Chapter 3 The Marketing Environment, Ethics, and Social Responsibility

Chapter Objectives Identify the five components of the marketing environment. Explain the types of 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. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Chapter Objectives Discuss the impact of the technological environment on a firm’s marketing activities. Explain how the social-cultural environment influences marketing. Describe the ethical issues in marketing. Identify the four levels of the social responsibility pyramid. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Environmental Scanning Collecting external marketing environment information to identify and interpret potential trends Trends may represent significant opportunities or threats to the company Example: CPSC issued a recall of The Princess and the Frog-themed pendants, citing high levels of cadmium in the children’s necklaces Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Environmental Management Attainment of organizational objectives by predicting and influencing the competitive, political-legal, economic, technological, and social- cultural environments Strategic alliance - Partnership in which two or more companies combine resources and capital to create competitive advantages in a new market Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The 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 Marketers competing for the consumer’s purchasing power Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Competitive Environment Marketing decisions by individual firms influence: Consumer responses in the marketplace Marketing strategies of competitors Few organizations have monopoly positions Monopoly - Market structure in which a single seller dominates trade in a good or service for which buyers can find no close substitutes Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Competitive Environment Some pharmaceutical firms have temporary monopolies provided by patents on drugs Antitrust laws - Designed to prevent restraints on trade such as business monopolies Oligopoly - Few number of sellers in an industry with high start-up costs which keep out new competitors Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Types of Competition Direct Indirect Among marketers of similar products Example: Alternative suppliers in the cell phone market such as Verizon and AT&T Indirect Involves products that are easily substituted Example: In the fast-food industry, pizza competes with chicken, hamburgers, and tacos Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Types of Competition Competition among all firms that compete for consumers’ purchases All firms compete for a limited number of dollars that consumers can or will spend Example: The purchase of a Honda Accord might compete with a Norwegian Cruise Line cruise Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Developing a Competitive Strategy Competitive strategy - Methods through which a firm deals with its competitive environment Should we compete? Depends on firm’s resources, objectives, and expected profit potential In what markets should we compete? Allocate firm’s limited resources to the areas of greatest opportunity Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Developing a Competitive Strategy How should we compete?  Includes product, promotion, distribution, and pricing decisions that maximize competitive advantage Time-based competition - Strategy of developing and distributing goods more quickly than competitors Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Key Environments Marketing Environment The actors and forces that affect a firm’s ability to build and maintain successful relationships with customers.

Key Environments Aspects of the marketing environment: Microenvironment: Actors close to the company Macroenvironment Larger societal forces

Actors in the Microenvironment Figure 4-1: Actors in the Microenvironment

The Microenvironment Departments within the company impact marketing planning.

The Microenvironment Suppliers help to create and deliver customer value. Treat suppliers as partners.

The Microenvironment Marketing intermediaries help to sell, promote, and distribute goods. Intermediaries take many forms. Resellers Physical distribution firms Marketing services agencies Financial intermediaries

The Microenvironment Customer markets must be studied. Market types Consumer Business Government Reseller International

The Microenvironment Successful companies provide better customer value than the competition Size and industry position help to determine the competitive strategy.

The Microenvironment Various publics must also be considered. Local Government Media Financial Citizen action groups Local General Internal

Major Macroenvironmental Forces Figure 4-2: Major Macroenvironmental Forces

The Macroenvironment Key Demographic Trends World population growth Now 6.2 billion Projected to reach 7.9 billion by 2025

Seven U.S. Generations

The Macroenvironment Key Demographic Trends Changing American household Geographic population shifts Better-educated, more white-collar workforce Increasing Diversity

The Economic Environment Gross domestic product (GDP) - Sum of all goods and services produced by a nation in a year Economic environment - Factors that influence consumer buying power and marketing strategies Business cycle - Pattern of stages in the level of economic activity Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Chapter 1 Economic Cycles

Stages in the Business cycle Prosperity - Consumer spending is brisk; growth in services sector Recession - Consumers focus on basic, fundamental products Depression - Consumer spending sinks to its lowest level Recovery - Consumer purchasing power increases Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Global Economic Crisis Business cycles take a severe turn and affect consumers and businesses across the globe Marketers must reevaluate their strategies and concentrate on their most promising products Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Inflation and Deflation Inflation: The devaluation of money by reducing what it can buy through persistent price increases. Deflation: Falling prices, better? Unemployment The proportion of people in the economy who do not have jobs and are actively looking for work.

Resource Availability Income Discretionary income: the amount of money people have to spend after paying for necessities such as food, clothing, and housing. Resource Availability Demarketing: the process of reducing consumer demand for a good or service to a level that the firm can supply.

The International Economic Environment Marketers must monitor the economic environment of other nations Global political changes affect international marketplace Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Macroenvironment The Natural Environment Concern for the natural environment has grown steadily, increasing the importance of these trends: Shortage of raw materials Increased pollution Increased governmental intervention http://www.nba.com/2010/news/09/21/adidas-uniforms/index.html

Many companies use recycling to help protect natural resources The Macroenvironment Many companies use recycling to help protect natural resources

The Technological Environment The technological environment represents the application of knowledge in science, inventions, and innovations to marketing. Applying technology helps Fidelity improve customer service

The Macroenvironment Key Technological Trends The technological environment is characterized by rapid change. New technologies create new opportunities and markets but make old technologies obsolete. The U.S. leads the world in research and development spending.

