1. Chapter 3 The Marketing Environment

2. 3 | 2Copyright © Houghton Mifflin Company. All rights reserved. Objectives Recognize importance of environmental scanning and analysis Understand how competitive/economic factors affect organizations’ ability to compete and customers’ ability/willingness to buy products Identify political forces in marketing environment Understand how laws, government regulations, and self- regulatory agencies affect marketing Explore effects of new technology on society and on marketing Analyze sociocultural issues marketers must deal with as they make decisions.

3. 3 | 3Copyright © Houghton Mifflin Company. All rights reserved. Examining and Responding to the Marketing Environment The marketing environment consists of external forces that directly or indirectly influence organizations, both: –in acquisition of inputs (human, financial, and natural resources and raw materials, and information) and –creation of outputs (goods, services, or ideas). These influences can create opportunities and pose threats for marketers. (Dynamic).

4. 3 | 4Copyright © Houghton Mifflin Company. All rights reserved. Environmental Scanning Environmental scanning is “the process of collecting information about the forces in the marketing environment”. Environmental scanning can give marketers an edge over competitors in taking advantage of current trends. Companies must know how to use that information in the strategic planning process.

5. 3 | 5Copyright © Houghton Mifflin Company. All rights reserved. Scanning Involves: Observation Secondary Sources, such as: –Business –Trade –Government –General-interest publications Marketing research Cautions: Know how to use information Don’t gather too much information

6. 3 | 6Copyright © Houghton Mifflin Company. All rights reserved. Environmental Analysis Environmental analysis is “the process of assessing and interpreting the information gathered through scanning”. Marketers evaluate the information for accuracy, try to resolve inconsistencies in the data, and assign significance to the findings. Environmental analysis enables marketers to identify potential threats and opportunities linked to environmental changes. Understanding marketing environment helps in strategic planning process.

7. 3 | 7Copyright © Houghton Mifflin Company. All rights reserved. Responding To Environmental Forces Some marketers view environmental forces as uncontrollable and remain passive - reactive to the environment. While Other marketers believe that environmental forces can be shaped (through economic, psychological, political, or promotional skills), and these marketers are, to a certain extent, proactive. Which approach is most appropriate for a particular firm depends on its managerial philosophies, objectives, financial resources, customers, human skills, and other environmental forces.

8. 3 | 8Copyright © Houghton Mifflin Company. All rights reserved. Responding To Environmental Forces A proactive approach can be constructive and bring desired results. To influence environmental forces, marketing managers seek to identify market opportunities or to extract greater benefit relative to costs from existing market opportunities. Ex. Technological changes to lower cost, or political action by lobbying.

9. 3 | 9Copyright © Houghton Mifflin Company. All rights reserved. Environmental forces There are six environmental forces that must be considered in strategic planning: 1.Competitive forces 2.Economic forces 3.Political forces 4.Legal and regulatory forces 5.Technological forces 6.Sociocultural forces

10. 3 | 10Copyright © Houghton Mifflin Company. All rights reserved. 1. Competitive Forces Competition can be defined as “other firms that market products similar to or that can be substituted for its products in the same geographic area. Types of Competitors: All firms compete with one another for customers’ dollars. 1.Brand competitors: firms that market products with similar features and benefits to the same customers at similar prices. 2.Product competitors: firms that compete in the same product class, but their products have different features, benefits, and prices. 3.Generic competitors: firms that provide very different products that solve the same problem or satisfy the same basic customer need. 4.Total budget competitors: firms that compete for the limited financial resources of the same customers.

11. 3 | 11Copyright © Houghton Mifflin Company. All rights reserved. 1. Competitive Forces (continued) All the four types of competition can affect a firm’s marketing performance, but Brand competitors are the most significant because buyers typically see the different products of these firms as direct substitutes.

12. 3 | 12Copyright © Houghton Mifflin Company. All rights reserved. Types of competitive structures The number of firms that supply a product may affect the strength of competitors. Monopoly, exists when a firm offers a product that has no close substitute, making it the sole source of supply. Oligopoly, exists when a few sellers control the supply of a large proportion of a product. Monopolistic competition, exists when a firm with many potential competitors attempts to develop a marketing strategy to differentiate its product. Pure competition, exists when a large number of sellers, no one of which could significantly influence price or supply.

