1. The Marketing Environment
Chapter 4 The Marketing Environment
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2. Chapter 4 The Marketing Environment
Learning Outcomes
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

3. Learning Outcomes (continued)
Chapter 4 The Marketing Environment
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

4. Understanding the External Environment
Chapter 4 The Marketing Environment
LO 1
Involves:
Understanding current customers
Understanding how customers make decisions
Identifying the most valuable customers and understanding their needs
Understanding the competition
Important for marketing managers in order to plan for the future
Marketers must understand how, why, what, and when customers buy.
Environmental scanning - Process of collecting and evaluating environmental information by a team of specialists
The goal is to identify future market opportunities and threats. 4

5. Social Factors
Chapter 4 The Marketing Environment
LO 2
Social change is the most difficult external variable for marketing managers to forecast, influence, or integrate into marketing plans
Influence:
Products people buy
Price paid
Effectiveness of specific promotions
How, where, and when people expect to purchase products 5

6. Achievement orientation
Core American Values
Chapter 4 The Marketing Environment
LO 2
Self-sufficiency
Upward mobility
Work ethic
Equality
Individualism
Achievement orientation
Value - Strongly held and enduring belief
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.
Equality - No one should expect to be treated differently from anybody else.
Individualism - Each person is unique and special.
Achievement orientation - Emphasizes on getting things done by setting goals, planning, and measuring results
Values are formed through interaction with family, friends, and influencers. The environment can also play a role in shaping values.
Values influence one’s buying habits.
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, and the September 11 terrorist attack
Discuss products that demonstrate high quality standards in each of the ranking categories. 6

7. People are the basis for any market
Demographic Factors
Chapter 4 The Marketing Environment
LO 3
People are the basis for any market
Demographic characteristics are related to consumer buying behavior
Population is the basic statistic in marketing
Useful when broken into smaller and more specific increments
Demography: Study of people’s vital statistics, such as age, race and ethnicity, and location
An uncontrollable variable in the external environment 7

8. Ethnic Markets - Hispanic Americans
Chapter 4 The Marketing Environment
LO 4
Hispanic Americans
Largest group to use mobile devices for any type of transaction
African Americans
Young population with a strong influence on the latest trends
Expect brands to support social causes
Asian Americans
Early adopters of the latest digital gadgets and thrive in America’s technology sector
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) account for less than 5 percent of all Hispanics.
Mobile service providers have substantially increased their marketing budgets targeted toward Hispanics.
Hispanics will choose brands that reflect their native values and culture.
Asian Americans have the highest average family income of all groups ($67,000).
49 percent of all Asian Americans have at least a bachelor’s degree.
Key groups of Asian Americans are:
Chinese
Filipino
Japanese
Korean 8

9. Economic Factors Consumers’ incomes Purchasing power Inflation
Chapter 4 The Marketing Environment
LO 5
Consumers’ incomes
Purchasing power
Inflation
Recession 9

10. Known as the cost of living
Purchasing Power
Chapter 4 The Marketing Environment
LO 5
Measured by comparing income to the relative cost of a standard set of goods and services in different geographic areas
Known as the cost of living
Difference between the income and the cost of living (expenses)
Consumers with high purchasing power have the ability to purchase higher-priced necessities
Increased standards of living are a function of purchasing power.
Cost of living index takes into account housing, food and groceries, transportation, utilities, health care, and miscellaneous expenses such as clothing, services, and entertainment.
When income is high relative to the cost of living, people have more discretionary income. That means they have more money to spend on nonessential items. 10

11. Inflation and Recession
Chapter 4 The Marketing Environment
LO 5
Measure of the decrease in the value of money
Expressed as the percentage reduction in value since the previous year
Period of economic activity characterized by negative growth
Reduces demand for goods and services
Inflation
The buyer will not pay more for a product than the subjective value he/she places on it.
Businesses can increase their profit margins only by increasing their efficiency during low inflation
Recession
Defined as occurring when the gross domestic product falls for two consecutive quarters
Gross domestic product - Total market value of all final goods and services produced during a period of time
Beginning in December 2007, the collapse of inflated housing prices triggered what became the great recession of 2008–2009.
The high prices led people to take out mortgages they could not afford from banks that should have known the money would not be repaid. 11

12. Research
Chapter 4 The Marketing Environment
LO 6
Types
Basic research: Pure research that aims to confirm an existing theory or to learn more about a concept or phenomenon
Applied research: Research that attempts to develop new or improved products
Basic research aims to confirm an existing theory or to learn more about a concept or phenomenon.
Difficulty of earning a profit from basic research discoveries has led various managements to cut spending on basic research.

