CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Chapter Objectives 1 Identify the five components of the marketing environment. Explain the competition marketers face and the steps necessary for developing a competitive strategy. Describe how marketing activities are regulated and how marketers can influence the political-legal environment. Outline the economic factors that affect marketing decisions and consumer buying power. Discuss the impact of the technological environment on a firm’s marketing activities. 6 Explain how the social-cultural environment influences marketing. Describe the ethical issues in marketing. Identify the four levels of the social responsibility pyramid. 4 2 7 5 8 3

ENVIRONMENTAL SCANNING AND ENVIRONMENTAL MANAGEMENT • Environmental scanning Process of collecting information about the external marketing environment to identify and interpret potential trends. . • Example: Consumer reluctance to eat beef after confirmation of mad cow disease was an opportunity for producers of organic beef. • Environmental management Attainment of organizational objectives by predicting and influencing the competitive, political-legal, economic, technological, and social- cultural environments. • Firms often create strategic alliances to combine resources and capital to compete more effectively.

Elements of the Marketing Mix within an Environmental Framework

Competitive environment Interactive process that occurs in the marketplace among marketers of directly competitive products, marketers of products that can be substituted for one another, and marketers competing for the consumer’s purchasing power. Companies with a monopoly usually accept regulation in exchange for the exclusive right to serve a market segment. Oligarchy—Limited number of sellers in an industry with high start-up costs. TYPES OF COMPETITION Direct—among marketers of similar products. Indirect—involves products that are easily substituted for each other. Competition among all firms that compete for consumers’ purchases.

GOVERNMENT REGULATION GOVERNMENT REGULATORY AGENCIES Component of the marketing environment consisting of laws and their interpretations that require firms to operate under competitive conditions and to protect consumer rights. GOVERNMENT REGULATION GOVERNMENT REGULATORY AGENCIES OTHER REGULATORY FORCES CONTROLLING THE POLITICAL-LEGAL ENVIRONMENT GOVERNMENT REGULATION Antimonopoly period of the late 19th and early 20th centuries. Protecting competitors during the Great Depression. Consumer protection in past 40 years. Industry deregulation began in the 1970s and continues today. Newest regulatory frontier is cyberspace. GOVERNMENT REGULATORY AGENCIES • Federal Trade Commission has broadest regulatory powers over marketing. • Others include Consumer Product Safety Commission, the Federal Power Commission, the EPA, and FDA. OTHER REGULATORY FORCES • Consumer interest organizations. • Self-regulatory groups. • Example: National Advertising Division of the Council of the Better Business Bureaus, which promotes truth and accuracy in advertising. CONTROLLING THE POLITICAL-LEGAL ENVIRONMENT • Complying with laws and regulations serves customers and avoids legal problems. • Influencing the outcome of legislation through lobbying or boycotts.

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STAGES IN THE BUSINESS CYCLE INFLATION AND DEFLATION Factors that influence consumer buying power and marketing strategies, including stage of the business cycle, inflation and deflation, unemployment, income, and resource availability. STAGES IN THE BUSINESS CYCLE INFLATION AND DEFLATION THE INTERNATIONAL ECONOMIC ENVIRONMENT • Consumer spending accounts for 70 percent of the gross domestic product. • Economic environment Factors that influence consumer buying power and marketing strategies, including stage of the business cycle, inflation and deflation, unemployment, income, and resource availability. STAGES IN THE BUSINESS CYCLE • Prosperity, recession, depression, and recovery. INFLATION AND DEFLATION • Inflation—Rising prices caused by some combination of excess demand and increases in the costs of one or more factors of production. • Deflation—Falling prices. • Can decrease profits, lower investment returns, and bring widespread job layoffs. • Unemployment—proportion of people actively seeking work who do not have jobs. • Income—many marketers focus on discretionary income, amount of money people have to spend after buying necessities. • Resource availability—shortages can result from lack of raw materials, component parts, and energy, or labor. • Demarketing Process of reducing consumer demand for a good or service to a level that the firm can supply. THE INTERNATIONAL ECONOMIC ENVIRONMENT • Changes in consumer and business buying habits, in exchange rates, in labor costs, and other factors around the world influence the decisions marketers make. • Global political changes affect international marketplace.

