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Chapter 3: Analyzing the Marketing Environment

CHAPTER 3Analyzing the Marketing Environment

Previewing the Concepts: Chapter Objectives

1. Describe the environmental forces that affect the company’s ability to serve its customers

2. Explain how changes in the demographic and economic environments affect marketing decisions

3. Identify the major trends in the firm’s natural and technological environments

4. Explain the key changes in the political and cultural environments

5. Discuss how companies can react to the marketing environment

JUST THE BASICS

Chapter Overview

This chapter shows that marketing does not operate in a vacuum but rather in a complex and changing environment.

Other actors in this environment—suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company.

Major environmental forces—demographic, economic, natural, technological, political, and cultural—shape marketing opportunities, pose threats, and affect the company’s ability to serve customers and develop lasting relationships with them.

To understand marketing, and to develop effective marketing strategies, you must first understand the environment in which marketing operates.

Annotated Chapter Notes/Outline

Introduction

McDonald’s has been losing share to “fast-casual” restaurants because consumers today want more choices.

As the market leader, McDonald’s often bears the brunt of criticism.

McDonald’s has strived to realign itself with the changing marketing environment, and it appears to be paying off.

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Part 2: Understanding the Marketplace and Consumers

Marketers need to be good at building relationships with customers, others in the company, and external partners.

The marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers.

More than any other group in the company, marketers must be the trend trackers and opportunity seekers.

A company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers.

The microenvironment consists of the actors close to the company that affect its ability to service its customers.

The macroenvironment consists of larger societal forces that affect the microenvironment.

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The Company’s Microenvironement

Marketing management’s job is to build relationships with customers by creating customer value and satisfaction.

List the major actors in the marketer’s microenvironment.

The Company

All the interrelated groups form the internal environment.

All groups should work in harmony to provide superior customer value and relationships.

Suppliers

Suppliers provide the resources needed by the company to produce its goods and services.

Marketing managers must watch supply availability—supply shortages or delays, labor strikes, and other events can cost sales in the short run and damage customer satisfaction in the long run.

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Marketing managers monitor the price trends of their key inputs.

Marketing Intermediaries

Marketing intermediaries help the company to promote, sell, and distribute its products to final buyers.

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Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers.

Physical distribution firms help the company to stock and move goods from their points of origin to their destinations.

Marketing services agencies are the marketing research firms, advertising agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets.

Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods.

Marketers recognize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products.

Customers

Five types of customer markets:

1. Consumer markets: individuals and households that buy goods and services for personal consumption.

2. Business markets: buy goods and services for further processing or for use in their production process.

3. Reseller markets: buy goods and services to resell at a profit. 4. Government markets: made up of government agencies that buy goods and

services to produce public services. 5. International markets: buyers in other countries, including consumers, producers,

resellers, and governments.

Competitors

Marketers must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers.

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No single competitive marketing strategy is best for all companies.

Publics

A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives.

Financial publics influence the company’s ability to obtain funds. Media publics carry news, features, and editorial opinion. Government publics. Management must take government developments into

account. Citizen-action publics. A company’s marketing decisions may be questioned

by consumer organizations, environmental groups, etc. Local publics include neighborhood residents and community organizations. General public. The general public’s image of the company affects its buying. Internal publics include workers, managers, volunteers, and the board of

directors.

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Applying the ConceptDescribe the microenvironment for the School of Business at your university. What internal departments must the school interact with? Who are the customers and competitors? Do you know if there are any marketing intermediaries? What publics might be interested in what the School of Business is doing?

The Company’s Macroenvironment

Show the six major forces in the company’s macroenvironment.

Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics.

Changes in the world demographic environment have major implications for business.

Thus, marketers keep close track of demographic trends and developments in their

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markets, both at home and abroad.

Changing Age Structure of the Population

The U.S. population stood at over 302 million in 2007 and may reach almost 364 million by the year 2030.

The single most important demographic trend in the United States is the changing age structure of the population.

