1. Chapter 3 The Marketing Environment
Learning Objectives
Describe the environmental forces that affect the company’s ability to serve its customers.
Explain how changes in the demographic and economic environments affect marketing decisions.
Identify the major trends in the firm’s natural and technological environments.
Explain the key changes in the political and cultural environments.
Discuss how companies can react to the marketing environment.
Chapter Overview
In order to correctly identify opportunities and monitor threats, the company must begin with a thorough understanding of the marketing environment in which the firm operates. The marketing environment consists of all the actors and forces outside marketing that affect the marketing management’s ability to develop and maintain successful relation­ships with its target customers. Though these factors and forces may vary depending on the specific company and industrial group, they can generally be divided into broad microenvironmental and macroenvironmental components. For most companies, the microenvironmental components are: the company, suppliers, marketing channel firms (intermediaries), customer markets, competitors, and publics. The macroenvironmental components are thought to be: demographic, economic, natural, technological, political, and cultural forces. The wise marketing manager knows that he or she cannot always affect environmental forces. Smart managers can take a proactive, rather than reactive, approach to the marketing environment.
As a company’s marketing management collects and processes data on these environ­ments, it must be ever vigilant in its efforts to apply what it learns to developing opportunities and dealing with threats. Studies have shown that excellent companies not only have a keen sense of customer but an appreciation of the environmental forces swirling around them. By constantly looking at the dynamic changes that are occurring in the aforementioned environments, companies are better prepared to adapt to change, prepare long-range strategy, meet the needs of today’s and tomorrow’s customers, and compete with the intense competition present in the global marketplace.
Chapter 3
The Marketing Environment

2. Case Study McDonald’s Challenges Marketing Initiatives
Shifting consumer lifestyles
Low ratings of food and service quality
Atmosphere not upscale
Image of being unclassy, uncultured and uncool to younger target markets
Marketing Initiatives
Focus on core competency of consistent products and reliable service
Upscale alternative including McCafe and Bistro Gourmet
Healthier food options with elimination of “supersize” and introduction of Go Active! Adult Happy Meal
Chapter Outline
Introduction
McDonald’s has been losing share to what the industry calls “fast-casual” restaurants because consumers today want more choices.
Americans are seeking healthier eating options. As the market leader, McDonald’s often bears the brunt of criticism.
McDonald’s has strived to realign itself with the changing marketing environment, and it appears to be paying off.
Marketers need to be good at building relationships with customers, others in the company, and external partners.
A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers.
More than any other group in the company, marketers must be the trend trackers and opportunity seekers. They have disciplined methods—marketing intelligence and marketing research—for collecting information about the marketing environment. They also spend more time in the customer and competitor environments.
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3. The Marketing Environment
The actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers
Microenvironment
Includes the actors close to the company
Macroenvironment
Involves larger societal forces
Use Key Term Marketing Environment here.
Goal 1: Understand environmental factors

4. The Microenvironment Figure 3.1
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5. Microenvironment Actors The company Suppliers Marketing intermediaries
Marketing must consider other parts of the organization, including finance, R&D, purchasing, operations and accounting
Marketing decisions must relate to broader company goals and strategies
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
The Company’s Microenvironment
Figure 3.1 shows the major actors in the marketer’s environment.
Use Key Term Microenvironment here.
Use Figure 3.1 here.
The Company
In designing marketing plans, marketing management takes other company groups into account. These interrelated groups form the internal environment.
Marketing managers must work closely with other company departments.

6. Microenvironment Actors The company Suppliers Marketing intermediaries
Marketers must watch supply availability and pricing
Effective partnership relationship management with suppliers is essential
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
Suppliers
Suppliers form an important link in the company’s overall customer value delivery system.
Marketing managers must watch supply availability. They also monitor the price trends of their key inputs.
Most marketers today treat their suppliers as partners in creating and delivering customer value.

7. Goal 1: Describe environmental factors
Microenvironment
Actors
Help to promote, sell and distribute goods to final buyers
Include resellers, physical distribution firms, marketing services agencies and financial intermediaries
Effective partner relationship management is essential
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
Marketing Intermediaries
Marketing intermediaries help the company to promote, sell, and distribute its goods to final buyers.
Resellers are distribution channel firms that help the company find customers or make sales to them.
Physical distribution firms help the company to stock and move goods from their points of origin to their destinations.
Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets.
Financial intermediaries help finance transactions or insure against the risks associated with the buying and selling of goods.
Marketing intermediaries form an important component of the company’s overall value delivery system.
Today’s marketers recognize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products.
Use Key Term Marketing Intermediaries here.
Goal 1: Describe environmental factors

8. Target uses Amazon for an online intermediary
Click on the link to explore what other companies use Amazon for online distribution. You may want to discuss why this is done.
Click on screenshot for website
Marketing in Action
Click on screenshot for website
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9. Goal 1: Describe environmental factors
Microenvironment
Actors
The five types of customer markets
Consumer
Business
Reseller
Government
International
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
Customers
The company needs to study five types of customer markets closely.
Consumer markets consist of individuals and households that buy goods and services for personal consumption.
Business markets buy goods and services for further processing or for use in their production process.
Reseller markets buy goods and services to resell at a profit.
Government markets are made up of government agencies that buy goods and services to produce public services or transfer the goods and services to others who need them.
International markets consist of buyers in other countries, including consumers, producers, resellers, and governments.
Goal 1: Describe environmental factors

10. Goal 1: Describe environmental factors
Microenvironment
Actors
Conducting competitor analysis is critical for success of the firm
A marketer must monitor its competitors’ offerings to create strategic advantage
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
Competitors
Marketers must gain strategic advantage by positioning their offers strongly against competitors’ offerings in the minds of consumers.
No single competitive marketing strategy is best for all companies. Each firm should consider its own size and industry position compared to those of its competitors.
Goal 1: Describe environmental factors

11. Microenvironment Actors The company Suppliers Marketing intermediaries
A group that has an actual or potential interest in or impact on an organization
Seven publics include:
Financial
Media
Government
Citizen-action
Local
General
Internal
The company
Suppliers
Marketing intermediaries
Customers
Competitors
Publics
Publics
A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives.
Financial publics influence the company’s ability to obtain funds.
Media publics carry news, features, and editorial opinion.
Government publics regulate public safety, truth in advertising, and other matters.
Citizen-action publics include consumer organizations, environ­mental groups, minority groups, and others.
Local publics include neighborhood residents and community organizations.
The general public may be concerned about the company’s products and activities.
Internal publics include workers, managers, volunteers, and the board of directors.
Use Chapter Objectives 1 here.
Use Key Term Public here.
Use Discussing the Concepts 1, 3 here.
Use Focus on Technology here.

