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Chapter 3 The Marketing Environment, Ethics, and Social Responsibility CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Chapter Objectives 1. Identify the five components of the marketing environment. 2. Explain the types of competition marketers face and the steps necessary for developing a competitive strategy. 3. Describe how marketing activities are regulated and how marketers can influence the political-legal environment. 4. Outline the economic factors that affect marketing decisions and consumer buying power. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Chapter Objectives 5. Discuss the impact of the technological environment on a firm’s marketing activities. 6. Explain how the social-cultural environment influences marketing. 7. Describe the ethical issues in marketing. 8. Identify the four levels of the social responsibility pyramid. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Environmental Scanning o Collecting external marketing environment information to identify and interpret potential trends o Trends may represent significant opportunities or threats to the company o Example: CPSC issued a recall of The Princess and the Frog-themed pendants, citing high levels of cadmium in the children’s necklaces Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Environmental Management o Attainment of organizational objectives by predicting and influencing the competitive, political-legal, economic, technological, and social- cultural environments o Strategic alliance - Partnership in which two or more companies combine resources and capital to create competitive advantages in a new market Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Competitive Environment o Interactive process that occurs in the marketplace among: o Marketers of directly competitive products o Marketers of products that can be substituted for one another o Marketers competing for the consumer’s purchasing power Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Competitive Environment o Marketing decisions by individual firms influence: o Consumer responses in the marketplace o Marketing strategies of competitors o Few organizations have monopoly positions o Monopoly - Market structure in which a single seller dominates trade in a good or service for which buyers can find no close substitutes Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Competitive Environment o Some pharmaceutical firms have temporary monopolies provided by patents on drugs o Antitrust laws - Designed to prevent restraints on trade such as business monopolies o Oligopoly - Few number of sellers in an industry with high start-up costs which keep out new competitors Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Types of Competition o Direct o Among marketers of similar products o Example: Alternative suppliers in the cell phone market such as Verizon and AT&T o Indirect o Involves products that are easily substituted o Example: In the fast-food industry, pizza competes with chicken, hamburgers, and tacos Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Types of Competition o Competition among all firms that compete for consumers’ purchases o All firms compete for a limited number of dollars that consumers can or will spend o Example: The purchase of a Honda Accord might compete with a Norwegian Cruise Line cruise Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Developing a Competitive Strategy o Competitive strategy - Methods through which a firm deals with its competitive environment o Should we compete? o Depends on firm’s resources, objectives, and expected profit potential o In what markets should we compete? o Allocate firm’s limited resources to the areas of greatest opportunity Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Developing a Competitive Strategy o How should we compete? o Includes product, promotion, distribution, and pricing decisions that maximize competitive advantage o Time-based competition - Strategy of developing and distributing goods more quickly than competitors Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Political-Legal Environment o Consists of laws and their interpretations that require firms to operate under competitive conditions and to protect consumer rights o Ignorance or non-compliance can result in fines, negative publicity, and civil damage suits Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Government Regulation o Falls into four historical phases: o Antimonopoly period of the late 19th and early 20th centuries o Protecting competitors during the Great Depression of the 1930s o The third phase focused onConsumer protection o Industry deregulation began in the late 1970s Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Government Regulation o Newest regulatory frontier is cyberspace o Federal and state regulators are investigating ways to police the Internet and online services o Privacy and child protection issues are difficult enforcement challenge Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Government Regulatory Agencies o The Federal Trade Commission (FTC) has the broadest regulatory powers over marketing o Enforces laws regulating unfair business practices and stops false and deceptive advertising o The FTC uses several procedures to enforce laws o Consent order o Cease-and-desist orders Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Other Regulatory Forces o Consumer interest organizations o Other groups attempt to advance the rights of minorities, senior citizens, and other causes o Self-regulatory groups set guidelines for responsible business conduct Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Economic Environment o Gross domestic product (GDP) - Sum of all goods and services produced by a nation in a year o Economic environment - Factors that influence consumer buying power and marketing strategies o Business cycle - Pattern of stages in the level of economic activity Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Stages in the Business cycle o Prosperity - Consumer spending is brisk; growth in services sector o Recession - Consumers focus on basic, fundamental products o Depression - Consumer spending sinks to its lowest level o Recovery - Consumer purchasing power increases Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Global Economic Crisis o Business cycles take a severe turn and affect consumers and businesses across the globe o Marketers must reevaluate their strategies and concentrate on their most promising products Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Inflation