Questions

1. Why did Marks & Spencer's fortunes take such a dramatic downturn in the 1990s?

2. Using the efficiency/effectiveness framework, how would you characterize the company?

3. Critically examine the decisions made by M&S in a bid to turn around the fortunes of the company.

Chapter 2. The Marketing Environment m arketing Spotlight

Consider this. Your company has had a legal monopoly for 350 years. Your core products are regarded as public services, so the government retains rights to interfere in business decisions. Neither your managers nor your workforce has ever seen a competitor. Suddenly, the government abolishes the monopoly, handing the future of the industry to a new regulator: Postcomm. The regulator starts licensing competitors, even before establishing a clear regulatory framework. Meanwhile, you are left with a public-sector operating culture, a strike-prone workforce and a legal duty to maintain expensive public services even as competitors start eating into your profitable markets. How do you respond?

These are the problems faced by Royal Mail, the postal organization of Consignia, formerly the UK government's mail and parcels arm, and now a state-owned pic delivering letters and parcels, and operating a nationwide network of post office counters. The company needs to adapt to the changes brought about by the Postal Services Act 2000, which introduced substantial private-sector competition to the postal service. Although the postal market has been hurt by electronic mail, it remains a huge business-Royal Mail employs 80,000 postal workers to deliver 80 million items per day to 27 million UK addresses. The market is expanding by 2 to 3 per cent per year but entry costs are low because the law guarantees new competitors access to Consignia's infrastructure. Therefore Royal Mail fears that up to 30 per cent of its market could be at risk, and it is the most profitable sectors of the market that are inevitably attracting the new competition. A more recent decision by the regulator to open the bulk business mail segment of the market to competition has created opportunities for entry by private competitors such as TNT and Hays.

Royal Mail has reacted to its changed circumstances in a number of ways. It has strengthened its senior management team by bringing in people with private-sector experience. For example, the managing director of business services and marketing, Gillian Wilmot, came from Littlewoods where she was retail strategy director. The company is looking to improve its product range. It has a legal obligation to deliver to all UK addresses at a uniform price-the 'universal service obligation'-but it aims to reduce this to a bare minimum by scrapping the second post and ending the commitment early-morning deliveries for residential customers. This would make the workforce more flexible, saving money and opening up opportunities for profitable premium services such as guaranteed early-morning deliveries for businesses. These changes, combined with cost reductions and the development of a more commercial operating culture, mean that major challenges lie ahead for Royal Mail. One change that Allan Leighton, the chairman of Consignia, has decided to make is to abolish the Consignia name and revert to the original The Post Office brand.

The challenges being faced by Royal Mail reflect what happens when there is a significant change in the marketing environment of a firm. In this case, the change in the political/legal environment was dramatic; often the changes are much more subtle, such as a gradual evolution in technology or in consumer living habits. A market-orientated firm looks outward to the environment in which it operates, adapting to take advantage of emerging oppor­tunities and to minimize potential threats. In this chapter we shall examine the marketing environment and how to monitor it. In particular, we shall look at some of the major forces acting on companies such as the economic, social, legal, physical and technological issues that affect corporate activities.

The marketing environment is composed of the forces and actors that affect a company's ability to operate effectively in providing products and services to its c ustomers. It is useful to classify these forces into the microenvironment and the macroenvironment (see Fig.2.1). The microenvironment consists of the actors in the firm's immediate environment that affect its capabilities to operate effectively in its chosen markets. The key actors are suppliers, distributors, customers and competitors. The macroenvironment consists of a number of broader forces that affect not only the company, but also the other actors in the microenviron­ment. These can be grouped into economic, social, legal, physical and technological forces. These shape the character of the opportunities and threats facing a company, and yet are largely uncontrollable.

We shall examine the changes taking place between suppliers and their customers, and the nature of the influences on customers in the next chapter. Distribution will be examined in Chapter 9, and competitive factors in Chapter 11. Consequently, this chapter will focus on the major macroeconomic forces that affect marketing decisions. Four forces - namely economic, social, political/legal and technological-have been the focus of most attention with the result that the acronyms PEST or STEP are often used to describe macro environmental analysis. The growing importance of the impact of marketing activity on the physical environment means that this issue too, will be a focus of attention in this chapter.