Baby Boomers. The post-World War II baby boom produced 78 million baby boomers, born between 1946 and 1964.

Baby boomers account for nearly 30 percent of the population, spend about $2.3 trillion annually, and hold three-quarters of the nation’s financial assets.

The youngest boomers are now in their early-to-mid forties; the oldest are entering their sixties.

Boomers are spending $30 billion a year on antiaging products and services.

Generation X. The baby boom was followed by a “birth dearth,” creating another generation of 49 million people born between 1965 and 1976.

Author Douglas Coupland calls them Generation X.

Others call them the “baby busters.” Increasing parental divorce rates and higher employment for their mothers made them the first generation of latchkey kids.

They developed a more cautious economic outlook.

The GenXers are a more skeptical bunch. Millennials (also called Generation Y or the echo boomers). Born between 1977 and 2000, these children of the baby boomers number 83 million.

This group includes several age cohorts: tweens (aged 8-12), teens (13-18); and young adults (the twenty-somethings).

45 percent of Millennials describe their race as something other than white.

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Generational Marketing. Defining people by their birth date may be less effective than segmenting them by their lifestyle, life stage, or the commons values they seek in the products they buy.

The Changing American Family

The “traditional household” consists of a husband, wife, and children (and sometimes grandparents).

In the U.S.:

Married couples with children make up 23 percent of the households; Married couples without children make up 29 percent; Single parents comprise 16 percent. Nonfamily households make up 32 percent.

Both husband and wife work in 57 percent of all married-couple families.

Let’s Discuss ThisMost of the students’ parents will be from the Baby Boom generation. Discuss how the students’ upbringing and daily lives may have differed from what their parents experienced in their own upbringing, and what those differences mean for marketers.

Geographic Shifts in Population

About 14 percent of all U.S. residents move each year.

The U.S. population has shifted toward the Sunbelt states.

Americans have been moving from rural to metropolitan areas.

A Better-Educated, More White-Collar, More Professional Population

The U.S. population is becoming better educated.

In 2004, 86 percent of the U.S. population over age 25 had completed high school.

Between 2004 and 2014 the number of professional workers is expected to increase 21 percent and manufacturing is expected to decline 5 percent.

Increasing Diversity

The United States has become more of a “salad bowl” in which various groups have mixed together but have maintained their diversity by retaining important ethnic and cultural differences.

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The U.S. population is about 66 percent white, 15 percent Hispanics and 13 percent African Americans.

The Asian American population now totals about 5 percent of the population.

By 2050, Hispanics will comprise an estimated 24 percent of the U.S. population.

Many companies have begun to target gay and lesbian consumers.

They are twice as likely as the general population to have a household income over $250,000.

Another attractive segment is the nearly 54 million adults with disabilities.

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Economic Environment

The economic environment consists of factors that affect consumer purchasing power and spending patterns.

Subsistence economies – consume most of their own agricultural and industrial output.

Industrial economies – constitute rich markets for many different kinds of goods.

Changes in Income

Throughout the 1990s, American consumers fell into a consumption frenzy.

Consumers now face repaying debts acquired during earlier spending splurges.

Value marketing—just the right combination of product quality and service at a fair price.

Income distribution in the United States is very skewed.

Upper-class consumers: spending patterns are not affected by current economic events and who are a major market for luxury goods.

Middle class: somewhat careful about its spending but can still afford the good life some of the time.

Working class: must stick close to the basics of food, clothing, and shelter and must try hard to save.

Underclass: must count their pennies when making even the most basic

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purchases.

Changing Consumer Spending Patterns

Food, housing, and transportation use up the most household income.

Engel’s law states that as family income rises, the percentage spent on food declines.

Changes in major economic variables have a large impact on the marketplace.

Natural Environment

The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities.

Trends in the natural environment:

1. Shortages of raw materials. 2. Increased pollution. 3. Increased government intervention.

Companies are developing environmentally sustainable strategies.

