Marketing Chapter 3 - Analyzing the Marketing Environment

MARKETING ENVIRONMENT ANALYSIS FRAMEWORK

• Analyzing the marketing environment helps marketers assess continued strengths and value of their products/services and any weaknesses resulting from changes in the marketing environment • Consumers are influenced by firm's microenvironment: immediate actions of the focal company, competition, and the corporate partners that work with the firm to supply products/services • The firm, and thus consumers indirectly, is influenced by the macroenvironment: influences such as culture and demographics, as well as social, technological, economic, and political/legal factors • One of the goals of value-based marketing is to provide greater value to consumers than competitors offer-> you must look at entire business process from a consumer's point of view. • monitor macroenvironment to determine how factors influence consumers and how they should respond to them. Sometimes, firms can even anticipate trends.

MACROENVIRONMENTAL FACTORS - Culture

• Culture: shared meanings, beliefs, morals, values, & customs of a group of people. Spread by words, literature, institutions, culture gets passed down to generations. We partake in many cultures. • The challenge for marketers is to have products/services identifiable by and relevant to a particular group. Our various cultures influence what, why, how, where, and when we buy. • 2 dimensions of culture that marketers must take into account for their marketing strategies 1) Country Culture: visible nuances of a country's culture that are particular to a country (artifacts, behaviour, dress, symbols, settings, ceremonies, language differences, colours and tastes) and are easy to spot. Subtle aspects of culture generally are trickier to identify/navigate. 2) Regional Subcultures: The region in which people live in a particular country affects the way they react to different cultural rituals, or even how they refer to a particular product category. The differences between regions = the insight that helps a marketer make strong connections with a consumer, rather than communicating the same way to all Canadians. It's difficult to develop promotional materials that transcend regional boundaries-> Ex: A resident of Quebec is 25%less likely to buy a meal than a resident of Ontario. Quebec women like to cook, and Quebec consumers are less price sensitive when grocery shopping.

MACROENVIRONMENTAL FACTORS - Demographics

• Demographics: characteristics of human populations and segments, especially those used to identify consumer markets. Typical demographics such as age—which includes generational cohorts—gender, income, race, and ethnicity are readily available from market research firms. • Ex: Nielsen collects info about TV viewership and sells it to networks and potential advertisers. The networks then use this info to set their advertising fees, whereas advertisers use it to choose the best shows on which to advertise. For a show popular among the desirable 18- to 35-year-old viewing segment, a network can charge the highest fees. But advertisers also might want to know whether a show is more popular with women than men or with urban or rural viewers. • Demographics provide an easily understood "snapshot" of the typical consumer in a target market • We examine how firms use demographics to assess their customers' needs and position themselves to deliver better value for those customers • Important demographic factors: family, population shifts, education, increasing cultural diversity

MACROENVIRONMENTAL FACTORS - Demographics -Ethnicity

• Ethnic composition of Canada has changed over the last two decades and will continue to change. • 20% of Canadians was not born here, accounting for 70% of Canada's population growth. • If this continues, Canada's population growth will be attributed almost all to immigration by 2030 • The two fastest growing groups are the Chinese (HK, mainland China, Taiwan) and South Asians (India, Pakistan, Sri Lanka, and Bangladesh) -> South Asians are the largest ethnic group in Ontario • ethnic groups or visible minorities will make up about 23% of Canada's population by 2017 • South Asians and Chinese are young, educated, and wealthy. • Currently, over 25% of all visible minorities in Canada are under 14 years -> likely to have considerable influence over the economy in the future. • Growing number of ethnic groups or visible minorities represents both a challenge and opportunity. o Challenge: to understand the culture, value & spending patterns of various groups and figure out the best way to communicate and serve them -> "be colloquial, be creative but be relevant." o The opportunity: ethnic Canadians spend more than their white counterparts on big-ticket items such as cars, clothing, and home furnishings. Many also have an affinity for brand-name products because they equate them with quality. -> opportunity example: specifically target the unique needs of the ethnic consumer. • Ex: adapting signs to feature different languages, choosing ethnic-targeted media to advertise, celebrating important ethnic holidays such as Chinese New Year with events, promotions, and seasonal products; offering ethnic merchandise for sale & making sure it is merchandised correctly.

MICROENVIRONMENTAL FACTORS - Corporate Partners

• Few firms operate in isolation. -> Ex: automobile manufacturers collaborate with suppliers of sheet metal tire manufacturers, component part makers, unions, transport companies, and dealerships to produce and market their automobiles successfully. • Parties that work with the focal firm are its corporate partners. They work with the firm to create a single, efficient manufacturing system.

