Marketing chapter 3a scanning the marketing environment

ECONOMIC FORCES Gross Income  Total amount of money made in one year by a person, household, or family unit  Disposable Income  Money consumer has left over, after paying taxes, t

Explain how environmental scanning provides information about social,

economic, technological, competitive, and regulatory forces.

LO1

Describe how social forces such as demographics and culture can have an impact on marketing strategy.

Discuss how economic forces such as macroeconomic conditions and

consumer income affect marketing.

Describe how technological changes can affect marketing.

Discuss the forms of competition that exist in a market and key components

LO6

• An Environmental Scan of Today’s

• Tracking Environmental Trends

• Example: Coffee Marketers

3-4

Social-Cultural Environment

1. The relationship between the

marketer and society and its culture

2. U.S population is getting older,

birthrates are falling and it is

becoming more diverse

3. Marketers must be sensitive to

society’s demographic shifts and

changing values

Social-Cultural Environment

Cultural Diversity

sub-markets

characteristics, consumer preferences, and purchasing behavior

influence on marketing decision-making in international sphere

products and advertising messages to suit tastes and preferences of different cultures

Social-Cultural Environment

Consumerism

1. Social force that aids and protects

the buyer by exerting legal, moral, and economic pressures on

business

2. Increasing consumer activism in

recent years

3. Firms must weigh consumer

demands with profit objectives

• Dilemma: pleasing customers vs

remaining viable

3. Means promising customers and

business partners not to sacrifice

quality and fairness for profit

Ethical Questions in Marketing

Social-Cultural Environment

Social Responsibility

policies, procedures and actions that have enhancement of society’s welfare as a

primary objective

profits Consumer satisfaction and social well-being in evaluating firm’s

performance:

Qualitative as well as quantitative

FIGURE 3-1 Environmental forces affect the

organization, its suppliers, and its customers

3-12

FIGURE 3-2 An environmental scan of

today’s marketplace shows the many

important trends that influence marketing

 Demographics

SOCIAL FORCES

DEMOGRAPHICS LO2

• World Population

• U.S Population

 Social Forces

3-14

FIGURE 3-3 Distribution of the world’s

population

Olay, Hyatt, and Motorola

Which generational cohort is being reached?

 Regional Shift in the U.S.

 Shifts Within States

SOCIAL FORCES

DEMOGRAPHICS—POPULATION SHIFTS LO2

• Suburbs

• Exurbs

• Penturbia

 Metropolitan Statistical Area

 At least one urbanized area of 50,000

or more people and adjacent territory that has a high degree of social and economic integration

 At least one urban cluster of at least

10,000 but less than 50,000 people and adjacent territory that has a high degree of social and economic integration

SOCIAL FORCES

Statistical Areas

LO2

3-20

 Statistical Areas (SA): Illinois

SOCIAL FORCES

DEMOGRAPHICS—POPULATION SHIFTS LO2

•Metropolitan Division: Chicagoland

• Micropolitan SA: Dixon, IL

•Metropolitan SA: St Louis, MO & SW IL

•Combined SA: NE Illinois

FIGURE 3-4 Racial and ethnic groups

(excluding whites) are concentrated in

geographic regions of the United States

SOCIAL FORCES

Slide 3-20

• Culture – set of values, ideas, and attitudes that

are learned and shared among members of a group

 The Changing Attitudes and Roles of Men

and Women

 Career mothers

 Increased participation in organized sports

 Internet has made gender, race, and ethnicity

disappear

 Most believe men and women should share most responsibilities equally

• Consumer Sentiment

ECONOMIC FORCES

MACROECONOMIC CONDITIONS LO3

• Inflation

• Recession

ECONOMIC FORCES

Slide 3-25

• Economy

– Income, expenditures, and resources that affect

the cost of running a business and household

• Macroeconomic Conditions

– Inflationary economy

– Recessionary economy

FIGURE 3-6 Distribution of U.S household

income: 2006

ECONOMIC FORCES

CONSUMER INCOME LO3

 Gross Income

 Disposable Income

 Discretionary Income

3-28

ECONOMIC FORCES

 Gross Income

 Total amount of money made in one year by

a person, household, or family unit

 Disposable Income

 Money consumer has left over, after paying taxes,

to use for food, housing, clothing and transportation

• Consumer Income

 Money that remains after paying taxes and necessities

and is used for luxury items, e.g., vacations

ECONOMIC FORCES

Slide 3-16

Department of Labor’s Annual Consumer Expenditures Survey

monitors consumer expenditures:

• 17 percent of average consumer’s income is spent

on food and clothing

• 33 percent is spent on housing

• 36 percent is spent on transportation, healthcare,

and insurance

• 14 percent is a consumer’s discretionary income

ECONOMIC FORCES

Discretionary Income

Department of Labor’s Annual Consumer

Expenditures Survey:

