The Marketing Environment Chapter 4 The Marketing Environment Copyright ©2017 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 4 The Marketing Environment Learning Outcomes Discuss the external environment of marketing and explain how it affects a firm Describe the social factors that affect marketing Explain the importance to marketing managers of current demographic trends Explain the importance to marketing managers of growing ethnic markets

Learning Outcomes (continued) Chapter 4 The Marketing Environment Identify consumer and marketer reactions to the state of the economy Identify the impact of technology on a firm Discuss the political and legal environment of marketing Explain the basics of foreign and domestic competition

Understanding the External Environment Chapter 4 The Marketing Environment LO 1 Involves: Understanding current customers Understanding how customers make decisions Identifying the most valuable customers and understanding their needs Understanding the competition Important for marketing managers in order to plan for the future Marketers must understand how, why, what, and when customers buy. Environmental scanning - Process of collecting and evaluating environmental information by a team of specialists The goal is to identify future market opportunities and threats. 4

Social Factors Chapter 4 The Marketing Environment LO 2 Social change is the most difficult external variable for marketing managers to forecast, influence, or integrate into marketing plans Influence: Products people buy Price paid Effectiveness of specific promotions How, where, and when people expect to purchase products 5

Achievement orientation Core American Values Chapter 4 The Marketing Environment LO 2 Self-sufficiency Upward mobility Work ethic Equality Individualism Achievement orientation Value - Strongly held and enduring belief Self-sufficiency - Every person should stand on his or her own two feet. Upward mobility - Success comes with getting an education, working hard, and playing by the rules. Work ethic - Hard work, dedication to family, and frugality are moral and right. Equality - No one should expect to be treated differently from anybody else. Individualism - Each person is unique and special. Achievement orientation - Emphasizes on getting things done by setting goals, planning, and measuring results Values are formed through interaction with family, friends, and influencers. The environment can also play a role in shaping values. Values influence one’s buying habits. U.S. consumers rank the characteristics of product quality as (1) reliability, (2) durability, (3) easy maintenance, (4) ease of use, (5) a trusted brand name, and (6) a low price. Discussion/Team Activity What environmental influences have affected the values of Americans? Examples: Great Depression, Women’s Role in the Workplace, Hippie Revolution of 1960s, and the September 11 terrorist attack Discuss products that demonstrate high quality standards in each of the ranking categories. 6

People are the basis for any market Demographic Factors Chapter 4 The Marketing Environment LO 3 People are the basis for any market Demographic characteristics are related to consumer buying behavior Population is the basic statistic in marketing Useful when broken into smaller and more specific increments Demography: Study of people’s vital statistics, such as age, race and ethnicity, and location An uncontrollable variable in the external environment 7

Ethnic Markets - Hispanic Americans Chapter 4 The Marketing Environment LO 4 Hispanic Americans Largest group to use mobile devices for any type of transaction African Americans Young population with a strong influence on the latest trends Expect brands to support social causes Asian Americans Early adopters of the latest digital gadgets and thrive in America’s technology sector Nearly 60 percent of Hispanic Americans are of Mexican descent; Puerto Ricans make up just under 10 percent of Hispanics; and others groups (Central Americans, Dominicans, South Americans, and Cubans) account for less than 5 percent of all Hispanics. Mobile service providers have substantially increased their marketing budgets targeted toward Hispanics. Hispanics will choose brands that reflect their native values and culture. Asian Americans have the highest average family income of all groups ($67,000). 49 percent of all Asian Americans have at least a bachelor’s degree. Key groups of Asian Americans are: Chinese Filipino Japanese Korean 8

Economic Factors Consumers’ incomes Purchasing power Inflation Chapter 4 The Marketing Environment LO 5 Consumers’ incomes Purchasing power Inflation Recession 9

Known as the cost of living Purchasing Power Chapter 4 The Marketing Environment LO 5 Measured by comparing income to the relative cost of a standard set of goods and services in different geographic areas Known as the cost of living Difference between the income and the cost of living (expenses) Consumers with high purchasing power have the ability to purchase higher-priced necessities Increased standards of living are a function of purchasing power. Cost of living index takes into account housing, food and groceries, transportation, utilities, health care, and miscellaneous expenses such as clothing, services, and entertainment. When income is high relative to the cost of living, people have more discretionary income. That means they have more money to spend on nonessential items. 10