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Application to marketing of knowledge based on discoveries in science, inventions, and innovations. APPLYING TECHNOLOGY Technological environment Application to marketing of knowledge based on discoveries in science, inventions, and innovations. • Example: More fuel-efficient vehicles such as the Toyota Prius and hybrid Honda Civic. • Government and not-for-profits often contribute to research and development, which can be very costly. • Example: Automobile airbags originated from Air Force ejection seats. APPLYING TECHNOLOGY • Marketers monitor new technology to gain competitive edge. • Example: Voice over Internet protocol, an alternative to traditional telecommunications technology.

Component of the marketing environment consisting of the relationship between the marketer, society, and culture. CONSUMERISM Basic consumer rights: to choose freely, to be informed, to be heard, and to be safe. • Social-cultural environment Component of the marketing environment consisting of the relationship between the marketer, society, and culture. • Example: Aging of baby boom generation. • Increasing importance of cultural diversity and submarkets with unique values, preferences, and behaviors. • Example: Univision and Telemundo face growing competition in Spanish-language television programming. CONSUMERISM • Consumerism Social force within the environment that aids and protects the consumer by exerting legal, moral, and economic pressures on business and government. • Basic consumer rights: to choose freely, to be informed, to be heard, and to be safe.

Marketing ethics: Marketer’s standards of conduct and moral values • Marketing is the interface between the firm and the external world. • How marketing deals with external issues has a significant impact on the firm’s success. • Marketing ethics Marketers’ standards of conduct and moral values. • Many companies create ethics programs to train employees to act ethically. • Employees’ personal values sometimes conflict with employers’ ethical standards. ETHICS IN MARKETING RESEARCH • Consumers are concerned about privacy, and Internet has increased privacy concerns. • Example: CitiGroup lost data on 3.9 million customers when it lost unencrypted backup tapes. • FTC provides consumer information about privacy online. • The U.S. government also maintains a Do Not Call registry to prevent unwanted telemarketing. ETHICS IN PRODUCT STRATEGY • Example: Package strategy. • Larger packages are more noticeable on the shelf. • Oddly sized packages make price comparison difficult. ETHICS IN DISTRIBUTION • What is the appropriate degree of control over the distribution channel? • Should a company distribute its products in marginally profitable outlets that have no alternative source of supply? ETHICS IN PROMOTION • Truth in advertising is the bedrock of ethics in promotion. • Marketing to children has come under increased scrutiny. • Marketing beer to college students, including through providing promotional items such as shirts and hats, raises ethical questions. ETHICS IN PRICING • Most regulated aspect of a firm’s marketing activities.

The Four-Step Pyramid of Corporate Social Responsibility MARKETING’S RESPONSIBILITIES • Marketing decisions must involve consideration of general well-being and even potential global effects. • Some organization help promote social causes or practice socially responsible investing. MARKETING AND ECOLOGY • Ecology is the study of the relationship between natural things and their environment. • Protection of the environment influences all areas of marketing decision making. • Marketing system produces billions of tons of packaging materials annually. • Green marketing Production, promotion, and reclamation of environmentally sensitive products.

Will it be BENEFICIAL to all concerned?" "Of the things we think, say or do: Is it the TRUTH? Is it FAIR to all concerned? Will it build GOODWILL and BETTER FRIENDSHIPS? Will it be BENEFICIAL to all concerned?" The 4 Way Test From the earliest days of the organization, Rotarians were concerned with promoting high ethical standards in their professional lives. One of the world's most widely printed and quoted statements of business ethics is The 4-Way Test, which was created in 1932 by Rotarian Herbert J. Taylor (who later served as RI president) when he was asked to take charge of a company that was facing bankruptcy. This 24-word test for employees to follow in their business and professional lives became the guide for sales, production, advertising, and all relations with dealers and customers, and the survival of the company is credited to this simple philosophy. Adopted by Rotary in 1943, The 4-Way Test has been translated into more than a hundred languages and published in thousands of ways. It asks the following four questions: