Can someone do my Week 3 Discussion 2 and Week 4 Discussion plus Week 4 journal?

Learning Outcomes

After reading this chapter, you should be able to

• Define actors and forces in the micro and macro environment.

• Explain the essential insight regarding demographic segmentation revealed by the 2010 census.

• Describe a marketing response to technological and ecological concerns.

• Describe the impact of economics and political and government regulation on marketing practice.

• Describe the global business environment in terms of cultural, technological, ecological, economic, and political/legal factors that create opportunities for marketers.

The Marketing Environment

Associated Press

8

In the Environment: Actors and Forces

Introduction Marketers must anticipate and plan for the many external factors influencing their strategic decisions. Of concern are not only the factors at work at the current moment, but also changes coming over the horizon—no small challenge!

Even though external forces are beyond marketers’ control, any business decision maker must still take those influences into account in developing the marketing mix. Now that you have studied product, price, place, and promotion, you are prepared to consider the impact of actors and forces in the environment on the strategic decisions of the marketing mix.

A note about terms: To avoid confusion between the marketing environment and the natural environment, throughout this chapter the words ecology/ecological and nature/natural have been used to refer to the latter concept.

8.1 In the Environment: Actors and Forces All companies are surrounded by pressures deriving from people (actors) and the dynamics of the current situation (forces). These actors and forces exert pressures on both the micro environment (factors specifically affecting one company) and the macro environment (fac- tors affecting many companies). These influences create both opportunities and threats for any company. Table 8.1 depicts the relationships between these factors in the marketing environment.

Table 8.1: Factors in the marketing environment

Actors Forces

Micro environment Company groups • Stakeholders (managers, employ-

ees, board members, stockholders, suppliers)

• Competitors • The public • Customers

Strategic moves by . . . • Competitors • Channel partners • Changes in consumer behavior

Macro environment Leaders in . . . • Culture/society • Politics • Economics • Technology development • Finance • Law

Trends in . . . • Globalization • Technology • Media

Note. Marketers must anticipate and plan for the influence of actors and forces on a company’s micro and macro environment as they develop the marketing mix.

Actors in the micro environment include the individuals who affect the company’s abil- ity to serve its customers. In this group are a company’s close allies—stakeholders such as management groups, employees, board members, stockholders, and suppliers—as well

Section 8.1

Section 8.1In the Environment: Actors and Forces

as competitors and various publics. Customers also play a role in the micro environment, through their consumer behavior and their participation in the public conversation about the company in social media and elsewhere. As part of the trend toward cocreation, custom- ers are serving on advisory boards and being invited into innovation efforts, increasing their importance as actors in the micro environment.

In the macro environment are larger societal forces and actors with widespread influence. Increasing globalization is bringing forces from around the world into play. While a butterfly flapping its wings in Brazil is unlikely to affect markets in Burma or Boston, small changes in consumer, business, or governmental behavior can have far-ranging effects. For example, as described in Chapter 1, the increas- ing consumption of quinoa in the United States as a health food has led to negative health consequences in the South American countries where it is grown. Companies must consider not only the potential markets beyond national borders but also the inter- connected effects of actors and forces in many countries.

Toward what end do marketers study actors and forces in the marketing environment? In a word, planning. In Chapter 2 you learned that research provides the essential inputs to strategic planning. Analysis of environmental actors and forces con- tributes to the first step in the marketing process. There can be no selection of a marketing strategy, development of a campaign, or execution and mea- surement without this crucial step.

Micro- and macro-environmental forces make up the focus of study in this chapter. We’ll begin with a look at the actors in the micro environment. Upcoming sections in this chapter address macro- environmental forces, including sociocultural factors, technological and ecological factors, and economic, political, and legal factors.

Actors in the Micro Environment Let’s examine the actors in the micro environment:

Company groups: Employees form groups within a company, charged with carrying out its objectives and strategic plans. Important groups to consider include top management, finance, research and development (R&D), purchasing, operations, and accounting. Employees as indi- viduals are also actors in their employer company’s micro environment. In a company with

jfmdesign/iStock/Getty Small changes in behavior can have far-ranging effects, as illustrated by the quinoa example in the text. Can you think of any other examples?

Section 8.1In the Environment: Actors and Forces

a marketing orientation, individuals in every functional role must work together to deliver value to customers.

Members of an incorporated firm’s board of directors set policy, oversee control procedures, and govern the firm while looking after its investors’ interests. Members of this company group may include both the firm’s top management and experts or respected persons drawn from the firm’s community.

Channel partners form another company group. Suppliers, distributors, and resellers are critical to a company’s overall ability to deliver customer value. When channel partners have problems, they can affect the other partners’ performance.

Since marketers strive to align company stakeholders with the goal of building long-term customer relationships, shifts in the makeup of the board, management, employee force, or channel partners can affect marketing strategy.

Competitors: Marketing-oriented companies are constantly engaged in monitoring competi- tors in their environment. Successful positioning would be impossible without knowledge of competitors’ strategies and trends.

Influencing the competitive environment are factors such as each firm’s position in the indus- try structure (leader, challenger, etc.), the size and number of competitors, and the degree to which competition focuses on price. Also influential is each competitor’s mission, strategic motivations, and attitude—leader? underdog?—factors that foretell likely responses to each other’s strategic moves.

Product issues also affect the competitive environment, including indirect competition from substitutes and direct competitors’ strategies regarding their offerings’ branding, quality, price, and degrees of service and support. In addition, the relation of supply to demand in the marketplace, and trends that might predict change in supply and demand, are part of the competitive landscape.

In addition to the threat of moves by existing competitors, marketers must monitor the entry of new competitors. Technological innovation by a competitor could change demand for a com- pany’s products or services radically and quickly. For example, e-mail replaced much of the traffic in local delivery of documents; digital photography made film processing unnecessary.

Finally, few industries are safe from foreign competitors. Most businesses face some risk of losing their home market to a foreign company with aggressive plans for expansion.

Publics: In the micro environment are groups with an interest in or impact on an organization. Publics include financial communities, government and citizen-action groups, and the gen- eral population with an interest in the locale or industry of a company. Most important among the publics are those intent on spreading communications—the media, including news, fea- tures, and editorial opinion platforms, and the commentators who, through blogs and other channels, share their opinions widely. Any or all of these publics can create good or bad word of mouth and thus require monitoring and relationship management.

Section 8.1In the Environment: Actors and Forces

Customer markets: Customer markets can be consumer (buying goods and services for per- sonal consumption), business (buying for use in production of other goods and services), resellers (retailers and others buying for resale at a profit), or government (buying to produce public services or provide goods or services to those in need of them). Customer markets influence companies through their structure, which determines the size of the customer base and the aggregate buying power available to a company. Each structure has distinct charac- teristics that will affect marketing strategy and thus needs close observation to detect trends that might call for shifts in strategic direction.

Environmental Scanning Knowledge of the micro and macro environment must come from somewhere. Marketers’ research designed to collect information about the external marketing environment in order to identify and interpret potential trends is known as environmental scanning. Conduct- ing an environmental scan is part of the strategic analysis phase of the marketing process, as discussed in Chapter 2. Environmental scanning is typically conducted by the marketing department’s research team.

Environmental scanning is used to understand forces that may affect a company’s strategic plans, such as competitors’ moves. Environmental scanning brings to light trends a compa- ny’s marketers would otherwise be unable to sense.

The process of environmental scanning serves three goals:

• to provide an understanding of current and potential changes in the environment • to provide important intelligence for strategic decision makers • to facilitate strategic thinking at every level in the organization

Environmental scanning is a wide-ranging activity encompassing everything a company does to keep abreast of developments in the wider environment that may affect its future. Effective environmental scanning requires maximum exposure to the widest possible range of media, customer conversations, and thought leaders in the industry, region, and political/govern- mental sphere (Mercer, 1998).

One form environmental scanning takes is the pursuit of competitive intelligence. Research- ers gather information about all aspects of competitors’ marketing and business activities. Another form is market sensing—the pursuit of information about customers’ behaviors, preferences, and motivations.