• The percentage of income spent on food and housing

declines as incomes rise, which increases discretionary income

• Bureau of Labor Statistics: percentage of income put

into savings is less than 4 percent

 Technology

• Production of Existing Products Changed

 Impact on Customer Value

• Plummeting Costs of Tech-Based Products

• New Products Developed

Free-Market Competition

Perfect Competition

FIGURE 3-A Continuum of competition

3-36

1 Should we compete?

2 If so, in what markets?

3 How should we compete?

Three Questions of Determining a

Competitive Strategy

1st Competitive Strategy Question

2nd Competitive Strategy Question

What Markets Should We Compete In?

●Acknowledge firms limited resources

●Allocate these resources to the areas of greatest

opportunity

●Acquisitions, mergers, and joint-ventures

3rd Competitive Strategy Question

How Should We Compete?

●Make product decisions

 Barriers to Entry

 Power of Buyers and Sellers

COMPETITIVE FORCES

COMPONENTS OF COMPETITION LO5

 Existing Competitors and Substitutes

 Small Businesses as Competitors

– Factors may be used to create a barrier

to entry, increase brand awareness, or

intensify a fight for market share.

COMPETITIVE FORCES

• Entry

– A firm must assess the likelihood of new

entrants because additional producers

increase industry capacity and tend to

lower prices

COMPETITIVE FORCES

Slide 3-41

• Barriers to Entry

– Can be in the form of capital requirements,

advertising expenditures, product identity,

distribution access, or switching costs

– The higher the expense of the barrier, the

more likely it will deter new entrants.

COMPETITIVE FORCES

• Power of Buyers and Suppliers

– Powerful buyers exist when:

• They are few in number,

• There are low switching costs; or

• The product represents a significant share of

the buyer’s total costs, which leads the buyer to exert pressure for price competition

– A supplier gains power when the product is

critical to the buyer

COMPETITIVE FORCES

Slide 3-41

• Existing Competitors and

Substitutes

– Competitive pressures among firms

depend on the rate of industry growth.

– In slow growth settings, competition is

more heated for any possible gains in

market share.

– High fixed costs also create competitive

pressures for firms to fill production

capacity.

COMPETITIVE FORCES

• Small Businesses as Competitors

– Small businesses make up the majority of the

competitive landscape

– There are about 23 million in the U.S and employ

over 50 percent of all private sector employees

– They generate 60 to 80 percent of all new jobs

annually and account for 50 percent of GDP

– There is a strong correlation between national

economic growth and the level of new small

business activity

Four Phases of Government Regulation

1. Anti-Monopoly Period

• Maintain competitive environment

• Sherman Antitrust Act, Clayton Act, FTC Act

2. Protecting Competitors

• Protect independent merchants against competition

from larger chain stores

3. Protecting Consumers

• Truth in Lending Act

4. Deregulation

• Begun in 1970s and continues today

• Increase competition in industries such as telecom &

airlines

• Newest regulatory frontier is cyberspace

Regulatory Bodies Affecting Marketing

• Has broadest power of any agency to influence marketing

activities

• Regulates unfair business practices, false of deceptive advertising

• With DOJ, can stop mergers

2. Other federal Regulatory agencies

• Private consumer interest groups

• Self-Regulatory Groups – Better Business Bureau and the Direct

REGULATORY FORCES

Robinson-Patman Act (1936)

• Prohibits price discrimination

• Applies to buyers and sellers

• Price differences that substantially

weaken competition

• B2B transactions, not consumer

 Product-Related: Company Protection

• Digital Millennium Copyright Act (1998)

REGULATORY FORCES

Slide 3-47

• Product-Related Regulation

 Company Protection

 Patent Law – Gives inventors the right to exclude

others from making, using, or selling products that

infringe the patented invention

 Exclusive rights to invention for 20 years

REGULATORY FORCES

• Product-Related Regulation

 Company Protection

Copyright Law – Gives author of a literary,

dramatic, musical, or artistic work the exclusive

right to print, perform, or otherwise copy that work

 Copyright is secured automatically when work

is created

 Good for lifetime of author + 70 years

 Filed with LOC

REGULATORY FORCES

Slide 3-47

• Product-Related Regulation

 Company Protection

 Digital Millennium Copyright Act (1998) – Improves

protection of copyrighted digital products and protection from devices designed to circumvent against anti-piracy elements of their products

 Product-Related: Consumer Protection

• Consumer Product Safety Commission

REGULATORY FORCES

Slide 3-47

• Product-Related Regulation

 Consumer Protection

Laws relating to food, drugs, and cosmetics:

 Infant Formula Act (1980)