13. 3 | 13Copyright © Houghton Mifflin Company. All rights reserved. Characteristics Of Competitive Structures

14. 3 | 14Copyright © Houghton Mifflin Company. All rights reserved. Monitoring Competition Marketers need to monitor the actions of major competitors to determine what specific strategies competitors are using and how those strategies affect their own. It is not enough to analyze available information; the firm must develop a system for gathering ongoing information about competitors. Understanding the market and what customer wants, as well as what competitor providing, will help the firm maintain a marketing orientation.

15. 3 | 15Copyright © Houghton Mifflin Company. All rights reserved. Monitoring Competition Information about competitors allows marketing managers to assess the performance of their own marketing efforts and to recognize the strengths and weaknesses in their own strategies. Data about market share, product movement, sales volume, and expenditures level can be useful. However, accurate information on these matters is often difficult to obtain.

16. 3 | 16Copyright © Houghton Mifflin Company. All rights reserved. 2. Economic Forces Economic forces in the marketing environment influence both marketers’ and customers’ decisions and activities. Relevant issues include:  Economic Conditions  Business cycles  Buying Power  Income and Wealth  Willingness to Spend

17. 3 | 17Copyright © Houghton Mifflin Company. All rights reserved. Economic Conditions Changes in the economy which affect (and are affected by) supply and demand, buying power, willingness to spend, consumer expenditure levels, and the intensity of competition. Current economic conditions and changes in the economy have a broad impact on the success of the organizations’ marketing strategies.

18. 3 | 18Copyright © Houghton Mifflin Company. All rights reserved. Business Cycle A Business Cycle is “a pattern of economic fluctuations that has four stages:  Prosperity  Recession  Depression  Recovery From a global perspective, different regions of the world may be in different stages of the business cycle during the same period.

19. 3 | 19Copyright © Houghton Mifflin Company. All rights reserved. Business Cycle (continued) Prosperity- low unemployment, high total income, which together increase buying power. Marketers often expand their product offerings to take advantage of increased buying power Recession- unemployment rises, total buying power declines, both consumer and business spending decrease. Marketers should focus on marketing research during a recession to determine precisely what functions buyers want and integrate these functions into their product. Promotion efforts should emphasize value and utility. Depression- high unemployment, wages are low, total disposable income is at a minimum, consumers lack confidence in the economy. Marketing budgets are more likely to be cut Recovery- economy moves from recession or depression to prosperity. Marketers should be as flexible as possible to be able to adjust their strategies as economy improves and buying power increases, because it is difficult to ascertain how quickly and to what level prosperity will return.

20. 3 | 20Copyright © Houghton Mifflin Company. All rights reserved. Buying Power Buying Power includes “resources, such as money, goods, and services that can be traded in an exchange”. Obviously, the strength of a person’s buying power depends on economic conditions and the size of the resources that enable the individual to make purchases.

21. 3 | 21Copyright © Houghton Mifflin Company. All rights reserved. Sources of Buying Power Major sources of buying power are income, credit, and wealth. Income is money received through wages, rents, investments, pensions, and other sources for a given period –Disposable income (or after-tax income) is used for spending or saving. It is affected by wage levels, rate of unemployment, interest rates, dividend rates, and tax rates. –Discretionary income is disposable income available for spending and saving after an individual has purchased the basic necessities of food, clothing, and shelter. Credit enables people to spend future income now or in the near future, but it increases current buying power at the expense of future buying power. (usage of credit, page 63) Wealth is the accumulation of past income, natural resources, and financial resources.

22. 3 | 22Copyright © Houghton Mifflin Company. All rights reserved. Why should marketers care about buying power? because they directly affect the types and quantities of goods and services that consumers purchase.

