Chapter Objectives

1. The Marketing Environment, Ethics, and Social Responsibility CHAPTER3 Chapter Objectives Identify the five components of the marketing environment. Explain the 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. 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. 1 6 4 7 2 8 5 3

2. ENVIRONMENTAL SCANNING ANDENVIRONMENTAL MANAGEMENT • Environmental scanning Process of collecting information about the external marketing environment to identify and interpret potential trends. . • Example: Consumer reluctance to eat beef after confirmation of mad cow disease was an opportunity for producers of organic beef. • Environmental management Attainment of organizational objectives by predicting and influencing the competitive, political-legal, economic, technological, and social- cultural environments. • Firms often create strategic alliances to combine resources and capital to compete more effectively.

4. THE COMPETITIVE ENVIRONMENT • • 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, and marketers competing for the consumer’s purchasing power. • • Affects companies’ marketing strategies. • • Companies with a monopoly usually accept regulation in exchange for the exclusive right to serve a market segment. • • Recent deregulation has decreased monopolies in some industries, such as utilities. • • Some companies try to dominate markets through mergers, subject to antitrust regulations. • • Example: Cingular Wireless’ joint venture with BellSouth; has 54 million subscribers. • • Oligarchy—Limited number of sellers in an industry with high start-up costs.

5. TYPES OF COMPETITION • Direct: • Among marketers of similar products. • Example: Gas stations across the street from each other. • Indirect: • Involves products that are easily substituted for each other. • Example: Pizza and chicken fast food restaurants competing with each other. • Competition among all firms that compete for consumers’ purchases. • Consumers have limited number total dollars to spend.

6. DEVELOPING A COMPETITIVE STRATEGY • Should we compete? • Depends on firm’s resources, objectives, and expected profit potential. • If so, in what markets should we compete? • Allocate firm’s limited resources to the areas of greatest opportunity. • 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.

7. THE POLITICAL-LEGAL ENVIRONMENT • Political-legal environment Component of the marketing environment consisting 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. GOVERNMENT REGULATION • Falls into four historical phases: • Antimonopoly period of the late 19th and early 20th centuries. • Protecting competitors during the Great Depression. • Consumer protection in past 40 years. • Industry deregulation began in the 1970s and continues today.

8. • Newest regulatory frontier is cyberspace. • Federal Trade Commission OnGuard Online to educate consumers about cybercrime. • Privacy and child protection are also serious issues.

11. GOVERNMENT REGULATORY AGENCIES • Federal Trade Commission has broadest regulatory powers over marketing. • Enforce laws regulating unfair business practices and and stops false and deceptive advertising. • Can stop mergers if they reduce competition. • Other regulatory agencies include Consumer Product Safety Commission, the Federal Power Commission, the Environmental Protection Agency, and the Food and Drug Administration. • Removing regulation changes the competitive environment. • Telecommunications Act of 1996 is a recent example of deregulation. • Removed barriers between local and long distance phone companies and cable companies so they could start offering each others’ services.

12. OTHER REGULATORY FORCES • Consumer interest organizations. • Generally seek to protect consumers. • Others work to advance the interests of special-interest causes. • Self-regulatory groups. • Attempts by industries to set guidelines for responsible business conduct. • Example: National Advertising Division of the Council of the Better Business Bureaus, which promotes truth and accuracy in advertising. CONTROLLING THE POLITICAL-LEGAL ENVIRONMENT • Complying with laws and regulations serves customers and avoids legal problems. • May try to influence the outcome of proposed legislation or change existing laws through political lobbying or boycotts.

13. THE ECONOMIC ENVIRONMENT • Consumer spending accounts for 70 percent of the gross domestic product. • Marketers must understand how economic conditions influence purchasing decisions. • Economic environment Factors that influence consumer buying power and marketing strategies, including stage of the business cycle, inflation and deflation, unemployment, income, and resource availability. 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—Caution often restrains willingness to buy

14. INFLATION AND DEFLATION • Inflation—Rising prices caused by some combination of excess demand and increases in the costs of raw materials, component parts, human resources, or other factors of production. • Devalues money. • Deflation—Falling prices. • Can decrease profits, lower investment returns, and bring widespread job layoffs. Unemployment • Proportion of people actively seeking work who do not have jobs. • Rises during recession and declines during recovery and prosperity.

