1. Part 1 STRATEGIC MARKETING AND ITS ENVIRONMENT

2. 1: Customer-Driven Strategic Marketing
2: Planning, Implementing, and Evaluating Marketing Strategies
3:The Marketing Environment, Social Responsibility, and Ethics

3. Chapter 3 The Marketing Environment, Social Responsibility, and Ethics
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258

4. Learning Objectives
Recognize the importance of the marketing environment
Understand the concept and dimensions of social responsibility and ethics in marketing

5. Environmental Forces Environmental Forces Competitive Economic
Political
Environmental Forces
Legal and Regulatory
Technological
Sociocultural

6. Marketing Environment
Monitoring the environment is crucial to achieve long-term goals of the organization
Changes in the marketing environment monitored by:
Environmental scanning
Environmental analysis

7. Marketing Environment
Environmental ________
Process of collecting information about forces in the marketing environment which involves:
Observation
Secondary sources such as business, trade, government, and Internet sources
Marketing research
Environmental _________
Process of assessing and interpreting information gathered through environmental scanning
Manager should be able to identify potential threats and opportunities linked to environmental changes
How the manager deal with the information collected during scanning
scanning
analysis

8. Responding to Environmental Forces
Marketers take two approaches to environmental forces:
Passive (reactive) – Accepting them as uncontrollable
Proactive – Attempting to influence and shape them
It can be ____________ and bring desired results.
E.g., The pharmaceutical industry (lobby for fewer restrictions on prescription drug marketing).
No best way to react
Depends on the organization, management, and the situation
constructive

9. Competitive Forces
Competition – Other organizations that market products that are similar to or can be substituted for a marketer’s products in the same geographic area
Most firms have competition
When marketing managers define the target market(s) their firm will serve, they establish a set of competitors
Marketing managers must consider the type of competitive structure in which the firm operates
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10. Types of Competitors Brand ________ competitors ________ Competitors
Firms that market products with similar features and benefits to the same customers at similar prices
________ competitors
Compete in the same product class but market products with different features, benefits, and prices
________ Competitors
Product
Provide very different products that solve the same problem or satisfy the same basic customer need
_________ Competitors
Generic
Compete for the limited financial resources of the same customers
Total Budget Competitors

11. Table 3.1 - Selected Characteristics of Competitive Structures
TYPES of COMPETITION
# OF
FIRMS
PRODUCT
Characteristics
PRICE
CONTROL
ENTRY
To Industry
MANY,
SMALL
SIMIAR
SUPPLY
&
DEMAND
EASY
LARGE
&SMALL
DIFFERENT
SOME
FAIRLY
FEW
SIMILAR
OR DIFF.
A LOT
HARD
ONE NO
SUBS-
TITUTE
REGU-LATED
WAY!
1. PURE COMPETITION
2. MONOPOLISTIC COMP.
3. OLIGOPOLY
Oligopoly: market in which Demand > Supply
In discussing industries that are neither monopolies nor p-competitive, economists have tended to begin from the four characteristics of a p-competitive industry. We recall that those characteristics are: 1) Many buyers and sellers, 2) A homogenous product , 3)Sufficient knowledge, 4) Free entry
Competition can be "imperfect" in an industry if the industry deviates from any one of the four. Thus,
if there are just a few firms (but more than one), deviating from the first characteristic, the industry is said to be an "oligopoly."
Since the nineteen-twenties, economists have also discussed the situation when an "industry" deviates only in the second characteristic. This is called "monopolistic competition," and we have "monopolistic competition" when a group of firms sell closely related, but not homogenous products. Instead, the products are said to be "differentiated products." Thus, the characteristics of "monopolistic competition" are: (1) Many buyers and sellers, (2) Differentiated products, (3) Sufficient knowledge, (4) Free entry
4. MONOPOLY

12. Table 3.1 - Selected Characteristics of Competitive Structures

13. Competitive Structures
Monopoly
A competitive structure in which an organization offers a product that has no close substitutes, making that organization the sole source of supply
Oligopoly
A competitive structure in which a few sellers control the supply of a large proportion of a product
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14. Competitive Structures
Monopolistic Competition
A competitive structure in which a firm has many potential competitors and tries to develop a marketing strategy to differentiate its product
Pure Competition
A market structure characterized by an extremely large number of sellers, none strong enough to significantly influence price or supply
Does not exist in the real world, although some industries come close
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15. Monitoring Competition
Helps determine competitor’s strategies and their effects on the firm’s own strategies
______ is one of the marketing strategy variables that most competitors monitor
Firms must develop a system for gathering ongoing information about competitors
Information about competitors allows to:
Assess marketing efforts
Recognize the strengths and weaknesses
Price

