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Chapter 3
The Marketing
Environment
Objectives
• Recognize importance of environmental scanning and
analysis
• Understand how competitive/economic factors affect
organizations’ ability to compete and customers’
ability/willingness to buy products
• Identify political forces in marketing environment
• Understand how laws, government regulations, and selfregulatory agencies affect marketing
• Explore effects of new technology on society and on
marketing
• Analyze sociocultural issues marketers must deal with as they
make decisions.
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Examining and Responding to the
Marketing Environment
• The marketing environment consists of external
forces that directly or indirectly influence
organizations, both:
– in acquisition of inputs (human, financial, and
natural resources and raw materials, and
information) and
– creation of outputs (goods, services, or ideas).
• These influences can create opportunities and
pose threats for marketers.
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Environmental Scanning
Environmental scanning is “the process of
collecting information about the forces in the
marketing environment”.
Environmental scanning can give marketers an
edge over competitors in taking advantage of
current trends.
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Scanning Involves:
• Observation
• Secondary Sources, such as:
–
–
–
–
Business
Trade
Government
General-interest publications
• Marketing research
• Cautions:
 Know how to use information
 Don’t gather too much information
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Environmental Analysis
• Environmental analysis is “the process of
assessing and interpreting the information
gathered through scanning”.
• Marketers evaluate the information for accuracy,
try to resolve inconsistencies in the data, and
assign significance to the findings.
• Environmental analysis enables marketers to
identify potential threats and opportunities
linked to environmental changes.
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Responding To
Environmental Forces
• Some marketers view environmental forces as
uncontrollable and remain passive - reactive to the
environment. While
• Other marketers believe that environmental forces can be
shaped (through economic, psychological, political, or
promotional skills), and these marketers are, to a certain
extent, proactive.
• Which approach is most appropriate for a particular firm
depends on its managerial philosophies, objectives,
financial resources, customers, human skills, and other
environmental forces.
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Environmental forces
There are six environmental forces that must
be considered in strategic planning:
1. Competitive forces
2. Economic forces
3. Political forces
4. Legal and regulatory forces
5. Technological forces
6. Sociocultural forces
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1. Competitive Forces
• Competition can be defined as “other firms that
market products similar to or that can be substituted
for its products in the same geographic area.
• Types of Competitors: classified into four types:
1. Brand competitors: firms that market products with similar
features and benefits to the same customers at similar
prices.
2. Product competitors: firms that compete in the same
product class, but their products have different features,
benefits, and prices.
3. Generic competitors: firms that provide very different
products that solve the same problem or satisfy the same
basic customer need.
4. Total budget competitors: firms that compete for the
limited financial resources of the same customers.
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1. Competitive Forces (continued)
All the four types of competition can affect
a firm’s marketing performance, but
Brand competitors are the most significant
because buyers typically see the different
products of these firms as direct
substitutes.
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Types of competitive structures
1.
Monopoly, exists when a firm offers a product that has
no close substitute, making it the sole source of supply.
2.
Oligopoly, exists when a few sellers control the supply
of a large proportion of a product.
3.
Monopolistic competition, exists when a firm with
many potential competitors attempts to develop a
marketing strategy to differentiate its product.
4.
Pure competition, exists when a large number of
sellers, no one of which could significantly influence
price or supply.
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Monitoring Competition
• Marketers need to monitor the actions of
major competitors to determine what
specific strategies competitors are using
and how those strategies affect their own.
• It is not enough to analyze available
information; the firm must develop a
system for gathering ongoing information
about competitors.
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Pure Competition
A market structure characterized by an
extremely large number of sellers, none
strong enough to significantly influence
price or supply.
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Characteristics Of
Competitive Structures
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2. Economic Forces
• Economic forces in the marketing environment
influence both marketers’ and customers’ decisions
and activities.
• Relevant issues include:
 Economic Conditions
 Business cycles
 Buying Power
 Income and Wealth
 Willingness to Spend
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Economic Conditions
Economic Conditions
Changes in the economy which affect (and are
affected by) supply and demand, buying power,
willingness to spend, consumer expenditure levels,
and the intensity of competition
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Business Cycle
A Business Cycle is “a pattern of
economic fluctuations that has four
stages:
 Prosperity
 Recession
 Depression
 Recovery
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Business Cycle (continued)
• Prosperity- low unemployment, high total income, which
together increase buying power. Marketers often expand their
product offerings to take advantage of increased buying power
• Recession- unemployment rises, total buying power declines,
both consumer and business spending decrease. Marketers
should focus on marketing research during a recession to determine
precisely what functions buyers want and integrate these functions
into their product. Promotion efforts should emphasize value and
utility.
• Depression- high unemployment, wages are low, total
disposable income is at a minimum, consumers lack
confidence in the economy.
• Recovery- economy moves from recession or depression to
prosperity. Marketers should be as flexible as possible to be able to
adjust their strategies as economy improves and buying power
increases.
