Describe and explain the key elements of the macro- (external) marketing environment. Show how these can impact on a company's marketing activities by illustrating your conclusions with reference to a UK company of your choice.
Describe and explain the key elements of the macro- (external) marketing environment. Show how these can impact on a company's marketing activities by illustrating your conclusions with reference to a UK company of your choice.
Macro Marketing is defined as a social process that directs an economy's flow of goods and services from producers to consumers in a way that effectively matches supply and demand and accomplishes the objectives of society. The emphasis is on how the whole marketing system operates not on activities of individual organisations (McCarthy et al, 1994)
There are six Macro environmental influences on the Marketing Mix:
. Demographic Factors
2. Economic and Competitive factors
The economic environment is affected by the interaction of all parts of a macro- economic system. This then affects such things as national income economic growth and inflation. The economic environment may vary from one country to another, but the world's economy is becoming increasingly linked with globalisation (McCarthy et al, 1994).
It is now common for customers to obtain gas and electricity from the same supplier. Research carried out by BMRB for Key Note shows that in July 2000 42.3% of customers obtained gas and electricity from the same supplier, whilst 57.4% used different suppliers. Between July 2000 and March 2001, 9.6% of respondents changed gas to the same supplier as electricity and 130% changed electricity to the same supplier as gas. During the same period 10.5% changed both gas and electricity to a new supplier.
The major electricity generators in the UK are:
British Energy PLC
British Energy (BE) PLC is the UK's largest electricity generator producing 19% of total output. The company was formed in 1996 to include the nuclear power activities of Nuclear Electric Ltd and Scottish Nuclear Ltd. In 1998, these activities were merged to form British Energy Generation, which operates eight nuclear power stations. The combined output of these nuclear power stations is 9,600 MW.
The company also owns a 2,000 MW flexible coal-fired plant at Eggborough acquired in 2000. In the year 2001/2002, British Energy produced 74.7 TWh from its nuclear and coal power stations.
In the year ending 31st March 2002, British Energy sales were £2.05bn.
British Energy has operations in North America through its subsidiary Bruce Power in Canada and Amer Gen a joint venture with PECO Energy of Philadelphia, US. Both of these operations specialise in nuclear power.
British Energy has an involvement in wind energy through its Huron Wind wind power activities in Canada.
Current and Future Developments
British Energy has been increasing its direct sales and trading business and now has four main routes to market; direct sales to large businesses, indirect sales through suppliers, traders and other generators; sales to Scottish Power and Scottish and Southern Energy (SSE), and sales of balancing and ancilliary services to National Grid.
Early in 2001, British Energy began discussions about the possibility of British Energy operating some of the Magnox nuclear reactors owned by British Nuclear Fuels. This could be part of a deal by which British Energy continues to have nuclear fuel reprocessed by BNFL in return for a contract to operate the ageing Magnox reactors (which come to the end of their life in 2010).
British Energy and BNFL are assessing the feasibility of using the Westinghouse AP100 advanced pressurised water reactor design to replace BE's existing nuclear power stations when they reach the end of their ...
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Early in 2001, British Energy began discussions about the possibility of British Energy operating some of the Magnox nuclear reactors owned by British Nuclear Fuels. This could be part of a deal by which British Energy continues to have nuclear fuel reprocessed by BNFL in return for a contract to operate the ageing Magnox reactors (which come to the end of their life in 2010).
British Energy and BNFL are assessing the feasibility of using the Westinghouse AP100 advanced pressurised water reactor design to replace BE's existing nuclear power stations when they reach the end of their life. The newest BE nuclear reactor, Sizewell B in Suffolk, is due to close by 2035. British Energy is currently finding it difficult to make a profit from its UK nuclear operations, but in North America the situation is more rewarding for the company's nuclear operations.