16. Economic Forces
Buying power: Depends on economic conditions and the size of the resources that enable the individual to make purchases
Income – For an individual, the amount of money received through wages, rents, investments, pensions, and subsidy payments for a given period
Types of income
__________ income: Amount of money left after payment of taxes
______________ income: Disposable income that is available for spending and saving
Disposable
Discretionary

17. Credit Credit enables to spend future income now or in the near future
Credit increases current buying power at the expense of future buying power
Factors affecting credit use
___________ of the loans
Interest rates
Credit terms (such as size of down payment and amount and number of monthly payments)
Availability

18. Wealth
Accumulation of past income, natural resources, and financial resources
Global wealth is increasing
Like income, wealth is unevenly distributed
As people become wealthier, they gain buying power to:
Make current purchases
Generate income
Acquire large amounts of credit

19. Willingness to Spend
People’s inclination to buy because of expected satisfaction from a product
Factors that affect consumers’ general willingness to spend
Buying ______
Product’s ______ and _____
Satisfaction from a product already owned
General economic conditions
power
price
value

20. American Customer Satisfaction Index
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21. Economic Conditions: The Business Cycle
Fluctuations in the economy that follow a general pattern in four stages:
1) __________
Low unemployment
Relatively high total income
High buying power when inflation rate is low
2) ___________
Unemployment rises
Total buying power declines
Stifles both consumer and business spending
Prosperity
Recession

22. Economic Conditions: The Business Cycle
Depression
3) ____________
Prolonged recession may become depression.
Unemployment is extremely high
Wages are very low
Total disposable income is at a minimum
Consumers lack confidence in the economy
4) ____________
Economy moves from depression or recession to prosperity
High unemployment begins to decline
Both the ability and willingness to buy increase
Recovery

23. Political Forces Enactment of legislation
Legal decisions interpreted by courts through civil and criminal cases
Influence of regulatory agencies
Marketers may:
View political forces as beyond their control and simply adjust to conditions that arise
Influence the process through contributions and lobbying
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24. Legal and Regulatory Forces
[1]
Legal and
Regulatory
Forces
Pro-competitive
Legislation
Consumer
Protection
Trademark and copyright protection legislation
Regulatory Agencies
Self-Regulatory
Table 3.2 (p.62)
[5] (p.64)
BBB, NARB
[2]
FTC: Federal Trade Commission
FDA: Food and Drug Administration
BBB: Better Business Bureau
NARB: national Advertising Review Board
[4] (p.63)
FTC, FDA etc.
[3]
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25. Table 3.2 - Major Federal Laws Affecting Marketing Decisions

26. Table 3.2 - Major Federal Laws Affecting Marketing Decisions

27. Table 3.2 - Major Federal Laws Affecting Marketing Decisions

28. Major Federal Regulatory Agencies
Agency
Major Areas of Responsibility
Federal Trade Commission (FTC)
Regulates a variety of business practices
Allocates a considerable resources to curbing false advertising, misleading pricing, and deceptive packaging and labeling
Food and Drug Administration (FDA)
Enforces regulations prohibiting the sale and distribution of adulterated, misbranded, or hazardous food and drug products
Consumer Product Safety Commission (CPSC)
Ensures compliance with the Consumer Product Safety Act
Protects the public from unreasonable risk of injury from any consumer product not covered by other regulatory agencies
U.S. Foreign Corrupt Practices Act (FCPA)
Prohibits American companies from making illicit payments to foreign officials in order to obtain or keep business
U.K. Bribery Act
More encompassing than the FCPA
Companies can be found guilty even if the bribery did not take place within the U.K
Company officials without explicit knowledge about the misconduct can still be held accountable

29. Self-Regulatory Forces
Better Business Bureau (BBB)
Acts to preserve good business practices in a locality
When a firm violates, warns consumers through newspapers or broadcast media
National Advertising Division (NAD) - Investigates claims regarding alleged deceptive advertising
National Advertising Review Board (NARB): Considers cases in which an advertiser challenges issues raised by the NAD about an advertisement

