Environmental Scanning

What is Environmental Scanning? The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends

Environmental Trends Social Social Economic Economic Technological Technological Competitive Competitive Regulatory Forces Regulatory Forces

Environmental Trends

Social Forces Demographic characteristics and values of a population Demographic characteristics and values of a population Demographics Demographics –Describing a population according to selected characteristics such as age, gender, ethnicity, income, and population

Social Forces – Demographics World Population World Population –World population is rapidly growing –Increases in population are mainly in Africa, Asia, Latin America, India, China –North America, Europe, Australia, Japan are not growing as quickly –Number of older people is increasing, more than double in the next decade

Social Forces – Demographics U.S. Population U.S. Population –Getting older, more diverse, and larger in number –By 2025, estimated over 350 million people in the U.S.

Social Forces – Demographics Generational Cohorts Generational Cohorts –Baby Boomers –Generation X –Generation Y

Social Forces – Demographics Baby Boomers Baby Boomers –Born between 1946 and 1964 –Important because of number –Want to feel younger –Are interested in their health, children, and grandchildren

Social Forces – Demographics Generation X “Baby Bust” Generation X “Baby Bust” –Born between 1965 and 1976 –Self-reliant, supportive of racial and ethnic diversity, better educated than previous generations –The new parent market

Social Forces – Demographics Generation Y “Echo Boom” Generation Y “Echo Boom” –Born between 1977 and 1994 –Children of baby boomers –Interested in music, sports, computers, videogames, cell phones –Marketing skeptical group because they’ve been exposed to over 23 million ads in their lifetime –This group just recently started into adulthood or will be soon

Social Forces – Demographics The American Household The American Household –1960 – 75% of households were married, today – 50% of households are married couples –Only 25% of married households have kids and 10% have working fathers and stay-at-home moms –Single parents, unmarried families –Blended families are formed by merging into a single household of 2 previously separate units Hallmark Cards Hallmark Cards

Social Forces – Demographics

Population Shifts Population Shifts –People are moving west and south –Fastest growing states – California, New Mexico, Hawaii, Arizona, Nevada –In early 1900’s, people moved from the country to the cities, now more people are trying to get away from the cities

Social Forces – Demographics Racial and Ethnic Diversity Racial and Ethnic Diversity –By 2025, there will be ~68 million Hispanics in the U.S. (about 20% of the total population) –By 2025, there will be ~45 million African Americans (about 13% of the total population) –Multiracials account for 2.4% of the population

Social Forces – Demographics Racial and Ethnic Diversity Racial and Ethnic Diversity –By 2007: Hispanics will spend $900 billion/year Hispanics will spend $900 billion/year African Americans will spend $850 billion/year African Americans will spend $850 billion/year Asians will spend $455 billion/year Asians will spend $455 billion/year –Multicultural Marketing Combinations of marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races Combinations of marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races

Social Forces – Culture Culture incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group Culture incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group

Social Forces – Culture Major cultural change is women in the workplace Major cultural change is women in the workplace Less differences in male/female buying behaviors Less differences in male/female buying behaviors Most younger females had mothers that worked full-time outside the home Most younger females had mothers that worked full-time outside the home

Social Forces – Culture Women’s sports are breaking down walls of inequality Women’s sports are breaking down walls of inequality Young women don’t respond well to “we know you’re busy” ads Young women don’t respond well to “we know you’re busy” ads More equal responsibilities in the home More equal responsibilities in the home

Economic Forces Economy pertains to the income, expenditures, and resources that affect the cost of running a business and household Economy pertains to the income, expenditures, and resources that affect the cost of running a business and household

Economic Forces The inflationary or recessionary state of the economy, actual or perceived The inflationary or recessionary state of the economy, actual or perceived –Inflationary economy How much it costs to produce and buy products and services increase as prices increase How much it costs to produce and buy products and services increase as prices increase If price increases more than consumer income, buyer power decreases If price increases more than consumer income, buyer power decreases –Recessionary economy Slow economic activity Slow economic activity Why would macroeconomic conditions be important in your environmental scan? Why would macroeconomic conditions be important in your environmental scan?

Economic Forces – Consumer Income Gross Income Gross Income –Total amount of money made in 1 year by a person, household, or family unit Disposable Income Disposable Income –Money a consumer has left over after paying taxes to use for necessities Discretionary Income Discretionary Income –Money remaining after paying for taxes and necessities

Technological Forces Technology refers to inventions from applied science or engineering research Technology refers to inventions from applied science or engineering research

Technological Forces Hard to predict Hard to predict The lower cost of technology makes consumers think about other aspects of the product The lower cost of technology makes consumers think about other aspects of the product Allows for many new products Allows for many new products Changes the way products are produced Changes the way products are produced Internet Internet

Competitive Forces Competition is the alternative firms that could provide a product to satisfy a specific market’s needs Competition is the alternative firms that could provide a product to satisfy a specific market’s needs

Competitive Forces Pure Competition Pure Competition –Every company has a similar product –Commodities (wheat, rice, grain) –Main role of marketing is place (distribution)

Competitive Forces Monopolistic Competition Monopolistic Competition –Sellers compete with their products on a substitutable basis –Ex: Coca-Cola is on sale, buy it because Pepsi is not on sale –Main role of marketing is promotion (sales, coupons, etc.)

