Chapter TwoChapter Two

The Environment of Marketing The Environment of Marketing in the Twenty-First Century in the Twenty-First Century

Chapter ObjectivesChapter Objectives

Provide an overview of the marketing Provide an overview of the marketing microenvironment microenvironment Provide an overview of the socio-cultural Provide an overview of the socio-cultural environment (macroenvironment)environment (macroenvironment)Address the economic and natural Address the economic and natural environment components of the environment components of the macroenvironmentmacroenvironmentExamine changes in the technological Examine changes in the technological environment environment Address the political/legal environmentAddress the political/legal environment

Environmental Scanning*Environmental Scanning*

PurposePurpose

The Role of SerendipityThe Role of Serendipity

Implications, e.g. Scenario PlanningImplications, e.g. Scenario Planning

What's New

The MicroenvironmentThe Microenvironment Identify strengths and weaknesses in the elements of the microenvironment (SWOT*)

The CompanyThe CompanyDeveloping a Marketing MindsetDeveloping a Marketing Mindset

All employees should know who the firm’s All employees should know who the firm’s customers are and what is promised to them.customers are and what is promised to them.

Companies that share information across Companies that share information across departments are more successful.departments are more successful.

Consistent message helps retain customers.Consistent message helps retain customers.

Costs of acquiring 1 new customer is equal to the cost of retaining 6 current customers.

Suppliers, Distributors, and Other Suppliers, Distributors, and Other Facilitators of MarketingFacilitators of Marketing

Suppliers:Suppliers: Changes in the price of raw materialsChanges in the price of raw materials

Justifying price changes to customers Justifying price changes to customers and maintain customer baseand maintain customer base

Distributors:Distributors: TaskTask——Convenient, timely, and safe Convenient, timely, and safe distribution of the products to customersdistribution of the products to customers

Distributors deliver and advertise a Distributors deliver and advertise a manufacturer’s productmanufacturer’s product

CustomersCustomers

Types of customers:Types of customers:

ConsumersConsumersManufacturersManufacturersGovernmentsGovernmentsInstitutionsInstitutionsOther businesses Other businesses Retailers Retailers

Different customers need different marketing plans.

CompetitionCompetition

Develop a differential Develop a differential advantage strategy in advantage strategy in order to convince order to convince customers to buy.customers to buy.

Meet the needs and Meet the needs and wants of customers wants of customers more effectively and more effectively and efficiently than efficiently than competitors.competitors.

“Why would a consumer buy our product as opposed to

our competitor’s?”

What is a “Competitor?”*What is a “Competitor?”*

Fast food (non-hamburger)

Dine-in restaurants

McDonald’s

Burger King

Wendy’s

Jack-in-the-BoxSubway

Arby’s

Taco Bell

KFC

Chick-Fil-A

Taco-Tico

Ruby Tuesday

CrackerBarrel

Chili’s

Denny’s

Black Eye Pea TGI Friday’s

Bob Evans

Applebee’s

RedLobster

Pizza Hut

GoldenCorral

Hardee’s

1st Layer: Direct competition1st Layer: Direct competition

2nd Layer: Related competition2nd Layer: Related competition

3rd Layer: Generic competition3rd Layer: Generic competition

The MacroenvironmentThe Macroenvironment

Identify opportunities and threats related to the:Identify opportunities and threats related to the:

Marketing has no control over the macroenvironment, but the

company needs to monitor it in order to identify trends.

The Socio-Cultural EnvironmentThe Socio-Cultural Environment Culture/Subculture*Culture/Subculture*Roles*Roles*Psychographics* of consumers:Psychographics* of consumers:– LifestylesLifestyles– ValuesValues– AttitudesAttitudes– InterestsInterests– OpinionsOpinions

Demographics of consumers:Demographics of consumers:– GenderGender– AgeAge– Social classSocial class– EthnicityEthnicity– EducationEducation– IncomeIncome

*Reactive vs. Proactive, *Reactive vs. Proactive, e.g., Wilson and Revlone.g., Wilson and Revlon

Discuss the following questions:Discuss the following questions:– In what ways does the In what ways does the

buying behavior of you and buying behavior of you and your parents differ?your parents differ?

– In what ways does the In what ways does the buying behavior of you and buying behavior of you and your grandparents differ?your grandparents differ?

– What selling strategies What selling strategies would work best for:would work best for:

YouYou

Your parentsYour parents

Your grandparentsYour grandparents

An Age CategorizationAn Age Categorizationof Socio-Demographic Groupsof Socio-Demographic Groups

Gen. Y5% Gen. X

18%

Younger Boomer

26%

Older Boomer

24%

Empty Nester13%

Senior14%

Generation YGeneration Y

Individuals between 18Individuals between 18––24245% of total spending power5% of total spending powerClothes, automobiles, and Clothes, automobiles, and college constitute main college constitute main expendituresexpenditures90% live at home or in 90% live at home or in rentals.rentals.Most spending revolves Most spending revolves around personal around personal appearance and fun.appearance and fun.

An Age Categorization of Socio-Demographic Groups

Generation XGeneration XIndividuals between 25Individuals between 25––343418% of total spending 18% of total spending powerpowerFood, housing, Food, housing, transportation, and transportation, and personal services personal services constitute expenditures.constitute expenditures.Time is premium as they Time is premium as they strive to balance work and strive to balance work and family. family.

Young BoomersYoung BoomersIndividuals between 35Individuals between 35––4444Account for 50% of total Account for 50% of total spending spending 60% own their own homes.60% own their own homes.Mortgage expenditures, home Mortgage expenditures, home furnishing, renovations, and furnishing, renovations, and family purchases account for family purchases account for most spending.most spending.Focus is home and family. Focus is home and family.

