Principles of Marketing Chapter 3 Notes

Chapter 3: The Global Environment Competitive Environment marketing environment -consists of outside factors and forces that affect a company’s ability to meet its marketing goals Those forces include: political, economic, demographic, sociocultural, technological, and legal factors *To be successful, marketers must understand the marketing environment, including both the competition and the domestic and international factors that affect the company competitive environment -includes both direct and indirect competitors seeking to acquire market share direct competition (also category competition/brand competition) -in which products that perform the same function compete against one another substitute products -are goods and services that perform very similar functions and can be used in place of one another indirect competition -occurs when products provide alternative solutions to the same market *The shift in consumers’ desire to eat, drink, and live healthier is one of several external factors currently affecting the marketing environment *To be successful, a frm must understand and adjust to the external environment, both domestic and international External Marketing Environment *Unforeseen developments external to the frm can directly affect the success of its marketing strategy environmental scanning -involves monitoring developments outside the firm's control. The goal is to detect and respond to threats and opportunities that might affect the frm *For this reason, marketers continually scan the external environment *Historically, environmental scanning at U.S. companies focused almost exclusively on the domestic environment *However, with increasing globalization, frms have expanded their scanning activities to include the environment beyond U.S. borders The six major external factors that influence the firm's marketing environment: —economic,demographic, sociocultural, political, legal, and technological *Economic factors influence almost every marketing decision a frm makes *Economic conditions affect consumers’ willingness and ability to buy products *As a result, frms must create, communicate, and deliver value in a way that’s appropriate for the current economic climate Four economic elements influence marketers: -gross domestic product (GDP), income distribution,inflation, and consumer confidence *Gross domestic product paints a simple picture of the economic health of a nation. gross domestic product (GDP) -refers to the market value of all officially recognized final goods and services produced within a country in a given period *A country’s GDP is a function of both the quantity of goods and services produced and their market values *Overall GDP measures the overall size and health of an economy *Higher GDP growth often drives lower unemployment rates, higher consumer confidence, and increased wealth across most income levels. All of this leaves customers with more money to spend *However, lower GDP growth can also open up opportunities for marketers who anticipate the trend and modify their marketing-mix strategy accordingly *The overall GDP number doesn’t give a full picture of a country’s economic health, though *Marketers also find it useful to know the average productivity or income per person *GDP per capita is often considered an indicator of a country’s standard of living -It is calculated by dividing a country’s overall GDP by its population *Meanwhile, overall GDP is the most common gauge of the overall expansion or contraction of an economy. recession -occurs when overall GDP declines for two or more consecutive quarters *Recessions can have a powerful negative effect on marketing -They typically involve layoffs, increased unemployment, and reduced consumer confidence *These factors influence consumers’ ability and willingness to buy products and to contribute to nonprofit organizations *Distribution of income across the U.S. population has shifted over the past several decades *This shift has forced marketers to develop new strategies to satisfy consumers at different ends of the spectrum *Shifting income distribution offers marketers new opportunities to satisfy consumer needs and wants at various income levels Inflation -is an increase in the general level of prices of products in an economy over a period of Time *When the general price level rises, each unit of currency (e.g., each U.S. dollar) buys fewer goods and services *Consequently, inflation also reflects erosion in the purchasing power of money Purchasing power -is the amount of goods and services that can be purchased for a specific amount of money *Inflation can affect marketing significantly if prices rise faster than consumer incomes *Consumer spending accounts for more than two-thirds of U.S. economic activity -The amount consumers are willing and able to spend is often based on their confidence in the stability of their future income -As a result, consumer confidence can provide an effective measure of the health of the economy -Consumer confidence measures how optimistic consumers are about the overall state of the economy and their own personal finances -Consumers purchase more when consumer confidence is high -If the economy contracts and people lose jobs, consumer confidence decreases, leading to more saving and less spending *Marketers who can find strategic ways to help consumers feel confident about their purchases can improve performance during challenging times *Marketers cannot dictate the state of the economic environment. Instead, they must develop marketing strategies to position their frm for success, regardless of economic factors *Economic factors provide a macro framework