MKTG 409 Chapter 3

Monopolistic competition

A competitive structure in which firm has many potential competitors and tries to develop a marketing strategy to differentiate its product.

Total Budget Competitors

Firms that compete for the limited financial resources of the same customers.

Consumerism

Organized efforts by individuals, groups, and organizations to protect consumers' rights.

Technology

The application of knowledge and tools to solve problems and perform tasks more efficiently.

Sociocultural Forces

The influences in a society and its culture(s) that change people's attitudes, beliefs, norms, customs, and lifestyles.

Monopoly

A competitive structure in which an organization offers a product that has no close substitutes, making that organization the sole source of supply. Because the organization has no competitors, it controls the supply of the product completely and, as a single seller, can erect barriers to potential competitors.

Oligopoly

A competitive structure in which a few sellers control the supply of a large proportion of a product. Each seller considers the reactions of other sellers to changes in marketing activities. Example: Airline industry. Usually barriers of some sort make it difficult to enter the market and compete with oligopolies.

Pure competition

A market structure characterized by an extremely large number of sellers, none strong enough to significantly influence price of supply. Products would be homogeneous and entry into the market would be easy.

Business Cycle

A pattern of economic fluctuations that has four stages: prosperity, recession, depression, and recovery.

Federal Trade Commission (FTC)

A regulatory agency. An agency that regulates a variety of business practices and curbs false advertising, misleading pricing, and deceptive packaging and labeling. Enforces laws and guidelines regarding business practices; takes action to stop false and deceptive adverting, pricing, packaging, and labelling.

National Advertising Review Board (NARB)

A self-regulatory unit that considers challenges to issues raised by the National Advertising Division (an arm of the Council of BBB) about an advertisement.

Prosperity

A stage of the business cycle characterized by low unemployment and relatively high total income, which together ensure high buying power (provided the inflation rate stays low). If the economic outlook remains prosperous, consumers generally are willing to buy. In the prosperity stage, marketers often expand their product offerings to take advantage of increased buying power.

Recession

A stage of the business cycle during which unemployment rises and total buying power declines, stifling both consumer and business spending. Comes with consumer pessimism. As buying power decreases, many customers may become more price and value conscious, and look for basic, functional products. During a recession, some firms make the mistake of drastically reducing their marketing efforts, thus damaging their ability to survive. Should cut back some, but not that much. Marketers should consider some revision of their marketing activities during a recessionary period. Because consumers are more concerned about the functional value of products, a company should focus its marketing research on determining precisely what functions buyers want and make sure those functions become part of its products.

Recovery

A stage of the business cycle in which the economy moves from recession or depression toward prosperity. High employment begins to decline, total disposable income increases, and the economic gloom that reduced consumers' willingness to buy subsides. Marketers face some problems during recovery, as it is difficult to ascertain how quickly and to what level prosperity will return. In this stage, marketers should maintain as much flexibility in their marketing strategies as possible so they can make the needed adjustments.

Depression

A stage of the business cycle when unemployment is extremely high, wages are very low, total disposable income is at a minimum, and consumers lack confidence in the economy. A prolonged recession may become a depression.

Better Business Bureau (BBB)

A system of nongovernmental, independent, local regulatory agencies supported by local businesses that helps settle problems between customers and specific business firms.

Disposable Income

After-tax income. Used for spending and saving. Because disposable income is a ready source of buying power, the total amount available in a nation is important to marketers. Several factors determine the size of total disposable income. One is the total amount of income, which is affected by wage levels, the rate of unemployment, interest rates, and dividend rates. When taxes rise, disposable income declines; when taxes fall, disposable income increases.

