The Marketing Environment Chapter 4 The Marketing Environment The Marketing Environment Chapter 4 Lamb, Hair, McDaniel 2014-2015 © Cengage Learning 2015. All Rights Reserved.

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment 1 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 2 3 4 © 2015 Cengage Learning Inc. All Rights Reserved

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment 5 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 6 7 8 © 2015 Cengage Learning Inc. All Rights Reserved

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 1 © 2015 Cengage Learning Inc. All Rights Reserved 4

© 2015 Cengage Learning Inc. All Rights Reserved 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 1 © 2015 Cengage Learning Inc. All Rights Reserved 5

Understanding the External Environment Chapter 4 The Marketing Environment Understanding 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. You must first understand how customers buy, where they buy, what they buy, and when they buy. You must understand what drives consumer decisions. You must identify the most valuable customers and understand their needs. You must understand the competition. 1 © 2015 Cengage Learning Inc. All Rights Reserved 6

Describe the social factors that affect marketing Chapter 4 The Marketing Environment Social Factors Describe the social factors that affect marketing 2 © 2015 Cengage Learning Inc. All Rights Reserved 7

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Social Factors Values Attitudes Lifestyles 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. 2 © 2015 Cengage Learning Inc. All Rights Reserved 8

© 2015 Cengage Learning Inc. All Rights Reserved 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. 2 © 2015 Cengage Learning Inc. All Rights Reserved 9

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: Discuss products that demonstrate high quality standards in each of the ranking categories. 2 © 2015 Cengage Learning Inc. All Rights Reserved 10

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 2 © 2015 Cengage Learning Inc. All Rights Reserved 11

The Role of Social Media in Communication Chapter 4 The Marketing Environment The Role of Social Media in Communication Social networking has changed the game when it comes to opinion sharing. Now, consumers can reach many people at once with their views—and can respond to brands and events in real time. Teenagers and young adults are more likely to view social networks as a valuable source of information. Notes: There is some evidence that social media users feel a greater sense of companionship and support than non-social media users. Successful use of social media requires more than receiving “likes” on Facebook, but creating a relationship based on shared interests with the consumer. 2 © 2015 Cengage Learning Inc. All Rights Reserved 12

How Firms Use Social Media Chapter 4 The Marketing Environment How Firms Use Social Media A starting point for a firm using social media is to monitor what is being said about the brand. In addition to monitoring, the firm must respond to both positive and negative buzz about the company or brand. Social media can also be used to amplify a promotional campaign by inviting consumers to join the conversation about a brand. Notes: If Facebook were a country, it would be the world’s third largest behind China and India. 2 © 2015 Cengage Learning Inc. All Rights Reserved 13

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Demographic Factors Explain the importance to marketing managers of current demographic trends 3 © 2015 Cengage Learning Inc. All Rights Reserved 14

© 2015 Cengage Learning Inc. All Rights Reserved 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: An 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. 3 © 2015 Cengage Learning Inc. All Rights Reserved 15

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Tweens Pre- and early adolescents, age eight to twelve Population of 20 million Directly spend about $30 billion annually Parents spend $180 billion on tweens annually Respond very favorably to having control over their own experiences 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. 3 © 2015 Cengage Learning Inc. All Rights Reserved 16

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Teens Population of about 25 million 95 percent of U.S. Teens are on the Internet View shopping as a social sport 75 percent of teens are into social networking On average, just over $156 is spent on or by every American teen each week 3 © 2015 Cengage Learning Inc. All Rights Reserved 17

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Generation Y Born between 1979 and 1994 Surpassed population of baby boomers 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 Discussion/Team Activity: Identify some mature brands favored by the baby boomers. Discuss how these brands might successfully be marketed to Generation Y. 3 © 2015 Cengage Learning Inc. All Rights Reserved 18

© 2015 Cengage Learning Inc. All Rights Reserved Generation X Chapter 4 The Marketing Environment Born between 1965 and 1978 Population of 50 million Independent, resilient, adaptable, cautious, and skeptical Gen Xers face a 59 percent decline in net worth from 2005 to 2010 Xers spend 62 percent more on housing, 50 percent more on apparel, and 27 percent more on entertainment Discussion/Team Activity: Name some ways that companies have marketed successfully to Generation Xers. 3 © 2015 Cengage Learning Inc. All Rights Reserved 19

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Baby Boomers Born between 1946 and 1964 Boomers are carrying substantial financial burdens, including their children’s educations, mortgages, and health care Boomers spend $1.8 trillion annually on food, cars, personal care, and other personal products Boomers are willing to change brands and try new things 3 © 2015 Cengage Learning Inc. All Rights Reserved 20

Growing Ethnic Markets Chapter 4 The Marketing Environment Growing Ethnic Markets Explain the importance to marketing managers of growing ethnic markets 4 © 2015 Cengage Learning Inc. All Rights Reserved 21

Growing Ethnic Markets Chapter 4 The Marketing Environment Growing Ethnic Markets The United States Hispanic consumer market is now larger than all but 13 world economies African American buying power increased 73 percent between 2000 and 2012 Asian American buying power increased 165 percent between 2000 and 2012 About one in three U.S. residents is a member of a minority group The United States will flip to majority-minority completely in 2041 4 © 2015 Cengage Learning Inc. All Rights Reserved 22