 Nutritional Labeling and education Act (1980) –

New labeling requirements for dietary supplements (1997) and guidelines for trans fats (2006)

Other consumer protection laws have a broader scope:

 Fair Packaging and Labeling Act(1966)

 Child Protection Act (1966)

REGULATORY FORCES

• Product-Related Regulation

 Consumerism

 Grassroots movement started in 1960s to increase the

influence, power, and rights of consumers in dealing with

institutions

 Consumers today demand ecologically safe products and

socially responsible business practices

Social-Cultural Environment

Consumerism

1. Social force that aids and protects

the buyer by exerting legal, moral, and economic pressures on

business

2. Increasing consumer activism in

recent years

3. Firms must weigh consumer

demands with profit objectives

• Dilemma: pleasing customers vs

remaining viable

 Product-Related: Company and

Consumer Protection

• U.S Supreme Court: Trademark Colors

REGULATORY FORCES

• Product-Related Regulation

 Both Company and Consumer Protection

 Trademarks are intended to protect both the firm selling the product and the consumer buying it

 Protects name, symbol, design, or a combination of, and identifies goods and services of a seller

 Belong to owner forever

REGULATORY FORCES

Slide 3-47

• Product-Related Regulation

 Both Company and Consumer Protection

 Landham Act (1946) – Provides for registration of

company’s trademarks

 First user had exclusive right to use the particular word, name, or symbol

 Company can lose its trademark if it becomes generic:

 Coca-Cola, Xerox, and Kleenex

 Aspirin and escalator

Kleenex, Band-Aid, and Q-Tips

Are these becoming generic trademarks?

REGULATORY FORCES

Slide 3-47

• Product-Related Regulation

 Both Company and Consumer Protection

 Trademark Revision Act (1988) – Allows company to

secure rights to a name before actual use by declaring its intent to use it

 Madrid Protocol (2003) – treaty that protects U.S

trademark rights globally

 A company now may obtain trademarks for colors

associated with their products over time

 The Federal Dilution Act (1995) – prohibits someone

from using a trademark on non-competing product:

 e.g., a “Cadillac” brush

 Do Not Call Registry

Advertising and Promotion-Related

 Cease and Desist Order  Corrective Advertising

3-71

Environmental Scanning

Environmental scanning is the

process of continually acquiring

information on events occurring

outside the organization to identify and interpret potential trends.

Demographics describe a

population according to selected

characteristics such as age,

gender, ethnicity, income, and

occupation.

Baby Boomers

Baby boomers are the

generation of children born

between 1946 and 1964.

3-75

Generation X

Generation X includes the 15

percent of the population born

between 1965 and 1976 Also

called baby bust.

Generation Y

Generation Y includes the 72

million Americans born between

1977 and 1994 Also called

echo-boom or baby boomlet.

3-77

Blended Family

A blended family is a family

formed by merging two previously separated units into a single

household.

Multicultural Marketing

Multicultural marketing consists

of combinations of the marketing

mix that reflect the unique

attitudes, ancestry,

communication preferences, and

lifestyles of different races.

3-79

Culture consists of the set of

values, ideas, and attitudes that

are learned and shared among

the members of a group.

Value Consciousness

Value consciousness is the

concern for obtaining the best

quality, features, and performance

of a product or service for a given

price that drives consumption

behavior.

3-81

The economy pertains to the

income, expenditures, and

resources that affect the cost of

running a business and

household.

Gross Income

Gross income is the total amount

of money made in one year by a

person, household, or family unit

Also known as money income at

the Census Bureau.

3-83

Disposable Income

Disposable income is the money

a consumer has left after paying

taxes to use for food, shelter,

clothing, and transportation.

Discretionary Income

Discretionary income is the

money that remains after paying

for taxes and necessities.

3-85

Technology consists of the

inventions or innovations from

applied science or engineering

research.

Marketspace consist of

information- and

communication-based electronic exchange

environment mostly occupied by

sophisticated computer and

telecommunication technologies

and digitized offerings.

3-87

Electronic Commerce

Electronic commerce is any

activity that uses some form of

electronic communication in the

inventory, exchange,

advertisement, distribution, and

payment of goods and services.

Extranets are Internet-based

technologies used to permit

communication between a

company and its suppliers,

distributors, and other partners.

Competition consists of the

alternative firms that could provide

a product to satisfy a specific

market’s needs.

3-91

Barriers To Entry

Barriers to entry consist of

business practices or conditions

that make it difficult for new firms

to enter the market.

Regulation consists of the

restrictions state and federal laws

place on business with regard to

the conduct of its activities.

3-93

Consumerism is a grassroots

movement started in the 1960s

to increase the influence, power,

and rights of consumers in

dealing with institutions.