.Technological Environment

The technological environment is the most dramatic force now shaping our destiny.

Technology has released such wonders as antibiotics, robotic surgery, miniaturized electronics, laptop computers, and the Internet.

The United States leads the world in research and development spending.

Political Environment

Legislation Regulating Business

Governments develop public policy to guide commerce. Increasing Legislation. Legislation affecting business around the world has increased steadily over the years.

Business legislation has been enacted for a number of reasons.

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1. To protect companies from each other. 2. To protect consumers from unfair business practices. 3. To protect the interests of society against unrestrained business behavior.

Changing Government Agency Enforcement. Because government agencies have discretion in enforcing laws, they can have an impact on a company’s marketing performance.

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Increased Emphasis on Ethics and Socially Responsible Actions

Socially Responsible Behavior. Enlightened companies encourage their managers to “do the right thing.”

The boom in Internet marketing has created a new set of social and ethical issues.

Cause-Related Marketing. Many companies are now linking themselves to worthwhile causes. Cause-related marketing has stirred some controversy.

Cultural Environment

The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors.

Persistence of Cultural Values

Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, business, and government.

Secondary beliefs and values are more open to change.

Shifts in Secondary Cultural Values

Marketers want to predict cultural shifts in order to spot new opportunities or threats.

People’s Views of Themselves. People vary in their emphasis on serving themselves versus serving others.

The Yankelovich Monitor identifies consumer segments whose purchases are motivated by self-views. Two examples:

Do-It-Yourselfers—Recent Movers.

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Adventurers.

People’s Views of Others. Shifts in people’s attitudes toward others has been noted.

Trend trackers see a new wave of “cocooning.”

People’s Views of Organizations. People are willing to work for major organizations and expect them to carry out society’s work.

Many people see work as a required chore to earn money to enjoy their nonwork hours.

People’s Views of Society. People vary in their attitudes toward their society.

People’s Views of Nature. Recently, people have recognized that nature is finite and fragile, that it can be destroyed by human activities.

This renewed love of things natural has created a 63-million-person “lifestyles of health and sustainability” (LOHAS) market.

The U.S. organic-food market generated $15.9 billion in sales last year, a 325 percent increase over since 1997.

People’s Views of the Universe. Religious conviction and practice have been dropping off gradually through the years.

Responding to the Marketing Environment

Many companies think the marketing environment is an uncontrollable element to which they have to adapt.

Other companies take an environmental management perspective to affect the publics and forces in their environment.

Marketing managers should take a proactive rather than reactive approach to the marketing environment.

Travel Log

Discussing the Issues

1. Name and describe the elements of a company’s microenvironment and give an example showing why each is important. (AASCB: Communication)

Answer:

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The microenvironment consists of the actors close to the company that affect its ability to serve its customers—the company, suppliers, marketing intermediaries, customer markets, competitors, and publics. In designing marketing plans, marketing management takes other company groups into account—groups such as top management, finance, research and development (R&D), purchasing, operations, and accounting. All these interrelated groups form the internal environment. Suppliers form an important link in the company’s overall customer value delivery system as they provide the resources needed by the company to produce its goods and services. Marketing intermediaries help the company to promote, sell, and distribute its products to final buyers. They include resellers, physical distribution firms, marketing services agencies, and financial intermediaries. The company needs to study five types of customer markets closely: consumer markets, business markets, reseller markets, government markets, and international markets. The marketing concept states that to be successful, a company must provide greater customer value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers. Finally, the company’s marketing environment also includes various publics—any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives. Seven types are identified: financial, media, citizen-action, local, general, government, and internal publics.

2. What is demography and why are marketers interested in it? List some of the demographic trends of interest to marketers. (AACSB: Communication)

Answer:

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets. The major trends discussed in the chapter include the changing age structure of the population, the changing American family, geographic shifts in population, a better-educated, more white-collar, more professional population, and increasing diversity.