30. Self-Regulatory Forces
Advantages
Establishment and implementation are less expensive
Guidelines are realistic and operational
When effective, reduce the need to expand government bureaucracy
Disadvantages
___________ do not have to abide by their rules
Many lack the authority to enforce guidelines
Guidelines are less strict than those established by government agencies
Nonmembers

31. Technological Forces Technology Dynamic Change
Ability to Reach Customers
Self-Sustaining Technology
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32. Technological Forces Important to: Technology
The application of knowledge and tools to help reach vast numbers of people more efficiently through a variety of media
Impacts of technology:
_________ change
Ability to _______ customers
Self-sustaining in nature; spurs more development
Important to:
Determine when a technology is changing an industry
Define the strategic influence of the new technology
Rapid technological growth and change are expected to accelerate
Dynamic
reach
Ability to reach customers: broad nature of technology as it moves through society.
Self-sustaining nature of technology relates to the fact that technology acts as a catalyst to spur even faster development.
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33. Impact of Technology
Mobile devices and consumers’ increasing use of the Internet have changed:
How people communicate
How marketers reach consumers
Technology can improve productivity
Expanding opportunities for e-commerce
Negative impacts of technology include:
Concerns over privacy
Intellectual property protection issues
Managements estimate if benefits of adopting a specific technology outweigh costs to the firm and the society at large
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34. Sociocultural Forces Demographic and Diversity Characteristics
Consumerism
Cultural
Values
Demographic
and Diversity
Characteristics
Sociocultural
Forces
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35. Sociocultural Forces
Influences in a society and its culture(s) that bring about changes in:
Attitudes and ______
Norms and _______
__________
Determine what, where, how, and when people buy products
beliefs
customs
Lifestyles

36. Sociocultural Forces
Changes in a population’s demographic characteristics affect relationships and individual behavior
Leads to changes in how people live and ultimately in their consumption
Monitoring value changes helps marketers to predict changes in consumers’ needs for products
The organized efforts of individuals, groups, and organizations to protect consumers’ rights (i.e., consumerism)
Lobbying government officials and agencies
Letter-writing/ sending campaigns and boycotts

37. Social Responsibility
Organization’s obligation to maximize positive impact and minimize negative impact on society
Deals with the total effect of all marketing decisions on society
Managerial processes need to monitor, satisfy, and exceed __________ expectations and needs
Can have indirect long-term benefits
stakeholder

38. Social Responsibility
Socially responsible organizations strive for marketing citizenship
By adopting a strategic focus for fulfilling the stakeholders’ expectations
Marketing citizenship: Adoption of a strategic focus for fulfilling the economic, legal, ethical, and philanthropic social responsibilities expected by stakeholders
Stakeholder orientation - Companies that consider the diverse perspectives of:
Stakeholders in their daily operations
Strategic planning
Philanthropy: charity, humanity

39. Figure 3.2 - The Pyramid of Corporate Social Responsibility
RESPONSIBILITIES
Philanthropic
Be a good
corporate citizen
Contribute resources to the
community; improve quality of life
Ethical
Be ethical
Obligation to do what is right, just and fair
Avoid harm
Legal
Obey the law
Law is society’s codification of right and wrong
Play by the rules of the game
Economic
Be Profitable
The foundation upon which all other rest

40. Economic and Legal Responsibility
Followed by companies to be profitable so they can:
Provide a return on investment to their owners and investors
Create jobs for the community
Contribute goods and services to the economy
Legal cases can be:
A violation of law
An attempt to interpret the law
A fraud

41. Marketing Ethics
Principles and standards that define acceptable marketing conduct
As determined by various stakeholders
Goes beyond legal issues
Foster trust, which helps to build long-term marketing relationships
Break down in exchange process can result in:
Customer dissatisfaction and lack of trust
Lawsuit

42. Ethical Issue
Identifiable problem, situation, or opportunity requiring an individual or organization to choose from actions that must be evaluated as:
Right or wrong
Ethical or unethical
Greater the consequences associated with an issue:
More likely it will be recognized as an ethics issue
More important it will be to making an ethical decision

43. Table 3.3 - Ethical Issues in Marketing

44. Philanthropic Responsibilities
Promote human welfare or goodwill
Cause-related marketing: Practice of linking a firm’s products to a particular social cause on an ongoing or short-term basis
Strategic philanthropy approach: Synergistic use of organizational core competencies and resources
To address key stakeholders’ interests and achieve both organizational and social benefits
Philanthropy: charity, humanity