15. Income • Influences consumer buying power. • Many marketers focus on discretionary income, amount of money people have to spend after buying necessities. • Also influences support for not-for-profit organizations. Resource Availability • Shortages can result from lack of raw materials, component parts, and energy, or labor. • Demarketing Process of reducing consumer demand for a good or service to a level that the firm can supply.

16. THE INTERNATIONAL ECONOMIC ENVIRONMENT • Changes in consumer and business buying habits, in exchange rates, in labor costs, and other factors around the world influence the decisions marketers make. • China’s economy may grow larger than the United States’. • Global political changes affect international marketplace.

17. THE TECHNOLOGICAL ENVIRONMENT • Technological environment Application to marketing of knowledge based on discoveries in science, inventions, and innovations. • Technology leads to new products and improved existing products. • Example: More fuel-efficient vehicles such as the Toyota Prius and hybrid Honda Civic. • Government and not-for-profits often contribute to research and development, which can be very costly. • Example: Automobile airbags originated from Air Force ejection seats.

18. APPLYING TECHNOLOGY • Marketers monitor new technology to gain competitive edge. • Example: Voice over Internet protocol, an alternative to traditional telecommunications technology. • Development of Internet Protocol Multimedia Subsystem will integrate various communications tools, offering new opportunities to marketers.

19. THE SOCIAL-CULTURAL ENVIRONMENT • Social-cultural environment Component of the marketing environment consisting of the relationship between the marketer, society, and culture. • Marketers must be sensitive to demographic shifts and changing values. • Example: Advancement of baby boom generation into middle age and retirement. • Increasing importance of cultural diversity and submarkets with unique values, preferences, and behaviors. • Example: Univision and Telemundo face growing competition in Spanish-language television programming.

20. CONSUMERISM • Consumerism Social force within the environment that aids and protects the consumer by exerting legal, moral, and economic pressures on business and government. • What do consumers have a right to expect from companies from whom they buy goods and services? These basic consumer rights: • The right to choose freely. • The right to be informed. • The right to be heard. • The right to be safe.

21. ETHICAL ISSUES IN MARKETING • Marketing is the interface between the firm and the external world. • How marketing deals with external issues has a significant impact on the firm’s success. • 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.

25. ETHICS IN MARKETING RESEARCH • Consumers are concerned about privacy. • Proliferation of databases. • Selling of address lists. • Ease with which consumer information can be gathered. • Internet has increased privacy concerns. • Example: CitiGroup lost data on 3.9 million customers when it lost unencrypted backup tapes. • FTC provides consumer information about privacy online. • The U.S. government also maintains a Do Not Call registry to prevent unwanted telemarketing.

26. ETHICS IN PRODUCT STRATEGY • Example: Package 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. 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?

27. ETHICS IN PROMOTION • Truth in advertising is the bedrock of ethics in promotion. • Marketing to children has come under increased scrutiny. • Marketing beer to college students, including through providing promotional items such as shirts and hats, raises ethical questions. ETHICS IN PRICING • Most regulated aspect of a firm’s marketing activities. • Example: Gas stations in New Jersey raising prices repeatedly and charging more than their posted price for gasoline after Hurricane Katrina.

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

29. MARKETING’S RESPONSIBILITIES • Corporate responsibility extends beyond managers’ relationships with customers, employees, and stockholders. • Marketing decisions must involve consideration of general well-being and even potential global effects. • Example: Avoiding foreign suppliers that pay less than a living wage. • Some organization help promote social causes. • Others practice socially responsible investing • Example: Banks and credit unions that invest in their own communities.

30. MARKETING AND ECOLOGY • Ecology is the study of the relationship between natural things and their environment. • Protection of the environment influences all areas of marketing decision making. • Example: Planned obsolescence, or intentionally offering products with limited durability that create waste. • Marketing system produces billions of tons of packaging materials annually. • Green marketing Production, promotion, and reclamation of environmentally sensitive products. • Example: Booming organic food industry.