The Marketing Environment Lamb, Hair, McDaniel Chapter 4 The Marketing Environment 2011-2012 CHAPTER 4 The Marketing Environment Although managers can control the marketing mix, they cannot control elements in the external environment. © Mark Herreid/Shutterstock.com

Chapter 4 The Marketing Environment Learning Outcomes LO 1 Discuss the external environment of marketing, and explain how it affects a firm LO 2 Describe the social factors that affect marketing LO 3 Explain the importance to marketing managers of current demographic trends LO 4 Explain the importance to marketing managers of growing ethnic markets

Chapter 4 The Marketing Environment Learning Outcomes LO 5 Identify consumer and marketer reactions to the state of the economy LO 6 Identify the impact of technology on a firm LO 7 Discuss the political and legal environment of marketing LO 8 Explain the basics of foreign and domestic competition

The External Marketing Environment Chapter 4 The Marketing Environment The External Marketing Environment Discuss the external environment of marketing, and explain how it affects a firm LO1 4

Target Market LO1 A defined group most likely to buy a product Chapter 4 The Marketing Environment Target Market A defined group most likely to buy a product Changes as consumers age External elements change consumers’ desires LO1 5

The External Environment Chapter 4 The Marketing Environment The External Environment Unless marketing managers understand the external environment, the firm cannot intelligently plan for the future. Environmental Management is… when a company implements strategies that attempt to shape the external environment within which it operates. Notes: The factors within the external environment that are important to marketing mangers can be classified as social, demographic, economic, technological, political and legal, and competitive. LO1 6

Describe the social factors that affect marketing Chapter 4 The Marketing Environment Social Factors Describe the social factors that affect marketing LO2 7

Social Factors LO2 Attitudes Values Lifestyle Chapter 4 The Marketing Environment Social Factors Values Attitudes Lifestyle Notes: Social change is perhaps the most difficult external variable for marketing managers to forecast, influence, or integrate into marketing plans. Social factors influence the products people buy, the price paid, the effectiveness of specific promotions, and how, where, and when people expect to purchase products. LO2 8

Social Factors LO2 Social Factors Influence: Products purchased Chapter 4 The Marketing Environment Social Factors Social Factors Influence: Products purchased Prices paid for products Effectiveness of promotions How, where, and when people purchase LO2 9

American Values LO2 Core American Values Emerging Trends Chapter 4 The Marketing Environment American Values Core American Values Emerging Trends Self-Sufficiency Upward Mobility Work Ethic Conformity Getting off the grid Meaningful green EcoTechMed Notes: A value is a strongly held and enduring belief. The four basic values shown influenced the attitudes and lifestyles during the first 200 years of the United States. They are: 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. Conformity: No one should expect to be treated differently from everybody else. Values are formed through interaction with family, friends, and influencers such as teachers, religious leaders, and politicians. The environment can also play a role in shaping values. 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, the September 11 terrorist attack. LO2 10

The Influence of Values on Buying Habits Chapter 4 The Marketing Environment Ranked Characteristics of Product Quality Reliability Durability Easy maintenance Ease of use Trusted brand name Low price Notes: Values influence our buying habits. Consumers demand high-quality goods that save energy, time, and calories! Furthermore, the products must be durable and not break down. This slide shows the ranked characteristics of product quality that are important to consumers. Discussion/Team Activity: 1. Discuss products that demonstrate high quality standards in each of the ranking categories. LO2 11

Component Lifestyles LO2 Chapter 4 The Marketing Environment Component Lifestyles The practice of choosing goods and services that meet one’s diverse needs and interests rather than conforming to a single, traditional lifestyle. Notes: A lifestyle is a mode of living. People are choosing products and services that meet diverse needs and interests rather than conforming to traditional stereotypes. The unique lifestyles of every consumer can require a different marketing mix. Today’s consumers want multifunctional products No longer defined only by occupation LO2 12

Role of Families and Working Women Chapter 4 The Marketing Environment Growth of dual-income families results in increased purchasing power Approximately 59 percent of work-age females are in the workforce Working wives bring in 45 percent of the total family earnings. The phenomenon of working women has probably had a greater effect on marketing than any other social change. Notes: The phenomenon of working women has had a greater effect on marketing than has any other social change. Furthermore, the growth of dual-income families has resulted in increased purchasing power. As women’s earnings grow, so do their levels of expertise, experience, and authority. Women expect different things in life. LO2 13

There Is Never Enough Time Chapter 4 The Marketing Environment There Is Never Enough Time It is estimated that over 80 percent of the working population is worried about having too little time. About 40 percent of American adults get less than 7 hours of sleep on weekdays. About 74 percent of working adults engage in multitasking. Notes: Research shows that the percentage of people who say they never have enough time to do all that they need to do keeps increasing. LO2 14

Demographic Factors LO3 Chapter 4 The Marketing Environment Demographic Factors Explain the importance to marketing managers of current demographic trends LO3 15