Every marketer hopes to predict trends ahead of competitors. The holy grail of environmental scanning is to detect weak signals—the first signs of an emerging development in any of the environmental forces. Paradoxically, weak signals have the most strategic value when they are weakest—like the first dark cloud that warns of an approaching thunderstorm. Further- more, it can be hard to weed out irrelevant weak signals and to properly interpret the relevant ones. Even so, weak signals are such an important source of competitive advantage that wise marketers develop market sensing programs specifically designed to detect them.

Section 8.2ocial and Cultural Factors

The use of customer advisory panels is one example of marketers attempting to pick up weak signals about shifts in customer preferences or behavior. Another is careful “listening” to customers on social media platforms. When Nordstrom began noticing that its Pinterest fol- lowers were putting together virtual “wish lists,” the retailer began reflecting those choices in actual product groupings in its physical and online stores, using those weak signals from customers to increase product sales (Brown, 2013).

Perhaps the most dramatic trend an environmental scan would pick up today is the striking increase in customer-generated information available about competing options to fill specific needs or desires. Marketers must respond strategically to be sure the differentiating features and benefits of their offerings are part of the conversation or risk being forced to compete primarily on price.

In summary, marketers must anticipate and plan for the influence of actors (people, either individually or in groups) and forces (situational factors) on a company’s micro and macro environment as they develop their marketing strategy. The primary tool by which they under- stand these influences is environmental scanning.

8.2 Social and Cultural Factors Social and cultural forces in the marketing environment guide business practices and pur- chasing behavior. People typically absorb the worldview of the community they are raised in, including the dominant values and modes of behavior. Core societal beliefs, like the dominant

Field Trip 8.1: Customer-Generated Product Information

How much customer-generated information is available about competing consumer product options? Consider rotisserie ovens as a product category. Visit Amazon.com, Walmart.com, or another major retailer’s website and enter “rotisserie oven” in the search field. Choose one of the top listings in your search results and look for customer reviews. How many do you find?

Have you ever posted or sought customer-generated information? Why?

If you were marketing rotisserie ovens, how might you use this information?

Questions to Consider

Consider a manufacturer of vinyl records today. What would an environmental scan pick up regarding future demand for the company’s products? How might environmental factors— such as the music industry’s search for a revenue source that doesn’t lend itself to illegal downloads, consumers’ dissatisfaction with the relatively poor sound fidelity of MP3 audio files, or indie retailers’ and musicians’ embrace of the vinyl format—affect demand for vinyl records? How would these trends be classified in our schema of micro-environmental actors and macro-environmental forces?

Section 8.2ocial and Cultural Factors

U.S. belief in the value of work and fam- ily, are passed from generation to genera- tion and reinforced by institutions such as schools and churches.

Core beliefs and values are firmly ingrained and resistant to change. Market- ers can hope to influence how some peo- ple act on those beliefs but find it is more difficult to fundamentally change them. That is the challenge presented by social marketing, discussed in Chapter 3. Shifts in social and cultural factors represent opportunities for competitive advantage for the firms that sense them early enough and develop strategic responses.

Of tremendous interest in the sociocul- tural environment is the generational cohort known as the millennials, so termed because the first of the millennial cohort would have graduated from high school in 2000. As was mentioned in Chapter 7, the millennial cohort is the largest in U.S. history and is estimated to have the most spending power of any generation (Frey, 2016). In a 2016 article titled “The Myth of the Millennial as Cultural Rebel,” New Republic editor Laura Marsh challenges current interpretations of millennial behavior. She calls out what appears to be “cultural rebellion” as accommodation to the fact that millennials would be the first cohort in U.S. history to experi- ence a lower standard of living than their parents. “Do we use Zipcar because we are ideologi- cally committed to sharing, or because car ownership is out of reach for a lot of people. . . ? Does a married couple decide to live with roommates because of our generational ‘openness to communal living’ or because people in New York face impossible rents?” Marsh asks. She suggests that when headlines tout “Millennials are killing the X industry,” we should substi- tute “Millennials are locked out of the X industry.” They may have significant spending power as a group, but divided by their large numbers, individually that spending seems pinched. This is worth remembering as you learn about this cohort’s outsized influence on today’s market environment (Marsh, 2016).

Cultural Values In Chapter 7 we discussed how cultural factors influence consumer purchasing behavior. In addition, as U.S. consumers become increasingly humanity-centric (part of the trend Kotler labeled Marketing 3.0), we are seeing greater value placed on time with family and friends; sustainable lifestyles; ecologically friendly purchase, consumption, and disposal of goods; and decreased materialism balanced by increased search for inner purpose (Kotler & Arm- strong, 2006).

Expressing humanity-centric values is the consumerism movement, an organized effort by individuals, groups, and governments to protect the consumer by exerting moral, legal, and economic pressures on business and government. The movement works to protect and inform consumers by advocating for honesty in packaging and advertising and improved safety stan- dards for products and services. Laws are the main tool for compliance.

Kali9/E+/Getty U.S. consumers have become more interested in time with family and friends and living sustain- able lifestyles, an example of cultural factors influencing consumer purchasing behavior.

Section 8.2ocial and Cultural Factors

These trends reflecting values of consumers are relevant to marketers because people express their values through their purchasing behavior. Buyers favor products and services that sup- port their values, self-image, and societal concerns.

Demographics Changes in the demographic environment have major implications for marketers, since the people studied in aggregate by demographers are the same people who as individuals are con- sumers of marketers’ goods and services. Demography is the study of human populations in terms of their quantifiable socioeconomic characteristics such as age, education level, income level, marital status, occupation, religion, birthrate, death rate, family composition, and more. As you learned in Chapter 7, marketers study demographics and other descriptors of popula- tions, such as psychographics, life stage/lifestyle, and purchase behavior, to segment markets and position offerings to appeal to target niches.

The cohort effect, discussed in Chapter 7, has proved helpful to marketers eager to tailor appeals and offerings to each generation’s tastes. Global marketers have also discovered that many of the American generational differences also exist outside the United States (Paul, 2002). Thus, generational cohorts as a market segmentation tool can be assumed to retain their validity even as immigration contributes to population growth.

But viewing the marketplace through the prism of age-based cohorts has its limita- tions. The greatest danger is oversimplifi- cation. A 40-something woman may be a grandmother or a new mom. People of identical ages can hold a wide variety of attitudes, motivations, and behaviors. They can attain different educational lev- els and belong to different social classes, causing them to have radically different outlooks. One need look no further than the divisive political climate following the election of Donald Trump to understand this.

A Changing America In 2016 the Pew Research Center identified 10 demographic trends shaping the United States and the world beyond its borders. The trends most relevant to U.S. marketers are as follows.

• Increasing racial and ethnic diversity: By the year 2055 no single racial/ethnic cat- egory will be the majority.

mihailomilovanovic How do demographic factors affect marketers?

Section 8.2ocial and Cultural Factors

• More diverse family/household types: Declining marriage rates, divorce, remarriage, and cohabitation have created blended families, in which the roles of mothers and fathers are less gender specified than in the past.

• An aging population in both the United States and abroad: As a result of rapidly rising birthrates from 1950 to 2010, followed by birthrates projected to slow signifi- cantly from 2010 to 2050, the world’s population will soon tilt toward the older age group (Cohn & Caumont, 2016).

As a result of these trends, marketers are likely to find more opportunity in niche markets as the population becomes more diverse. Marketing campaigns will need to reflect the diversity of those niches, and opportunities for industries and companies that serve older adults will likely increase—for example, a growth market for lifelong learning and experiences like Road Scholar, formerly named Elderhostel (Wellner, 2004)

“No household type neatly describes even one-third of households,” writes Peter Francese (as cited in Johnson, 2009, para. 9), a demographic trends analyst for WPP Ogilvy & Mather, New York.

Once, the popular metaphor for the American population was the melting pot. Today’s observers are more likely to use the phrase “salad bowl,” recognizing that various cultures are tossed together like salad ingredients, without merging their flavors into one homoge- neous culture. Beginning with the U.S. 2000 census, 63 possible combinations of the six basic racial categories exist, including six categories for those who report exactly one race, and 57 categories for those who report two or more races. The racial categories offered by the U.S. Census Bureau since 2000 include American Indian or Alaska Native, Asian, Black or African American, Native Hawaiian or Other Pacific Islander, White, and Some Other Race.