for understanding consumer purchase patterns *At the same time, marketers are equally concerned with identifying consumers’ demographic characteristics Demographics -are the characteristics of human populations that can be used to identify consumer markets *They include things such as age, gender, ethnicity, and education level, all of which influence the products consumers buy *Access to demographic information is essential to identifying and characterizing a firm's target markets -Age plays an important role in how consumers process information. This in turn affects what marketing strategy firms should use to reach them Baby Boomers -the generation of children born between 1946 and 1964 Disposable income -is the amount of spending money available to households after paying taxes Members of this generation typically possess two things that marketing professionals seek: -disposable income and free time *Baby Boomers represent the wealthiest generation in U.S. history; when they retire, they have free time to spend some of their wealth *Boomers make up only a quarter of the U.S. population but account for 50 percent of all domestic consumer spending *In an effort to reach this demographic, frms are making changes to encourage older Americans to shop at their stores Millennials, the generation of children born between 1978 and the late twentieth century. Also known as Generation Y, Millennials comprise over 75 million members in the United States *They are the second-largest generational group behind the Baby Boomers *Millennials generally have the greatest familiarity with and most use for digital communication,social media, and other forms of technology *Marketers trying to reach this large consumer group increasingly deliver their messages using channels, like the Internet, that are most likely to be used by this market *In 2015, Millennials became the largest share of the U.S. workforce, and their importance to marketers will only grow in the decades ahead *In 2015, Millennials became the largest share of the U.S. workforce, and their importance to marketers will only grow in the decades ahead Many of you reading this belong to a generational cohort known as Generation Z, the generation of children born between 1997 and 2012. Gen Zers, or post-Millennials as they are also known as, are more diverse, more highly educated, and less likely to move than previous generations.28 *The typical Gen Z consumer uses 1 to 10 apps per day and a majority are willing to pay for music apps One of the most important changes in the United States in recent decades has been the roles, attitudes, and buying habits of men and women in the marketplace *Historically, female consumers were targeted for a much less diverse set of goods and services than men *Female consumers now account for 85 percent of all consumer purchase decisions in the United States, including everything from cars to groceries to health care *Women are responsible for more than half of the new-car purchases in the United States. Seventy five percent of women identify themselves as the primary shopper in their household *Female control over the majority of consumer spending makes women a target market across products Historically, highly educated consumers are more likely to be employed than are those with less education *The U.S. is pushing to lead the world in college graduation rates by 2020 *As a result, the number of professional workers with college degrees is expected to increase significantly in the coming years *Educated consumers are likely to earn significantly more money throughout the course of their lifetimes and also may more readily comprehend an advertiser’s message These factors make highly educated consumers prime targets for marketing strategies. -The ethnic composition of the U.S. population is changing rapidly -Projections indicate that by 2050 the Hispanic population in the United States will almost double to more than 127 million, representing over 30 percent of the entire U.S. population -The African American population in the United States grew at rate that outpaced the 12 percent population growth for the country as a whole -Asian Americans now represent the highest-income, best-educated, and fastest-growing racial group in the U.S., thereby increasing their purchasing power and importance to marketers -The United States is moving rapidly toward greater multiculturalism. Ethnic minorities’ purchasing power was $3.8 trillion in 2018 and expected to grow significantly over the next decade -Marketers already have taken basic steps to reach out to different ethnic groups *Advertising in multiple languages is one such step As the ethnic makeup of the U.S. continues to change, marketing professionals will need to keep studying different ethnic groups and their buying behavior Sociocultural factors -are the combination of social and cultural factors that affect individual development Our society and culture help shape: -our beliefs, values, and norms, which, in turn, defne our tastes and purchasing habits One of the biggest sociocultural changes in the United States over the past half century has been the shift from a nation of primarily one-income families, in which one spouse stayed home to raise children. -Today, two-income families and single-parent households predominate -Only 15 percent of U.S households consist of a working parent and a stay-at-home parent -The new sociocultural reality of busy families has created opportunities for firms to offer new kinds of value Cultural differences can also influence how consumers respond to advertisements and other marketing messages Other sociocultural changes are taking place in the U.S.