The economic environment can and does change quite rapidly. The effects can be far-reaching and require changes in marketing strategy. Economic environment includes the economic system of the country (capitalist, command or mixed economy), economic policies (fiscal, monetary and commercial), level of development (developed, developing, or underdeveloped), sectorwise conditions (agriculture, industry, and services), foreign trade and balance of payments, economic growth (GDP), foreign exchange reserves, distribution of income and assets, competition, business cycle (overall pattern of change in the economy), etc.
Increasing growth rate is an opportunity for other countries to invest here; increasing per capita income is an opportunity for branded products and services and a threat for generic products and services. Increased positive balance of payment has been an opportunity for China to invest heavily in US securities; and increasing income means additions to middle class consumers who often say ‘yeh dil mange more’.
Increased taxation is a threat to business. Lowering import duties mean opportunities for foreign exporters and a threat for local material providers. Growing competition is a threat for monopolists, but an opportunity for multinational enterprises. Imposing 24% excise duty on big cars means an opportunity to go in for small cars, which invite excise duty @ 12% only.
Changes in the economy are often accompanied by changes in the interest rate the charge for borrowing money. Interest rates directly affect the total price borrowers must pay for products. Reserve Bank of India increased interest rates for 13 times during the last 24 months. The prices increased. Interest hikes made house and car buying costly and affected reality and car companies badly.
Price hike, or inflation, may be for global or domestic reasons affects consumer buying. Real income goes down. Government of India increased oil prices of petroleum more than the diesel prices. As a result the companies are finding it advantageous to produce diesel cars, where running cost will be much lower than the petrol-driven car.
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Changes in the exchange rate, i.e., how much one country’s money is worth in another country’s money have an important effect on international trade. When the dollar is strong, exporters benefit and when the rupee gets stronger vis-a-vis dollar or euro the importers benefit.
Stage of business cycle, i.e., boom, recession, and recovery affects marketing environment. In case of recession, the economy gets slowed down, expenditure is cut and demand gets downward slope. In recession stability strategy is best of all to guard the market share.