Chapter 3 PowerPoint

Chapter 3
The Marketing
Environment
©2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Learning Objectives
LO 3-1 Summarize why it is important to examine and
respond to the marketing environment.
LO 3-2 Explain how competitive factors affect an
organization’s ability to compete.
LO 3-3 Articulate how economic factors influence a
customer’s ability and willingness to buy products.
LO 3-4 Identify the types of political forces in the marketing
environment.
LO 3-5 Explain how laws, government regulations, and self-
regulatory agencies affect marketing activities.
LO 3-6 Describe how new technology impacts marketing
and society.
LO 3-7 Outline the sociocultural issues marketers must deal
with as they make decisions.
©2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Environmental Forces
Competitive
Economic Political
Environmental
Forces
Legal and Technological

Regulatory
Sociocultural
LO 3-1 ©2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Environmental Scanning
and Analysis (slide 1 of 2)
• Environmental scanning – The process
of collecting information about forces in the
marketing environment
– Involves:
 Observation
 Secondary sources such as business, trade,
government, and general-interest publications
 Marketing research
– The Internet has become a popular scanning
tool because it makes data more accessible
and allows companies to gather needed
information quickly
Environmental Scanning
and Analysis (slide 2 of 2)
• Environmental analysis – The process of
accessing and interpreting the information
gathered through environmental scanning
– A manager evaluates the information for
accuracy, tries to resolve inconsistencies in the
data, and, if warranted, assigns significance to
the findings
 Evaluating this information should enable the
manager to identify potential threats and
opportunities
Responding to
Environmental Forces
• Marketers take two general approaches to
environmental forces:
– Passive – Accepting them as uncontrollable
– Proactive – Attempting to influence and shape
them
• There is no best way to react
– Depends on the organization’s managerial
philosophies, objectives, financial resources,
customers, and human resources skills, as well
as the environment within which the
organization operates
Competitive Forces
• Competition – Other organizations that

market products that are similar to or can
be substituted for a marketer’s products in
the same geographic area
– Few firms, if any, operate free of competition
– When marketing managers define the target
market(s) their firm will serve, they
simultaneously establish a set of competitors
– Marketing managers must consider the type of
competitive structure in which the firm operates
Types of Competitors
• Competitors can be classified into one of four
types:
– Brand competitors – Firms that market products with
similar features and benefits to the same customers at
similar prices
– Product competitors – Firms that compute in the same
product class but market products with different
features, benefits, and prices
– Generic competitors – Firms that provide very different
products that solve the same problem or satisfy the
same basic customer need
– Total budget competitors – Firms that compete for the
limited financial resources of the same customers
Types of Competitive Structures
(slide 1 of 2)
• Monopoly – A competitive structure in which an

organization offers a product that has no close
substitutes, making that organization the sole
source of supply
– Because the organization has no competitors, it controls
the supply of the product completely and, as a single
seller, can erect barriers to potential competitors
• Oligopoly – A competitive structure in which a few
sellers control the supply of a large proportion of a
product
– Usually barriers of some sort make it difficult to enter the
market and compete with oligopolies
Types of Competitive Structures
(slide 2 of 2)
• Monopolistic competition – A competitive

structure in which a firm has many potential
competitors and tries to develop a marketing
strategy to differentiate its product
• Pure competition – A market structure
characterized by an extremely large number of
sellers, none strong enough to significantly
influence price or supply
– Products would be homogeneous, and entry into the
market would be easy
– Does not exist in the real world
Table 3.1 – Selected Characteristics
of Competitive Structures
Monitoring Competition
• Marketers need to monitor the actions of

major competitors to determine what
specific strategies competitors are using
and how these strategies affect their own
• The firm must develop a system for
gathering ongoing information about
competitors and potential competitors
– Information about competitors allows marketing
managers to assess the performance of their
own marketing efforts and to recognize the
strengths and weaknesses in their own
marketing strategies
Economic Conditions (slide 1 of 2)
• Changes in general economic conditions

affect (and are affected by):
– Supply and demand
– Buying power
– Willingness to spend
– Consumer expenditure levels
– Intensity of competitive behavior
Economic Conditions (slide 2 of 2)
• Business cycle – A pattern of economic fluctuations that has four
stages:
– Prosperity – A stage of the business cycle characterized by low
unemployment and relatively high total income, which together ensure
high buying power (provided the inflation rate stays low)
 Consumers generally are willing to buy, and marketers often expand their
product offerings to take advantage of increased buying power
– Recession – A stage of the business cycle during which
unemployment rises and total buying power declines, stifling both
consumer and business spending
– Depression – A stage of the business cycle when unemployment is
extremely high, wages are very low, total disposable income is at a
minimum, and consumers lack confidence in the economy
– Recovery – A stage of the business cycle in which the economy
moves from depression or recession to prosperity
 Difficult to ascertain how quickly and to what level prosperity will return
 Marketers should maintain as much flexibility in their marketing strategies
as possible so they can make the needed adjustments
Buying Power (slide 1 of 4)
• Buying power – Resources, such as

