External Considerations in Marketing

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Chapter 5

• External Considerations in Marketing

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Learning Objectives

• Importance of analysis of the organizations
  external environment and its impact on strategic
  marketing planning
• Marketing agencies often work with external
  agencies like distributors, marketing research
  suppliers, advertisement agencies, material
  suppliers that perform some marketing activities
• External factors including external agencies,
  competitors, legal/ethical, economic/political
  issues, technology and social trends have an
  impact on marketing activities
• Relate external factors to marketing planning
  process

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Strategic Plan

• Should raise the overall level of the
  organizations effectiveness
• Helps recognize the interrelationships among
  various forces in the business environment that
  represent threats and opportunities
• Helps implement the organizations vision by
  prioritizing threats and opportunities according
  to relevance, cost, urgency

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Planning Process

• Internal planning asks
• What are organizations strengths and weaknesses?
• What comparative cost advantages we have?
• What product features provide us with an
  advantage?
• External planning asks
• The same questions, plus
• How all the elements of the marketplace relate to
  each other?

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Environmental Scanning

• Activities directed towards obtaining information
  about current events, trends that occur outside
  the organization and can influence its decision
  making
• Strategic information scanning system organizes
  scanning effort so that information related to
  specific situations can be more readily obtained
  and used

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External Factors

• External Surprises
• Competitors
• Legal/Ethical
• Product Liability
• Deregulation
• Consumer Protection

• Economic/
• Political Issues
• Consumer Buying Power
• Business Cycle
• Technology
• Social Trends

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Identify Competitors

• Avoid narrow definition of competitor focus on
  satisfying wants, needs of customers, not the
  product being produced
• Other criteria of definition geographic location
  of competitors, relative size, history, channels
  of distribution, common tactics
• Track customers perceptions of product groupings
  and substitutions
• Track expected competitors

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Assess Competitors

• Assess relative to factors that drive
  competition
• Entry
• Bargaining power of buyers (e.g., Home Depot) and
  suppliers (e.g., Microsoft)
• Existing rivalries (slow-growth market)
• Substitution possibilities (high fixed costs)
• Use the assessment to
• Create barrier to entry
• Increase brand awareness
• Intensify a fight for market share

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Legal/Ethical

• Laws, agencies, policies and behavioral norms are
  established to ensure that marketers compete
  legally and ethically in their business efforts
  e.g., Enron

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Monetary and Fiscal Policy

• Tax legislations
• Money Supply
• Level of government spending e.g., conservative
  governments spend more on defense than on
  environment

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Federal Legislation

• Ensures fair competition, fair pricing practices,
  honesty in marketing communications e.g.,
  anti-tobacco legislation affects tobacco and
  related industries

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Government/ Industry Relationship

• Agriculture, railroads, shipbuilding and others
  are subsidized by the government
• Tariffs and import quotas affect other industries
  like automobile
• Other industries are regulated by government
  e.g., airlines
• The utilities industry was deregulated by
  government this had a negative impact on power
  industry in California in 2001

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Social Legislation

• Broad social legislations like civil rights laws,
  programs to reduce unemployment, and legislation
  that affects the environment (e.g., water and air
  pollution)

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State Laws

• Affects marketers in different ways. For example,
  
• Utilities in Oregon can spend only ½ of their
  net income on advertising
• In New Jersey nine dairies have paid the state
  over 2 million to settle a price-fixing lawsuit

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Regulatory Agencies

• State regulatory agencies pursue marketing
  violations of the law
• Federal agencies e.g., the Federal Trade
  Commission and Consumer Products Safety concern
  themselves with all facets of business

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Consumer Protection

• Food, Drug and Cosmetic Act (1938) aim
  principally at preventing adulteration and
  misbranding of three categories of products
• The Consumer Product Safety Commission helps to
  increase the power, influence, rights of
  consumers in dealing with institutions

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Ethical Issues

• Bribery accepting gifts from outside vendors
• Fairness taking credit for work of others
• Honesty lying to customers to obtain orders
• Price charging higher prices than firms with
  similar products while claiming superiority
• Product product safety
• Personnel hiring and firing
• Confidentiality Using classified information
• Advertising Misleading customers
• Manipulation of data Falsifying figures
• Purchasing Reciprocity in the selection of
  suppliers

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Social Responsibility

• The idea that organizations are part of a larger
  society and are accountable to society for their
  actions (e.g, Ben Jerrys)
• Societal marketing concept seeks to satisfy
  consumers in a way that also provides for
  societys well-being

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Economic / Political Issues

• Economy
• Consumers buying Power e.g., devaluation,
  inflation
• Business Cycle fluctuations in economic
  conditions

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Buying Power

• Ability to make purchases is affected by
• Income wages, rents, investments, pensions,
  subsidies
• Disposable Income income after taxes
• Discretionary Income disposable income after
  spending for basic necessities
• Credit ability to buy now and pay later
• Wealth accumulation of past income and assets
  like real estate

• Willingness to spend how much and on what
• Consumer spending patterns expenditure on
  certain kinds of products and services each year
• Comprehensive spending patterns allocation to
  expenditure for classes of products and services
• Product spending patterns amount spent on
  specific products in a products class

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Business Cycle

• Depression most serious economic downturn all
  economic indicators move downward
• Recovery some economic indicators increase while
  others may stay low or even decrease intangibles
  like consumer confidence affects the process
  premature marketing can have dire consequences

• Prosperity period of time when the country is
  growing low unemployment, high demand
• Recession decrease in the rate of growth of the
  economy low spending power, reduced marketing
  opportunities

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Technology

• Knowledge of how to accomplish tasks and goals
• Aggressively advancing technology is threatening
  existing products
• Substitute technologies from broad and new
  organizations compete with established products
• Product innovations that result in superior
  performance or cost advantages are best means of
  protecting or building market positions without
  sacrificing profit margins

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Social Trends

• Social environment includes all factors and
  trends related to groups of people, including
  their number, characteristics, behavior and
  growth projections
• Two important components demographic and cultural

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Demographic

• Observable characteristics of individuals living
  in a culture
• Physical e.g., gender, race, age
• Economic e.g., income, savings
• Occupation-related e.g., education
• Location-related
• Family-related e.g., marital status

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Demographic Changes

• Households are growing more slowly and getting
  older
• Demise of traditional family
• Continued increase in education
• Nonphysical jobs keep growing
• Growing faster than expected
• Growth of minorities
• Baby boomers become middle aged
• People are moving south/Sun-belts
• The middle class gets hammered

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Cultures

• Culture
• Sum of learned values, beliefs and customs that
  regulate behavior of members of a particular
  society
• Teaches how to adjust to environmental,
  biological, psychological and historical parts of
  the environment
• Core values dominant cultural values slow and
  difficult to change
• Secondary values less permanent that can
  sometimes be influenced by marketing
  communications

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Subcultures

• Group of people who share a set of secondary
  values e.g., environmentally concerned people
• Main bases of subculture
• Material culture e.g., income
• Social institutions e.g., army
• Belief systems e.g., religion
• Aesthetics e.g., art, music
• Language e.g., dialects, accents, vocabulary

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