the age group that makes up the majority of consumers in this industry. There has been a decline in the young adults group during the 1990's as a result of the reduced fertility of the 1970's 7. The youth group (10-19) dropped through the early 90's but will begin to increase again around the turn of the century. This is important information for marketers, as they can understand why or why not sales are changing. The early middle age group and older are also likely to purchase soft drinks. With the newer "diet" and "caffeine free" products, more of these older groups are able to enjoy soft drinks. However these older groups don't make up a great deal of the purchasing power for soft drinks.

The population is becoming more educated. Soft drinks aren't considered healthy, and as more and more people learn of the problems associated with eating and drinking bad foods that rot teeth, it may be likely to have an effect on the soft drink industry.

Within the soft drink industry is a range of products with varying prices. Although the cheap brands may be only be a dollar cheaper, this can become much more attractive than the image brought with the more expensive brands, in times of economic struggle. It is suggested that the average income through the 1990's is slowly increasing 8. To make sense of this we would assume then that the middle socioeconomic class would be able to afford the better brands, more so than in the past. However, will this affect soft drinks? Where parents buy for their children it may, but also for the young adults who may be earning more, it may not.

The natural environment has had an impact on what we do with the cans and bottles once they're finished with, and that's recycling. This overcomes any worry that consumers may have for the environment, especially seeing as concerns for the environment have been growing more and more. Manufacturers, therefore, need to lend their support to recycling and show their care for the environment.

Over the past decade we have seen many variations of one flavour invented, and then many more flavours too. Such ones include "diet" and "caffeine free" to attract the more healthy conscious, many fruity-flavoured soft drinks, and many more. This is related to the technology environment, and what we see here is the industry using the developments in technology to provide more variations to gain a greater market. There have been many developments in the bottling, to suit image, such as Coca-Cola's slick shape, the different sizes, which again give more variations, and the ability to recycle.

With computer technology we can now shop over the Internet. Some may choose to purchase soft drinks, however this kind of technology is unlikely to boost sales significantly.

Products need to be practical and affordable, and technology processes allow for more efficient production of packaging, and for them to be more practical, which relates back to the size and ability to recycle.

The political environment will have had little impact on the soft drink industry except in the area of legislation. Such examples include the labelling of ingredients.

The growing concern for the environment also comes under the topic of cultures. For it is becoming a value for the people of Australia, and also the world, to be more aware of the environment. However, cultures have many more influences, like people's views about themselves, which can affect the industry. One of the bigger organisations in the industry, Coca-Cola, promotes that there is an image associated with drinking their product. People use products as a means of self-expression 9 so they buy what will make them feel good. Buying a cheap brand cola may not allow someone to feel :"cool" or comfortable with the people around them. Some, however, don't care about others' opinions on such an issue and will be comfortable drinking cheap brand cola in public.

However, it is noted that this "me society"' is on the way out. Thus, indulging in all the good things is becoming a less common thing and is changing to a "we society". However, this change may have no effect on the soft drink industry but only increase the need to buy the better brands. One recent ad shows scenes where huge groups of people are drinking their soft drink on the beach, which displays that it's a social drink.

Soft drink organisations are amongst some of the most common organisations that sponsor large events, mainly sporting ones. These include Coca-Cola, Sprite, Pepsi, and many more. This encourages people's view of the organisation to be positive, as people are expecting more from large organisations to help society.

So we can see that the macroenvironment for the soft drink industry has a lot of areas to cover - most of them always relating back to the people, as it's the people who make up the markets. Also, although they are macro forces, companies still take an environmental management perspective. That is, taking an aggressive action to influence forces the way they want. In the soft drink industry these forces are mostly all positive and therefore can benefit the consumers.

Part 2

The two organisations chosen to analyse their marketing mixes are Coca-Cola, and Pepsi, within the soft drink industry. Coca-Cola is the leading manufacturer, marketer, and distributor of non-alcoholic beverages with Pepsi Co following second.

Firstly, we will look at how Coca-Cola has used their marketing mix. The marketing mix is divided up into 4 parts; product, price, promotions and place.