12. The Macroenvironment Figure 3.2
The Company’s Macroenvironment
Figure 3.2 shows the six major forces in the company’s macroenvi­ronment.
Use Key Term Macroenvironment here.
Use Figure 3.2 here.
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13. Demographic Environment
The study of human populations in terms of size, density, location, age, gender, race, occupation and other statistics
Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. It involves people, and people make up markets.
Changes in the world demographic environment have major implications for business.

14. Demographic Environment
Changing age structure of the U.S. population is the single most important demographic trend
Baby boomers, Generation X, and Generation Y are the key groups
The single most important demographic trend in the United States is the changing age structure of the population.

15. Demographic Environment Figure 3.3
Figure 3.3 shows the seven generational groups in the United States.
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16. Click on logo for website
Discussion Question
How might changes in consumer spending patterns affect Master Card?
Changes in the age and family structure?
Increasing diversity?
Click on logo
for site
You can click on the logo to MC website.
More online purchasing has increased the need for the credit or debit card. Also, people like their spending to benefit organizations – either by manufacturer’s programs such as Box Tops for education or in the case of MasterCard, an affiliate card which donates a portion of your purchase.
Parents want to give their kids money but NOT their credit cards. Especially for online transactions, MC has had to create some new products.
Advertisements must portray the user. In addition, bilingual customer service is required in some geographic areas.
Marketing in Action
Click on logo for website
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17. Demographic Environment
Key Generations
Born between 1946 and 1964
Represent 28% of the population; earn 50% of personal income
Many mini-segments exist within the boomer group
Entering peak earning years as they mature
Baby Boomers
Generation X
Generation Y
The post–World War II baby boom produced 78 million baby boomers, born between 1946 and 1964.
The baby boomers have become one of the most powerful forces shaping the marketing environment.
Today’s baby boomers account for about 28 percent of the population, but earn more than half of all personal income.
Baby boomers cross all walks of life, creating a diverse set of target segments for businesses.
Boomers span a twenty year age range, and almost 25 percent of boomers belong to a racial or ethnic minority.
Use Key Terms Baby Boomers, Demography here.

18. Many products are targeted to Baby boomers’ growing health issues and concerns
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Marketing in Action

19. Demographic Environment
Key Generations
Born between 1965 and 1976
First latchkey children
Maintain a cautious economic outlook
Respond to socially responsible companies
Represent $1.4 trillion in annual purchasing power
Baby Boomers
Generation X
Generation Y
Use Figure 3.3 here.
The baby boom was followed by a “birth dearth,” creating another generation of 49 million people born between 1964 and They are called Generation X, because they lie in the shadow of the boomers and lack obvious distinguishing characteristics.
They are defined as much by their shared experiences as by their age. Increasing divorce rates and higher employment for their mothers made them the first generation of latchkey kids.
They have developed a more cautious economic outlook. They care about the environment and respond favorably to socially responsible companies.
The GenXers are a skeptical bunch, cynical of frivolous marketing pitches that promise easy success.
Use Key Term Generation X here.

20. Demographic Environment
Key Generations
Born between 1977 and 1994
72 million strong; almost as large a group as their baby boomer parents
New products, services, and media cater to GenY
Challenging target for marketers
Baby Boomers
Generation X
Generation Y
Generation Y is also called echo boomers. Born between 1977 and 1994, these children of the baby boomers now number 72 million, dwarfing the GenXers and almost equal in size to the baby boomer segment.
The echo boom has created a large teen and young adult market. The nation’s teens spend $175 billion a year and influence another $30 billion in family spending.
Do marketers have to create separate products and marketing programs for each generation? Some experts caution that each generation spans decades of time and many socioeconomic levels. Others warn that marketers have to be careful about turning off one generation each time they craft a product or message the appeals effectively to another.
Use Key Term Generation Y here.

21. Toyota has designed a comic book called Fuel to attract Gen Y to its Celica model
Economic Environment
The economic environment consists of factors that affect consumer purchasing power and spending patterns.
Nations vary greatly in their levels of distribution of income.
Subsistence economies are ones in which the population consumes most of their own agricultural and industrial output.
Industrial economies are those with rich markets for many different kinds of goods.
Value marketing has become the watchword for many marketers. They are looking for ways to offer today’s more financially cautious buyers greater value.
Marketers should pay attention to income distribution as well as average income.
In the United States, the top is populated by upper-class consumers, whose spending patterns are not affected by current economic events.
The middle class is somewhat careful about its spending, but can still afford the good life some of the time.
The working class must stick close to the basics of food, clothing, and shelter.
The underclass must count their pennies when making even the most basic purchases.
Table 3.1 shows the proportion of total expenditures made by U.S. households at different income levels for major categories of goods and services.
Consumers at different income levels have different spending patterns.
Some of these differences were noted over a century ago by Ernst Engel, who studied how people shifted their spending as their income rose. Engel’s laws generally have been supported by later studies.
Use Chapter Objectives 2 here.
Use Key Terms Economic Environment, Engel’s Laws here.
Use Table 3.1 here.
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Marketing in Action

22. Natural Environment Natural Environment: Trends
Involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities
Trends
Shortages of raw materials
Increased pollution
Increased government intervention
Natural Environment
The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities.
Environmental concerns have grown steadily during the past three decades.
Marketers should be aware of several trends in the natural environment.
The first involves growing shortages of raw materials. Air and water may seem to be infinite resources, but some groups see long-run dangers.
A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment.
A third trend is increased government intervention in natural resource management. The governments of different countries vary in their concern and efforts to promote a clean environment.
Concern for the natural environment has spawned the so-called green movement. Enlightened companies are developing environmentally sustainable strategies and practices in an effort to create a world economy that the planet can support indefinitely.
Use Key Term Natural Environment here.