Willingness to Spend

An inclination to buy because of expected satisfaction from a product, influenced by the ability to buy and numerous psychological and social forces. The American Customer Satisfaction Index helps marketers to understand how consumers perceive their industries and businesses and adapt their marketing strategies accordingly. Factors that affect consumers' willingness to spend are expectations about future employment, income levels, prices, family size, and general economic conditions. Willingness to spend ordinarily declines if people are unsure whether or how long they will be employed, and it usually increases if people are reasonably certain of higher incomes in the future. Expectations of rising prices in the near future may also increase willingness to spend in the present. For a given level of buying power, the larger the gamily, the greater the willingness to spend. The larger the family, the more dollars must be spent to provide the basic necessities to sustain family members.

Economic Forces (2/6 of Environmental Forces)

Changes in general economic conditions affect (and are affected by) supply and demand, buying power, willingness to spend, consumer expenditure levels, and intensity of competitive behavior. Therefore, current economic conditions and changes in the economy have a broad impact on the success of organization's marketing strategies. Fluctuations in the economy follow a general pattern, often referred to as the business cycle. It consist of four stages: 1. Prosperity 2. Recession 3. Depression 4. Recovery

Discretionary Income

Disposable income available after spending and saving after an individual has purchased the basic necessities of food, clothing, and shelter. This income is used to buy entertainment, vacations, etc. Changes in total discretionary income affect sales of these products, especially automobiles, furniture, large appliances, and other costly durable goods.

Environmental Forces

Competitive, economic, political, legal and regulatory, technological, and sociocultural. Always dynamic. Changes in the marketing environment create uncertainty, threats, and opportunities for marketers. Marketers continue to modify their marketing strategies and plans in response to dynamic environmental forces.

Marketing Environment

Consists of external forces that directly or indirectly influence an organization's acquisition of inputs (human, financial, natural resources and raw materials, and information) and creation of outputs (goods, services, or ideas). The marketing environment includes six such forces: competitive, economic, political, legal and regulatory, technological, and sociocultural. To monitor changes in the marketing environment effectively, marketers engage in environmental scanning and analysis.

Credit

Enables people to spend future income now or in the near future. However, credit increases current buying power at the expense of future buying power. Several factors determine whether people use, acquire, or forgo credit. First, credit must be available. Interest rates also affect buyers' decisions to use credit, especially for expensive purchases such as homes, appliances, and automobiles. When interest is low, it makes things more affordable. When interest rates are high, consumers are more likely to delay buying such expensive things. Use of credit is also affected by credit terms, such as size fo the down payment and amounts and number of monthly payments.

Product Competitors

Firms that compete in the same product class but market products with different features, benefits, and prices.

Brand Competitors

Firms that market products with similar features and benefits to the same customers at similar prices.

Generic Competitors

Firms that provide very different products that solve the same problem or satisfy the same basic customer need.

Income

For an individual, the amount of money received through ages, rents, investments, pensions, and subsidy payments for a given period. Normally, this money is allocated among taxes, spending for goods and services, and savings. Income is not equally distributed in the United States because of differences in people's educational levels, abilities, occupations, and wealth.

Types of Competitive Structures

Four general types of competitive structures: 1. monopoly 2. oligopoly 3. monopolistic competition 4. pure competition. Pure competition is an ideal at one end of the continuum, and a monopoly is at the other end. Most marketers function in a competitive environment somewhere between the two extremes.

Technology Assessment

Managers try to force the effects of new products and processes on their firms' operations, on other business organization, and on society in general. With information obtained through a technology assessment, management tries to estimate whether benefits of adopting specific technologies outweigh the costs to the firm and to society at large.

Monitoring Competition

Marketers need to monitor the actions of major competitors to determine what specific strategies competitors are using and how those strategies affect their own. Price is one marketing strategy variable that most competitors monitor. Monitoring guides marketing in developing competitive advantages and in adjusting current marketing strategies and planning new ones. In monitoring competition, it's not enough to analyze available information; the firm must develop a system for gathering ongoing information about competitors and potential competitors. Understanding the market and what customers want, as well as what the competition is providing, will assist in maintaining a market orientation. Information about competitors allows marketing managers to assess the performance of their own marketing efforts and to recognize the strengths and weaknesses in their own marketing strategies. Data about market shares, product movement, sales volume, and expenditure levels can be useful. However, accurate information on these matters is often difficult to obtain.