The fundamental insight for marketers revealed by these recent demographic trends is that segmentation by any demographic attribute is most effective when paired with segmentation by behavioral data. Categorizing prospective consumers by what they do rather than who they are leads to more effective marketing.

Field Trip 8.2: Patchwork Nation

Patchwork Nation is a reporting project of the Jefferson Institute that uses demographic, voting, and cultural data to organize U.S. communities into 12 distinct clusters that reflect different realities within the overall population trends. Visit its website to browse population trends and more. (The site requires users to register for a free account.)

Choose your state and county to see local information.

http://www.patchworknation.org

Section 8.2ocial and Cultural Factors

Marketers Respond to Sociocultural Changes Marketers are responding to the increasing diversity of U.S. consumers by developing mar- keting strategies that focus on non-White consumers. Marketers can target the subsegments within market niches, such as the different nationalities of Latinos (e.g., Mexican, Guatema- lan), and develop multicultural campaigns that include many nationalities. “Instead of think- ing of discrete segments in a multicultural world, we’re saying the new reality is that it’s more of a cross-cultural world, a mash-up of cultures,” says John Seifer (as cited in Elliott, 2011d), chair and chief executive of Ogilvy & Mather North America.

Marketers are also requiring more in-depth market research, relying on techniques like retail ethnography that enable them to understand other cultures more deeply, absorbing differ- ences in communication styles, behavior, and lifestyles that affect spending behaviors (Well- ner, 2004). We discussed research (including ethnography) in more detail in Chapter 2.

Marketers’ response to environmental trends in society and culture going forward will likely be based on their application of the insights of Marketing 3.0. As stated in Chapter 1, three major forces are affecting work among today’s consumers:

1. demand for participation 2. anxiety about globalization 3. an increasingly creative society

Demand for participation: New niches that share common values and passions often form into tight-knit communities. Beehiving (as this trend has been termed) describes small groups that give their members a sense of connection and belonging. To reach these communities, marketers are using more techniques like experiential marketing that strengthen connec- tions between like-minded individuals and the companies that fill their wants and needs. Experiential marketing, characterized by live encounters between brands and consumers that create memorable experiences, fills consumers’ demand for participation. The trend toward smaller, more intimate bricks-and-mortar shops, along with intimate showrooms within large stores—places where customer service and experience are emphasized over breadth of the merchandise assortment—exemplifies this response to shifts in the sociocultural environ- ment (Hsu, 2017).

Anxiety about globalization: Consumers’ anxiety requires a marketing response that is authentic and driven by recognition that financial profit cannot take priority over social or environmental impact. Companies show their alignment with these values through their ethi- cal conduct, corporate social responsibility policies, and occasionally through cause-related marketing campaigns (Mish & Scammon, 2010). When Starbucks ramped up its expansion in China (described in Chapter 6), it addressed anxiety about globalization both in China and in its home market by providing good wages and benefits and by creating hundreds of jobs through local sourcing of its coffee beans.

An increasingly creative society: To address market niches of creative people in search of self- actualization, marketers are beginning to use segmentation strategies based more on activi- ties and affinities than age classifications. Marketers design experiences that reflect targeted communities’ customs and language to build trust and engagement (Wellner, 2004). Invit- ing customers into cocreation of value—an inherently creative act—is an increasingly effec- tive response to this sociocultural trend. Consider Nike+, a website and app where runners

Section 8.3Technological and Ecological Factors

create community around their shared interest. Uploading data about runs allows them to see their exercise progress day-by-day, map their routes, share that information with their community of fellow runners, and even invite others to upcoming runs. Nike gets valuable customer data, while customers get a motivating social fitness experience—a classic win- win (Towers, 2011).

In conclusion, the environmental trends in social and cultural factors affecting consumers are driven by changing demographics, including overall population growth, an increasing num- ber of older adults, and an increase in ethnic/racial diversity. A more fine-grained look at the data reveals that generalizations about the U.S. population are less useful than ever before, as the population becomes more of a “patchwork nation.”

8.3 Technological and Ecological Factors Among the societal forces in the environment capable of influencing a company’s marketing strategy are developments in technology and ecology, which can sometimes be in conflict. Let’s consider each and how they interact.

Technology: Always a Game Changer Changes in the technological environment have had dramatic effects. For businesses, com- puter technology has created major opportunities in developing and distributing equipment, systems, and training in how to use them. For consumers, advances in health care technology have contributed to increased longevity and quality of life, while advances in technology for education, information, and entertainment have revolutionized how we study, work, and play.

Every new technology replaces an older technology, creating new markets and opportunities for some businesses while hurting others that have not kept up with changes in the techno- logical environment. Not only do technological innovations bring us new products we didn’t know we wanted, they improve existing products we use every day. Advances in technology also reduce prices to consumers through improvements in production and distribution meth- ods that cut costs in the supply chain. Innovations in technology for communications and data management make better customer service possible.

New technology emerges from the R&D departments of private industry, as well as govern- ment and the military, the research centers of colleges and universities, and not-for-profit

Questions to Consider

With the increasing diversity of the U.S. population, marketers can either target the subsegments within market niches or take aim at multiple ethnic segments. Think of a product or service you buy regularly. Suggest two STP (segmenting, targeting, and positioning) strategies for that offering, one based on targeting a subsegment and the other using a multicultural approach.

Section 8.3Technological and Ecological Factors

institutions. A marketer’s environmental scanning for technology trends must cover all these possible sources of innovation. Companies that fail to sense or dismiss coming technological change put themselves at risk. Consider the strategic position of the producers of the Sony Walkman or the Encyclopaedia Britannica today.

A recent trend to capture the public’s attention is technology that learns for itself—referred to by terms like artificial intelligence (AI), cognitive computing, and machine learning. Improve- ments in natural language processing and speech recognition (two technologies that make it easier for computers to learn) are driving rapid advances in how the computers around us adapt to our needs, whether that means Alexa ordering products from Amazon at our spoken command or a driverless car arriving to take us to our next destination (Nour, 2017). AI is expected to become embedded in many other technologies where it will make decisions for humans, or help us make decisions—for example, helping doctors diagnose diseases. Also generating buzz are virtual/augmented reality (used both for entertainment and business purposes) and robotics. This field has given us aerial drones and autonomous vehicles; we are likely to see increased use of robotics in a wide range of business-specific applications in the future (Business Wire, 2017).

Another way of framing “the ones to watch” in the technology environment is “SMAC”—an abbreviation for “social, mobile, analytics, cloud.” Each technology is driving change, and companies that leverage convergences between them, like cloud storage of photos taken with mobile devices, are already thriving. Separately and together, these technologies will be drivers of entirely new industries and business models (Copeland & Om, 2005).

Companies that harness these technolo- gies to support their customers’ jour- neys—without requiring those customers to change their behaviors—will more suc- cessfully navigate the disruptions ahead as these technologies transform our world.

Not only does new technology promise opportunity for marketers to create new points of competitive difference, it holds the promise for benefits to society. But at what price? While technology seems unlimited in its potential to aid businesses and culture, the ecological sys- tems we all share have demonstrable limits. Too often, technological advances come at an ecological cost.

Ecology: A Limited Resource Natural limitations, and consumers’ attitudes and motivations driven by awareness of those limitations, are factors in the marketing environment that demand marketers’ attention. Sev- eral trends are cause for growing concern:

Claudiodivizia/iStock/Getty Images Plus Companies that fail to discern technological trends risk obsolescence, as happened with the hugely popular Sony Walkman when MP3 play- ers were introduced.

Section 8.3Technological and Ecological Factors

• depletion of nonrenewable resources, such as oil and minerals • increased pollution of air, water, and soil • destruction of habitats needed to provide food and preserve species • potential for radical climate change due to global warming

An American Demographics report identified growing population as one of the major socio- cultural trends and predicts escalating conflicts over local land use, pitting population ben- efits against ecological costs. As a result, the environmental impact of products and services may be scrutinized more closely in the future (Wellner, 2004).