23. Car manufacturers are designing cars that are more environmentally friendly
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Marketing in Action

24. Technological Environment
The most dramatic force shaping our destiny
Rapidly changing force which creates many new marketing opportunities but also turns many existing products extinct
Technological Environment
The technological environment is perhaps the most dramatic force now shaping our destiny.
New technologies create new markets and opportunities. However, every new technology replaces on older technology. Marketers should watch the technological environment closely.
Use Chapter Objectives 3 here.
Use Key Term Technological Environment here.
Use Real Marketing 3.2 here.
Use Discussing the Concepts 6 here.

25. As technology changes, the consumers have new needs
As technology changes, the consumers have new needs. This product helps the consumer with the problem of multiple chargers
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Marketing in Action

26. Political Environment
Consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society
Legislation affecting businesses worldwide has increased
Laws protect companies, consumers and the interests of society
Increased emphasis on socially responsible actions
Political Environment
The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.
Well-conceived legislation can encourage competition and ensure fair markets for goods and services. Governments develop public policy to guide commerce.
Legislation affecting business around the world has increased steadily over the years. The United States has many laws covering these issues; see Table 3.2.
Use Table 3.2 here.
Understanding the public policy implications of a particular marketing activity is not a simple matter. Marketers must work hard to keep up with changes in regulations and their interpretations.
Business legislation has been enacted for a number of reasons.
The first is to protect companies from each other.
The second purpose of government regulation is to protect consumers from unfair business practices.
The third is to protect the interests of society against unrestrained business behavior.
International marketers will encounter dozens, or even hundreds, of agencies set up to enforce trade policies and regulations.
Business is also government by social codes and rules of professional ethics.
Enlightened companies encourage their managers to look beyond what the regulatory system allows and simply “do the right thing.” These socially responsible firms actively seek out ways to protect the long-run interests of their consumers and the environment.
The recent rash of business scandals and increased concerns about the environment have created fresh interest in the issues of ethics and social responsibility.
The boom in e-commerce and Internet marketing has created a new set of social and ethical issues. Online privacy issues are the primary concern.
To exercise their social responsibility and build more positive images, companies are now linking themselves to worthwhile causes.
Cause-related marketing has become a primary form of corporate giving.
Cause-related marketing has stirred some controversy. Critics worry that cause-related marketing is more a strategy for selling than a strategy for giving.
If handled well, cause-related marketing can greatly benefit both the company and the cause.
Use Key Term Political Environment here.
Use Applying the Concepts 2 here.

27. Cause-Related Marketing
Marketers create link between brand and charitable organization
Demonstrates social responsibility
Helps build positive brand image
Examples include General Mills’ Box Tops for Education, Tang and Mothers Against Drunk Driving, Eddie Bauer and local schools

28. Betty Crocker’s Box Tops for Education is one of the most popular cause- related marketing programs
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Marketing in Action

29. Cultural Environment
Made up of institutions and other forces that affect a society’s basic values, perceptions, preferences and behaviors.
Cultural Environment
The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors. People grow up in a particular society that shapes their basic beliefs and values.
Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, business, and government.
Secondary beliefs and values are more open to change.
Although core values are fairly persistent, cultural swings do take place. Marketers want to predict cultural shifts in order to spot new opportunities or threats.
The major cultural values of a society are expressed in people’s views.
People vary in their emphasis on serving themselves versus serving others.
Recently, observers have noted a shift from a “me society” to a “we society” in which more people want to be with and serve others.
People vary in their attitudes toward corporations, government agencies, trade unions, universities, and other organizations. By and large, people are willing to work for major organizations and expect, them, in turn, to carry out society’s work.
People vary in their attitudes toward their society.
People vary in their attitudes toward the natural world.
People vary in their beliefs about the origin of the universe and their place in it.
Use Chapter Objectives 4 here.
Use Key Term Cultural Environment here.
Use Discussing the Concepts 2 here.
Use Applying the Concepts 1 here.

30. Cultural Environment Includes people’s views of…
Themselves
Identify with brands for self-expression
Others
Recent shift from “me” to “we” society
Organizations
Trend of decline in trust and loyalty to companies
Society
Patriotism on the rise
Nature
“lifestyles of health and sustainability” (LOHAS) consumer segment
Universe
Includes religion and spirituality