Marketing to Hispanic Americans Chapter 4 The Marketing Environment Marketing to Hispanic Americans The term Hispanic encompasses people of many different backgrounds Nearly 60 percent of Hispanics are of Mexican descent The diversity of the Hispanic population and the language differences create many challenges for those trying to target this market Hispanics, especially recent immigrants, often prefer products from their native country Notes: 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) each account for less than 5 percent of all Hispanics. Hispanics will choose brands that reflect their native values and culture. 4 © 2015 Cengage Learning Inc. All Rights Reserved 23

Marketing to African Americans Chapter 4 The Marketing Environment Marketing to African Americans 47 percent of African Americans are between 18 and 49 years old More firms are creating products for the African American market In 2012, there were 2.8 million African Americans earning more than $75,000 annually 4 © 2015 Cengage Learning Inc. All Rights Reserved 24

Marketing to Asian Americans Chapter 4 The Marketing Environment Marketing to Asian Americans The Asian American population is the fastest growing among minority groups It quadrupled to about 17 million between 1980 and 2012 Although Asian Americans embrace the values of the larger U.S. population, they also hold on to the cultural values of their particular subgroup Asian Americans like to shop at stores owned and managed by other Asian Americans Notes: Asian Americans represent only 6 percent of the U.S. population Have the highest average family income of all groups: $68,780 52 percent of all Asian Americans over the age of 25 have at least a bachelor’s degree Key groups of Asian Americans are: Chinese Filipino Japanese Vietnamese Korean Indian Pakistani 4 © 2015 Cengage Learning Inc. All Rights Reserved 25

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 5 © 2015 Cengage Learning Inc. All Rights Reserved 26

© 2015 Cengage Learning Inc. All Rights Reserved 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. 5 © 2015 Cengage Learning Inc. All Rights Reserved 27

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Consumers’ Incomes Median U.S. household income in 2012 was approximately $50,000 Average family incomes, when adjusted for inflation, fell around eight percent between 2007 and 2011 Education is the primary determinant of earning potential Notes: Income fell the most in the South, West, and Florida. These areas also had the largest declines in home values and housing construction. With jobs scarce, many people have accepted pay cuts to keep their current jobs or taken less-paying—but available—jobs. 5 © 2015 Cengage Learning Inc. All Rights Reserved 28

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Purchasing Power is… measured by comparing income to the relative cost of a standard set of goods and services in different geographic areas, usually referred to as the cost of living. 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. 5 © 2015 Cengage Learning Inc. All Rights Reserved 29

© 2015 Cengage Learning Inc. All Rights Reserved 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. 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. 5 © 2015 Cengage Learning Inc. All Rights Reserved 30

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment A 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. 5 © 2015 Cengage Learning Inc. All Rights Reserved 31

Technological Factors Chapter 4 The Marketing Environment Technological Factors Identify the impact of technology on a firm 6 © 2015 Cengage Learning Inc. All Rights Reserved 32

© 2015 Cengage Learning Inc. All Rights Reserved 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 6 © 2015 Cengage Learning Inc. All Rights Reserved 33

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 Notes: Companies attempting to innovate often limit their searches to areas they are already familiar with. Cater to entrepreneurs 6 © 2015 Cengage Learning Inc. All Rights Reserved

Political and Legal Factors Chapter 4 The Marketing Environment Political and Legal Factors Discuss the political and legal environment of marketing 7 © 2015 Cengage Learning Inc. All Rights Reserved 35

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. 7 © 2015 Cengage Learning Inc. All Rights Reserved 36

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 7 © 2015 Cengage Learning Inc. All Rights Reserved 37

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment State Laws Legislation that affects marketing varies state by state. For example: Oregon limits utility advertising to 0.5 percent of net income California has enacted legislation to lower the energy consumption of refrigerators, freezers, and air conditioners California and North Carolina, are considering a tax on all in-state commercial advertising 7 © 2015 Cengage Learning Inc. All Rights Reserved 38

Regulatory Agencies 7 Consumer Product Safety Commission Chapter 4 The Marketing Environment Regulatory Agencies Consumer Product Safety Commission Food & Drug Administration Federal Trade Commission Protects consumer safety in and around their homes Enforces safety regulations for food and drug products Prevents unfair methods of competition in commerce Notes: The regulatory agencies shown on this slide are the three federal agencies most directly and actively involved in marketing affairs. 7 © 2015 Cengage Learning Inc. All Rights Reserved 39

© 2015 Cengage Learning Inc. All Rights Reserved 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 7 © 2015 Cengage Learning Inc. All Rights Reserved 40

© 2015 Cengage Learning Inc. All Rights Reserved 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. Successful tracking has created a $31 billion online-advertising business that is growing rapidly. In 2012, there were more than 300 companies collecting data about users. Despite federal efforts, online tracking is on a tear. A vast amount of personal data is collected through apps. 7 © 2015 Cengage Learning Inc. All Rights Reserved 41

of foreign and domestic competition Chapter 4 The Marketing Environment Competitive Factors Explain the basics of foreign and domestic competition 8 © 2015 Cengage Learning Inc. All Rights Reserved 42

© 2015 Cengage Learning Inc. All Rights Reserved 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. 8 © 2015 Cengage Learning Inc. All Rights Reserved 43

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 The Marketing Environment Competitive Factors 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. 8 © 2015 Cengage Learning Inc. All Rights Reserved 44

© 2015 Cengage Learning Inc. All Rights Reserved Chapter 4 Video GaGa’s Inc. GaGa’s Inc. produces a frozen dessert called Sherbetter in a variety of flavors. GaGa’s is very small product line and Jim King, the founder and CEO, discusses the challenges his company faces in their product category. He also reveals other environmental challenges to his product. CLICK TO PLAY © 2015 Cengage Learning Inc. All Rights Reserved