The degree to which governments intervene in natural resource management should be part of marketers’ environmental scanning. In the United States the Environmental Protec- tion Agency sets and enforces pollution standards. The governments of some other nations, like Germany, enforce stringent regulations to safeguard natural resources. But developing nations, lacking the needed funds, political will, or both, typically do less about pollution and resource protection. Environmentalists fear that companies move opportunities to where regulation is lax (Kotler & Armstrong, 2006).

Weather is another aspect of ecology that matters to marketers. Weather-related phenomena can affect producers, distributors, and/or consumers. Weather can destroy crops, alter trans- portation patterns, and disrupt markets, as was seen following the hurricanes of 2017 that impacted the Atlantic and Gulf coasts and Puerto Rico. While profound social consequences occur from such events, for businesses there may be upsides as well as downsides—genera- tors and other emergency supplies experience high demand during weather-related disas- ters. Demand for construction materials surges once recovery begins.

Going “Green” Businesses and individuals have responded to ecological concerns with an increasing empha- sis on “green” (environmentally sustainable) products and practices. Jeans maker Levi Strauss realized that world water shortages could threaten its existence if growing and manufactur- ing cotton became too expensive due to water scarcity. The company has helped underwrite a nonprofit program to teach farmers in India, Pakistan, Brazil, and West and Central Africa cutting-edge irrigation and rainwater-capture techniques. Levi Strauss understands that its consumers like to see themselves as agents of change. The company sews labels into its jeans urging customers to wash less and only in cold water (Kaufman, 2011). Levi Strauss is lever- aging both its own production processes and its customer relationships to improve the sus- tainability of its business model.

Consumers can also put pressure on businesses to adopt sustainable practices. At the super- market checkout, shoppers’ growing awareness of the ecological impact of their behavior caused retailers to adapt. The question “paper or plastic?” is now often preceded by “did you bring your own bags?”—a more nature-friendly choice.

Long-term changes in the natural environment also deserve consideration, such as defores- tation, dwindling water resources, and climate change. If/when these changes increase in severity, their impact on society will affect the market for many goods and services.

Section 8.3Technological and Ecological Factors

Technology and Ecology: A Delicate Balance Technological and ecological concerns are related, in that resources needed for one can affect the other. Procurement of raw materials, manufacturing processes, or disposal of technology can affect the natu- ral environment. For example, the demand for cell phones and computer chips is driv- ing demand for an ore called columbite- tantalite, or coltan; miners all over the world have increased production. But the high demand for the ore has created ille- gal exploitation of natural resources and human populations in African countries (Essick, 2001).

If you own an outdated personal computer or cell phone, you may be part of an eco- logical problem—or part of the solution. Electronic devices containing metals, plastics, glass, and chemicals can be harmful if discarded in a landfill (or worse) but beneficial if recycled for potential profit (Still, 2008). As of early 2018, no federal regulation mandates recycling of technology waste. There have been numerous attempts to develop a federal law, but no con- sensus on a federal approach has emerged. Many states have instituted mandatory electron- ics recovery programs. The video in Field Trip 8.3 provides additional information about e-waste recycling.

Research and development of new technological innovations is frequently aimed at solving ecological problems and reducing demand on scarce resources. Automakers are developing vehicles with increased fuel efficiency and decreased harmful emissions. Corporations use communications technology, such as videoconferencing and secure file sharing, to increase telecommuting and thus reduce the number of miles driven by their employees as well as office space requirements.

Associated Press The resources needed for technology products can raise ecological concerns, as seen with the increased production of coltan. To meet demands, mining companies have turned to ille- gal and exploitive practices.

Field Trip 8.3: Impacts of Technology Waste

As digital devices proliferate, so do the impacts of e-waste—the term used to describe the rapidly growing stream of waste from discarded electronics and appliances. Follow this link to learn more.

E-waste Hell

https://youtu.be/dd_ZttK3PuM

Section 8.4Economic and Political/Legal Factors

Marketers Respond to Technological and Ecological Factors A technology trend with vast impact on marketers is media convergence, first introduced in Chapter 6. Content once delivered through newspapers, magazines, books, radio, and televi- sion is converging onto the Internet. Meanwhile, the screens on which that content is viewed are multiplying, with consumers choosing tablet computers, smartphones, laptops, or desk- top computers at different times and places throughout their media-consuming days (Enoch & Johnson, 2010). Marketers are responding with a cross-channel approach, creating expe- riences that engage with consumers across digital, broadcast, and physical experiences. In a convergent-media environment, marketers need to coordinate traditional media, experien- tial marketing, and digital content to convey branded messages and encourage dialogue.

Related to this trend is the rise of online marketing, especially on social media platforms, as a subspecialty within the marketing field. The result is rapidly expanding employment oppor- tunity. Digital marketing is among the skill sets in highest demand; research by McKinley Mar- keting Partners (a staffing agency) found that 90% of marketing roles required experience and skill in digital marketing or analytics (Allen, 2016).

The green consumerism trend dovetails with much that has been discussed in this book about the humanity-centric consumer of the Marketing 3.0 era. Many individuals want to contribute to sustaining and improving the world, and they expect the companies they patronize to do the same. Research suggests that consumers’ willingness to pay more for ecology-friendly products and services varies across demographic groups. Different groups tend to be con- cerned about different environmental issues and benefits. For example, those who are wor- ried about resource waste appreciate the reduction in both packaging and the energy to man- ufacture it. Those interested in health benefits may be more concerned about pesticide-free products. Marketers are using research insights to tailor product development and marketing messages to respond to specific niches’ concerns (Royne, Levy, & Martinez, 2011).

8.4 Economic and Political/Legal Factors Among the societal forces affecting marketers are economic trends and political/legal devel- opments. An economy consists of a network of producers, distributors, and consumers of goods and services, operating in the context of a local, regional, national, or global commu- nity. In that community environment are political factors—government actions that affect the

Questions to Consider

Apply the statement “Every new technology replaces an older technology, creating new markets and opportunities for some businesses while hurting others” to smart home devices like Amazon’s Echo. What markets have been created, and what businesses have been hurt? How?

Consider also the statement “Technological advances come at an ecological cost.” What are the demands on the natural environment from smart home devices? Consider their manufacture, use, and disposal.

Section 8.4Economic and Political/Legal Factors

operations of companies. When government actions take the form of laws and regulations, those environmental concerns are not just political—they’re legal as well. Ignorance or defi- ance of laws can be prosecutable offenses.

Business owners and managers continuously scan the economic environment to assess its impact on consumers, competitors, distribution channel members, and the organization. They scan the political/legal environment to judge how government actions will affect their company. A closer look at each follows.

Economic Effects The economic environment refers to factors in the macro environment that affect con- sumer purchasing power and spending patterns. Economic environments vary greatly among nations and even within regions.

Economies typically cycle through stages of prosperity, recession or depression, and recovery. During times of prosperity, conditions of relatively low unemployment lead to high purchasing power. Businesses enjoy an environment ripe for new products and expanding distribution.

Recessions (periods of economic decline typically lasting about six months to a year) are marked by high unemployment, stagnant wages, and weak retail sales. Consumers focus on basics, skip nonessentials, and trade down to lower priced substitutes for their necessary purchases.

If a recession lingers unresolved, the period may be classified as a depression, character- ized by persistently low purchasing power, widespread unemployment, more supply than demand, falling or stagnant prices and wages, and general lack of confidence in the future. A depression causes a drop in all economic activity.

During recovery, employment and output begin to rise to their normal levels again. The shift from downturn toward prosperity can be tricky for buyers and sellers. Consumers may have rising income and thus money to spend again, but they may tend toward cautious behav- ior based on recent experience. Businesses struggle to earn profits on uncertain customer demand.

Other economic factors less directly tied to economic stages include the following:

• Inflation: A sustained and rapid increase in prices that outpaces wages, mirrored by decreasing purchasing power.

• Deflation: The opposite of inflation, characterized by falling prices and wages, decrease in availability of credit, and decrease in imports due to lack of demand. Deflation always results in lower employment and output.