31. Click on screenshot for website
Discussion Question
How do multimedia companies like Disney have a strong effect on our culture?
Click through to Disney to see how they are involved in many aspects of media including TV, movies, music, radio and even Broadway shows. Many of these are targeted to a very vulnerable group of preteens.
Marketing in Action
Click on screenshot for website
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32. Responding to the Marketing Environment
“There are three kinds of companies: those who make things happen, those who watch things happen, and those who wonder what’s happened.”
Responding to the Marketing Environment
Many companies view the marketing environment as an uncontrollable element in which they must react and adapt. They passively accept the marketing environment and do not try to change it.
Other companies take a proactive stance toward the marketing environment.
Rather than simply watching and reacting, these firms take aggressive actions to affect the publics and forces in their marketing environment.
Such companies hire lobbyists to influence legislation affecting their industries and stage media events to gain favorable press coverage. They press lawsuits and file complaints with regulators to keep competitors in line, and they form contractual agreements to better control their distribution channels.
Use Chapter Objectives 5 here.
Use Discussing the Concepts 4, 5 here.
Use Focus on Ethics here.
End of Chapter Material
Discussing the Concepts
List the six actors in the company’s microenvironment. Next, go to the Wal-Mart Web site at scroll down to Investor Relations section and click on the most recent annual report. In the annual report, how many of the six microenvironment actors can you find? Briefly describe each.
The purpose of this question is to reinforce the idea that there are marketing forces that affect a company’s ability to serve its customers, and that organizations like Wal-Mart often use them.
The six microenvironmental forces are: company, suppliers, marketing intermediaries, customers, competitors, and publics.
All the microenvironmental forces are mentioned in Wal-Mart’s 2004 Annual Report. In the first four pages, all of the microenvironmental forces are referenced except competition.
On page 3 of the 60 page report, references are made to employees (company), suppliers, customers, and other publics (communities, neighbors).
On pages 4 and 5, in the President’s and Chairman’s messages, other references to company elements, customers, supplier, intermediaries, and publics are made.
On pdf page 20 in the “Management’s Discussion and Analysis of Results of Operation and Financial Condition” section, the competitive environment is discussed.
List the six larger macroenvironmental forces. Go to The Nature Conservancy Web site at click on the Financial Information link at the bottom of the home page, and find the most recent annual report. In the annual report, find and briefly describe as many of the six larger societal forces (macroenvironmental) as you can.
As with the question above, the purpose of this question is to reinforce the idea that “even nonprofit” organizations like The Nature’s Conservancy include discussion of external forces in documents and plans.
The six societal forces are: demographic, economic, natural, techno­logical, political, and cultural.
Most of the environmental forces are referenced on pdf page 2 (Chairman’s and President’s pages) of the Nature Conservancy 2003 Annual Report. In the first few paragraphs of the President’s message, natural resources (the purpose to the Conservancy), poor economy (impact on contributions), political challenges (the current administration’s view of natural resources), competitive (competition for contributions), cultural changes (questioning by various interest groups about some of the Conservancy’s practices and governance).
The text lists seven types of publics discussed in the text that may impact a company’s ability to achieve its objectives. Assume you are a marketing manager for an automobile company. You have been charged with repositioning an SUV model that was once identified as a “fuel guzzler.” The model has been redesigned with a super efficient, nonpolluting hybrid engine. Which of the seven types of publics would have the greatest impact on the marketing objective of achieving a new “fuel efficient” positioning in the marketplace?
This is another question designed to reinforce a primary concept. Here the objective is to get the student to think about the various publics in relation to a hypothetical event.
The seven publics are: financial, media, government, citizen-action, local, general, and internal.
Virtually all the publics would have an impact on the marketing objective, but the most important publics would be: general, media, citizen-action, and government.
A wag once said, “You can watch the size of the Cadillac market shrink by just reading the obituaries.” In the context of the external environmental forces discussed in the chapter, what did this person mean? What has Cadillac done to counter this trend? From an environmental management perspective would you consider Cadillac’s actions to be reactive or proactive? Why?
This question highlights how a company reacted to an aging market for their product.
This question refers to the aging of the average Cadillac buyer over the two decades (’80s and ’90s). The average age of the Cadillac owner before the launch of the new models was 65.5—63 percent male and 37 percent female. Within two years after the launch of the new brands, the average age has dropped to 59, and the Cadillac Escalade buyer is 46.
Cadillac redesigned and introduced the CTS and Escalade models.
From an environmental management perspective Cadillac was reacting, because if they didn’t, there was a chance that they would have to discontinue the Cadillac brand.
Discuss the primary reasons why a company would hire a lobbyist in Washington D.C. Would it make sense for the same company to also hire lobbyist at the state level? Why?
This question focuses on the activities of lobbyists hired by business.
There are a number of reasons why a company would hire a lobbyist: (1) if possible, they would like to favorably influence and mold any legislation that would directly or indirectly affect their firm or industry, (2) they would work to advance a position of their firm on an issue, (3) they need to know what Congress and the executive branch of government are thinking as it relates to their firm and industry, and/or (4) they network, schmooze, monitor committees, read reports, and provide legal analysis.
If they are a large enough firm, they would more than likely have lobbyists in the capitals of the major states—California, New York, Texas, Massachusetts, Minnesota, and Illinois, because the issues in which a firm is focused on at the federal level will generally be debated at the state level.
There’s an old saying that, “Two good marketing people can make up for one bad technology decision?” Is it a certainty that a company will lose out on new opportunities if it does not keep up with new technology? Explain your position. Can you think of an industry segment where technology may not play an important role?
This question stresses the importance of staying technologically current.
This is a fictitious statement contrived for the question.
No it is not certain that a company will lose out on new opportunities if they do not stay current and keep up with new technology, but the likelihood is much greater if they do not.
Staying current with new trends, even predicting the technologies that will help or hurt a firm’s opportunities is a responsibility of management. Being knowledge­able of current and future technologies that will have an impact on the firm is as important as knowing your competitor, knowing your target market, and even making a profit.