money, goods, and services, that can be
traded in an exchange
• The major financial sources of buying
power are income, credit, and wealth
• Income – For an individual, the amount of

money received through wages, rents,
investments, pensions, and subsidy
payments for a given period
• Disposable income – After-tax income
• Discretionary income – Disposable
income available for spending and saving
after an individual has purchased the basic
necessities of food, clothing, and shelter
• Credit enables people to spend future

income now or in the near future
• Credit increases current buying power at
the expense of future buying power
• Factors affecting credit use:
– Must be available
– Interest rates
– Credit terms (such as size of the down
payment and amount and number of monthly
payments)
• Wealth – The accumulation of past

income, natural resources, and financial
resources
– Global wealth is increasing
– Like income, wealth is unevenly distributed
• As people become wealthier, they gain
buying power in three ways:
– To make current purchases
– To generate income
– To acquire large amounts of credit
Willingness to Spend
• Willingness to spend – An inclination to

buy because of expected satisfaction from
a product, influenced by the ability to buy
and numerous psychological and social
forces
– Factors that affect consumers’ general
willingness to spend are:
 Expectations about future employment
 Income levels
 Prices
 Family size
 General economic conditions
Political Forces (slide 1 of 2)
• Political, legal, and regulatory forces of the

marketing environment are closely
interrelated
– Legislation is enacted
– Legal decisions are interpreted by courts
– Regulatory agencies are created and operated,
for the most part, by elected or appointed
officials
Political Forces (slide 2 of 2)
• Marketers may:
– View political forces as beyond their control
and simply adjust to conditions that arise from
those forces
– Influence the process through contributions
and lobbying
Legal and Regulatory Forces
Self-
Regulatory Procompetitive
Forces Legislation
Legal
and
Regulat
ory
Forces
Consumer
Regulatory
Protection
Agencies
Legislation
Encouragin
g
Compliance
with Laws
and
Regulations
Table 3.2 – Major Federal Laws That
Affect Marketing Decisions (slide 1 of 2)
Table 3.2 – Major Federal Laws That
Affect Marketing Decisions (slide 2 of 2)
Procompetitive Legislation
• Procompetitive laws are designed to

preserve competition
– Most of these laws were enacted to end
various antitrade practices deemed
unacceptable by society
– Laws have also been created to prevent
businesses from gaining an unfair advantage
through bribery
Consumer Protection
Legislation
• A number of consumer protection laws deal with consumer
safety and are designed to protect people from actual and
potential physical harm caused by adulteration or
mislabeling
• Other laws prohibit the sale of various hazardous products
• Others concern automobile safety
• Congress has also passed several laws concerning
information disclosure
• Other laws focus on particular marketing activities:
– Product development and testing
– Packaging
– Labeling
– Advertising
– Consumer financing
Encouraging Compliance with
Laws and Regulations
• The current trend is moving away from
legally-based organizational compliance
programs
– Instead, many companies are choosing to
provide incentives that foster a culture of ethics
and responsibility that encourages compliance
with laws and regulations
Regulatory Agencies
• Regulatory agencies monitor many

marketing activities and usually have the
power to enforce specific laws, as well as
some discretion in establishing operating
rules and regulations to guide certain types
of industry practices
Table 3.3 – Major Federal
Regulatory Agencies
Federal Trade
Commission (FTC)
• Federal Trade Commission (FTC) – An
agency that regulates a variety of business
practices and curbs false advertising,
misleading pricing, and deceptive
packaging and labeling
• Most heavily influences marketing activities
(of all the federal regulatory units)
• Assists businesses in complying with laws
and evaluates new marketing methods
every year
Figure 3.2 – Federal Trade
Commission Enforcement Tools
Self-Regulatory Forces (slide 1 of 2)
• In an attempt to be good corporate citizens and
prevent government intervention, some
businesses try to regulate themselves
– Better Business Bureau (BBB) – A system of
nongovernmental, independent, local regulatory
agencies supported by local businesses that helps settle
problems between customers and specific business
firms
– National Advertising Review Board (NARB) – A self-
regulatory unit that considers challenges to issues
raised by the National Advertising Division (an arm of
the Council of Better Business Bureaus) about an
advertisement
Self-Regulatory Forces (slide 2 of 2)
• Advantages:
– Establishment and implementation are usually less
expensive
– Guidelines are generally more realistic and operational
– Effective self-regulatory programs reduce the need to
expand government bureaucracy
• Disadvantages:
– When a trade association creates a set of industry
guidelines for its members, nonmember firms do not
have to abide by them
– Many self-regulatory programs lack the tools or authority
to enforce guidelines
– Guidelines in self-regulatory programs are often less
strict than those established by government agencies
Technological Forces
• Technology – The application of