• Changes in income: Income affects consumers’ purchasing power. Gross income comprises the total yearly earnings of a household or business. Household income is usually divided into disposable and discretionary components. Disposable income goes to necessities of food, shelter, clothing, and transportation. Discretionary income is spent on “luxury” items, although defining what is necessary and what is

Section 8.4Economic and Political/Legal Factors

a luxury can be problematic. Changes in gross income affect discretionary spending more than disposable spending (Kerin et al., 2009).

Changes in these factors have a large effect on consumers and therefore on businesses as well.

Changes in resource availability also affect consumption. Shortages cause people to stockpile, find alternatives, or do without. During shortages, marketers often allocate limited supplies, as T-shirt distributors do when major sporting events create sudden surges in demand that outpace invento- ries. Another option is to manipulate demand with customer programs urging less consumption to make demand more closely match supply, as power utilities do. This practice is called demarketing.

An unusual tale of resource availabil- ity unfolded in the summer of 2011. The demand for feathers used by fly fishers in tying flies was eclipsed by hairdressers who wanted the plumes to serve clients drawn to a new fashion trend—long, col- orful feathers bonded or clipped into their hair. The two niche markets competed for the resource. Because no one antici- pated the fashion trend, the supply of suit- able feathers fell far short of the demand from both niches. The price for a batch of the feathers jumped from about $120 to $1,000. Some suppliers to the fly-fishing trade agreed to sell to hairdressers, reap- ing bonanza prices (Zezima, 2011a).

That same summer, supply outstripped demand for farmers’ produce as new farmers markets opened in some areas of the United States. The number of markets surpassed consumers’ demand. Instead of serving new customers, the new markets cannibalized the older markets’ customer base. Farmers reported having to add more markets to their weekly schedule just to match their earnings of a few years past—reducing time in the field, adding transportation and employee costs, and eating into profits (Zezima, 2011b).

Because customer demand is rarely stable, retailers must forecast changes to decide how much inventory to keep on hand. Upstream from retailers, the same shift in demand mag- nifies in an “oscillating” effect as each channel partner forecasts downstream changes in demand and adjusts production accordingly. If displayed graphically, the resulting economic effect would resemble a cracking whip, which gave rise to the term bullwhip effect for this

Image Source/Getty Images Changes in resource availability can arise from unexpected quarters, as happened when feath- ered hair accessories became fashionable, caus- ing the supply of feathers used by fly fishers to decrease.

Section 8.4Economic and Political/Legal Factors

economic pattern. For an illustration of this effect, consider what happened to supply chains during the financial crisis of 2008 that led to the Great Recession. That year U.S. retail sales declined by 12%. U.S. manufacturers, realizing their current inventory may be high given the low demand, reduced inventories by 15%. Manufacturers cut orders to their suppliers, and as a result, manufacturing sales declined almost 30%. At each station up the supply chain, the decline in consumer demand triggered a bigger decline in orders, because each supplier had to plan its operations based on future expectations, which appeared gloomier the further up that chain they looked (Sheffi, 2015).

Part of marketers’ environmental scanning will involve tracking economic indicators, using trend reports to predict trends like recessions or inflation. Trend reports include leading indicators, which typically change before the economy changes, and lagging indicators, which represent trends that are perceivable only after the economy has changed. Marketers should follow leading indicators, including the following:

• average initial weekly claims for state unemployment insurance • interest rates • new building permits issued • the consumer confidence index

Lagging indicators to watch include the following:

• the duration of unemployment • the average prime rate trend • the consumer price index

The weak signals discussed earlier are leading indicators that are so near the forward edge that they haven’t yet been gathered into economic reports. Lagging indicators, while more readily available, are less useful to marketers. Leading indicators are signposts that help us see the road ahead, possibly in time to choose a better route. Consider pop-up Halloween stores. Once a year they occupy the abandoned shells of former retailers, filling shelves with merchandise that reflects both perennial costume favorites and current entertainment hits, like superhero movies. If you were in charge of marketing decisions for one of these stores, you would watch the leading indicators of economic health in the months ahead of your Labor Day Grand Opening to estimate sales volume, and watch box office sales of movies to help you plan your product mix.

One of the major trends over recent decades has been change in income distribution. For households in the top fifth of the population, incomes have risen. For the other 80%, incomes have declined, as shown in Figure 8.1 (Berliner, 2007).

Field Trip 8.4: Conference Board Economic Reports

The Conference Board is the principal producer of economic trend reports. Follow this link to view statistics and reports.

http://www.conference-board.org/data

Section 8.4Economic and Political/Legal Factors

Figure 8.1: U.S. income redistribution trend, 1979–2013

From 1979 until the financial crisis and Great Recession, net income (after taxes) for the top 1% of U.S. citizens quadrupled. The increases for other individuals were much smaller.

Used by permission of the Center on Budget and Policy Priorities www.cbpp.org

Retailers expect continued divergence in spending behavior between the squeezed and the prosperous consumers. Data from 2013 show the trend continuing: Household income for the top 10% was 12.1 times the level of household income for the bottom 10% (Donovan, 2015). A marketer conducting an environmental scan should therefore look for signs of change in the economic cycle—supply/demand shifts that might limit either supplies needed to make a retailer’s products or customers to buy them, and changes in consumer spending on dispos- able and discretionary offerings due to the widening gap in purchasing power of the “two Americas.”

Political/Legal Factors The political environment is made up of the laws and government agencies that limit the activities of organizations and individuals, and the advocacy groups that seek to influence those governmental agencies. These laws are intended to protect companies, consumers, and society. Certain laws and their interpretations require businesses to operate in specific ways that maintain fair competitive practices and protect consumers’ rights, all of which may affect marketing decisions.

Protecting consumers is at the heart of many regulations affecting businesses. Consumer pro- tection laws seek to limit harm to individuals and the natural environment. Most recently, laws to protect consumers online have been passed to deal with online privacy, identity theft, and protecting children. International, federal, state, and local laws and regulations are often overlapping and contradictory. Regulations at all levels of government change often, so mar- keters must be diligent in understanding the legal system’s relationship to marketing deci- sions and must take responsibility for compliance with all laws affecting their work.

2005

1995

1985

1975

10

Top 1/5 Upper middle

Middle Lower middle

Lowest 1/5

20

0

40

50

60

30

Section 8.4Economic and Political/Legal Factors

Regulations touch on all aspects of the four Ps of marketing strategy, as shown in Table 8.2.

Table 8.2: Governmental regulations’ impact on the four Ps of marketing strategy

Products The 1906 Pure Food and Drug Act prohibited adulteration and mislabeling of food and drugs involved in interstate commerce. The 1972 Consumer Product Safety Act created the Consumer Product Safety Commission to specify standards.

Pricing The 1890 Sherman Antitrust Act, supplemented by the 1914 Clayton Act and the 1936 Robinson–Patman Act, prohibited price discrimination by making price fixing and predatory pricing illegal and limiting the circumstances under which quantity discounts and promotional allowances could be made available.

Place (distribution)

The same acts that regulated pricing also affected competitive practices among supply chain partnerships and distribution channels—for example, by prohibiting monopolies. In 1993 the North American Free Trade Agreement was enacted to facilitate commerce by removing tariffs and other trade barriers among Canada, the Unites States, and Mexico.

Promotions (advertising)

The 1914 Federal Trade Commission Act established a group to enforce laws against unfair business practices. The 1966 Fair Packaging and Labeling Act regulated labeling of consumer goods. The 1991 Telephone Consumer Protection Act established the Do- Not-Call registry to prevent unwanted commercial telemarketing calls.

Note. Marketers must plan for the impacts of regulation on all aspects of the four Ps of marketing strategy.

Beyond the Force of Law: Advocacy and Industry Groups Public and private interest groups exist to advance the rights of groups ranging from consum- ers to minorities, senior citizens, animals, and more. The American Association of Retired Persons (AARP) and American Humane Association are two examples. While these groups may not have the force of law behind their calls for adherence to specific rules of behavior, companies interested in winning the loyalty of their customers will look beyond the regula- tory system to seek out ways to honor consumer concerns and protect their interests.