Demographic Factors LO3 People are the basis for any market Chapter 4 The Marketing Environment Demographic Factors People are the basis for any market Demographic characteristics relate to buyer behavior Demographic cohorts have their own needs, values, and consumption patterns. Notes: The next uncontrollable variable in the external environment is demography: the study of people’s vital statistics, such as age, race and ethnicity, and location. Demographic characteristics are strongly related to consumer buyer behavior. LO3 16

Tweens LO3 Pre- and early adolescents, age 8 to 12 Chapter 4 The Marketing Environment Pre- and early adolescents, age 8 to 12 Population of 20 million Directly spend about $50 billion annually Parents spend $150 billion on tweens annually View TV ads as “just advertising” Notes: Marketers refer to designated age-cohort groups by these name: tweens, teens, Generation Y, Generation X, and baby boomers. Each cohort has its own needs, values, and consumption patterns. LO3 17

Teens LO3 58 percent shop online Population of about 25 million Chapter 4 The Marketing Environment Population of about 25 million Spend approximately 72 hours per week tuned in electronically View shopping as a social sport 58 percent shop online LO3 18

Generation Y LO3 Born between 1979 and 1994 Chapter 4 The Marketing Environment Born between 1979 and 1994 Surpassed population of baby boomers in 2010 Two Stages: 1) Those born in 1994 fit closer to the Teen cohort. 2) Those born in 1979 have established careers and started families. Purchasing power of $200 billion annually Researchers have found Gen Yers to be: Inquisitive Quick shoppers Opinionated Want fulfillment Diverse Multitaskers Time managers Environmentally aware Discussion/Team Activity: Identify some mature brands favored by the baby boomers. Discuss how these brands might successfully be marketed to Generation Y. LO3 19

Generation X LO3 71 percent have children under age 18 Chapter 4 The Marketing Environment Born between 1965 and 1978 Population of 40 million Independent, resilient, adaptable, cautious, and skeptical 71 percent have children under age 18 Home ownership is an important goal Avid buyers of the latest clothes, technology, and recreational products Discussion/Team Activity: 1. Name some ways that companies have marketed successfully to Generation Xers. LO3 20

Baby Boomers LO3 Born between 1946 and 1964 Population of 75 million Chapter 4 The Marketing Environment Born between 1946 and 1964 Population of 75 million Working longer to compensate for economic downturn, which affected retirement savings The market of services directed at seniors is one of the fastest growing business markets LO3 21

Growing Ethnic Markets Chapter 4 The Marketing Environment Growing Ethnic Markets Explain the importance to marketing managers of growing ethnic markets LO4 22

Growing Ethnic Markets Chapter 4 The Marketing Environment Growing Ethnic Markets Estimated purchasing power of ethnic markets in 2013: Hispanics: $1.4 trillion African Americans: $1.2 billion Asian Americans: $752 billion The minority population of the United States in 2011 reached 110 million. Companies are recognizing that diversity can result in bottom-line benefits. Notes: LO4 23

Marketing to Hispanic Americans Chapter 4 The Marketing Environment Marketing to Hispanic Americans The Hispanic population’s diversity creates challenges for targeting this market. Hispanics tend to be brand loyal, but are not aware of many mainstream U.S. brands. 68 percent of U.S. Hispanics have home Internet access. Notes: Nearly 60% of Hispanic Americans are of Mexican descent; Puerto Ricans make up just under 10% of Hispanics; and others groups (Central Americans, Dominicans, South Americans, and Cubans) each account for less than 5 percent of all Hispanics Hispanics will choose brands that reflect their native values and culture. LO4 24

Marketing to African Americans Chapter 4 The Marketing Environment Marketing to African Americans 47 percent are between 18 and 49 years More firms are creating products for the African American market. Promotional dollars and media choices directed toward African Americans continue to increase. Notes: LO4 25

Marketing to Asian Americans Chapter 4 The Marketing Environment Marketing to Asian Americans Younger, better educated, and have highest average income of all groups Early adopters of latest digital gadgets. Cultural diversity within the Asian American market complicates promotional efforts. Notes: Asian Americans represent only 4.2% of the U.S. population Have the highest average family income of all groups - $66,500 48% of all Asian Americans have at least a bachelor’s degree Key groups of Asian Americans are: Chinese Filipino Japanese Vietnamese Korean Indian Pakistani LO4 26

Identify consumer and marketer reactions to the state of the economy Chapter 4 The Marketing Environment Economic Factors Identify consumer and marketer reactions to the state of the economy Notes: 1. The next external factor is the economic environment. LO5 27

Economic Factors LO5 Purchasing Power Inflation Recession Consumers’ Chapter 4 The Marketing Environment Economic Factors Consumers’ Income Purchasing Power Inflation Recession Notes: The four economic areas of greatest concern to marketers are consumers’ incomes, purchasing power, inflation, and recession. LO5 28

Chapter 4 The Marketing Environment Consumers’ Incomes Median U.S. household income in 2010 was approximately $52,000. Incomes have risen at a slow pace in recent years. Education is the primary determinant of earning potential. Notes: U.S. incomes have continued to rise, but at a slower pace. Only 1 percent of those with only a high-school education earn over $100,000 annually. LO5 29

