Nonmarket Environment

The market environment includes interactions between firms, suppliers, and customers, where the interactions are voluntary economic transactions, governed by markets and contracts.

The nonmarket environment, on the other hand, refers to the domain of concerns that cannot be controlled or managed through an individual's or organization's market-based interactions. These are social, political, regulatory, and legal considerations that affect an organization’s and/or individual's fortunes but occur outside the market environment.

It is very important to note, as the reading makes clear, that market and nonmarket environments can and often do impact each other. In particular, market activity often precipitates nonmarket action, and nonmarket action often impacts the market environment. As Baron notes in the reading: "The problems encountered by Nike, Wal-Mart, BP, Microsoft, and Citigroup originated in their market environments, but the challenges to their operations came from the nonmarket environment."

GM ended production of its much loved, and much hated, Hummer in May of 2010. Demand dropped for many reasons outside the manufacturer's market control, including rising fuel prices and public sentiment. As The Independent colorfully put it, "There was a time when the greed of the Hummer didn't bother many people. Its fans liked it precisely for the unabashed obesity of its styling. But it doesn't take a social scientist to realize that in these greener, poorer days, obesity spells obscene; the Hummer has become garish and anachronistic. Its demise was all but guaranteed."

Credit: Hummer limousine / Franco Folini / Creative Commons

The market for electric and hybrid vehicles has been impacted by nonmarket actions, including public policies (e.g. through federal and state incentives) and popular sentiment (e.g. regarding emissions reductions).

Credit: rulenumberone2, CC BY 2.0

The Life Cycle of Nonmarket Issues

Nonmarket issues have the potential to evolve through various stages, which can be understood as a life cycle. Once an issue is identified, interest groups often form based upon their interests in potential outcomes. Sometimes (as in the greeting card example in the reading), the issue is addressed by a firm as a response to actions taken by interest groups. Some issues will evolve to a legislative stage, where lawmakers are lobbied to address the issue. Issues resulting in legislation will eventually be administered through a regulatory framework. And finally, in cases where there are disputes over the application of that regulatory framework, interested parties may seek enforcement through the regulatory framework and the court system.

Note that this lifecycle does not explain why issues progress as such, only that it is common for them to do so. Also keep in mind that nonmarket issues can end up having impacts without reaching the legislative stage, e.g. public perception.