Responding to Environmental Forces

Marketing managers take two general approaches to environmental forces: 1. Accepting them as uncontrollable. OR 2. Attempting to influence and shape them. An organization that views environmental forces as uncontrollable remains PASSIVE and REACTIVE towards the environment. Adjust current marketing strategies to environmental changes. Approach marketing opportunities discovered through environmental scanning and analysis with caution. An organization that views environmental forces as something that can be shaped adopt a more positive approach. If a market opportunity is blocked by environmental constraints, proactive marketing managers may use their political skills to overcome obstacles. A PROACTIVE approach can be constructive and bring desired results. To influence environmental forces, marketing managers seek to identify market opportunities or to extract greater benefits relative to costs from existing market opportunities. Political action is another way to affect environmental forces. However, managers must recognize that there are limits to the degree that environmental forces can be shaped. Whether to take a reactive or a proactive approach to environmental forces is a decision for a firm to make based on its strengths and weaknesses. Selection of a particular approach depends on an organization's managerial philosophies, objectives, financial resources, customers, and human resource skills, as well as on the environment within which the organization operates. Both organizational factors and managers' personal characteristics affect the variety of responses to changing environmental conditions.

Competition

Other organizations that market products that are similar to or can be substituted for a marketer's products in the same geographic area.

Self-Sustaining Nature of Technology

Relates to the fact that technology acts as a catalyst to spur even faster development.

Buying Power

Resources, such as money, gods, and services, that can be traded in an exchange. Depends on economic conditions and the size of the resources that enable individuals to make purchases. The major financial sources of buying power are income, credit, and wealth. Income, credit, and wealth equip consumers with buying power to purchase good and services. marketing managers must be aware of current levels and expected changes in buying power in their own markets because buying power directly affects the types of quantities of goods and services customers purchase. Most current and comprehensive source of buying power data: The Sales and Marketing Management Survey of Buying Power. Having buying power doesn't mean consumers will buy; they must also be willing to use their buying power.

Wealth

The accumulation of past income, natural resources, and financial resources. It exists in many forms, including cash, securities, savings accounts, gold, jewelry, and real estate. Like income, wealth is unequally distributed. A person can have high income but very little wealth. It is also possible, but not likely, for a person to have great wealth but little income. The significance of wealth to marketers is that as people become wealthier, they gain buying power in three ways: 1. They can use their wealth to make current purchases 2. To generate income 3. To acquire large amounts of credit.

Environmental Analysis

The process of assessing and interpreting the information gathered through environmental scanning. Evaluates for accuracy, tires to resolve inconsistencies in the data, and if warranted, assigns significance to the findings. Enable to identify potential threats and opportunities linked to environmental changes. Understanding the current state of the marketing environment and recognizing threats and opportunities that might arise from changes within it help companies in their strategic planning.

Environmental Scanning

The process of collecting information about forces in the marketing environment. Scanning involves observation, secondary sources (such as business, trade, organization, and general-interest publications), and marketing research. Internet is a popular scanning tool because it makes data more accessible and allows companies to gather needed information quickly. Environmental scanning gives companies an edge over competitors in allowing them to take advantage of current trends. However, simply gathering information about competitors and customers is not enough; companies must know how to use that information in the strategic planning process.

Competitive Forces (1/6 of Environmental Forces)

When marketing managers define the target market(s) their firm will serve, they simultaneously establish a set of competitors. In addition, marketing managers must consider the type of competitive structure in which the firm operates. All firms compete with one another for customers' dollars. This brings about competition. These competitors can be classified into one of four types: 1. Brand competitors 2. Product competitors 3. Generic competitors 4. Total budget competitors Although all four types of competition can affect a firm's marketing performance, brand competitors are the most significant because buyers typically see the different products of these firms as direct substitutes for one another. Consequently, marketers tend to concentrate environmental analyses on brand competitors.