3. Discuss the trends in the natural environment that marketers must be aware of and provide examples of companies’ responses to them. (AACSB: Communication)

Answer:

The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities. Marketers should be aware of several trends in the natural environment. The first involves growing shortages of raw materials. Marketers need to rely less on nonrenewable resources and use renewable resources more wisely. A second environmental trend is increased pollution. Industry will almost always damage the quality of the natural environment. A third trend is increased government intervention in natural resource

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management. The governments of different countries vary in their concern and efforts to promote a clean environment. The general hope is that companies around the world will accept more social responsibility, and that less expensive devices can be found to control and reduce pollution.

Concern for the natural environment has spawned the so-called green movement. Today, enlightened companies go beyond what government regulations dictate. They are developing environmentally sustainable strategies and practices in an effort to create a world economy that the planet can support indefinitely. They are responding to consumer demands with more environmentally responsible products, such as recyclable or biodegradable packaging, recycled materials and components, better pollution controls, and more energy-efficient operations. More and more, they are recognizing the link between a healthy ecology and a healthy economy. They are learning that environmentally responsible actions can also be good business.

4. Discuss reasons why business legislation is enacted. What role do businesses and industry groups play in shaping such legislation? (AACSB: Communication; Reflective Thinking)

Answer:

Business legislation has been enacted for a number of reasons. The first is to protect companies from each other. Laws define and prevent unfair competition. In the United States, such laws are enforced by the Federal Trade Commission and the Antitrust Division of the Attorney General’s office. The second purpose of government regulation is to protect consumers from unfair business practices. Some firms, if left alone, would make shoddy products, invade consumer privacy, tell lies in their advertising, and deceive consumers through their packaging and pricing. Unfair business practices have been defined and are enforced by various agencies. The third purpose of government regulation is to protect the interests of society against unrestrained business behavior. Profitable business activity does not always create a better quality of life. Regulation arises to ensure that firms take responsibility for the social costs of their production or products.

New laws and their enforcement will continue to increase. Businesses and industry groups must watch these developments when planning their products and marketing programs. Marketers need to know about the major laws protecting competition, consumers, and society. They need to understand these laws at the local, state, national, and international levels.

5. Compare and contrast core beliefs/values and secondary beliefs/values. Provide an example of each and discuss the potential impact marketers have on each. (AACSB: Communication; Reflective Thinking)

Answer:

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Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, business, and government. Secondary beliefs and values are more open to change. Believing in marriage is a core belief; believing that people should get married early in life is a secondary belief. Marketers have some chance of changing secondary values but little chance of changing core values.

6. How should marketers respond to the changing environment? (AACSB: Communication)

Answer:

Many companies view the marketing environment as an uncontrollable element to which they must react and adapt. They passively accept the marketing environment and do not try to change it. They analyze the environmental forces and design strategies that will help the company avoid the threats and take advantage of the opportunities the environment provides. Other companies take a proactive stance toward the marketing environment. Rather than simply watching and reacting, these firms take aggressive actions to affect the publics and forces in their marketing environment. Such companies hire lobbyists to influence legislation affecting their industries and stage media events to gain favorable press coverage. They run advertorials (ads expressing editorial points of view) to shape public opinion. They press lawsuits and file complaints with regulators to keep competitors in line, and they form contractual agreements to better control their distribution channels. By taking action, companies can often overcome seemingly uncontrollable environmental events. Marketing management cannot always control environmental forces. In many cases, it must settle for simply watching and reacting to the environment. For example, a company would have little success trying to influence geographic population shifts, the economic environment, or major cultural values. But whenever possible, smart marketing managers will take a proactive rather than reactive approach to the marketing environment.