Many industries and professions have developed codes of ethics and guidelines for responsi- ble conduct, with which members voluntarily comply. Examples include the Council of Better Business Bureaus and the Direct Marketing Association.

Field Trip 8.5: Political Advocacy Groups

Follow these links to view websites of consumer and business advocacy groups. What laws or codes of conduct affecting marketers might emerge from these organizations’ work?

Credit Union National Association

http://www.cuna.org

Prevent Child Abuse America

http://preventchildabuse.org

Section 8.4Economic and Political/Legal Factors

Medical Marijuana Puts Political/Legal Factors in the Spotlight For an example of the contradiction of regulations at federal and state levels, consider the legal confusion around medical marijuana’s status in the United States. In 2011 federal agents cracked down on growers and sellers in California, in spite of state laws approved in 1996 authorizing what has grown into a billion-dollar industry. Federal laws still classified pos- session and sale of marijuana as a crime, without exceptions for medical use. In the fall of 2011, federal prosecutors raided or threatened to seize the property of dozens of Californian marijuana growers and dispensaries regarded by local law enforcement as law abiding under state and local regulation. The businesses were breaking federal law but were following the laws of the state in which they operated. Federal justice officials cited as the reason for their action their skepticism that the scale of the Californian medical marijuana market could be driven solely by medical need (Eckholm, 2011). The crux of the issue comes down to the federal war on illegal drugs versus states’ desire to offer medical marijuana as an option for health conditions—with a dash of economic interest on the side. Proponents estimated legal- izing marijuana would add a potential $240 million to $360 million in sales taxes to the state’s budget (Gieringer, 2009).

The changing political climate that followed the election of Donald Trump reshuffled the deck in this ongoing game of federal vs. state laws. By 2017 one fifth of Americans lived in states that legalized marijuana for recreational use, and medicinal marijuana was legal to an esti- mated 200 million U.S. citizens. In fact, consumers spent nearly $6 billion on legal cannabis in 2016.

But the industry operated in a gray zone because the U.S. attorney general, Jeff Sessions, viewed cannabis as a driver of social problems, like opioid addiction. At the time the mari- juana industry was protected by a federal budget provision that prohibits Justice Department money from being spent to block state laws allowing cannabis, but for how long? Some leg- islators supported expanded legalization of cannabis and loosening of regulations that pre- vent the industry from functioning like “normal” businesses. Some supported continuing the status quo, and some supported the attorney general’s position that the federal government should enforce its stricter laws over states’ more relaxed ones.

Consider the value chain that includes the growers, processors, retailers, and consumers— not to mention the ancillary businesses that sell materials and services to the industry—and you find many people monitoring political and legal factors in the marketing environment (Chilkoti, 2017).

Marketers Respond to Economic and Political/Legal Factors To summarize the impacts of economic and political/legal factors on marketing practice: Eco- nomic conditions affect how much consumers can afford to spend—and therefore what they will be purchasing. Their gross income must cover their needs for disposable income and any discretionary purchases. The economic cycle stage—prosperity, recession, or recovery— significantly affects income and thus consumer demand. Marketers’ environmental scanning will cover leading and lagging economic indicators to predict changes ahead. A significant trend currently affecting consumers in the United States is the increasing disparity in income.

Section 8.5The Global Business Environment

The political/legal environment requires compliance with applicable federal, state, and local laws, as well as prevailing social codes and industry guidelines for ethical behavior. This is complicated by the fact that not only are existing laws confusing and often overlapping in jurisdiction, but the burden of compliance is on the business or organization, which must stay current on a frequently changing body of information.

You’ve now taken a 360-degree tour of the marketing environment. You’re aware of the actors and forces at work in the micro and macro environment. You recognize the techniques of environmental scanning and how to apply them to the marketing environment (sociocultural, ecological, technological, economic, and political/legal). But today’s marketplace is essen- tially global, which is why in the next section we will discuss how every company’s environ- mental scan must detect threats and opportunities coming from beyond the home market’s national borders.

8.5 The Global Business Environment For companies considering doing business in foreign markets, either as buyers or sellers, an understanding of the environment in those markets is essential. A scan of the culture, tech- nology, ecology, economics, and political/legal factors in the country of interest is a must.

Sociocultural Factors Abroad Consider the U.S. population trends discussed earlier—population aging, increasingly diverse race/ethnicity, and the demographic shifts toward more variation in household types and gender roles. How might those trends play out in other cultures?

In 2018 the fastest growing region in the world was East Asia and the Pacific, according to the World Bank. China’s economy was expected to grow at a pace of 6.4% in 2018, in contrast to the developed world’s expected rate of 2.2%. Meanwhile, in India, economic growth was expected to reach 7.3% that year (Wroughten, 2018).

Does that mean marketers can treat China and India as one monolithic growth market? No. The sociocultural dynamics of India and China are different and deserve a closer look. Two differences between the two countries’ demographic trends bear on their prospects as con- sumer markets: population growth and age distribution. China will soon hand the baton to India in the competition for largest population. This is due to a higher fertility rate in India than China, where the total fertility rate has been below replacement level since 1991. The

Questions to Consider

Earlier in this chapter you were asked to consider trends affecting a manufacturer of vinyl records. How might economic and political/legal trends affect a company that produces LPs? How might those trends differ for a company that markets a streaming music service like Pandora or Spotify?

Section 8.5The Global Business Environment

two countries’ age distributions are also undergoing significant change. By 2035 India’s pop- ulation will still be largest below 50, while China’s population will skew toward older age groups.

What do these differences imply for the two countries’ prospects as consumer markets? As populations grow, so does consumer spending. As the percentage of the population of work- ing age grows, so does economic stability. When a large share of a country’s population is in the workforce, that country sees income growth and high per capita savings. China will experience this “demographic dividend” sooner than India will. As each country’s popula- tion ages, its savings rate will likely reverse, as a larger proportion of the population uses savings for retirement. The workforce may see reduced productivity, since both cultures have traditionally relied on family members to care for their elders. This may cause adult children to spend their time and money caring for their parents instead of contributing to economic growth. China will experience this progression of events sooner than India will (Rand Corporation, 2011).

Other countries in emerging markets will likely follow similar paths, living up to the adage that “demographics are destiny.” If those markets follow a similar path to that of the U.S. popu- lation, a similar shift toward nations of niches will be seen.

Global Technology and Ecology Factors A critical technology factor affecting global markets is communication infrastructure, which varies significantly among countries. For developing countries, access to the Internet holds significant promise. All the information resources of the world will become available as soon as the infrastructure to carry it arrives, but infrastructure relies on investment, typically from foreign companies.

Also important is the existence of infrastructure for transportation (roads, railways, airports) and energy production and distribution (gas, electricity, or solar). Countries where commu- nications, transportation, and financial transactions can move freely are fertile ground for international commerce.

But ecological concerns bring the globalization paradox to the foreground. Globalization can have both positive and negative effects on the natural environment; it can exacerbate ecologi- cal problems, and it can provide solutions to address them. Concerns exist over endangered resources through overharvesting and the potential for transboundary pollution of land, water, and air. Governmental regulations have traditionally dealt only with territorial sover- eignty. That view is not adequate to address global-scale threats to natural ecosystems, for which territorial boundaries mean little (Esty & Ivanova, 2003).

The World Trade Organization (WTO) deals with the global rules of commerce between nations, primarily to ensure that trade flows as smoothly as possible. The WTO is run by member governments. Protection of natural environments is a fundamental goal of the WTO, but its focus as a trade organization brings tension between economic development and eco- logical sustainability. The challenge, for the WTO and all political/legal bodies with interna- tional influence, is to establish an appropriate mix of competition, cooperation, market forces,

Section 8.5The Global Business Environment

and collective action to ensure both economic prosperity and environmental protection (Esty & Ivanova, 2003).