British Energy continues to develop its activities overseas. In May 2001, Bruce Power, the Canadian subsidiary completed its lease transaction of nuclear power plant for 17 years. British Energy and International Power are reported to be considering a deal with E.ON of Germany to bid for a majority stake in the Czech electricity group CEZ. E.ON is expanding its activities in Europe and could be interested in British Energy's expertise to operate CEZ's nuclear plant.
The latest developments at British Energy show that British Energy is now in a serious position. Discussions with British Nuclear Fuel (BNFL) regarding the processing of nuclear waste have not yet resulted in an attractive deal for British Energy. In addition, the latest financial figures indicate a loss for British Energy, with little prospect of a recovery. One of the weaknesses of the company is that it does not have a retail supply business to help balance the fall of wholesale electricity prices under the New Electricity Trading Arrangements (NETA). British Energy is now making a loss and is existing on an emergency government loan, which totals £650m, to prevent the company from going into receivership.
PowerGen PLC
Company Structure
Powergen is a leading UK integrated electricity and gas company, which also has major activities outside the UK. In the UK, Powergen's main activities are:
selling electricity, gas and other essential services, with over 3e million residential, business and industrial customer accounts
trading electricity, gas, oil and coal
producing electricity from a portfolio of world-class power stations
distributing electricity to 2.4 million homes and businesses in the East Midlands
providing highly efficient combined heat and power (CHP) plant to meet the electricity and steam needs of energy-intensive businesses.
In the US, Powergen owns regulated businesses comprising Louiseville Gas and Electric Company, a gas and electricity company which serves customers in 17 Kentucky counties and five in Virginia. Other unregulated US businesses include interests in operational plants in Texas and Georgia and Western Kentucky Energy, which operates and leases four coal-fired plants owned by Big Rivers Electric Corporation.
Outside the UK, Powergen has built an international power generation business, with power projects in Europe, India and Asia Pacific. As part of a strategic refocusing of the group onto the UK and US markets, agreement has been reached for the sale of the majority of these assets. Powergen is retaining a 20% interest in the joint venture companies acquiring its Australian, Indian and other Asian assets.
In the year ending 11th December 2000, Powergen's turnover was £4,19m.
The main part of Powergen's UK business is energy trading, in which the company is able to maximise value from its generation assets.
By being able to switch from gas to coal for generation, Powergen has reduced the effect of gas price rises. At the end of 2000, Powergen's UK wholly-owned generation capacity was 17.8 GW.
The company's retail business now includes the marketing of electricity, gas, telecommunications and other services to domestic and business customers. East Midlands Electricity (EME) was acquired in 1998. Combined heat and power (CHP) has continued to be a growth area for Powergen with the current portfolio being over 484 MW.
Regarding renewable energy, Powergen Renewables is a joint venture with Abbott Group - a company with experience in the oil/gas business. Powergen Renewables has interests in 14 wind farms with a total installed capacity of over 78 MW.
Current and Future Developments
In order to provide flexibility in its generation business and to focus on core aspects of the whole electricity business, Powergen has been selling assets. In January 2001, the 2,000 MW coal-fired Cottam power station was sold to London Electricity for £398m. This follows the sale of Rye House Power Station to Scottish Power in December 2000 and the sale of its metering business to Siemens in April 2000.
In overseas markets, Powergen announced the decision to sell its German and Hungarian assets, as well as the sale of its Australian assets.
Powergen's CHP business has been adversely affected by the New Electricity Trading Arrangements (NETA) and in April 2001, this business was put up for sale and in December 2001, it was announced that ABB was interested in acquiring Powergen's CHP business.
The company's intention is to continue to develop its UK integrated energy strategy, making use of its variety of generation plant. At November 2001 there were over 3.4 million accounts. Globally, Powergen is now focusing on the UK and US markets.
On 9th April 2001, E.ON AG of Germany announced a cash offer that by November 2001 was worth £10bn including debts. The acquisition of Powergen by E.ON was approved by Powergen shareholders in April 2002. This acquisition will make E.ON a leading utility with operations in 19 countries and 30 million electricity and gas customers. Powergen is now part of a global company with activities in Europe and the US.
