CH 3 Scanning The Marketing Environment
Organization (Marketing Dept, Other Dept, & Employees)
-Social = demographic shifts & cultural changes
-Economic = macroeconomic conditions & consumer income
-Technological = changing technology, technologies impact on customer value, electronic business technologies
-Competitive = alternative forms of competition, small businesses
-Regulatory = laws protecting competition, laws affecting marketing mix actions, self-regulation
-Consumers purchase decisions are becoming value based & focused on improving world
-Global media consumption growing
-International activity from Asia & Latin Am
-Investment in sustainable living infrastructure
-Online data collection & behavioral targeting capabilities growing faster
-TV’s, phones, and tablets becoming connected
-Microbusiness impact increasing through peer-to-peer websites
-Partnerships, collaboration & co-creation of value
-Regulatory guidance regarding green & environmental marketing crime
-Health consciousness to public & private smoke-free areas
-The most recent estimates indicate there are 6.9 billion people in the world today, and the population is likely to grow to 9.4 billion by 2050. While this growth has led to the term population explosion, the increases have not occurred worldwide; they are primarily in the developing countries of Africa, Asia, and Latin America.
-India is predicted to have the world’s largest population in 2050 with 1.75 billion people, and China will be a close second with 1.44 billion people. World population projections show that the proportion of the world’s population in more developed countries such as the United States, Japan, Australia, and those in Europe is declining
Another important global trend is the shifting age structure of the world population.
– Worldwide, the number of people 60 years and older is expected to more than triple in the coming decades and reach 2 billion by 2050
If current trends in life expectancy, birthrates, and immigration continue, by 2030 the U.S. population will exceed 373 million people. This growth suggests that niche markets based on age, life stage, family structure, geographic location, and ethnicity will become increasingly important. The global trend toward an older population is particularly true in the United States.
Today, there are approximately 40 million people age 65 and older. By 2030, this age group will include more than 72 million people, or almost 20 percent of the population. You may have noticed companies trying to attract older consumers by enlarging typefaces and avoiding colors that are difficult to read (yellow and blue). Finally, the term minority as it is currently used is likely to become obsolete as the size of most ethnic groups will double during the next two decades.
This is a generation of consumers who are self-reliant, supportive of racial and ethnic diversity, and better educated than any previous generation. They are not prone to extravagance and are likely to pursue lifestyles that are a blend of caution, pragmatism, and traditionalism.
In addition, they are collaborative decision makers. In terms of net worth, Generation X is the first generation to have less than the previous generation.
As baby boomers move toward retirement, however, Generation X is becoming a dominant force in many markets.
Generation X, for example, is replacing baby boomers as the largest segment of business travelers. In response, hotel companies are creating new concepts that appeal to the younger market.
Surveys of Generation X travelers indicate they want casual, tech-friendly lodging with 24-hour access to food and drinks, so Hyatt Corporation is building 400 new Hyatt Place all-suite hotels featuring free wireless Internet, flat-panel high-definition televisions, a 24-hour guest kitchen, a fitness center, and remote printing
This was a period of increasing births, which resulted from baby boomers having children, and it is often referred to as the echo-boom or baby boomlet.
Generation Y exerts influence on music, sports, computers, video games, and all forms of communication and networking. Generation Y members are interested in distinctive, memorable, and personal experiences and are very adept at managing their lives to create a work-life balance.
They are strong-willed, passionate about the environment, and optimistic. This is also a group that is attracted to purposeful work where they have control. The Making Responsible Decisions box describes how millennials’ interest in sustainability is influencing colleges, graduate schools, and employers. The term millennials is used, with inconsistent definitions, to refer to younger members of Generation Y and sometimes to Americans born since 1994.
Today, that type of household is just 50 percent of the population. Only 21 percent of households are married couples with children, and only 10 percent are households with working fathers and stay-at-home moms.
Some of the fastest growing types of households are those with an adult child who has moved back home with his or her parents and those with unmarried partners.
These two categories included 5.5 million individuals and 7.5 million couples, respectively, in 2010.