An example of the interaction between technology and ecology in the global business envi- ronment is China’s leadership in championing electric cars. In 2017 the Chinese government issued rules requiring 1 out of 5 cars sold in China to be powered by alternative fuels. The country has already become a leader in green-energy businesses like wind and solar power. China is also the world’s largest manufacturer and seller of electric cars. Electric cars are per- ceived as a particularly good fit for China, where crowded cities mean short driving distances, and the existing high-speed rail system reduces demand for vehicles designed for long road trips (Bradsher, 2017).

Foreign Economic and Political/Legal Factors Another important factor in the global business environment is the level of economic develop- ment in the country of interest. For comparison, each country’s gross national income (GNI) per capita is calculated by dividing the value of all goods and services produced in a country by its average population. The World Bank groups countries into tiers according to GNI per capita. In 2016 the World Bank divided the groups as follows:

• low income: $11,025 or less (e.g., Afghanistan, Somalia, Democratic Republic of Korea)

• lower middle income: $1,026 and $4,035 (e.g., Iraq, Guatemala, Uzbekistan, Cambodia)

• upper middle income: $4,036 and $12,475 (e.g., Venezuela, Thailand, Peru) • high income: $12,476 or more (Bahrain, Britain, Switzerland, United States)

The financial crisis that began in the United States in 2007 spread to other high-income coun- tries, then by the end of 2008 to low-income countries as well. By 2010 it had affected eco- nomic development around the world. While some growth still occurred in the Great Reces- sion’s wake, the pace slowed by several percentage points. The low- and middle-income countries in North Africa and the Middle East saw the largest drop, according to the World Bank (2017).

Even countries with a low GNI per capita can be profitable markets, even in a recessionary economic climate. India, for example, is classified as a lower-middle-income economy, but because its population is so large even small niche segments of that population can be quite large (World Bank, 2011).

Field Trip 8.6: Countries by Per Capita Income

Follow this link to view tables of countries by region and per capita income group.

http://data.worldbank.org/about/country-classifications/country-and-lending-groups

Section 8.5The Global Business Environment

Another economic factor worth noting is the direct impact the value of a country’s currency and the volatility of its exchange rate have on profits. If a foreign currency goes up relative to the U.S. dollar, foreign products become more expensive in the United States. If the exchange rate goes down, foreign products become cheaper. It’s not hard to see how this might lead to difficulty maintaining profits. Consider a travel company that sells tours at a specific price based on negotiations with suppliers in the destination country. Fluctuations could signifi- cantly enhance—or erode—the profitability of tours sold, simply because of the difference between the exchange rate the day the deal was struck and the exchange rate on the day the bills come due. After the United Kingdom voted to leave the European Union (the “Brexit” vote of June 2016), the pound dropped sharply and inflation increased, making imports more expensive. Every aspect of Britain’s economy has felt the effect (Partington & Clarke, 2017).

Political and legal factors constitute perhaps the most difficult aspects of doing business glob- ally. The differences in regulatory environments among countries are vast. Companies hoping to penetrate the thicket of laws and regulations in effect in a foreign market will likely either hire lawyers from the country of interest to provide advice, or partner with local businesspeo- ple experienced in overcoming bureaucratic impediments. Either strategy gives firms access to new markets without the expense of maintaining international legal expertise on staff.

Trade controls such as tariffs (taxes on imports) and quotas (limits on quantities of goods that can be imported over a specific period) present a potential political/legal barrier. Tariffs make foreign goods more expensive and raise revenues for governments. Quotas typically protect domestic producers against imports. Tariffs and quotas can make it difficult for a com- pany to enter a market or maintain a competitive advantage there.

Marketers’ Response to Global Environmental Factors What keeps marketers pursuing global strategies, despite the challenges of the business envi- ronment? The answer lies in the potential to increase profitability by adding new markets. The large size and dramatic growth of the Indian and Chinese markets indicate great potential for consumer goods and services. Brazil, Russia, and South Africa are not far behind in economic development, giving rise to the term BRICS countries for these five foreign markets. In the early 2000s their tremendous growth potential led to estimates their economies would surpass the U.S. and European economies by 2027 (Foroohar, 2009). And yet, the adverse economic condi- tions following the Great Recession took a toll on the BRICS countries, the Guardian reported in 2016, citing political troubles in South Africa and Brazil, Russia’s recession, and China’s eco- nomic contractions. Only India, with its relatively closed economy, was somewhat unaffected by the slowdown in global trade. However, optimism remains for the BRICS countries, due to their combination of size, resources, and youthful populations (Tisdall, 2016).

In the Marketing 3.0 era, more companies are expected to explore global strategies, leverag- ing faster communications, transportation, and financial transactions into new opportuni- ties for profit. But marketing thought leaders recognize that marketing techniques from the United States don’t necessarily export well, in part because people in emerging markets are just learning to be consumers.

Section 8.5The Global Business Environment

As has been shown, business planners must get to know the trends in the marketing envi- ronment in any country where they hope to do business. A deep understanding of the major U.S. population trends under way will help marketers understand shifts taking place in emerging markets.

Around the world, we can expect consumer spending to rise as populations of working age increase, resulting in income growth and economic stability. However, if communication, transportation, and energy infrastructure are lacking, it may be difficult for companies to harvest the potential in those growth markets. Additional complications arise from ecologi- cal, economic, and political/legal factors.

Great opportunity exists for marketers to reach new consumers in foreign markets. But they should fully background themselves in all aspects of a foreign market and build alliances with local experts before attempting to develop a strategic marketing mix for consumers in other nations.

Case Study: Italian Accordion Manufacturers In the small hill town of Castelfidardo on Italy’s Adriatic coast, decades of shifting trends in the marketing environment have required accordion manufacturers to adapt. A shift in focus from quantity to quality has allowed this town’s key indus- try to survive—and even thrive.

Accordions were once fixtures of popu- lar music throughout Europe. The accor- dion’s popularity spread with emigration. By the 1940s the artisans of Castelfidardo produced tens of thousands of the instru- ments to meet global demand.

Today the largest accordion manufacturer in Castelfidardo is the Pigini company,

Questions to Consider

The dramatic population growth in China and India is currently dominated by the young. Trends toward Western-style consumption are under way in both nations. Given the emphasis on the youth market in the United States over the past 60 years, what can you predict for marketers in these newly youth-oriented consumer economies as they follow the same path?

What products and services will interest these new youth markets?

What opportunity for U.S. companies might you foresee?

Martín Damian Monterisi iStock/Getty Images Plus Shifting musical tastes are just one environmen- tal factor affecting demand for accordions manu- factured in Castelfidardo; a shift in focus from quantity to quality has helped this town’s key industry survive.

The Global Business Environment

founded at the close of World War II by Filippo Pigini with his four sons as partners. Pigini’s business acumen drove the firm to prominence. Soon the company was shipping its products to the United States, Canada, Sweden, Denmark, Argentina, Egypt, and Pakistan (Pigini, 2011). But today the company only builds about 1,500 accordions a year (Povoledo, 2011).

What happened between the accordion’s 1940s heyday and today? How did Pigini manage to negotiate trends in the marketing environment to stay in business? Environmental scanning must have played a role.

In Pigini’s micro environment today are customers from around the world who appreciate an accordion built to demanding quality standards. Also in the micro environment are the two-dozen-plus accordion companies in Castelfidardo that compete with Pigini, and other stakeholders, including the labor force in Castelfidardo.

What might an environmental scan of the macro environment affecting the Castelfidardo accordion trade reveal?

Sociocultural factors include eroding musical tastes for the accordion that are shrinking the customer base, and a workforce in which young laborers increasingly reject the years of train- ing required for accordion building in favor of more modern skills like computer program- ming. Those who have mastered the traditional skills find them in demand for other jobs in mechanical assembly and woodworking. This places pressure on the accordion manufactur- ers to find and retain laborers.

It was a technology factor that first caused demand for accordions to wane—the introduction of the electric guitar. It’s no coincidence that the first solid-body guitar was introduced in 1952 and production in Castelfidardo peaked in 1953 when nearly 200,000 accordions were made. Demand has never been the same since more modern musical instruments emerged. Today competition from computerized music options and even video games like Guitar Hero and Rock Band are an increasing factor.