and Deflation o Inflation devalues money by reducing the products it can buy through persistent price increases o Deflation can cause: o A freefall in business profits o Lower returns on most investments o Widespread job layoffs Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Inflation and Deflation o Unemployment o Proportion of people in the economy actively seeking work but do not have jobs o Rises during recession and declines during recovery and prosperity Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Inflation and Deflation o Income o Influences consumer buying power o Marketers focus on discretionary income, the amount of money people have to spend after buying necessities Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Resource Availability o Shortages can result from lack of raw materials, component parts, energy, or labor o Demarketing - Reducing consumer demand for a good or service to a level that the firm can supply o Challenges facing marketers: o Allocating limited supplies o Deciding whether to spread limited supplies over all customers or limit purchases by some customers Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The International Economic Environment o Marketers must monitor the economic environment of other nations o Global political changes affect international marketplace Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Technological Environment o Application of knowledge based on discoveries in science, inventions, and innovations to marketing o Technology leads to: o New products o Improvements in existing products o Better customer service o Reduced prices Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Technological Environment o Technology addresses social concerns o Sources of technology : o Industry o Educational institutions o Not-for-profit institutions o Federal government Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Applying Technology o Marketers monitor new technology to gain a competitive edge and to enhance customer service o Internet Protocol Multimedia Subsystem (IMS) will offer new opportunities to marketers Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility The Social-Cultural Environment o The relationship between the marketer, society, and culture o Marketers must be sensitive to demographic shifts and changing values o Increasing importance of cultural diversity o Example: Univision and Telemundo face growing competition in Spanish-language television programming Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Consumerism o Social force within the environment that aids and protects the consumer by exerting legal, moral, and economic pressures on business and government o Consumer rights: o The right to choose freely o The right to be informed o The right to be heard o The right to be safe Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethical Issues in Marketing o Marketing ethics - Marketers’ standards of conduct and moral values o Many companies create ethics programs to train employees to act ethically o Employees’ personal values sometimes conflict with employers’ ethical standards Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethics in Marketing Research o Consumers are concerned about privacy o Proliferation of databases o Selling of address lists o Ease with which consumer information can be gathered o Several agencies offer assistance to Internet consumers o The U.S. government maintains a Do Not Call registry to prevent unwanted telemarketing Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethics in Product Strategy o Product quality, planned obsolescence, brand similarity, and packaging raise ethical issues o Example: Packaging strategy o Larger packages are more noticeable on the shelf o Oddly sized packages make price comparison difficult o Bottles with concave bottoms appear to have more liquid in them than they do Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethics in Distribution o What is the appropriate degree of control over the distribution channel? o Should a company distribute its products in marginally profitable outlets that have no alternative source of supply? Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethics in Promotion o Truth in advertising is the bedrock of ethics in promotion o Marketing to children has come under increased scrutiny o Promoting specific products to college students can raise ethical questions o Another issue involves firms paying universities for the use of their logo, team name, or mascot to advertise products and services to students Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Ethics in Pricing o Most regulated aspect of a firm’s marketing activities o Example: Credit-card companies target consumers with poor credit ratings and offer them what industry observers call “subprime” or “fee-harvesting” credit cards Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Source: The Four Step Pyramid of Corporate Social Responsibility from Business Horizons, Vol. 34, 1991, page 92, Freeman & Liedtka, “Corp. Social Responsibility.” Reprinted from Business Horizons © 1991 with permission From Elsevier. Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Marketing’s Responsibilities o Corporate responsibility covers the entire framework of society o Marketers must consider: o The global effects of their decisions o The long-term effects of their decisions o The well-being of future generations o Entire communities can benefit through socially responsible investing Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Marketing and Ecology o Ecology - The relationship between organisms and their natural environments o Environmental issues influence all areas of marketing decision making o Green marketing - Production, promotion, and reclamation of environmentally sensitive products Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved. CHAPTER 3 The Marketing Environment, Ethics, and Social Responsibility Video Watch The Marketing Environment, Ethics, and Social Responsibility at Scholfield Honda o How does Scholfield Honda rate on the social responsibility pyramid? Do they meet all the criteria for a socially responsible company? o What social and cultural changes have affected the way car manufacturers design and market their products? o Should governmental regulations be placed on companies’ claims that their products are green? Should official classifications for environmental friendliness be defined? Copyright © 2012 by South Western, a division of Cengage Learning. All rights reserved.