13. Stimulating Innovation
Chapter 4 The Marketing Environment
LO 6
Companies limit innovation to areas they are already familiar with
Developing new technology internally is a key to create and maintain a long-term competitive advantage
Importance of external technology
Firms can operate more efficiently or create a better product by acquiring the technology
New technology may render existing products obsolete
Companies attempting to innovate limit their searches to areas they are familiar with. This can help lead to incremental progress but rarely leads to a dramatic breakthrough.

14. Political and Legal Factors
Chapter 4 The Marketing Environment
LO 7
Business needs government regulation to protect innovators of new technology, the interests of society, and consumers
Government needs business in order to generate 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. 14

15. Federal and State Laws Federal laws State laws
Chapter 4 The Marketing Environment
LO 7
Federal laws
Apply to competitive environment, pricing, advertising and promotion, and consumer privacy
State laws
Legislation that affects marketing varies state by state
Many states and cities are attempting to fight obesity by regulating fast-food chains and other restaurants 15

16. Food and Drug Administration (FDA) Federal Trade Commission (FTC)
Regulatory Agencies
Chapter 4 The Marketing Environment
LO 7
Protects the health and safety of consumers in and around their homes
Consumer Product Safety Commission (CPSC)
Enforces regulations against selling and distributing adulterated, misbranded, or hazardous food and drug products
Food and Drug Administration (FDA)
The regulatory agencies shown on this slide are the three federal agencies most directly and actively involved in marketing affairs.
Prevents persons or corporations from using unfair methods of competition in commerce
Federal Trade Commission (FTC) 16

17. Bureau of Consumer Protection
Bureaus of the FTC
Chapter 4 The Marketing Environment
LO 7
Bureau of Competition
Reviews mergers and acquisitions
Bureau of Economics
Provides economic analysis and support to antitrust and consumer protection investigations
Bureau of Consumer Protection
Enforces federal laws that protect consumers 17

18. Children’s Online Privacy Protection Act
Consumer Privacy
Chapter 4 The Marketing Environment
LO 7
CAN-SPAM Act
Regulates unsolicited advertising
Prohibits commercial ers from using false addresses and presenting false or misleading information
Children’s Online Privacy Protection Act
Requires websites operators to post a privacy policy on their home page and a link to the policy on every page where personal information is collected
The popularity of the Internet for collecting consumer data has alarmed privacy-minded consumers.
Successful tracking has created a $170 billion online-advertising business that is growing rapidly.
Despite federal efforts, vast amount of personal data is collected through apps. 18

19. Market share and profits Global competition
Competitive Factors
Chapter 4 The Marketing Environment
LO 8
Market share and profits
Firms must work harder to maintain their profits
Global competition
More foreign firms are entering U.S. markets
Foreign firms in the U.S. now compete on product quality
Technological advances can usher in a whole new set of competitors that can change a firm’s business model. 19

20. Key Terms Target market Basic research Component lifestyles
Demography
Millennials
Generation X
Baby boomers
Purchasing power
Inflation
Recession
Basic research
Applied research
Consumer Product Safety Commission (CPSC)
Food and Drug Administration (FDA)
Federal Trade Commission (FTC)

21. Summary
Managers alter the marketing mix based on how consumers make purchasing decisions
Social factors include consumers' attitudes, values, and lifestyles
Demography is an uncontrollable variable in the external environment
Marketing mix should be changed according to the demographics

22. Summary (continued 1)
Marketing managers must understand and react to the economic environment
Technological success is based upon innovation, which requires imagination and risk taking
Each aspect of the marketing mix is subject to laws and restrictions
Managers have little control over the competitive environment confronting a firm