Inflation and Recession Chapter 4 The Marketing Environment LO 5 Measure of the decrease in the value of money Expressed as the percentage reduction in value since the previous year Period of economic activity characterized by negative growth Reduces demand for goods and services Inflation The buyer will not pay more for a product than the subjective value he/she places on it. Businesses can increase their profit margins only by increasing their efficiency during low inflation Recession Defined as occurring when the gross domestic product falls for two consecutive quarters Gross domestic product - Total market value of all final goods and services produced during a period of time Beginning in December 2007, the collapse of inflated housing prices triggered what became the great recession of 2008–2009. The high prices led people to take out mortgages they could not afford from banks that should have known the money would not be repaid. 11

Research Chapter 4 The Marketing Environment LO 6 Types Basic research: Pure research that aims to confirm an existing theory or to learn more about a concept or phenomenon Applied research: Research that attempts to develop new or improved products Basic research aims to confirm an existing theory or to learn more about a concept or phenomenon. Difficulty of earning a profit from basic research discoveries has led various managements to cut spending on basic research.

Stimulating Innovation Chapter 4 The Marketing Environment LO 6 Companies limit innovation to areas they are already familiar with Developing new technology internally is a key to create and maintain a long-term competitive advantage Importance of external technology Firms can operate more efficiently or create a better product by acquiring the technology New technology may render existing products obsolete Companies attempting to innovate limit their searches to areas they are familiar with. This can help lead to incremental progress but rarely leads to a dramatic breakthrough.

Political and Legal Factors Chapter 4 The Marketing Environment LO 7 Business needs government regulation to protect innovators of new technology, the interests of society, and consumers Government needs business in order to generate taxes Every aspect of the marketing mix is subject to laws and restrictions. It is the responsibility of marketing managers to understand and conform to these laws while creating new programs to accomplish marketing objectives. 14

Federal and State Laws Federal laws State laws Chapter 4 The Marketing Environment LO 7 Federal laws Apply to competitive environment, pricing, advertising and promotion, and consumer privacy State laws Legislation that affects marketing varies state by state Many states and cities are attempting to fight obesity by regulating fast-food chains and other restaurants 15

Food and Drug Administration (FDA) Federal Trade Commission (FTC) Regulatory Agencies Chapter 4 The Marketing Environment LO 7 Protects the health and safety of consumers in and around their homes Consumer Product Safety Commission (CPSC) Enforces regulations against selling and distributing adulterated, misbranded, or hazardous food and drug products Food and Drug Administration (FDA) The regulatory agencies shown on this slide are the three federal agencies most directly and actively involved in marketing affairs. Prevents persons or corporations from using unfair methods of competition in commerce Federal Trade Commission (FTC) 16

Bureau of Consumer Protection Bureaus of the FTC Chapter 4 The Marketing Environment LO 7 Bureau of Competition Reviews mergers and acquisitions Bureau of Economics Provides economic analysis and support to antitrust and consumer protection investigations Bureau of Consumer Protection Enforces federal laws that protect consumers 17

Children’s Online Privacy Protection Act Consumer Privacy Chapter 4 The Marketing Environment LO 7 CAN-SPAM Act Regulates unsolicited e-mail advertising Prohibits commercial e-mailers from using false addresses and presenting false or misleading information Children’s Online Privacy Protection Act Requires websites operators to post a privacy policy on their home page and a link to the policy on every page where personal information is collected The popularity of the Internet for collecting consumer data has alarmed privacy-minded consumers. Successful tracking has created a $170 billion online-advertising business that is growing rapidly. Despite federal efforts, vast amount of personal data is collected through apps. 18

Market share and profits Global competition Competitive Factors Chapter 4 The Marketing Environment LO 8 Market share and profits Firms must work harder to maintain their profits Global competition More foreign firms are entering U.S. markets Foreign firms in the U.S. now compete on product quality Technological advances can usher in a whole new set of competitors that can change a firm’s business model. 19

Key Terms Target market Basic research Component lifestyles Demography Millennials Generation X Baby boomers Purchasing power Inflation Recession Basic research Applied research Consumer Product Safety Commission (CPSC) Food and Drug Administration (FDA) Federal Trade Commission (FTC)

Summary Managers alter the marketing mix based on how consumers make purchasing decisions Social factors include consumers' attitudes, values, and lifestyles Demography is an uncontrollable variable in the external environment Marketing mix should be changed according to the demographics

Summary (continued 1) Marketing managers must understand and react to the economic environment Technological success is based upon innovation, which requires imagination and risk taking Each aspect of the marketing mix is subject to laws and restrictions Managers have little control over the competitive environment confronting a firm