There are no doubt products and services in developing countries where technology has not had an impact but they are hard to pinpoint.
Applying the Concepts
Manic Panic ( is one of the more popular brands at Hot Topic (Real Marketing 3.1). Tish and Snooky, two sisters from the Bronx, opened their shop in New York’s East Village business district because, “There was no other store or company that catered to musicians, punks, Goths, club-kids, performers, dancers, models and just about anyone who likes a little wild style.” Using the macroenvironmental forces and recent trends as the basis for your answer explain why you believe Manic Panic has been successful. Would your answers be the same if you were explaining the success of Vera Wang, the New York City–based clothing designer/retailer? Why?
The objective of this question is to lead the student through an evaluative/comparative analysis of the macroenvironmental factors with respect to Manic Panic (MP) and Vera Wang (VW). As you would expect this is particularly valuable when assessing products, markets, and preparing marketing plans.
All six of the macroenvironmental factors can be discussed for both firms, but Vera Wang has a shorter history (1990) versus Manic Panic (1977).
The success of Manic Panic is primarily due to the fact that they have remained true to their dream of creating products that appeal to market segments they understand. MP has developed a following in three of the seven generations—baby boomers, Generation X, and Generation Y.
Demographic—many of the demographics for both firms will be the same, but there will be significant differences in market size, gender, location, occupation, etc.
Economic—both are in the fashion industry and both will experience similar ups and downs of due to changes in the economy.
Natural—neither seems to be significantly affected by this factor.
Technological—both understand the power of technology. VW has incorporated much technology into the fashion design and manufacturing process. Both have Web sites, but only MP accepts orders.
Political—MP is knowledgeable of FDA regulations that affect hair coloring and cosmetics. VW has only recently introduced a fragrance. Both are affected by state and federal legislation concerning retailing.
Cultural—they both understand the cultures of the markets and segments they serve.
As indicated above, they are both in the fashion industry and will be affected by fads and trends, but because of the trendy nature of women’s clothing VW maybe more vulnerable than MP.
Most well-known cause-related marketing campaigns are launched by companies with substantial resources. In a small group, discuss how smaller companies with more limited resources can implement successful cause-related marketing efforts. How could such organizations benefit the charities they work with while successfully promoting their own products and services?
The objective of this question is to get the student to think creatively. Some students will undoubtedly argue that any involvement by a firm, regardless of size, will require resources (money, staff/employees, facilities), and others will say that any effort is “cause-exploitive marketing.”
In smaller organizations “cash is king,” so small firms must be creative in how they can get involved in socially responsible cause-related behavior.
Here is a sample list of “starter” non-cash related actions that could help a worthy cause, and many are tax deductible:
Get management and employees involved in contributing time to the cause.
In kind contributions—equipment, use of meeting rooms, buildings, and intellectual property.
Training programs, internships, and sponsorships.
Work place giving campaigns of food and clothing.
Benefits for smaller companies can derive from participation in cause-related marketing in the following ways:
Building a positive image with customers and the public
Making a difference by exercising socially responsible behavior
Gaining one more effective marketing tool
Focus on Technology
The FTC recently hosted a public workshop on Radio Frequency Identification (RFID) to discuss all of the technology’s applications as well as its potential pitfalls. At the workshop, one speaker commented that RFID “promises to reform, if not revolutionize, many corners of the marketplace.” As we discussed in the chapter, RFID is already a part of many consumers’ daily lives. And, as companies like Wal-Mart and Gillette embrace the technology, RFID is truly changing the way suppliers and retailers work together.
At the FTC workshop, Simon Langford, Manager of RFID Strategy for Wal-Mart, offered his thoughts on the benefits of RFID. Review his presentation online at and answer the following questions:
How does RFID help strengthen Wal-Mart’s relationships with its many partners?
This question reinforces the benefits of the RFID to all players—customers, suppliers, and the firm.
The partner relationships that are strengthened by the RFID technology are:
Increased manufacturing and distribution operational efficiency.
Improved internal inventory management.
What are some of the benefits for Wal-Mart? For Wal-Mart’s suppliers?
Benefits for Wal-Mart:
Increased manufacturing and distribution operational efficiency
Improved internal inventory management
Increased on-hand inventory and less use of “safety stock.”
Increased sales through reduced out of stocks.
Increased stock visibility and availability at point of shipment.
Reduced transportation cost and shipping volumes.
More accurate forecasts and stock replenishment.
Reduced shrink and theft in the supply chain.
Benefits for Wal-Mart’s suppliers:
Increased manufacturing and distribution operational efficiency (manufacture only what sells)
Better in-transit tracking
Smaller on-hand inventories required
Reduced transportation cost and shipping volumes
More accurate forecasts and stock replenishment
Reduced shrink and theft in the supply chain
Easier identification on recalls
Savings due to decreased costs
Reduced product counterfeiting
How does RFID technology increase value and satisfaction for the Wal-Mart’s customers?
RFID will contribute to increased customer value and satisfaction in the following ways*:
Better in-stock – product on the shelf when the consumer needs it
Improved product selection
Product freshness on certain goods
Improved safety and quality
Improved security of prescription drugs
Improved price accuracy
Information included in these answers was obtained from promotional materials of the Retail Industry Leaders Association, and the National Retail Federation.
How might consumer privacy concerns impact the widespread acceptance of RFID technology?
The consumer’s individual privacy concerns might impact the acceptance of RFID and slow its growth in the following ways:
Lack of knowledge of the technology and the associated consumer benefits
Concerns about how much information will be collected
Concerns about how the information will be used
Concerns about how the information is shared with others
Concerns about what to do if the information collected is wrong or inaccurate
Focus on Ethics
In Imperfect Alternatives: Choosing Institutions in Law, Economics, and Public Policy, Neil Komesar discusses who should make the rules when issues of major public policy, including environmental concerns, nonrenewable resource conservation, and information policy, are being determined. He asks who should decide when it comes to making the rules on these tough issues. Should we let the private sector (business) make the rules and let it be sorted out in the market? Should we leave it to the courts, who are charged with interpreting the laws? Or should government agencies be primarily responsible?
In small groups, choose one of the three issues above (environment concerns, nonrenewable resources, or information privacy) and present three reasons that the private sector is the best institution to make the rules.