Analysis by the U.S. Bureau of the Census indicates that young people are postponing marriage and parenthood and that the increase in households with unmarried partners reflects that “pooling resources by moving in together may be one method of coping with extended unemployment.”
Businesses are adjusting to the changes because they have implications for purchases related to weddings, homes, baby and child products, and many other industries.
The increase in cohabitation (households with unmarried partners) may be one reason the national divorce rate has declined during recent years. Even so, the likelihood that a couple will divorce exceeds 40 percent, and divorce among baby boomers—what is being called gray divorce—appears to be increasing.
-A metropolitan statistical area has at least one urbanized area of 50,000 or more people and adjacent territory that has a high degree of social and economic integration.
-A micropolitan statistical area has 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.
If a metropolitan statistical area contains a population of 2.5 million or more, it may be subdivided into smaller areas called metropolitan divisions. In addition, adjacent metropolitan statistical areas and micropolitan statistical areas may be grouped into combined statistical areas.15
There are currently 366 metropolitan statistical areas, which include 84 percent of the population, and 576 micropolitan statistical areas, which include 10 percent of the population.
Because businesses must now market their products to a consumer base with many racial and ethnic identities, in-depth marketing research that allows an accurate understanding of each culture is essential.
Generation Y represents the first generation of women who have no collective memory of the dramatic changes we have undergone.
An increasingly important value for consumers in the United States and around the globe is sustainability and preservation of the environment. Concern for the environment is one reason consumers are buying hybrid gas-electric automobiles, such as the Toyota Prius and the Chevy Volt, and electric vehicles, such as the Nissan Leaf.
A change in consumption orientation is also apparent. In the past, consumers often used debt to make many of their purchases. High unemployment and lower real estate prices, however, have changed their perspective. Today, U.S. consumers have become cautious buyers
In an inflationary economy, the cost to produce and buy products and services escalates as prices increase.
From a marketing standpoint, if prices rise faster than consumer incomes, the number of items consumers can buy decreases.
Periods of declining economic activity are referred to as recessions. During recessions, businesses decrease production, unemployment rises, and many consumers have less money to spend. The U.S. economy experienced recessions from 1973-75, 1981-82, 1990-91, and in 2001. Most recently, a recessionary period began in 2007 and ended in 2009, becoming the longest in recent history
The two most popular surveys of consumer expectations are the Consumer Confidence Index, conducted by a nonprofit business research organization called the Conference Board & the Index of Consumer Sentiment, conducted by the Survey Research Center at the University of Michigan.
The surveys track the responses of consumers to specific questions about their expectations, and the results are reported once each month.
Thus, if taxes rise or fall faster than income, consumers are likely to have more or less disposable income.
-“Natural user interfaces” will utilize gesture, touch, and voice to change the way we interact with and control computers and complicated machines.
-Green technologies such as SmartGrid infrastructure, online energy management, and consumer-generated energy (e.g., home wind turbines) will gain widespread acceptance among American consumers.
-Biotechnology will be used to develop genetically modified crops to create enough food for a growing world population.
-Technology also provides value through the development of new products.
-Technology can also change existing products and the ways they are produced. Many companies are using technological developments to recycle products through the manufacturing cycle several times.
Scanning the environment requires a look at all of them. These factors relate to a firm’s marketing mix decisions and may be used to create a barrier to entry, increase brand awareness, or intensify a fight for market share.
A company scanning its environment must consider the possible barriers to entry for other firms, which are business practices or conditions that make it difficult for new firms to enter the market.
Barriers to entry can be in the form of capital requirements, advertising expenditures, product identity, distribution access, or the cost to customers of switching 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.
This last factor leads the buyer to exert significant pressure for price competition. A supplier gains power when the product is critical to the buyer and when it has built up the switching costs.
High fixed costs also create competitive pressures for firms to fill production capacity. For example, airlines offer discounts for making early reservations and charge penalties for changes or cancellations in an effort to fill seats, which represent a high fixed cost.
5 million small businesses in the United States, which employ half of all private sector employees. In addition, small businesses generate 65 percent of all new jobs annually and 50 percent of the gross domestic product (GDP).