Application Questions

1. China and India are emerging markets that will have a significant impact on the world in coming years. The term “Chindia” has been used to describe the growing power of these two countries. Discuss two trends related to Chindia’s power and its impact on marketers in the United States. (AACSB: Communication; Reflective Thinking)

Answer:

Students’ responses will vary but they can find articles on the growth of China and India, and on the “Chindia” phenomenon. For example, the article, “‘Chindia Is the

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Future’ Says Asburton,” (2006), Emerging Markets Monitor, vol. 12 (December 18), pp. 1, 7-8, provides some trends that are of interest to United States marketers. In 2006, the working population in Chindia was 1.6 billion, but it will rise to 1.86 billion by 2020; nominal GDP will increase from $2 trillion US to $26 trillion US; auto sales will increase from 7 million to 32 million; and percentage of world energy consumption will increase from 15% to 25%. These trends pose both opportunities and threats to marketers in the United States. Opportunities arise because consumer demand will increase. But limited resources will be spread among more people, possibly driving up costs of raw materials.

2. The Federal Trade Commission (FTC) has regulatory authority over marketing practices. Visit www.ftc.gov to learn about this agency and how it regulates business activities in general and marketing activities in particular. Describe the process the FTC uses if a complaint is made and discuss one FTC case related to marketing. (AACSB: Communication; Use of IT)

Answer:

Students will have to search around the FTC’s Web site to learn how the FTC brings an action. You may want to point them to the URL: www.ftc.gov/ftc/action.shtm. The best way to learn about current cases is to click on the “News” tab at the top of the Web site.

3. Cause-related marketing has grown considerably over the past ten years. Visit www.causemarketingforum.com and learn about companies that have won Halo Awards for outstanding cause-related marketing programs. Present two award-winning case studies to your class. (AACSB: Communication; Use of IT)

Answer:

Students’ responses will vary. Students can click on “Winner Archives” on the left side of this Web site to learn about past winners of this award. Past recipients are highlighted with short explanations of their campaigns.

Under the Hood: Focus on Technology

First there was the television, then the computer, and now there’s the “third screen”—mobile phones. The first and second screens—TV and the computer—are heavily commercialized, and so to will be the third screen. Mobile marketing involves any type of marketing message—voice, text, image, or video—delivered to a hand-held portable device such as a cellphone, iPhone, or BlackBerry. Though still in its infancy in the United States, mobile has grown rapidly in other countries. It has spawned an industry group—the Mobile Marketing Association (MMA)—and an academic journal entitled the International Journal of Mobile Marketing. Marketers in the United States are treading carefully but some are having success, such as Coca-Cola’s Sprite campaign targeted to teens and Meijer’s (a mid-West discount retail chain) “gas alerts” informing consumers of price changes three hours before they take effect.

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http://www.ftc.gov/

http://www.causemarketingforum.com/

http://www.ftc.gov/ftc/action.shtm


1. Learn more about mobile marketing and discuss its applications. Develop a mobile marketing campaign for a brand of your choice. (AACSB: Communication; Reflective Thinking)

Answer:

Students’ responses will vary but they should be able to find ample articles illustrating examples. Students can learn about campaigns through trade publications

such as Advertising Age and at the Mobile Marketing Association’s Web site: www.mmaglobal.com.

2. Which demographic group or groups will more likely accept mobile marketing? Explain your answer. (AACSB: Communication; Reflective Thinking)

Answer:

The text highlights some attributes of the Millennials. Most notably, they grew up on technology and have a high level of comfort with it. They can more easily overcome the learning curve for this technology than can older generations. In addition, they are an impatient, now-oriented generation. They also may feel aliened if they are not part of mobile marketing efforts.

Focus on Ethics

You’ve probably heard of a monopoly, in which one powerful seller controls a market of many buyers. But have you ever heard of a monopsony? A monopsony involves one powerful buyer and many sellers. The buyer is so powerful that it can drive prices down. And example is Wal-Mart, the world’s largest retailer. Wal-Mart’s power allows it to get the lowest possible prices from its suppliers. Similarly, wine-making giant Ernest & Gallo has so much power buying grapes that growers have to concede to the wine maker’s demands for lower prices.