Older BoomersOlder BoomersIndividuals between 45Individuals between 45––5454Account for 24% of total Account for 24% of total spendingspendingExpenditures:Expenditures:

– Home improvementHome improvement– Children’s education Children’s education – Luxuries and LeisureLuxuries and Leisure– InsuranceInsurance

Empty NestersEmpty NestersIndividuals between 55Individuals between 55––6464Expenditures: Expenditures:

– Home mortgagesHome mortgages– New furnitureNew furniture– New automobilesNew automobiles– Luxury productsLuxury products– InsuranceInsurance

Over 80% own their homesOver 80% own their homes

SeniorsSeniorsIndividuals over 65Individuals over 65Account for 14% of all Account for 14% of all spendingspendingHealth Care is number one Health Care is number one spending item. Six times more spending item. Six times more than the average person.than the average person.Spend most money on home-Spend most money on home-related expensesrelated expenses

Spending Power: An OverviewSpending Power: An Overview

  

Demographic Group

  

Age

Total Number

of House-holds

(Millions)

Avg. Number

in House-hold

Spending Power

(Billions)

Annual Average

Household Income

Annual Average Spending

per Household

Gen. Y 18–24 8.3 1.9 $187 $19,744 $22,563

Gen. X 25–34 18.9 2.9 $736 $45,498 $38,945

Young Boomer 35–44 23.9 3.3 $1,100 $56,500 $45,149

Older Boomer 45–54 21.9 2.7 $1,000 $58,889 $46,160

Empty Nester 55–64 14.1 2.1 $557 $48,108 $39,340

Senior 65+ 22.1 1.7 $588 $25,220 $26,533

Ethnic Diversity and SubculturesEthnic Diversity and SubculturesThe United States is a melting pot: The United States is a melting pot: – Ethnic DiversityEthnic Diversity -- Different Cultural Values-- Different Cultural Values– Diverse ReligionsDiverse Religions -- Different Norms-- Different Norms

Values are constantly changing.Values are constantly changing.

Marketing must study the different subcultures in order to provide goods Marketing must study the different subcultures in order to provide goods and services that meet the diverse needs of consumers most effectively.and services that meet the diverse needs of consumers most effectively.

Based on careful study of cultural differences, Bank of America has developed targeted advertising messages for different cultural subgroups, here Asians and Hispanics.

The Economic EnvironmentThe Economic EnvironmentDetermines consumers’ income, spending, borrowing decisions, and savingsDetermines consumers’ income, spending, borrowing decisions, and savingsImpacts the use of resources, the production of goods and services, and the Impacts the use of resources, the production of goods and services, and the allocation of goods and servicesallocation of goods and services

Economic Development: The Economic Development: The Rostow Modernization ModelRostow Modernization Model

Traditional societyTraditional society Transitional societyTransitional society Take-OffTake-Off The Drive to MaturityThe Drive to Maturity High Mass ConsumptionHigh Mass Consumption

Elasticity*Elasticity*

Elastic:Elastic:

P x Q = TRP x Q = TR

Inelastic:Inelastic:

P x Q = TRP x Q = TR

Walt Disney markets two distinct Pooh bears to match its two-tiered market.

Natural EnvironmentNatural Environment

Involves the natural Involves the natural resources that are resources that are needed as inputs by needed as inputs by marketers or that are marketers or that are affected by marketing affected by marketing activities.activities.

- Shortage of Raw Materials- Shortage of Raw Materials

- Increased Energy Costs- Increased Energy Costs

- Higher Pollution Costs- Higher Pollution Costs

- Changing Role of Government- Changing Role of Government

The Technological EnvironmentThe Technological Environment

Primary driver of changePrimary driver of change

Primary driver of new Primary driver of new product development product development

Leads to increased Leads to increased competitioncompetition

Improves our standard Improves our standard of livingof living

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Changing Technology

The Political EnvironmentThe Political EnvironmentPolitical Risk related to Economic PerformancePolitical Risk related to Economic Performance– High inflation, unemployment, and taxesHigh inflation, unemployment, and taxes– Regulatory restrictionsRegulatory restrictions

Political Risk related to Government Economic PolicyPolitical Risk related to Government Economic Policy– Change in leading party relationship to businessesChange in leading party relationship to businesses– Change in tax policy and industry regulationsChange in tax policy and industry regulations

Risks related to Labor and Action GroupsRisks related to Labor and Action Groups– Labor unions can influence national policies, disrupt production, and create Labor unions can influence national policies, disrupt production, and create

negative press.negative press.

Risks related to TerrorismRisks related to Terrorism– In recent years terrorist attacks have been increasing in frequency.In recent years terrorist attacks have been increasing in frequency.– Companies must guard against terrorism/create safe environment for employees.Companies must guard against terrorism/create safe environment for employees.

Regulation*Regulation*Protect marketplace: Protect marketplace: Sherman Act, Clayton Act, FTC Act, Whealer-Lea ActSherman Act, Clayton Act, FTC Act, Whealer-Lea Act

Protect companies: Protect companies: Robinson-Patman Act, Copyrights/Trademarks/PatentsRobinson-Patman Act, Copyrights/Trademarks/Patents

Protect consumers: Protect consumers: Kennedy’s Consumer Bill of Rights Kennedy’s Consumer Bill of Rights ((The right to be heard, be informed, be safe, choose)The right to be heard, be informed, be safe, choose)

Data Mining and Politics