MACROENVIRONMENTAL FACTORS - Demographics - Generational Cohorts

• Generational cohort: group of people of the same generation—typically have similar purchase behaviours because they have shared experiences and are in the same stage of life. • For instance, baby boomers and generation Xers both gravitate toward products and services that foster a casual lifestyle; however, they tend to do so for different reasons. o Baby boomers, who brought casual dress into the business arena, are trying to maintain youth. o Gen Xers typically wear jeans and khakis because they are less impressed with the symbols of conspicuous consumption that their parents seem to have embraced. • five major groups: tweens, gen Y, gen X, baby boomers, and seniors 1) Tweens: not quite teenagers but are not young children either (ages 9 to 12); "in between". 2) Generation Y (millennial, echo boom): ages 13-32; biggest cohort since the postwar baby boom. 3) Generation X: ages 36-47. This group is over 5 million Canadians, 15% of Canadian population. 4) Baby Boomers: born after WW2; age 48 - 66-> largest cohort of Canadians, 30% of population.

MICROENVIRONMENTAL FACTORS - Competition

• Greater competition may mean more choices for consumers -> affect buying decision. • Marketers should understand their firm's direct/indirect competitors (strengths, weaknesses) & their likely reactions to the marketing activities their own firm undertakes. • Firms use competitive intelligence (CI) to collect/synthesize info about their position with respect to their rivals. CI enables companies to anticipate changes in the marketplace rather than merely react to them. -> Existing CI activities are fairly limited in practice, and require more resource/attention in the future. Less than 50% of decision makers' companies is involved in various CI initiatives • The strategies to gather CI : 1. Reviewing public materials, including websites, press releases, industry journals, annual reports, subscription databases, permit applications, patent applications, and tradeshows. 2. Interviewing customers, suppliers, partners, or former employees. 3. Analyzing a rival's marketing tactics, distribution practices, pricing, and hiring needs. • it becomes critical for firms to keep close tabs on each other's activities by using CI techniques • Although CI is widely regarded as a necessary function in today's world, certain methods of obtaining info have come under ethical and legal scrutiny -> companies want info on competition

MACROENVIRONMENTAL FACTORS - Social Trends - Greener Consumers

• Green marketing: strategic effort by firms to supply environmentally friendly merchandise • Many consumers believe that each person can make a difference in the environment. • Over 90% of Canadians feel that individuals can take action to reduce air pollution. • Ex: > Over 50% of Canada households recycle soft-drink bottles, cardboard boxes & newspapers. • Growing number of cities across Canada are introducing the "green bin" program (compost) • Firms that sell products considered harmful to the environment may find this trend a threat and must innovate to stay in business -> be green and tell the public that you are being green • This trend is good for the firms that supply green things -> ex: encourage consumers to replace their older washing machines/dishwashers with water- and energy-saving models • Canada's love affair with recycling also has created markets for recycled building products, packaging, paper goods, and even sweaters and sneakers. • green products add an extra ounce of value that other products don't have

MACROENVIRONMENTAL FACTORS - Demographics - Education

• Higher levels of education lead to better jobs and higher incomes. • Average annual earnings are higher for those with degrees than for those without. • For example, 60% of Canadians with just a high school education level earn < $20,000 per year and 60% with university degrees earn > $80,000. • In 2007, the median earnings for Canadians with a bachelor's degree were $45,000, a master's degree $60,000, and a doctorate $65,000. Those with a college diploma earned on average $35,000 • For some products, marketers can combine education level with other data such as occupation and income to obtain decent predictions of purchase behaviour. • Marketers are quite cognizant of the interaction among education, income, and occupation

MICROENVIRONMENTAL FACTORS - Company Capabilities

• In the firm's microenvironment, the first factor that affects the consumer is the firm itself. Successful marketing firms focus on satisfying customer needs that match their core competencies. • Marketers can use an analysis of the external environment, like SWOT, to categorize an opportunity as attractive/unattractive and, if attractive, to assess it relative to the firm's existing competencies

MACROENVIRONMENTAL FACTORS - Social Trends - Marketing to Children

• In the past 20 years, child obesity has doubled in Canada, leading to skyrocketing rates of high blood pressure, high cholesterol, early signs of heart disease, and Type 2 diabetes among children. • In response, the CSPI has proposed Guidelines for Responsible Food Marketing to Children, which outlines a variety of changes to advertising directed at children. The new guidelines require advertisers to market food in reasonably proportioned sizes. The advertised food items also must provide basic nutrients, < 30% of their total calories from fat, and include no added sweeteners. • The advertising cannot be aired during children's programming, and companies cannot link unhealthy foods with cartoon and celebrity figures.