The following are reasons in support of the private sector as the best institution to make the rules. Each reason can apply to each of the three issues (environment, non-renewable resources, and information privacy).
Laws and formal agencies can be crude instruments in their application, while self-regulation initiatives can be targeted at specific issues..
Laws and formal agencies can be slow to act; self-regulation can react quickly to market changes.
Laws and formal agencies can cost the consumer more; self-regulation is inherently less costly.
Laws and formal agencies may curb initiative and creativity; self-regulation forces new options and different approaches.
There is a long history of successful self-regulation in U.S. business.
Have you heard these arguments used by business before? Are these good arguments?
Yes, these are common arguments/reasons that are used by business to support their self-regulation position. Many of these arguments have merit, but quite often the reasons are shortsighted, and they fail to recognize the larger and longer-term effects of their actions.
Are you convinced that the private sector is the best institution to establish the rules?
None of these three issues should be entrusted to the private sector.
The issues concerning the environment and non-renewable resources should be mandated by law (as they are in most of the world).
The information privacy issue is one that can be effectively managed through active and constructive agency oversight.
Company Case Notes
Prius: Leading a Wave of Hybrids
Synopsis
This case recounts the introduction of the Toyota Prius and compares it with the strategy that GM plans to follow. This gives students an opportunity to compare the two strategies and debate that seems more appropriate for the American market. The Prius was originally introduced in 2000 with very targeted marketing aimed at techies (innovators). The second version of the Prius came out in 2004 and was a sporty, more fashionable car aimed at a wider market (early adopters). The case provides an excellent opportunity to compare Toyota’s marketing of the introductory and follow up models—very different campaigns, well thought out and implemented. At introduction, Toyota used the Internet very heavily, but by 2004, they were using more mass market media. Both are quite different from the strategy that GM plans to follow. This should stimulate good discussion in class about how automotive companies might move away from reliance on gasoline powered engines.
Teaching Objectives
Students should be able to:
Identify how microenvironmental factors can affect the introduction and marketing of an innovation.
Identify how macronenvironmental factors can affect the introduction and marketing of an innovation.
Explain how marketing can be targeted to a specific segment.
Evaluate the usefulness of different marketing strategies at different stages in the PLC.
Evaluate marketing strategies of different firms selling the same product in terms of advantages, disadvantages, and appropriateness.
Discussion Questions
What microenvironmental factors affect the introduction and sale of the Toyota Prius? How well has Toyota dealt with these factors?
The Company: The company has expended plenty of money on R&D and marketing of the Prius. Why? Toyota expects the Prius to set the standard for the entry of a line of hybrids from minicompacts to luxury vehicles. Thus, the car is an important component of company strategy. To successfully introduce the Prius and build this new line of vehicles will require coordination within the company. The second generation of Prius has already caused problems within the company as production was increased at one plant that means something else was cut.
Suppliers: With the successful introduction of the Prius, companies such as Panasonic may invest more in R&D to develop cheaper batteries. If they can do so, this will result in lower prices that, in turn, may further stimulate demand. Thus, it is to Toyota’s advantage to work with suppliers to encourage this R&D.
Marketing Intermediaries: The most important marketing intermediaries here would be dealers. Toyota had to prepare materials for dealers and their salespeople so that they could sell the Prius. Now, they have to “teach” purchasers how to drive the cars to get maximum fuel efficiency. A shortage of cars for the second generation of Prius is causing problems with dealers who want more and could sell the additional cars. In turn, dealers marking up the cars can negatively injure relationships with the company who does not want to see the price of the cars inflated. There is also a major issue of why more cars were allocated to Japan when the United States is the bigger market.
Customers: The case indicates that Toyota carefully studies the consumer market and adapted its marketing accordingly. It thought innovators and adapters who are likely to be techies would be the purchasers and the evidence indicates that the company was right. With this market in mind, Toyota pushed the technology of the car, used the Internet, and promoted environmental aspects of the vehicle. Techies are highly interested in the net and may be pro-environmental. They are certainly interested in technology given the description of owners modifying their Prius’ described in the case.
For the second generation, Toyota broadened its market focus to include less-technical types (are these the customers who don’t know how to drive the car?). They also redesigned the car to have more mass-market appeal, introduced more features and improved the performance—all aspects of the car that would be more important to a less technical market.
(Jumping ahead to adoption theory, this is a good example of marketing to the techies as innovators with targeted promotion and then marketing to early adopters with more mainstream media. The techies have gotten the car on the road and in the view of early adopters.)
Competitors: A major aspect of Toyota’s strategy was to get a jump on competitors who will have to enter the market later. Again correctly guessing that American companies would be slow to introduce hybrids, Toyota and Honda entered first and that may help them in marketing hybrids in the future. They were the first may lead to they were the best. Toyota seems to have been more willing to enter this market and establish a technological lead although American companies appear to begrudgingly plan on entering the market.
American companies are following a different strategy as outlined by GM—they believe that gas savings are greatest on vehicles that use the most gas. Rather than small cars, they aim to introduce hybrids on bigger cars. They also point out that savings are much greater when hybrids are used in mass transit.
Publics: There is little mention of publics in the case, but Toyota did flood the media and news groups with videos and press releases on the cars. Their Earth Day promotion got them additional media coverage and may have helped their relations with environmental groups. Successful sales of the car will lead to sales of more hybrids in the future that would endear the company to financial publics such as investors. Given the general attention shown to the vehicle in the media, the general public may be favorably disposed toward a company that aims to reduce emissions and lower gas mileage. They have placed ads in more general interest magazines with the second generation vehicle.
Another public that Toyota studied was the government. They understood correctly that American politicos will be pushing for higher gas standards and willing to supply a tax deduction for consumers purchasing more environmentally friendly cars that get higher gasoline mileage. These are helpful factors in overcoming the higher prices when selling to consumers.