Powergen is developing its gas supply and trading operations in the UK to complement its electricity supply business.
Financial Results
In the year ending 31st December 2000, Powergen made a pre-tax profit of £468m on sales of
The UK industry has undergone a major structural change during the past decade and the market is now fully open to competition. The Utilities Act 2000 increases provision for the protection of consumer interests, a move that is supported by the regulatory requirement to separate distribution from supply activities. A new body, Energywatch, has been formed specifically to protect consumer interests and to give a forum for their concerns. There is a market trend towards multi-utility companies with gas and, perhaps water or telecommunications activities as well as electricity.
3. Physical environment The UK has good reserves of primary fuels which are used for the generation of electricity, mainly gas and coal. Although coal is not used as much as it used to be, the UK does have reserves which could be used if there were a shortfall in other forms of energy. There are substantial reserves of gas under the North Sea, although these will eventually decline and will need to be replaced by imports.
4. Political and Legal factors
Since privatisation of the UK electricity industry in 1990, there have been far reaching changes. Under the Electricity Act 1989 a new market structure was established:
Ownership was transferred from state to private
Employees were transferred to the new owners
A competitive market situation was established
Independent regulation was introduced. The UK electricity industry was fundamentally changed by the 1989 Electricity, Act, which liberalised the market and established its present competitive structure. In 1999, the regulatory responsibilities of Offer (electricity) and Ofgas (gas) were merged to form the Office of Gas and Electricity Markets (Ofgem), and whose main tasks are to facilitate full competition amongst supply companies, operate a licensing system, advise on technical and quality issues, to monitor prices and address consumer issues.
Further basic changes to the legal and regulatory framework of the electricity market were introduced through the Utilities Act 2000. This Act established a unified Gas and Electricity Markets Authority (GEMA) supported by Ofgem. The main function of GEMA is to protect the interests of consumers by promoting effective competition. A further consequence of the Utilities Act is the Formation of Energywatch, the Gas and Electricity Consumers Council (which replaces the Gas Consumer Committee and the Electricity Consumers Committee).
Energywatch is independent of the regulatory scheme and its main functions are to represent the views of consumers, provide advice and information regarding consumer matters to ministers and other interested parties. Under the terms of the Utilities Act, Energywatch has powers to investigate consumer matters.
The Utilities Act 2000 also introduced standard licence conditions and the separation of distribution and supply aspects of the industry to ensure that customers have real choice of supplier.
New Electricity Trading Arrangements (NETA) were also introduced as a result of the Utilities Act.
5. Science and Technology. Technological developments affect marketing in two basic ways: new products and new processes. The faster pace of technological change creates both obstacles and opportunities that companies need to adjust to (Mccarthy et al, 1994).
The UK electricity industry will be more dependent on imported gas in the future and the use of the Internet for energy marketing and transactions is increasing.Technically, one of the major trends is the move towards gas as a prime source of energy for power generation. This provides a cleaner and more efficient fuel than coal or oil. Although until recently, gas has had a distinct advantage as a cost-effective energy source.
6. Socio-cultural factors
There has been a marked reduction in the number of employees in the UK electricity industry since privatisation. In 1989/1990, there were 150,548 employees at privatisation, a total which had reduced to 104,961 in 1994/1995. During the next 5 years, there was a further massive reduction in number to reach 59,563 in 2000/2001. Over the decade 1989/1990 to 1999/2000 the numbers had reduced to 42% of the total at the beginning of this 10-year period. This reduction has been the result of management efficiencies, savings resulting from companies moving towards multi-utility operations and outsourcing.
. Demographics trends are those concerning the human population in terms of various factors including size, density, location, gender, race, occupation, age and generations and household incomes. Demography is a very important environmental factor that affects marketers and influences the direction of an organization's marketing strategy (Kotler et al, 2001).