The Political-Legal Environment Consists of laws and their interpretations that require firms to operate under competitive conditions and to protect consumer rights Ignorance or non-compliance can result in fines, negative publicity, and civil damage suits Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Government Regulation Falls into four historical phases: Antimonopoly period of the late 19th and early 20th centuries Protecting competitors during the Great Depression of the 1930s The third phase focused onConsumer protection Industry deregulation began in the late 1970s Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Government Regulation Newest regulatory frontier is cyberspace Federal and state regulators are investigating ways to police the Internet and online services Privacy and child protection issues are difficult enforcement challenge Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Government Regulatory Agencies The Federal Trade Commission (FTC) has the broadest regulatory powers over marketing Enforces laws regulating unfair business practices and stops false and deceptive advertising  The FTC uses several procedures to enforce laws Consent order Cease-and-desist orders Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Other Regulatory Forces Consumer interest organizations Other groups attempt to advance the rights of minorities, senior citizens, and other causes Self-regulatory groups set guidelines for responsible business conduct Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Social-Cultural Environment The relationship between the marketer, society, and culture Marketers must be sensitive to demographic shifts and changing values Increasing importance of cultural diversity Example: Univision and Telemundo face growing competition in Spanish-language television programming Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

The Cultural Environment The Macroenvironment The Cultural Environment Core beliefs are persistent Passed from parents to children; reinforced by society Shape attitudes and behavior Secondary cultural values change and shift more easily Society’s cultural values are expressed through people’s views of: Themselves Others Organizations Society Nature The Universe

Responding to the Marketing Environment Reactive: Passive Acceptance and Adaptation Companies design strategies that avoid threats and capitalize upon opportunities. Proactive: Environmental Management Use of lobbyists, PR, advertorials, lawsuits, complaints, and contractual agreements to influence environmental forces.

Consumerism Social force within the environment that aids and protects the consumer by exerting legal, moral, and economic pressures on business and government Consumer rights: The right to choose freely The right to be informed The right to be heard The right to be safe Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Ethical Issues in Marketing 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 Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

SOCIAL RESPONSIBILITY IN MARKETING SOCIAL RESPONSIBILITY IN MARKETING • Social responsibility Marketing philosophies, policies, procedures, and actions that have the enhancement of society’s welfare as a primary objective.

Social Responsibility and Ethics Ethical = morally right Socially Responsible = society views as best Promote well-being Promote harmony, stability Influence elections Draw crowds to events Responsible marketing can...

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Copyright © 2012 by South Western, a division of Cengage Learning Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Ethics in Marketing Research Consumers are concerned about privacy Proliferation of databases Selling of address lists Ease with which consumer information can be gathered Several agencies offer assistance to Internet consumers The U.S. government maintains a Do Not Call registry to prevent unwanted telemarketing Consumers are concerned about privacy Proliferation of databases Selling of address lists Ease with which consumer information can be gathered Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Ethics in Product Strategy Product quality, planned obsolescence, brand similarity, and packaging raise ethical issues Example: Packaging strategy Larger packages are more noticeable on the shelf Oddly sized packages make price comparison difficult Bottles with concave bottoms appear to have more liquid in them than they do Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

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? Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Ethics in Promotion Truth in advertising is the bedrock of ethics in promotion Marketing to children has come under increased scrutiny Promoting specific products to college students can raise ethical questions Another issue involves firms paying universities for the use of their logo, team name, or mascot to advertise products and services to students Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Ethics in Pricing Most regulated aspect of a firm’s marketing activities Example: Credit-card companies target consumers with poor credit ratings and offer them what industry observers call “subprime” or “fee-harvesting” credit cards Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Source: The Four Step Pyramid of Corporate Social Responsibility from Business Horizons, Vol. 34, 1991, page 92, Freeman & Liedtka, “Corp. Social Responsibility.” Reprinted from Business Horizons © 1991 with permission From Elsevier. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Marketing’s Responsibilities Corporate responsibility covers the entire framework of society Marketers must consider: The global effects of their decisions The long-term effects of their decisions The well-being of future generations Entire communities can benefit through socially responsible investing Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Marketing and Ecology Ecology - The relationship between organisms and their natural environments Environmental issues influence all areas of marketing decision making Green marketing - Production, promotion, and reclamation of environmentally sensitive products Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.

Video Watch The Marketing Environment, Ethics, and Social Responsibility at Scholfield Honda How does Scholfield Honda rate on the social responsibility pyramid? Do they meet all the criteria for a socially responsible company? What social and cultural changes have affected the way car manufacturers design and market their products? Should governmental regulations be placed on companies’ claims that their products are green? Should official classifications for environmental friendliness be defined? Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.