Research has shown a strong correlation between national economic growth and the level of new small business activity in previous years.
Regulation consists of restrictions state and federal laws place on business with regard to the conduct of its activities.
Regulation exists to protect companies as well as consumers. Much of the regulation from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices.
For consumers, the focus of legislation is to protect them from unfair trade practices and ensure their safety.
The copyright law gives the 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 the work is created. However, the published work should bear an appropriate copyright notice, including the copyright symbol, the first year of publication, and the name of the copyright owner, and it must be registered under the federal copyright law.
A Senate report states:
The purposes underlying any trademark statute [are] twofold. One is to protect the public so that it may be confident that, in purchasing a product bearing a particular trademark which it favorably knows, it will get the product which it asks for and wants to get. Secondly, where the owner of a trademark has spent energy, time, and money in presenting to the public the product, he is protected in this investment from misappropriation in pirates and cheats.
Registration under the Lanham Act provides important advantages to a trademark owner that has used the trademark in interstate or foreign commerce, but it does not confer ownership. A company can lose its trademark if it becomes generic, which means that it has primarily come to be merely a common descriptive word for the product.
In 2003, the United States agreed to participate in the Madrid Protocol, which is a treaty that facilitates the protection of U.S. trademark rights throughout the world.
Certain forms of price discounting are allowed. Quantity discounts are acceptable; that is, buyers can be charged different prices for a product provided there are differences in manufacturing or delivery costs. Promotional allowances or services may be given to buyers on an equal basis proportionate to volume purchased. Also, a firm can meet a competitor’s price “in good faith.”
-The first, exclusive dealing, is an arrangement a manufacturer makes with a reseller to handle only its products and not those of competitors. This practice is illegal under the Clayton Act only when it substantially lessens competition.
-Requirement contracts require a buyer to purchase all or part of its needs for a product from one seller for a time period. These contracts are not always illegal but depend on the court’s interpretation of their impact on distribution.
-Exclusive territorial distributorships are a third distribution issue often under regulatory scrutiny. In this situation, a manufacturer grants a distributor the sole rights to sell a product in a specific geographical area. The courts have found few violations with these arrangements.
-The fourth distribution strategy is a tying arrangement, whereby a seller requires the purchaser of one product to also buy another item in the line. These contracts may be illegal when the seller has such economic power in the tying product that the seller can restrain trade in the tied product.
The FTC has been concerned with deceptive or misleading advertising and unfair business practices and has the power to
(1) issue cease and desist orders and
(2) order corrective advertising. In issuing a cease and desist order, the FTC orders a company to stop practices the commission considers unfair.
With corrective advertising, the FTC can require a company to spend money on advertising to correct previous misleading ads. The enforcement powers of the FTC are so significant that often just an indication of concern from the commission can cause companies to revise their promotion.
A landmark legal battle regarding deceptive advertising involved the Federal Trade Commission and Campbell Soup Co. It had been Campbell’s practice to insert clear glass marbles into the bottom of soup containers used in print advertisements to bring the soup ingredients (e.g., noodles or chicken) to the surface. The FTC ruled that the advertising was deceptive because it misrepresented the amount of solid ingredients in the soup, and it issued a cease and desist order. Campbell and its advertising agency agreed to discontinue the practice
There are two problems with self-regulation, however: noncompliance by members and enforcement.
In addition, if attempts at self-regulation are too strong, they may violate the Robinson-Patman Act.
The best-known self-regulatory group is the Better Business Bureau (BBB). This agency is a voluntary alliance of companies whose goal is to help maintain fair practices. Although the BBB has no legal power, it does try to use “moral suasion” to get members to comply with its standards. The BBB recently developed a reliability assurance program, called BBB Online, to provide objective consumer protection for Internet shoppers. Before they display the BBB Online logo on their website, participating companies must be members of their local Better Business Bureau, have been in business for at least one year, agree to participate in BBB’s advertising self-regulation program, abide by the BBB Code of Business Practices, and work with the BBB to resolve consumer disputes that arise over goods or services promoted or advertised on their site.
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