Competitive Forces Oligopoly Oligopoly –Common industry structure –A few companies control the majority of industry sales –Fewer sellers, price competition reduces profits for all

Competitive Forces Pure Monopoly Pure Monopoly –Only 1 firm sells product –Water, electricity, telephone service –Small marketing role because of government regulation

Competitive Forces – Driving Forces of Competition Entry Entry –Barriers to entry are business practices or conditions that make in difficult for new firms to enter the market

Competitive Forces – Driving Forces of Competition Buyers and Supplier Power Buyers and Supplier Power –What makes buyers powerful? Few in number Few in number Switching costs are low Switching costs are low The product represents a big share of a buyer’s total cost The product represents a big share of a buyer’s total cost –What makes suppliers powerful? Buyer has to have product Buyer has to have product Switching costs are high Switching costs are high

Regulatory Forces Regulation consists of restrictions state and federal laws place on businesses with regard to the conduct of its activities, in place to protect companies and consumers Regulation consists of restrictions state and federal laws place on businesses with regard to the conduct of its activities, in place to protect companies and consumers

Regulatory Forces – Protecting Competition Sherman Antitrust Act of 1890 Sherman Antitrust Act of 1890 –Midwest farms lobbying against fixed railroad shipping prices got this act passed –Forbids contracts, combinations, or conspiracies in restraint of trade –Forbids actual monopolies or attempts to monopolize any part of trade or commerce

Regulatory Forces – Protecting Competition Clayton Act of 1914 Clayton Act of 1914 –Supplemented the Sherman Act –Forbids certain actions that are likely to lessen competition although no actual harm has yet happened

Regulatory Forces – Product-Related Legislation Company Protection Company Protection –Patent laws –Copyright laws Consumer Protection Consumer Protection –Consumerism is a grassroots movement started in the 1960’s to increase the influence, power, and rights of consumers in dealing with institutions –Want safe products and ethically socially responsible business practices

Regulatory Forces – Product-Related Legislation Company and Consumer Protection Company and Consumer Protection –Trademarks Protects company because their investments are protected against theft Protects company because their investments are protected against theft Protects consumers because they know when they buy a product under a certain target market they get what they think they’re getting Protects consumers because they know when they buy a product under a certain target market they get what they think they’re getting

Regulatory Forces – Product-Related Legislation Company and Consumer Protection Company and Consumer Protection –Trademarks Lanham Act of 1946 allows for registration of trademarks Lanham Act of 1946 allows for registration of trademarks Generic trademark Generic trademark –Is your trademark a common description of a product? –Aspirin, escalator –Coca-Cola?, Band-Aid? Recent changes Recent changes –Can obtain trademarks for colors –Not allowing a non-competing product to use your trademark (Cadillac brushes)

Regulatory Forces – Pricing-Related Legislation Price fixing is illegal Price fixing is illegal Price discounting is allowed Price discounting is allowed

Regulatory Forces – Distribution-Related Legislation Exclusive Dealing Exclusive Dealing –A manufacturer makes a deal with a reseller to handle only its products and not competing products –Legal unless it lessens competition

Regulatory Forces – Distribution-Related Legislation Requirement Contracts Requirement Contracts –Requires a buyer to purchase all or part of its needs for a product from one seller for a period of time –Can be interpreted as illegal Exclusive Territorial Distributorships Exclusive Territorial Distributorships –Grants a distributor the sole rights to sell a product in a specific geographic area –Usually legal

Regulatory Forces – Distribution-Related Legislation Tying Arrangement Tying Arrangement –Seller requires the purchaser of one product to also buy another item in the line –Can be illegal

Regulatory Forces – Advertising & Promotion-Related Legislation Federal Trade Commission watches for deceptive and misleading advertising and unfair business practices Federal Trade Commission watches for deceptive and misleading advertising and unfair business practices Can issue cease and desist orders Can issue cease and desist orders Can order corrective advertising Can order corrective advertising

Regulatory Forces – Self-Regulation An industry attempts to police itself An industry attempts to police itself Ex: TV networks not allowing certain commercials Ex: TV networks not allowing certain commercials Ex: Reader’s Digest does not allow advertising for liquor products Ex: Reader’s Digest does not allow advertising for liquor products