knowledge and tools to solve problems and
perform tasks more efficiently
• The rapid technological growth of the last
several decades is expected to accelerate
Impact of Technology (slide 1 of 4)
• Information technology (IT) is changing the

lives of consumers across the globe
– Offers lucrative career opportunities
– Provides business opportunities for
entrepreneurs
– Improves supply-chain management
• The importance of the Internet will only
increase in the future
• Negative impacts include:

– Concerns over privacy
– Intellectual property protection issues
• The effects of technology relate to such characteristics as
dynamics, reach, and the self-sustaining nature of
technological progress
– The dynamics of technology involve the constant change that
often challenges the structures of social institutions, including:
 Social relationships
 The legal system
 Religion
 Education
 Business
 Leisure
– Reach refers to the broad nature of technology as it moves
through society
– The self-sustaining nature of technology relates to the fact that
technology acts as a catalyst to spur even faster development
• The expanding opportunities for e-

commerce, the sharing of business
information, the ability to maintain business
relationships, and the ability to conduct
business transactions via digital networks
are changing the relationship between
businesses and consumers
Adoption and Use of Technology
(slide 1 of 2)
• Firms must keep up with technological

changes to maintain their status as market
leaders
• The extent to which a firm can protect
inventions that stem from research also
influences its use of technology
– If groundbreaking products and processes
cannot be protected through patents, a
company is less likely to market them and
make the benefits of its research available to
competitors
Adoption and Use of Technology
(slide 2 of 2)
• Through a procedure known as technology

assessment, managers try to foresee the
effects of new products and processes on
their firm’s operations, on other business
organizations, and on society in general
– With information obtained through a technology
assessment, management tries to estimate
whether benefits of adopting a specific
technology outweigh costs to the firm and to
society at large
Sociocultural Forces
• Sociocultural forces – The influences in a

society and its culture(s) that change
people’s:
– Attitudes
– Beliefs
– Norms
– Customs
– Lifestyles
• These forces help determine what, where,
how, and when people buy products
Demographic and Diversity
Characteristics
• Changes in a population’s demographic
characteristics lead to changes in how
people live and consume products
– Increasing proportion of older consumers and
singles
– Declining birth rate
– Growing number of immigrants
• A more diverse customer base means
marketing practices must be modified and
diversified to meet its changing needs
Table 3.5 – The Multicultural
Nature of the U.S. Population
Cultural Values
• Changes in cultural values dramatically influence
people’s needs and desires for products
– Health, nutrition, and exercise are growing in importance
(sales of organic foods, herbs and herbal remedies,
vitamins, and dietary supplements have escalated)
– Values regarding the permanence of marriage are
changing
– Children continue to be very important
– The trend toward eat-out and take-out meals
– Green marketing helps establish long-term consumer
relationships by maintaining, supporting, and enhancing
the natural environment
Consumerism
• Consumerism – Organized efforts by

individuals, groups, and organizations to
protect consumers’ rights
• The movement’s major forces are:
– Individual consumer advocates
– Consumer organizations and other interest
groups
– Consumer education
– Consumer laws

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Chapter 3

Legal and Technological

• Competition – Other organizations that

• Monopoly – A competitive structure in which an

• Monopolistic competition – A competitive

• Marketers need to monitor the actions of

• Changes in general economic conditions

• Buying power – Resources, such as

• Income – For an individual, the amount of

• Credit enables people to spend future

• Wealth – The accumulation of past

• Willingness to spend – An inclination to

• Political, legal, and regulatory forces of the

• Procompetitive laws are designed to

• Regulatory agencies monitor many

• Technology – The application of

• Information technology (IT) is changing the

• Negative impacts include:

• The expanding opportunities for e-

• Firms must keep up with technological

• Through a procedure known as technology

• Sociocultural forces – The influences in a

• Consumerism – Organized efforts by

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