No factors involving ecological concerns appear to have had significant impact on the accor- dion makers of Castelfidardo.

The primary economic factor affecting the industry has been the rise of manufacturing in China, where the focus has been production of basic models, primarily for consumption within that country. Supply and demand factors have caused Castelfidardo’s artisans to focus on building top-quality instruments, for which a more modest level of global demand remains. Many in Castelfidardo see China’s production as a benefit to their industry, as it keeps interest in accordions alive and growing along with the Chinese population. They reason that some of those players will become professionals, who will look for quality instruments in time—and become customers of companies in Castelfidardo.

Until those buyers come looking for instruments, the market for accordions is essentially sat- urated. The only opportunity for competitive advantage lies in innovation; without that edge, there is little reason for accordionists to trade up to a new instrument.

Key Ideas to Remember

The political/legal factors facing Pigini and the other companies in Castelfidardo are those facing any company doing business globally. With distributors in 31 countries, Pigini must stay current on a wide range of international trade regulations.

How are the accordion makers of Castelfidardo responding to the ongoing shifts in their mar- keting environment? Pulling together with competitors to develop a coordinated approach to market and technical research is one answer. Sharing costs and coordinating efforts could help these companies maintain their competitive position while improving profitability.

Key Ideas to Remember • In the micro environment are actors from stakeholder groups closely aligned with a

company’s strategic goals, as well as its competitors, channel partners, customers, and the public. In the macro environment are larger societal forces, including cul- ture, technology, ecology, the economy, and political/legal dynamics. Environmental scanning is used primarily to understand forces in the macro environment but may also bring to light problems in the micro environment.

• Sociocultural trends affecting consumer society derive from demographic groups and the values and beliefs they hold. Dominant demographic trends currently include overall population growth, the increasing proportion of people over 65, and the increasing proportion of the population from Hispanic, Asian, Black, and multi- racial backgrounds. The American household is growing more varied, increasingly placing marketers’ emphasis on behavioral data (what people do) as demograph- ics (what people are) become more complex and varied. Marketers will continue to evolve marketing techniques to leverage these trends.

• A technology trend toward media convergence has marketers responding with a cross-channel approach that engages consumers across digital, broadcast, and physical experiences. Concerns about ecological issues are experienced differently by different demographic groups; marketers are tailoring their strategies to target specific niches’ concerns.

• Economic conditions affect consumer purchasing. Marketers track economic indica- tors to predict how those conditions will change. Political/legal conditions require compliance with all applicable laws, as well as prevailing social codes and industry guidelines.

Challenge Question

Call to mind a product or service you buy regularly. Do opportunities exist in foreign markets for sales of that item or service? Which ones?

What are the major environmental facts and trends in those countries that might affect sales of that product or service?

Who at present are the largest consumers of that product or service in the home market, and who would be its likely customers abroad?

What is the nature of competition in that product category in the foreign market you’ve identified?

Critical-Thinking Questions

• The growth in emerging economies around the world is creating opportunities for marketers, particularly in India and China. While cultural, technological, ecological, economic, and political/legal differences create challenges, marketers pursue oppor- tunities in new markets in the hope of reaching many profitable new consumers.

Critical-Thinking Questions 1. Imagine that you want to start a company that will offer cell phone accessories.

Describe pressures from external factors facing your company and identify whether they should be considered part of the macro environment or the micro environment.

2. Name at least three sources of information you will include in your environmental scanning to understand forces in the macro environment that influence the cell phone accessories industry niche. Expand on how you will locate and monitor useful information sources.

3. The trend toward smaller households created an opportunity for food manufactur- ers to offer products packaged with fewer portions. What other opportunities do small households represent for marketers? One example is the 2009 publication of Judith Jones’s cookbook titled The Pleasures of Cooking for One. Can you think of other examples?

4. Appraise the three trends identified by the Pew Research Center discussed in this chapter: increasing racial and ethnic diversity, more diverse family/household types, and an aging population in both the United States and abroad. Can you distinguish ways these trends overlap? How does a trend contribute to more than one of these population changes?

5. Consider the technology trend toward media convergence and marketers’ “omnichannel” response. Describe an experience you have had as a consumer that reflects this response. Have you noticed marketing messages from one brand in mul- tiple media, combining digital and physical experiences?

 6. Two areas of recent technological change include increased communications and data management capacity. These offer the promise of better customer service, but the promise is not always realized. Describe a positive or negative experience you have had as a consumer that reflects a company’s use of communication and data- base technology.

 7. Are you concerned about the natural environment? Which ecology issues concern you the most? Do you think people should be willing to pay more for products or services that promise to be ecologically sustainable in terms of their manufacture, distribution, and waste disposal? Why or why not?

 8. Describe how a phase of economic recovery affects consumers. Draw on your own personal experiences if possible.

 9. Several failures by companies to maintain the privacy of their customers’ personal information have been widely reported. Do you think legal action—for example, pas- sage of more stringent laws regarding storage and use of data—can make personal information safer? Suggest other means of protecting consumers’ data besides the force of law.

10. As more businesses operate in global markets, protection of consumers’ safety crosses borders, making regulation more difficult to enact and enforce. How might the consumerism movement adapt?

Key Terms to Remember

Key Terms to Remember actors Factors exerting pressures on a company’s micro and macro environment deriving from people and their actions.

bullwhip effect The impact on supply chains that occurs when changing demand forecasts cause companies to order more or fewer goods. The bullwhip effect typically flows upstream, starting with the retailer.

competitive intelligence Market research goal of systematically gathering data and information about all aspects of competi- tors’ marketing and business activities.

consumerism movement An organized movement of individuals, groups, and gov- ernments to protect the consumer by exert- ing moral, legal, and economic pressures on business and government.

cross-channel approach The marketing approach of engaging consumers across all available media channels, blending digital, broadcast, and experiential marketing.

demarketing The practice of manipulating consumer demand by urging less consump- tion to make demand more closely match supply.

depression A phase in an economic cycle characterized by persistently low purchasing power, widespread unemploy- ment, more supply than demand, falling or stagnant prices and wages, and general lack of confidence in the future, causing all economic activity to drop off. Major depres- sions may continue for several years and have worldwide impact.

discretionary income The portion of the income of an individual or business available for saving or spending on nones- sentials, after expenses for basics such as food, clothing, and shelter and prior com- mitments (such as tuition and loans) are deducted from disposable income.

disposable income The gross income of an individual or business from which taxes have been deducted.

economic environment The totality of economic factors, such as employment, income, inflation, interest rates, productiv- ity, and wealth, that influence the buying behavior of consumers and institutions.

economic indicators Key statistics that indicate the direction of an economy, including leading indicators that attempt to predict the economy’s direction and lag- ging indicators that become apparent only after the occurrence of associated economic activity.

environmental scanning The process of collecting information about the external marketing environment to identify and interpret potential trends.

forces Factors exerting pressures on a company’s micro and macro environment deriving from the dynamics of the current situation.

gross income The total yearly earnings of a household or business.

lagging indicators Measurable economic and financial-market performance factors that tend to change only after an economy has already changed or has begun to follow a particular pattern or trend.

Key Terms to Remember

leading indicators Measurable economic performance factors that change before the underlying economic cycle starts to exhibit a particular direction or trend.

market sensing Market research designed to collect information about customers’ behaviors, preferences, and motivations.

political environment Laws and govern- ment agencies that limit the activities of organizations and individuals, and the advo- cacy groups that seek to influence those governmental agencies.

recessions Periods of economic decline, defined as two or more successive quarters of falling gross domestic product.

recovery The phase of the business cycle following a recession, during which an economy regains and exceeds peak employ- ment and output levels achieved prior to downturn.

retail ethnography A qualitative market research technique to study consumers’ shopping habits in order to describe behav- ior, characteristics, cultural mores, and the like using techniques from the social sciences.

sustainability Economic development characterized by low growth rate, absence of pollution, and as little environment impact as possible, so as to meet present needs without compromising future genera- tions’ ability to meet their needs.

weak signals Seemingly random or discon- nected pieces of information that at first appear to be background noise but can be deemed significant when connected with other pieces of information.