45. Strategic Philanthropy
Involves
_____________
Organizational resources and expertise
Ability to link these assets to the concerns of key stakeholders
Involves both financial and ___________ contributions to stakeholders
Employees
nonfinancial

46. Social Responsibility Issues
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47. Sustainability
Social responsibility is demonstrated through programs designed to protect and preserve the natural environment
Aims to reduce, reuse, and recycle
________ marketing - Stakeholder assessment creating long-term relationships with customers
While maintaining, supporting, and enhancing the natural environment
Green

48. Consumerism
Consists of organized efforts by individuals, groups, and organizations seeking to protect consumers’ rights
Basic rights of consumer movement
Right to ______
Right to be _________
Right to ________
Right to be heard
safety
informed
choose

49. Community Relations Issue
Being a good community citizen means avoiding harmful actions that could damage the community
Marketers can improve a community’s quality of life through
Employment opportunities
Economic development
Financial contributions to educational, health, cultural and recreational causes
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50. Incorporating Social Responsibility and Ethics into Strategic Planning
Difference between ethics and social responsibility
________________ - Judgments about what is right or wrong in a particular decision-making situation
_________________ - Deals with the total effect of marketing decisions on society
Both are interrelated and profitable leading to their adoption by companies in strategic planning
Ethics
Social responsibility

51. Code of Conduct
Consists of formalized rules and standards that describe what the company expects of its employees
Promote ethical behavior by reducing opportunities for unethical behavior
Employees know:
What is expected of them
What kind of punishment they face if they violate the rules

52. Code of Conduct
Less instances of observed unethical behavior can be a result of:
Effective content
Frequency of communication regarding the code
Quality of communication
Incorporation of the code into the organization
Include general ethical values and more marketing-specific issues

53. Social Responsibility, Ethics and Marketing Performance
Social responsibility has a synergistic effect on market orientation
More firms are adopting a stakeholder orientation that focuses on all constituents
Direct association exists between:
Corporate social responsibility and customer satisfaction
Profits and market value
Long-term value of conducting business in a socially responsible manner outweighs short-term costs

54. Video Case 3.1
VIDEO Case 3.1 : TOMS Shoes Expands One-to-One Model to Eyewear

55. Summary
TOMS is known for their for-profit philanthropic business model, which allows the company to donate one pair of shoes to a child for every pair of shoes purchased. TOMS is now applying that model to eyewear. For every pair of sunglasses TOMS sells, a person with vision problems in a developing nation receives surgery, prescription glasses, or medical treatment to help restore his or her sight.
TOMS takes its obligations for social responsibility seriously by working closely with local humanitarian organizations and striving for a responsible supply chain. Even though they pay higher prices, TOMS’ customers feel committed to the company because they know that their purchases are going toward a good cause.
Philanthropy: charity, humanity

56. 1. Do you think TOMS is successful because of its unique products, or is it the firm’s approach to social responsibility?
Some people really like TOMS for its products, regardless of the company’s activities. Some of TOMS’ products are stylish and have not been replicated at lower prices, so students may argue that the shoes and eyewear are important.
However, students will most likely answer that the one to one model is a large contributor to TOMS’ success. Students may believe that they receive extra benefits when they know they are helping someone in need with their purchase.

57. 2. How does TOMS manage its supply chain in order to ensure ethical and socially responsible conduct?
TOMS uses factories in China, Argentina, and Ethiopia for manufacturing, which creates complex supply chain relationships that must be carefully managed. TOMS created a set of manufacturing standards based on International Labor Organization compliance standards for its manufacturers.
The company regularly performs audits to check that the factories are complying with company standards. TOMS also seeks to create strong organizational relationship with its employees and volunteers. The company often allows employees to participate in Shoe Drops (distributing the shoes to children) so they can see firsthand how their efforts are helping others.

58. 3. How does TOMS’ business model relate to the understanding of stakeholders and strategic philanthropy?
Strategic philanthropy is the synergistic use of organizational core competencies and resources to address key stakeholders’ interests and achieve both organizational and social benefits. TOMS address the needs of a wide variety of stakeholders, including their customers, employees, and society, which helps the company to accomplish both their financial and philanthropic goals.
Philanthropy: charity, humanity