23. 3 | 23Copyright © Houghton Mifflin Company. All rights reserved. Willingness To Spend An inclination to buy because of expected satisfaction from a product, influenced by: –ability to buy (buying power) –Several psychological and social forces –product’s price and its value –The amount of satisfaction received from a product already owned –Expectations about future employment, income levels, prices, family size, and general economic conditions

24. 3 | 24Copyright © Houghton Mifflin Company. All rights reserved. 3. Political Forces Political, legal, and regulatory forces of the marketing environment are closely interrelated. Marketers must understand and adjust to political conditions and legislation enacted. Although some marketers view political forces as beyond their control, others seek to influence political forces through lobbying decision makers, public protests or campaigning. Review Page 65.

25. 3 | 25Copyright © Houghton Mifflin Company. All rights reserved. 4. Legal and regulatory forces Each country has its own laws that influence marketing decisions and activities. So it is difficult to generalize on this issue. In general, laws may be designed to deal with various issues, such as: Ensuring smooth running of businesses preserving fair competition protecting consumer rights (i.e. consumer safety, hazardous materials, information disclosure, and specific unethical marketing practices, … etc)

26. 3 | 26Copyright © Houghton Mifflin Company. All rights reserved. Example: Federal Trade Commission The FTC is an agency that regulates a variety of business practices and curbs false advertising, misleading pricing, and deceptive packaging and labeling. For example: –The FTC influences many marketing activities (bans advertising for tobacco). –It can issue complaints and require companies to run corrective advertising. –It also assists businesses in complying with laws.

27. 3 | 27Copyright © Houghton Mifflin Company. All rights reserved. Self-Regulatory Forces In an attempt to be good corporate citizens and prevent government intervention, some businesses try to regulate themselves. Ex, Kraft Foods.

28. 3 | 28Copyright © Houghton Mifflin Company. All rights reserved. 5. Technological Forces Technology is the application of knowledge and tools to solve problems and perform tasks more efficiently. Impact of Technology –Technology determines how society satisfies its needs (i.e. improved communications). –Technology can help marketers and consumers become more productive. But, it also raises controversial issues (i.e. dark side of technology. e- commerce is defined as “the sharing of business information and conduct marketing transactions via telecommunications networks” –Technology expands opportunities for e-commerce ( e- commerce is defined as “the sharing of business information and conduct marketing transactions via telecommunications networks” ), which leads to changing the relationship between marketers and consumers.

29. 3 | 29Copyright © Houghton Mifflin Company. All rights reserved. Adoption and Use of Technology It is important for firms to determine when a technology is changing, and thus define the strategic influence of the new technology. A firm’s ability to protect its inventions also influences the use of technology (positive correlation).

30. 3 | 30Copyright © Houghton Mifflin Company. All rights reserved. Technology assessment A procedure by which managers try to foresee the effects of new products and processes on: the firm’s operations other business organizations society in general. Management tries to estimate whether benefits of adopting specific technology outweigh costs to the firm and to society at large.

31. 3 | 31Copyright © Houghton Mifflin Company. All rights reserved. 6. Sociocultural Forces Sociocultural forces: are the influences in a society and its culture that bring about changes in attitudes, beliefs, norms, customs, and lifestyles. (These forces help determine what, where, how, and when people buy product). Population’s demographic characteristics (i.e. age, gender, race, ethnicity, marital and parental status, income, and education) have a significant impact on relationships and individual behavior. Changes in sociocultural forces lead to: –changes in how people live and consume products, and –unique problems and opportunities for marketers.

32. 3 | 32Copyright © Houghton Mifflin Company. All rights reserved. 6. Sociocultural Forces (continued) Cultural Values Changes in values dramatically influence people’s needs and desires for products. Examples: issues of health, nutrition, exercise, changing family concept, have increased in importance, affecting behavior, lifestyles, and product choices Today, many consumers are more concerned about the natural environment. Consumerism Consumerism involves organized efforts by individuals, groups, and organizations to protect consumers’ rights. These efforts may include, for example:  writing letters to companies  lobbying government agencies  broadcasting public service announcements  boycotting companies whose activities are deemed irresponsible