1. Is it fair that a buyer can exert so much power over a supplier? Are there any benefits to consumers? (AACSB: Communication; Ethical Reasoning)

Answer:

Some students will argue that it is the free market working and is inherently fair. However, whereas larger suppliers can meet the demands of the powerful buyer, smaller suppliers will not be able to compete. This may not be in the best interests of consumers if it reduces competition or if product quality suffers. However, the lower prices will be passed on to consumers, so some will argue that it is good for consumers. For example, Wal-Mart leverages its buying power to obtain lower prices, which it in turn passes on to consumers in the form of lower prices.

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http://www.mmaglobal.com/


2. Do you think the government should step in and set minimum price levels? Discuss the consequences of your answer. (AACSB: Communication; Reflective Thinking)

Answer:

Students’ responses will vary. Some students will argue that government intervention is necessary to protect the small suppliers. With minimum price levels set by the government, the smaller firms may be able to compete with the larger suppliers.

However, consumers may be hurt if suppliers must sell at a minimum price, resulting in higher prices for consumers.

GREAT IDEAS

Barriers to Effective Learning

1. This is an intense chapter, and it presents a whole lot of information that might make some students’ heads swim. If it hasn’t happened before, this is where students really begin to get the picture that marketing managers need to be very analytical. Presenting the in-depth discussion of current macro trends as something that needs to be understood but not memorized helps.

2. Students will also be anxious about how a marketing manager successfully tracks these kinds of forces. Explaining the use of purchased marketing and economic reports, and what market researchers do for a living, helps relieve that anxiety.

3. As usual, examples of companies who successfully adapt to changing forces and factors will help students internalize the messages in this chapter.

Student Projects

1. Define the marketing environment for Starbucks (www.starbucks.com). Keep in mind that a company’s marketing environment consists of the actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers.

2. What are the fundamental differences between consumer markets, business markets, and reseller markets?

3. Consider your college/university. What are the publics to which it must pay attention?4. Over 14 percent of the U.S. population moves every year. How is this good for

marketers?5. Describe the differences in products which appeal to the middle class, working class,

and upper class.

Small Group Assignment

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http://www.starbucks.com/


Form students into groups of three to five. Each group should read the opening vignette to the chapter on McDonald’s. Each group should answer the following questions:

1. What changes in the American lifestyle negatively impacted McDonald’s, causing sales to slow markedly?

2. How has McDonald’s attempted to cope with these slowing sales?3. How effective have they been?

Each group should share its findings with the class.

Individual Assignment

Go online and compare the marketing strategies of McDonald’s (www.mcdonalds.com), Wendy’s (www.wendys.com), and Burger King (www.burgerking.com). What age group is each targeting? Do you agree with their strategy?Think-Pair-Share

Consider the following questions, formulate and answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What are the fundamental differences between Generation X and Generation Y?2. How has the typical family changed just in your lifetime? 3. Overall, the U.S. population is becoming better educated. What implication does this

hold for marketers? 4. By 2050, Hispanics will comprise an estimated 24 percent of the U.S. population.

How will this impact the manner in which some products are marketed? 5. What is the one most significant trend in the natural environment, in your opinion,

and how is it impacting marketing activities?

1. College is a place to break things down into their component parts to study them in isolation. The section on the company’s microenvironment may well be the first time the students will have looked at marketing as needing to pay attention to anything other than marketing concepts. At least 15 minutes should be devoted to this topic in class. The difficult concepts will most likely be in the areas of marketing intermediaries and publics; spending sufficient time on these two topics will make the following chapters that much easier.

2. The majority of the class time, 30 to 40 minutes, should be spent on the macroenvironment. There is a tremendous amount of information in this section, particularly in the section describing the demographic environment. It’s helpful here to link some of these concepts back to what they learned in sociology courses, or, if the students have not taken any of the social sciences, you can point out how they interact with business. The next most intense part of this section is the political environment and the sheer number of laws passed that affect marketers. The cultural environment section is a good time to tie in principles of psychology.

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http://www.burgerking.com/

http://www.wendys.com/

http://www.mcdonalds.com/

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