Outline the major macroenvironmental factors—demographic, economic, natural, technological, political, and cultural—that have affected the introduction and sale of the Toyota Prius. How has Toyota dealt with each these factors?
Demographic: Baby boomers are the major market in the United States and they have reached the stage where the kids are grown and gone. This means that they can pay more for cars (overcoming the higher price). They have always been known for an interest in quality and willing to try the new—both factors that might incline them toward purchase of a Prius. Younger generations may be more environmentally concerned and want a Prius, but few may be able to afford one.
Economic: Because it does cost more, Toyota has sought tax deductions to help with the “sticker shock.” The price of the car, however, is in line with what Americans are paying for cars. This is not priced as a luxury car. To be one of the first to own such a car may be worth the higher initial price. Success of selling the car should lead to an increase in supply, which would result in a lower price, and is the essences of basic economics.
With the increase in gas prices, the Prius offers even greater savings and in the summer, some consumers shifted to smaller cars and demand for the Prius grew. Although increased gas prices alone cannot account for the increase in demand, they certainly didn’t hurt Prius sales.
Natural: The Prius claim to be better for the environment has some impact on the natural world—less air pollution and less need for oil exploration and gasoline production.
Technological: This is the Prius’ primary strength—its technology. Toyota has played this up in their marketing and aimed the car at the “techie” part of the market. This supports the Japanese cars in their claim to be technologically advanced. As the case indicates, the introduction of the car is likely to lead to other technological advances (such as the batteries). The second general vehicle adds more features such as the six-disc CD player and cruise control—options that the first generation, stripped-down car did not offer.
Political: Obviously Toyota took this into account. Recognizing that some senators may adopt a tougher stance toward gas emissions and mileage standards, they would be favorably inclined toward the car.
Cultural: Cultural factors are Americans’ love of automobiles; our willingness to adopt technology and progress; claim to care about the environment and rebel against gasoline price increases. These are given in the first paragraph of the case and these are all factors that will favor introduction of the vehicle. Even though it may not be a cultural characteristic, we also like tax deductions.
Evaluate Toyota’s marketing strategy so far. What has Toyota done well? How might it improve its strategy?
Toyota did a superb job of introducing their Prius. They created clever ads that highlight the car’s major features and utilized the Internet well. This is all based on a careful, thorough, and accurate analysis of their market. Although they have used traditional media, they relied on the Internet that would be heavily used by this market. To overcome price differentials, they have worked on securing tax deductions while realizing that price will not be the major motivator of purchase for this car. They have secured a lot of distribution for a vehicle that will not sell at present in large numbers and has a lower margin. This indicates their recognition that access to the product is key. They have also not made the mistake of trying to sell over the Internet. That could antagonize dealers and decrease the extent of distribution.
The broadening of their marketing with the second generation is only to be expected. They are selling to a different consumer market and they are using different media appropriate to that market. Their promotion is far less targeted, but it does not need to be given the successful introduction of the car.
Where Toyota scored big was with a successful introduction that gives them a good sales base from which to expand.
GM’s marketing director for new ventures, Ken Stewart, says “If you want to get a lot of hybrids on the road, you put them in vehicles that people are buying now.” This tends to summarize the U.S. auto makers’ approach to hybrids. Would you agree with Mr. Stewart? Why or why not?
Think back to the Arab oil embargo of the ’70s. Once Americans were scared that gas could be rationed and prices rose, they bought small cars in large numbers. Since then, they have switched to buying bigger cars than they bought before the oil embargo (SUVs). Basically, most Americans love big cars. We’re big people and we want room. So, Mr. Stewart has a point. Given the big share of the market that large vehicles (cars and trucks) have captured, sales of hybrids will be greater if they’re put on large vehicles rather than small ones. (Large vehicles have a bigger share of the market if you add SUV, vans, and truck sales together.) If the goal of the firm is to sell more hybrids in models with higher price tags (possibly creating greater profits), then his argument makes sense.
However, SUVs and trucks are usually performance vehicles, so one has to wonder if a hybrid truck (for example) is an oxymoron. Would consumers believe that a truck or a Jeep hybrid could be a big, tough vehicle? Promotion for these vehicles tends to emphasize performance—speed, toughness, driving through rough terrain, and around hairpin turns. Is that consistent with the image of a hybrid?
Are owners of such vehicles interested in gas efficiency and environmental issues?
Obviously, Toyota thinks that those consumers most likely to respond to these appeals are those who buy smaller cars. So far, they have been successful selling their cars, but they are still not selling them in such large numbers as to affect their bottom line. The market may not be that large at this time.
Teaching Suggestions
Ask a few students to visit auto dealers before class and interview a salesman about the Prius in terms of sales, etc. If students or yourself know someone who owns a Prius, it would be nifty to interview them about their purchase—motivations and satisfaction. Ask students to look for ads for Prius and bring them to class to see how marketing of the car has shifted since introduction.
Begin class with a discussion of what was learned at the dealerships. A major part of Toyota’s success was their correct analysis of the target market and their astute marketing plan. Because consumers are a microenvironmental factor, this can be used to lead into a discussion of other microenvironmental factors along with Toyota’s marketing strategy. For this, it is advantageous to visit the Prius Web site and discuss it in class.
Then, identify the important elements of the marketing for the second version of the Prius (these could be listed side by side on the blackboard, using target and the 4 Ps). Ask what microenvironmental and macroenvironmental factors support the increasing demand for the Prius.
Finally, put up the GM strategy (again target and 4 Ps) and have students debate the advantages, disadvantages, and appropriateness of the current Prius strategy and the GM strategy.
Additional Material
Barriers to Effective Learning
The first major barrier to effective learning in this chapter comes from the student being able to see the interrelationship between the elements of the micro­environment and how plans made in the marketing department must reflect the needs, goals, objectives, and problems of the other internal departments as well as the other forces within the microenvironment. The best way to illustrate this interdependency is to use an example from a real company that would match Figure 3.1. Because most students will have difficulty immediately thinking of an example, suggest companies from the computer, fast food, health care, professional sports, or food production industries. Ask students to then take all the functional roles within a firm (i.e., accounting, sales, purchasing, manufacturing, etc.) and the forces outside the firm (suppliers, marketing intermediaries, customers, competitors, and publics) and show how they all must work as a unit if value is to be delivered and goals and objectives are to be accomplished. What synergies might be created? Are there any disadvantages to this form of thinking? Which companies within the industries selected for study seem to be better at dealing with the microenvironment? Why?