—an increasing number of single adults, rising concerns about protecting consumer privacy, and the growth in environmentally conscious consumers -Such changes provide firms with many reasons to market products in new and better ways -Such cultural differences provide marketers important insights into how to most effectively reach different consumers -Firms must understand how the changing political climate affects them *They then can develop marketing strategies that will lead to success under various conditions -Such change also can affect how marketers position their products -Firms need not be completely passive when it comes to the political decisions that affect their businesses -It’s becoming increasingly possible for firms to affect politics PACs raise money to help elect individuals who regard their organization positively or to promote a particular issues related to their industry *Some PACs lobby government officials on issues that affect marketing, such as restrictions on certain types of advertising or protection of consumers’ rights The legal system is another factor of the external environment that affects how firms market their products -Marketing professionals need to know and work within the laws that affect marketing Sherman Antitrust Act (1890) Combats anticompetitive practices, reduces market domination by individual corporations, and preserves unfettered competition as the rule of trade. Robinson–Patman Act (1936) Prohibits frms from selling the same product at different prices in interstate commerce unless based on a cost difference or if the goods are not of similar quality. Wheeler–Lea Amendment (1938) Authorizes the Federal Trade Commission to restrict unfair or deceptive acts; also called the Advertising Act. Broadened the Federal Trade Commission’s powers to include protection of consumers from false advertising practices. Fair Packaging and Labeling Act (1966) Applies to labels on many consumer products. It requires the label to state the identity of the product; the name and place of business of the manufacturer, packer, or distributor; and the net quantity of contents. Telephone Consumer Protection Act (1991) Limits commercial solicitation calls to between 8 a.m. and 9 p.m. Requires telemarketers to maintain a do-not-call list and honor any request to not be called again. Credit Card Accountability, Responsibility, and Disclosure Act (2009) Protects consumer rights and abolishes deceptive lending practices. Federal, state, and local governments enact regulations for two main purposes: -To ensure businesses compete fairly with each other These laws are among those enforced by the Federal Trade Commission (FTC), which serves as the consumer protection agency for the United States The FTC collects complaints about organizations that violate regulations; those complaints lead to investigations and possible prosecutions -To ensure businesses don’t take advantage of consumers The act allows consumers to limit the number of telemarketing calls they receive and opt out of being called by some companies In addition, banks and other financial institutions were required to change how they dealt with consumers following passage of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 *The law banned unfair credit card rate increases. It also required that disclosures regarding minimum payments and interest rates be made in plain English, to better protect consumers Companies often spend significantly through their PACs to protect their legal position and make sure that new laws are as favorable to them as possible *Of all the external factors, rapidly evolving technology represents one of the most significant challenges, and one of the most significant opportunities, for marketing professionals *Technology influences how consumers satisfy their needs and wants, the basic concept underlying all marketing activities -Technology also changes how frms promote their products. International Marketing Environment For some frms, analyzing external factors as they occur in the United States is sufficient *Increasingly, though, even small businesses and farms that sell primarily to U.S. customers are affected by global trends, events, and competitors *The process of environmental scanning must take into account the international marketing environment as well In theory, the key external factors that affect a frm in the international space don’t differ substantially from those in the domestic space. Consumers’ age, education level, and gender still matter. *The political and legal systems within a given country often dictate how easy it will be to sell and distribute products there. And a country’s level of technological advancement has important implications for how the frm promotes its product to the local population. Currency fluctuation -refers to how the value of one country’s currency changes in relation to the value of other currencies *can affect either positively or negatively how frms market products internationally The currency exchange rate -is the price of one country’s currency in terms of another country’s currency *Whether a currency is appreciating or depreciating, currency fluctuations can provide marketing opportunities It’s important for marketers working in the international environment to understand the effect of currency fluctuations on product value *A country’s income distribution often provides the most reliable picture of its purchasing power Marketers are particularly attracted to countries with a growing middle class, because a nation’s purchasing capability tends to increase as the proportion of middle-income households increases *Even countries that don’t have a rapidly increasing middle class may have higher