MACROENVIRONMENTAL FACTORS - Political/Legal Environment - Legislation Protects Consumers

• Legislation also protects consumers in a variety of ways. 1) Require manufacturers to abstain from false or misleading advertising 2) Manufacturers are required to identify and remove any harmful or hazardous materials (e.g., asbestos) that might place a consumer at risk. 3) Firms must adhere to fair, reasonable business practices when communicating with consumers. 4) Government enacts laws focused on specific industries and on consumers. These laws may want to increase competition, such as the deregulation of the telephone industry. Or, they may be in response to current events or to achieve objectives, such as when the federal government introduced the 1-year home renovation tax credit to encourage consumers to spend. o Government has developed laws to regulate consumer behaviour, such as banning smoking, mandating child car seats, and requiring drivers to use only hands-free cellphones. • Certain laws create an opportunity for marketers to sell more of their products, & help to create a level playing field for competition and set standards for marketers to follow -> GOOD • Regulation tends to increase the cost of compliance; compliance usually requires more paperwork, time, effort, and money and may cause delays when government approval is needed -> BAD

MACROENVIRONMENTAL FACTORS - Economic Situation - 4 major factors that influence the state of an economy

• Marketers monitor general economic situation in their home country and abroad, because it affects the way consumers buy merchandise and spend money. • 4 major factors that influence the state of an economy: 1) Inflation: persistent increase in the prices of goods and services. Purchasing power of the dollar decline; in other words, a dollar buys less than it used to. 2) Foreign currency fluctuations can influence consumer spending. Rapid increases in the exchange rate between the currencies of Canada and the United States have negative and positive consequences for Canadian marketers, depending on whether they are exporters or importers and whether they report their earnings in Canadian or U.S. dollars. o Exchange rate changes also have serious implications for consumers. As the value of the Canadian dollar increases (compared with U.S.), merchandise made in Canada and exported to the U.S. becomes more costly to Americans, and Canadian exporting companies suddenly find that they have lost a good chunk of their cost advantage. Also, imports of products made in U.S. cost less for both Canadian importers and consumers. -> bad for Canadian product sale o During inflationary times, "made in America" claims become more important, which means that Canadian manufacturers and U.S. retailers that specialize in Canadian merchandise must decide whether to maintain their profit margins or accept a lower price to keep their customer base. o Marketers who monitor the economic environment have the advantage, as they will be able to adjust their strategies if they foresee the increase. 3) Interest rates: cost of borrowing money. Also, if a customer opens a savings account at a bank, he will earn interest on the amount saved, which means the interest becomes the fee the consumer gets for "loaning" the money to the bank. If the interest rate goes up, consumers have an incentive to save more; when interest rates go down, consumers borrow more. 4) Recession: period of economic downturn when the economic growth of the country is negative for at least a couple of consecutive quarters. -> The stock market declines sharply, unemployment increases, business and consumer confidence falls, and spending is severely reduced. o 1000s of consumers lose their jobs during a recession-> purchasing power is greatly reduced. o Even people who have jobs spend cautiously because of insecurity about their jobs. o Look for the best deals for items they need—that is, they become even more value conscious, wanting the most value for their money. o Marketers must adjust their marketing strategies accordingly. Most marketers try to cut costs, lower prices to keep their existing customers and to attract new customers, and may even introduce slightly lower quality goods/services to manage costs. o In a recession, some industries do well and others struggle. -> Marketers must be vigilant. • How do these four important economic factors—inflation, foreign currency fluctuations, interest rates, and recession—affect a firm's ability to market goods and services? • Ex: when inflation increases, consumers don't buy less food, but they buy cheaper stuff. Grocery stores and inexpensive restaurants win, but expensive restaurants lose. Consumers also buy less discretionary merchandise (ex: fancy cars), but more low-cost luxuries (personal care products)

MACROENVIRONMENTAL FACTORS - Social Trends - Privacy Concerns

• More consumers worldwide sense a loss of privacy -> identity theft • Improvements in computer storage facilities and the manipulation of info have led to more and better credit check services. Also, consumers are reminded that their identity may not be their own. • Ex: Although Citibank commercials promote a new credit card with identity theft protection, most consumers have no such protection.