Purchasing Power Purchasing Power is… LO5 Chapter 4 The Marketing Environment Purchasing Power is… a comparison of income versus the relative cost of a set standard of goods and services in different geographic areas. Notes: Increased standards of living are a function of purchasing power. When income is high relative to cost of living, people have more discretionary income. That means they have more money to spend on nonessential items. LO5 30

Inflation Inflation is… LO5 Chapter 4 The Marketing Environment Inflation is… a measure of the decrease in the value of money, expressed as the percentage reduction in value since the previous year. © iStockphoto.com/Valentin Mosichev Notes: 1. In times of low inflation, businesses seeking to increase their profit margins can do so only by increasing their efficiency. 2. The buyer will not pay more for a product than the subjective value he/she places on it. LO5 31

Recession Recession is… LO5 Chapter 4 The Marketing Environment Recession is… a period of economic activity characterized by negative growth, which reduces demand for goods and services. Notes: Beginning in December 2007, the collapse of inflated housing prices triggered what became the global recession of 2007–2009. The declining stock market, growing unemployment, and collapsing home prices have all taken a toll on consumer confidence and influenced all kinds of purchasing decisions. LO5 32

Technological Factors Chapter 4 The Marketing Environment Technological Factors Identify the impact of technology on a firm LO6 33

Research LO6 Basic Research Applied Research Chapter 4 The Marketing Environment Research Basic Research Applied Research Pure research that aims to confirm an existing theory or to learn more about a concept phenomenon. An attempt to develop new or improved products LO6 34

Stimulating Innovation Chapter 4 The Marketing Environment Stimulating Innovation Build scenarios Enlist the Web Talk to early adopters Use marketing research Create an innovative environment Cater to entrepreneurs Notes: Companies attempting to innovate often limit their searches to areas they are already familiar with. LO6

Political and Legal Factors Chapter 4 The Marketing Environment Political and Legal Factors Discuss the political and legal environment of marketing LO7 36

Political and Legal Factors Chapter 4 The Marketing Environment Political and Legal Factors New technology Society Businesses Consumers Laws and Regulations Protect: Notes: Business needs government regulations to protect innovators of new technology, the interests of society in general, one business from another, and consumers. Government needs business for generation of 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. LO7 37

Regulate competitive environment Regulate pricing practices Chapter 4 The Marketing Environment Federal Legislation Sherman Act Clayton Act Federal Trade Commission Act Celler-Kefauver Antimerger Act Hart-Scott-Rodino Act Foreign Corrupt Practices Act Regulate competitive environment Robinson-Patman Act Regulate pricing practices Wheeler-Lea Act Control false advertising LO7 38

Chapter 4 The Marketing Environment State Laws Legislation that affects marketing varies state by state. Oregon: limits utility advertising to 0.5 percent of net income. California: bans trans fats in restaurants and bakeries. LO7 39

Regulatory Agencies LO7 Consumer Product Safety Commission Chapter 4 The Marketing Environment Regulatory Agencies Consumer Product Safety Commission Protects consumer safety in and around their homes Federal Trade Commission Prevents unfair methods of competition in commerce Food & Drug Administration Notes: The regulatory agencies shown on this slide are the three federal agencies most directly and actively involved in marketing affairs. Enforces safety regulations for food and drug products LO7 40

Bureaus of the FTC LO7 Reviews mergers and acquisitions Chapter 4 The Marketing Environment Bureaus of the FTC Reviews mergers and acquisitions Challenges anti-competitive conduct Promotes competition Provides information Enforces federal laws that protect consumers Empowers consumers with information Communicates with consumers about fraud and identity theft Bureau of Competition Bureau of Consumer Protection LO7 41

Consumer Privacy LO7 Government Actions CAN-SPAM Act Chapter 4 The Marketing Environment Consumer Privacy CAN-SPAM Act Children’s Online Privacy Protection Act Rule Government Actions Notes: The popularity of the Internet for collecting consumer data has alarmed privacy-minded consumers. The CAN-SPAM Act was passed to regulate unsolicited email advertising. LO7 42

of foreign and domestic competition Chapter 4 The Marketing Environment Competitive Factors Explain the basics of foreign and domestic competition LO8 43

Competitive Factors Control LO8 How many competitors? Chapter 4 The Marketing Environment Competitive Factors How many competitors? How big are competitors? How interdependent is the industry? Control Notes: The competitive environment encompasses the number of competitors a firm must face, the relative size of the competitors, and the degree of interdependence within the industry. Management has little control over the competitive environment. LO8 44

Competition for Market Share Chapter 4 The Marketing Environment Competitive Factors Competition for Market Share and Profits Firms must work harder to maintain profits and market share. Global Competition More foreign firms are entering U.S. market. Foreign firms in U.S. now compete on product quality. Notes: Technological advances can usher in a whole new set of competitors that can change a firm’s business model. Many foreign competitors are considering the U.S. to be a ripe target market. In the past, foreign firms penetrated U.S. markets on price. Today, they compete on product quality. Global competition is discussed in Chapter 5. LO8 45

Chapter 4 Video Method Review the videos from chapters 2 and 3. How do the decision Method makes reflect the marketing environment?