The second major barrier comes from basic inexperience with the various macro- environmental forces. Time may not allow a thorough exploration of each of the major areas so it is recommended that the instructor pick two for detailed explanation. Students usually enjoy discussing the demographic area and its trends, the technological environment, or the cultural environment. Discussion of the impact of the computer and the Internet on the areas mentioned usually generates a meaningful discussion. By using this as a discussion “ice breaker” it is easy to demonstrate that the marketer must carefully observe changes in the macroenvironment and be able to convert difficulties into opportunities. Which environment do the students believe will be the most important in the future? How does this conclusion change from industry to industry? See Figure 3.2 for additional information.
Though students can generally understand the term environmental management perspective, it is more difficult to see how it can be applied as a managerial concept because the average student lacks the experience of the workplace.
Student Projects
Visit several McDonald’s restaurants in your area. How is the company doing in the Back to Basics part of their turnaround plan?
Break into groups in class and role-play bringing a new product to market that the R&D department has just developed. There should be a person for each of these roles: R&D, Marketing, Finance, Purchasing, Suppliers, and a Marketing Intermediary. Each should argue from their own point of view and for the needs of each of their organizations. Report your findings and your impressions to the class.
After reading the material in the chapter on the demographic environment and projected trends, pick a company or industry of your choice and cite what you believe to be the five most important demographic trends that will impact the company’s or the industry’s future. Explain why you picked the trends you did.
Interview your parents, or others of the baby boom generation about their values and what they are interested in purchasing. Do their answers match what is in the textbook? Share your insights with the class.
Considering that twenty years ago personal computers, compact disc players, DVD players, and the World Wide Web were basically unknown, how have these devices or phenomena impacted marketing? How have they changed our culture? What do you think is impacting our culture the most today?
Collect ten advertisements and comment on how they apply to the cultural environment (use the areas suggested by the chapter as a place to begin). What effect do cultural values and beliefs have on consumption? Relate this approach to what you learned about the marketing concept and value delivery in the previous chapters.
Interactive Assignments
Small Group Assignment
Form students into groups of three to five. Each group should read the opening vignette to the chapter on McDonald’s. Each group should answer the following questions:
Describe the environmental forces that McDonald’s faced as its sales growth began slumping in 1997.
How did McDonald’s choose to respond to those environmental changes?
How might the changes in the American family structure affect a company such as McDonald’s?
Each group should share its findings with the class.
Individual Assignment
Read the opening vignette to the chapter. Think about the answers to the follow­ing questions:
How might increasing levels of education have impacted McDonald’s growth?
What in McDonald’s turnaround plan addressed changing income levels?
Was McDonald’s being reactive or proactive in its approach to its changing marketplace?
Share your findings with the class.
Think-Pair-Share
Consider the following questions, formulate and answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.
What is the difference between the microenvironment and macro­environment with respect to marketing?
What does a marketing intermediary do?
How many publics can you name for your college or university?
What generation are you in? How would you describe your generation?
If you were going to attempt to sell to the 65+ generation, what would be a key to selling successfully to this generational group?
Which technological force will impact marketing the most in the near future? What technological force has impacted you the most? Comment.
Do you think the Internet should be regulated? Why or why not? Do you buy online? Why or why not?
List five cultural values in our society. Why are these values important to our society? (If you are from a foreign society, list five cultural values from that society. What are the differences?)
Outside Example
You’ve probably not heard of Isgro Pastries. It is a small, local bakery in South Philadelphia, part of that city’s famed Italian Market. Not heard of that, either? Well, the Italian Market in Philadelphia is the country’s largest and oldest outdoor market area, with over 100 vendors selling produce, meats, flowers, kitchen wares, some clothing, and many other items.
Isgro’s, like most of the vendors here, has been in the same family for generations; in fact, in 2004 it celebrated its 100th anniversary. The residential area around the Italian Market is still largely populated by Italians, although people from many other cultures are beginning to move in. For instance, there is now a very large Vietnamese population in the area, and there is even a large Vietnamese shopping center across the street from the entrance to the Italian Market.
Philadelphia is a major metropolitan area, but it is still largely a city of small neighborhoods. It retains much of its colonial atmosphere, with the “Old City” home to many historic events, such as the signing of the Declaration of Independence and the location of the temporary national capital before Washington, D.C. was established. In many areas it can almost seem that time has passed Philadelphia by, except when you visit its vibrant Center City area, home to major corporations and law firms, a dazzling concert hall for its world-renowned orchestra, and restaurants that can be counted among the world’s best.
But back to the Italian Market and Isgro’s. Although the Market and this particular vendor are still crowded year round, the neighborhood is in the process of “gentrification”—which is defined as “the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas that often displaces earlier, usually poorer residents.” Displacing many of the older Italian families, who have seen their offspring move, away are lawyers, doctors, and other professionals. They are moving into refurbished row homes and warehouses turned into loft condominiums that are driving up the value of these homes to previously unheard of levels. Think about this when you answer the questions below; you can visit the two Web sites, for Isgro’s and for the Italian Market.
What might this population shift—gentrification—mean to both the Italian Market and Isgro’s?
How do you suggest these two entities market themselves to keep their ethnic heritage, yet change with the times?
The Italian Market sells fresh food that is ripe today—most of the produce won’t last more than a couple of days. How might this impact the fast-paced life of today’s American family?
How has the Italian Market, Isgro’s, and the other vendors listed begun to utilize technology to increase their market?