purchasing power than may be apparent from initial statistics, due to government subsidies for food, transportation, or health care Continuously scanning the global economic environment is an important aspect of doing business in international markets. In addition, marketers are increasingly using metrics to analyze international markets -Evaluating the international marketing environment is a complex process -It requires marketers to interpret a significant amount of information in order to make the best decisions -Such search data help provide insight into the external international environment and evolving consumer preferences Using analytics tools like these, combined with information about income distribution and currency fluctuation, provides marketers with a clearer picture of the international environment affecting their organization *In addition to scanning the international economic environment, marketing professionals must possess a working knowledge of major trade agreements and international organizations -These could govern their firm's interaction with international markets International trade agreements, monetary unions, and organizations can have substantial impact on the environment in which a firm operates. They can affect how easy it is for firms to enter a foreign market, what the currency exchange rate is between countries, and even what competition firms will be encountered in the domestic market -Trade agreements and monetary unions facilitate the exchange of money and products across borders -International organizations provide regulatory oversight to economic activity Perhaps the most familiar U.S. trade agreement is the North American Free Trade Agreement (NAFTA) The North American Free Trade Agreement (NAFTA) -established a free-trade zone among the United States, Canada, and Mexico *Its goal was to eliminate barriers to trade and investment among the three countries *This is largely because NAFTA made exchange among the three countries so easy Tariffs -which are taxes on imports and exports between countries *One of the key barriers to international trade is tariffs -NAFTA also sought to eliminate nontariff trade barriers such as embargoes or sanctions -In 2018, the three countries reached a new deal to replace NAFTA which will be known as the United States–Mexico–Canada Agreement (USMCA) *One goal of the new deal is to have more cars and truck parts made in North America *The agreement also makes significant upgrades to environmental and labor regulations, opens up Canadian dairy markets for U.S. farmers, and provides more-stringent protections for patents and trademarks *A decade after NAFTA was implemented, the U.S. entered discussions about a new agreement with the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua -This agreement was called the Central American Free Trade Agreement (CAFTA) Dominican Republic–Central American Free Trade Agreement (DR-CAFTA) -focuses on eliminating tariffs, reducing non tariff barriers, and facilitating investment among the member states *With the addition of the Dominican Republic, the trade group’s largest economy, the region covered by DR-CAFTA is the second-largest Latin American export market for U.S. producers behind Mexico Trade between the United States and countries covered under this agreement amounts to about $60 billion annually. *Agreements like NAFTA and DR-CAFTA are designed to ease trade between nations The European Union (EU) -is an economic, political, and monetary union of 28 European nations as of 2018 *It was formed to create a single European market by reducing barriers to the free trade of goods, services, and finances among member countries *In 2018, the EU generated an estimated 16 percent share of the global gross domestic product, making it one of the largest economies in the world *It is the largest exporter, the largest importer, and the biggest trading partner for several large countries, including China, India, and the United States *These challenges have had a negative impact on their domestic markets and also make it more difficult for U.S. marketers to sell their products to consumers in those countries The World Trade Organization was officially formed on January 1, 1995, under the Marrakech Agreement The World Trade Organization (WTO) -regulates trade among participating countries and helps importers and exporters conduct their business *It is the only international organization dealing with the rules of trade between nations *In addition, the WTO provides a framework for negotiating and formalizing trade agreements and a dispute-resolution process aimed at enforcing participants’ adherence to WTO agreements Soon after the end of World War II, 29 countries signed an agreement to form the International Monetary Fund. International Monetary Fund (IMF) -“works to foster international monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” *It was formed to promote international economic cooperation, trade, employment, and currency exchange rate stability *One of the IMF’s important activities is to make resources available to member countries to help then manage their debts *When it was first created in 1945, the IMF helped stabilize the world’s economic system after the world war. To this day, the IMF works to improve the economies of its member countries Once marketers understand the economic factors and trade agreements and organizations that affect their global activities, they must look more specifically at how best to reach their international audience *Today, technology enables even small businesses to reach consumers around the globe *Websites act as a front door to billions of potential consumers. Social media help