Firstly, the product. The product (Coca-Cola soft drink) includes not just the liquid inside but also the packaging. On the product-service continuum we see that a soft drink provides little service, apart from the convenience. Soft drinks satisfy the need of thirst. However, people are always different, some want more and others want less. Therefore Coca-Cola have made allowances for that by providing many sizes. We also have particular tastes, and again they have provided several options. So, although thirst is what is needed to be satisfied and that is the core benefit, we are receiving other benefits in the taste and size. This is all related to the product line, which is a term used to describe a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, and marketed the same 10. Coca-Cola has developed several different flavours and sizes as mentioned above, but also several brands such as Sprite, Lift, Fanta and Diet Coke which increase the product line length, thus making full use of the market to maximise sales.

Coca-Cola, however, also aims to create an image about the product. In this case they want it to be a social drink, one that you would have when having a good time. So when we go and buy Coca-Cola, we are not only relieving thirst but taking on an image and an idea. "We are going to a party ' we have to get Coca-Cola". Through promotion people now have the idea that it's only cool to drink Coca-Cola, and to be seen with anything else is cheap. One of their advertising campaigns highlighted the point of enjoying Coca-Cola, thus displaying how the product is not just about satisfying thirst, but also you need to enjoy drinking it.

The product is convenient 11, that is - bought frequently, immediately, and with a minimum of comparison and buying effort 12.

The appearance 13 of the product is eye catching with the bright red colour. It has a uniquely designed bottle shape that fits in your hand better, and creates a nicer ' more futuristic look.

The quality of the soft drink is needed to be regularly high. Sealed caps ensure that none of the "fizz" is lost. The bottles are light, with flexible packaging, so they won't crack or leak, and are not too heavy to casually walk around with. The cans are also light and safe.

All these factors are a part of the product, from the drink to the image. And through promotions Coca-Cola aims to create an attractiveness for this. Some of their advertisements show beach scenes, which allow the viewer to relate Coca-Cola and fun together. They have immense advertisement schemes, always creating new ideas and flooding the TV with Coca-Cola, mostly enhancing their image of being socially accepted and fun.

Coca-Cola uses the "pull strategy" in their promotion. That is, they promote to the consumers to create the want for their product which in turn creates a demand on the retailers and then back to them. For example, in supermarkets and convenience stores Coca-Cola has their own fridge which contains only their products. There is little personal selling, but that is made up for in public relations and corporate image. Coca-Cola sponsors a lot of events including sports and recreational activities. All these are used to create awareness of the product. They also use competitions, such as check under the lid for an instant prize, to encourage consumers to buy their product over the competition's products. Coca-Cola promotions then create knowledge and liking about the product through campaigns that show that it has the best taste, is the most popular and is the one of the future, whilst appealing to a large range of audiences.

Coca-Cola floods all possible retailing stores in satisfying the third part, place. In supermarkets and convenient stores Coca-Cola products are always easy to identify, and usually make up the greater proportion of options to buy. This increases their market exposure 14 through effective use of the retailers. For a FMCG it is important that they can be found and purchased easily. With the many automatic can machines located in many sports stadiums and shopping malls, you don't even need to go to a store to buy a drink. This greatly enhances the speed of purchase 15.

Pricing strategy is the last area of the marketing mix. Coca-Cola products would appear, on the shelf, to have the most expensive range of soft drinks common to supermarkets, at almost double the cost of no name brands. This can be for several reasons apart from just to cover the extra costs of promotions, for which no name brands do without. It creates consumer perceptions and values. When people buy Coca-Cola they are not just buying the beverage but also the image that goes with it, therefore to have the price higher reiterates the fact that the product is of a better quality than the rest and that the consumer is not cheap. This is known as value-based pricing and is used by many other industries in attracting consumers.

Now we can compare the above marketing mix to that of Pepsi Co. They both would use market segmentation and positioning, however even before the marketing mix is analysed we can see differences here.

Market segmentation is the term used to describe the first step organisations take in deciding who they are going to sell the product too. The segmentation used by Pepsi and Coca-Cola is likely to be under the psychographic section, using values and attitudes. This means that within the many different values and attitudes that people have, Coca-Cola and Pepsi aim to choose a few and target their product towards them. They both aim towards creating an image associated with their products, however they target different types. For example, Coca-Cola is shown to be a more outgoing and group orientated image, whereas Pepsi focus more on the individual and less outgoing. This is an example of market positioning. As trying to compete in the exact same area will only result in fewer sales for each, they try to obtain their own part of the market segment 16 .