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Buying Power
Buying Power includes “resources, such as
money, goods, and services that can be
traded in an exchange”.
Obviously, the strength of a person’s buying
power depends on economic conditions and
the size of the resources that enable the
individual to make purchases.
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Sources of Buying Power
Major sources of buying power are income, credit, and wealth.
• Income is money received through wages, rents, investments,
pensions, and other sources for a given period
– Disposable income (or after-tax income) is used for
spending or saving. It is affected by wage levels, rate of
unemployment, interest rates, dividend rates, and tax rates.
– Discretionary income is disposable income available for
spending and saving after an individual has purchased the
basic necessities of food, clothing, and shelter.
• Credit enables people to spend future income now or in the
near future, but it increases current buying power at the
expense of future buying power.
• Wealth is the accumulation of past income, natural resources,
and financial resources. It includes cash, securities, jewelry,
and real estate.
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Why should marketers care
about buying power?
because they directly affect the types and
quantities of goods and services that
consumers purchase.
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Willingness To Spend
An inclination to buy because of expected satisfaction from a
product, influenced by:
– ability to buy (buying power)
– Several psychological and social forces
– product’s price and its value
– The amount of satisfaction received from a product already
owned
– Expectations about future employment, income levels, prices,
family size, and general economic conditions
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3. Political Forces
• Political, legal, and regulatory forces of the marketing
environment are closely interrelated.
• Marketers must understand and adjust to political
conditions and legislation enacted.
• Although some marketers view political forces as
beyond their control, others seek to influence political
forces through lobbying decision makers, public
protests or campaigning.
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4. Legal and regulatory forces
• Each country has its own laws that influence
marketing decisions and activities. So it is
difficult to generalize on this issue.
• In general, laws may be designed to deal with
various issues, such as:
 Ensuring smooth running of businesses
 preserving fair competition
 protecting consumer rights (i.e. consumer safety,
hazardous materials, information disclosure, and
specific unethical marketing practices, … etc)
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Encouraging compliance with
laws and regulations.
• Many marketers lack experience in dealing with
complex legal bounds.
• Some of them test the limits of certain laws by
operating in a legally questionable way to see
how far they can get with certain practice before
being prosecuted.
• other marketers interpret regulations and very
strictly to avoid violating a vague law.
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Self-regulated forces
• In an attempt to be good corporate citizens
and prevent government intervention some
businesses try to regulate themselves.
• Example Kraft Foods.
• Better Business Bureau: a system of
nongovernmental independent, local
regulatory agencies supported by local
businesses that helps settle problems
between customers and specific business
firms.
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Self-regulated forces
• National Advertising Review Board : a selfregulatory unit that considers challenges
to issues raised by the National
Advertising Division ( an arm of the
Council of Better Business Bureaus) about
an advertisement.
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Example: Federal Trade Commission
The FTC is an agency that regulates a variety of
business practices and curbs false advertising,
misleading pricing, and deceptive packaging and
labeling. For example:
– The FTC influences many marketing activities
(bans advertising for tobacco).
– It can issue complaints and require companies to
run corrective advertising.
– It also assists businesses in complying with laws.
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5. Technological Forces
• Technology is the application of knowledge and tools to solve
problems and perform tasks more efficiently.
• Impact of Technology
– Technology determines how society satisfies its needs (i.e.
improved communications).
– Technology can help marketers and consumers become
more productive. But, it also raises controversial issues (i.e.
dark side of technology, such as air travel … etc).
– Technology expands opportunities for e-commerce (e-
commerce is defined as “the sharing of business information and conduct
marketing transactions via telecommunications networks”), which leads
to
changing the relationship between marketers and
consumers.
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Adoption and Use of Technology
 It is important for firms to determine when a technology
is changing, and thus define the strategic influence of
the new technology.
 A firm’s ability to protect its inventions also influences
the use of technology (positive correlation).
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Technology assessment
A procedure by which managers try to foresee
the effects of new products and processes on:
 the firm’s operations
 other business organizations
 society in general.
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6. Sociocultural Forces
• Sociocultural forces: are the influences in a society
and its culture that bring about changes in attitudes,
beliefs, norms, customs, and lifestyles.
• Population’s demographic characteristics (i.e. age,
gender, race, ethnicity, marital and parental status,
income, and education) have a significant impact on
relationships and individual behavior.
• Changes in sociocultural forces lead to:
– changes in how people live and consume products, and
– unique problems and opportunities for marketers.
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6. Sociocultural Forces (continued)
• Cultural Values
Changes in values dramatically influence people’s needs and desires for
products. Examples:
 issues of health, nutrition, exercise, changing family concept, have
increased in importance, affecting behavior, lifestyles, and product
choices
 Today, many consumers are more concerned about the natural
environment.
• Consumerism
Consumerism involves organized efforts by individuals, groups, and
organizations to protect consumers’ rights.
• These efforts may include, for example:




writing letters to companies
lobbying government agencies
broadcasting public service announcements
boycotting companies whose activities are deemed irresponsible
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