companies develop relationships with customers anywhere, for very little cost. Tools such as Google Translate allow customers to view websites in their own language, making it easier to promote products in different countries *In addition, global shipping frms like FedEx and UPS enable small manufacturers to ship their products to customers around the world Understanding how technology affects the international marketing environment benefits marketers as they attempt to meet the needs and wants of consumers in global markets -One of the biggest mistakes domestic firms make when they attempt to take their business global is to believe that what works “at home” will work abroad -It’s often a mistake to think that foreign consumers want exactly the same products that are sold in the United States and want them marketed in the same way -A growing concern for firms with overseas operations is consumer ethnocentrism Consumer ethnocentrism -refers to a belief by residents of a country that it is inappropriate or immoral to purchase foreign-made goods and services *This belief is on the rise in many developed nations, including the United States, France, Germany, and China *The belief makes the marketer’s job even more difficult Analyzing cultural fit and overcoming consumer ethnocentrism are essential aspects of environmental scanning on a global scale that helps firms create value for international consumers *Start the job search early. Don’t focus on finding the perfect first job. *Focus on landing a job with a company that will allow you to test your abilities, expose you to all parts of the business, and most important, make mistakes. *With humility, realize you must start at the bottom. Your first opportunity will springboard you into many other ones *My mission is not to be respected for career highlights or personal advancement, but to be respected for using my experiences and the lessons I have learned to make a difference in the lives of others Nonprofit Marketing Environment Environmental scanning for a nonprofit organization presents challenges that for-profit businesses do not face *Those who donate money to a non profit such as a hospital, university, or faith-based institution do not walk away with a tangible product or benefit directly from any service. Instead, non profit marketers must convince donors to support the mission of the organization without receiving any direct benefit Nonprofits primarily rely on three sources of funding: —grants, special events, and individual donations. The competitive environment for nonprofit funding has increased dramatically in recent years For nonprofit marketers to be successful in this type of competitive environment, they must understand the external environment in which they operate. *They are affected by many of the same external factors discussed earlier in the chapter: economic, legal, political, and technological factors. However, due to their mission and chronic lack of funds, the impact can be quite different. *During the recession that began in December 2007, Americans reduced their overall charitable giving by over 20 percent from levels prior to the recession.58 The decline was far sharper than in previous economic recessions. One strategy nonprofit marketers are using to combat that change is to develop new ways to recognize existing donors for their contributions *These new methods foster pride and enthusiasm in donors about how their efforts improve the lives of others *In addition to its economic impact, the recession led to political pressure to reduce federal, state, and municipal budgets *This, in turn, has forced many nonprofit organizations to fund basic programs in innovative ways *In order to increase student financial aid and faculty retention, universities must raise more money from alumni and other supporters. *This form of giving delivered value to donors: It did not require them to sacrifice financially during their lives but helped them leave a legacy at the university they loved In addition to the economic and political factors that have challenged nonprofits, several new laws and regulations have had an impact as well *The benefit that nonprofit marketers offer to potential donors typically includes some combination of information about how the donation will be used, how the donor will be recognized, and the tax incentives (e.g., the tax deductibility of charitable gifts) that will accompany the donation *Legal changes to the tax-incentive element can alter the way marketing professionals communicate the organization’s value to potential donors Nonprofit marketing professionals worry that such changes in the tax law, whether in New York or other states, or on federal tax returns, will act as a disincentive, further challenging fundraising efforts in a difficult economy -They fear that, without tax incentives, charitable giving may decline Such legal changes have made it increasingly necessary for nonprofit firms to develop programs that generate more first-time contributors, to make up for potential reductions from high-income donors *Many nonprofit organizations utilize new technology to increase awareness and enhance relationships with donors The rise of social media has changed the nonprofit landscape in important ways *Social media sites let them engage interested parties through more personal connections than through more mainstream platforms *When it comes to organizing activists, conducting charity campaigns, or simply influencing communities and stakeholders, social media offer non profit organizations substantial advantages *This use of social media deepened engagement among new members and increased loyalty, interest, and volunteer retention