Diagram 1: An example of market positioning.

Diagram 1: An example of market positioning.

Looking at the marketing mix, we will now compare how Pepsi go about it as opposed to Coca-Cola.

As they are both very similar, in that they are the two largest manufacturers of soft drink, they compete for market share constantly, but in different ways. This is shown in the first section of the marketing mix ' product as discussed above.

Just as Coca-Cola have aimed to create an image about their product that will encourage you to buy, so too have Pepsi. However Pepsi have a different image associated with their product. As mentioned when talking about market positioning, Pepsi look less to the outgoing groups, and focus on the individuals and also introversive people. A lot of their campaigns in the past are associated with sports, many of which were individual sports. They had promotions that showed men living on the edge and performing dangerous stunts. This is certainly creating different personalities of their products compared to Coca-Cola. For the product itself, flavours are very similar to Coca-Colas. Pepsi have also extended their product line to include other flavours and brands for example, Mountain Dew and also many different sizes, just as their competitors, to gain a greater portion of the market.

The appearances of Pepsi products are quite different from that of Coca-Cola. Where Coca-Cola goes for a bright, fun look, Pepsi has a more futuristic look with the theme "the next generation." As the product is more associated with sports and doing unusual things, such as stunts and extreme games, they have not worried about creating a slick bottle shape like Coca-Cola, instead they've just made them slightly larger, to offer more to the customer.

Pepsi have strongly associated themselves, through sponsorship, to extreme games, which includes skateboarding, rollerblading, and many other dangerous individual sports. But at the same time with advertisements, showing that it has a great taste, a can be used for a social drink. This is a very similar approach to Coca-Cola, that is, by using events to create awareness and then through advertising, create knowledge and liking to the product. However, they do it for a different target audience, as mentioned above, that's why they sponsor different events and use different advertising campaigns.

Pepsi, just like Coca-Cola, flood the convenient stores with their products, and use their own fridges in gaining consumers' attention, thus ensuring their market exposure, is as large as possible

Their pricing schemes follow along a similar line to Coca-Cola, in that they are at the more expensive end of the market. However Pepsi have taken one extra step in creating a discount. That is, they offer sixty ml extra for the same price. For many people who don't really know or care about the subtle differences in the tastes, they will go for the one that provides more for less.

So again Pepsi have used the marketing mix to ensure their product is known, and attractive just as Coca-Cola has. The differences though, are stemming from their variance in how they position themselves in the market.

Both organisations are very strong in the international market, and each have a strong hold on their target markets through effective use of the marketing mix. However, with poor decisions or failing in one of these four key areas of the marketing mix, either organisation could have caused their own downfall.

Bibliography

A. Buckley, The Essence of Marketing , Prentice Hall International, U.K, 1993

A. Hutchings, Marketing, a Resource Book, Pitman publishing, Great Britain, 1995

G. Lancaster and P Reynolds, Marketing , Macmillan Press Ltd, London, 1998

P. Kotler, G. Armstrong, L. Brown and S. Adam, Marketing, Prentice Hall, Australia, 1998

www.cocacola.com

www.pepsi.com

Footnotes:

  1. Kotler et al (1998) Marketing p105
  2. Kotler et al (1998) Marketing p113
  3. Kotler et al (1998) Marketing p116
  4. Kotler et al (1998) Marketing p118
  5. Kotler et al (1998) Marketing p121
  6. Kotler et al (1998) Marketing p123
  7. Kotler et al (1998) Marketing p109
  8. Kotler et al (1998) Marketing p115
  9. Kotler et al (1998) Marketing p124
  10. Kotler et al (1998) Marketing p372
  11. A. Hutchings (1995) Marketing, A Resource Book p5
  12. Kotler et al (1998) Marketing p350
  13. A. Hutchings (1995) Marketing, A Resource Book p5
  14. A. Hutchings (1995) Marketing, A Resource Book p5
  15. A. Buckley (1993) The essence of marketing p32
  16. Lancaster and Reynolds (1998) Marketing P40
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