MACROENVIRONMENTAL FACTORS - Social Trends -The Time-Poor Society

• Several trends increase difficulty of grabbing target markets' attention 1) In most families, both parents work, and the kids are busy. Thus, Canadians have less time for leisure and to spend with family. -> In 2011, Canadian workers spent about 200 hours less with family per year than they did two decades earlier. 2) Consumers today have hundreds of shows and programs available through TV, radio, PDAs, DVDs, smartphones, personal computers, and the Internet. Thus, consumers can choose when, where, and what shows they want to watch or listen to at their convenience. By fast-forwarding thorough the commercials, they miss all the messages marketers are attempting to send them. 3) Consumers attempt to cope with their lack of leisure time by multitasking: watching TV or while doing homework -> cannot focus as well on the advertisements that appear in those media. • Marketers are thus faced with the challenge of finding more creative ways to get their marketing messages out to consumers under these ever-changing media consumption trends. • Ex: moving some of their advertising expenditures from traditional venues such as TV and print media to instant messaging, social media ads, movie screens, fortune cookies, billboards, and ads in airports and on taxis, buses, and mass transport vehicles. • Ex: extend hours of operation so customers can shop when they have time -> self-check-out • To find and develop methods to make life easier for many diverse consumers in a time-poor society, marketers often rely on technology, another macroenvironmental factor.

MACROENVIRONMENTAL FACTORS - Technological Advances

• Technological advances: improved the value of both products and services in the past few decades. • On the retail side, firms are able to track an item from the moment it is manufactured, through the distribution system, to the retail store, and into the hands of the final consumer by using radio frequency identification device (RFID) chips that are affixed to the merchandise -> able to determine exactly how much of each product is at a point in the supply chain -> able to communicate with suppliers and collaboratively plan to meet their inventory needs • Not only do these advances result in higher quality products, they also create buzz and novelty for their industries, as well as new opportunities to communicate with consumers. • Ex: Wii. You can literally get into the action and swing to hit a homerun. • Technology impacts new products, new forms of communication, new retail channels • Relative ease with which consumers can use social media has really increased the power of consumers to affect a firm's marketing strategy. • Some firms embraced social media to get feedback from consumers, which is then used to design new or redesign existing products, services, and marketing campaigns • traditional media are encouraging consumers to share their experiences through their websites • media is also an opportunity for marketers to demonstrate their customer care efforts; free publicity. • The key challenge for marketers is to spot emerging technology trends early and to assess their likely impact, positive or negative, on business -> develop appropriate strategies for responding

MACROENVIRONMENTAL FACTORS - Social Trends

• Tend to change over time in their popularity and importance, and savvy marketers work hard to identify emerging trends to understand whether they present an opportunity or pose a threat • Greener Consumers, Marketing to Children, Privacy Concerns, The Time-Poor Society

MACROENVIRONMENTAL FACTORS - Demographics - Income

• The median income of Canadian families in 2008 was $63,900.38 • Canadians may be classified into distinct groups based on income and other factors such as background, education, and occupation: upper, middle, working, under • Upper class (48% Canadian households) consumers' spending patterns are not influenced by economy. They have high discretionary incomes and purchase luxury items. Their family income is over $70,000. They're more likely to be highly educated and work in managerial and executive roles. • Middle class families earn b $30,000-$70,000 (more at higher end of this scale). They can afford a good life most of the time. They're careful spenders and are often value-conscious. Approximately 38 percent of Canadian households fall in the middle class. • Working class (low-income), earn $20,000-$30,000, barely sufficient to cover their basic needs • Under class families earn less than $20,000 and often rely on assistance to cover their basic needs. Just under 15% of Canadian households belong to the working class and the underclass. • Richest 20% spend 6-7x more in every shopping category than the poorest 20% of Canadians. • broad range in incomes creates marketing opportunities at both the high & low ends of the market • Although some marketers choose to target only affluent population segments, others have had great success delivering value to middle- and low-income earners. • In 2010, the richest families earned about 10x more than the poorest families!

MACROENVIRONMENTAL FACTORS - Demographics -Gender

• Years ago, gender roles appeared clear, but those male/female roles have been blurred. • More firms are careful about gender neutrality in positioning their products and attempt to transcend gender boundaries whenever they can. • Women make the majority of purchasing decisions and then influence most of the remainder. • Women head > 20% of Canadian households ->working women's segment = large, complex market. • But that doesn't mean marketers have forgotten about men. The days of commercials that show Mom alone with the kids are over. To reflect changing family roles, commercials for most children's gear now include Dad interacting with the kids and being involved in purchase decisions. • In 2008, women earned an average of 71.3% of what men earned. The difference is much lower for women aged 25 to 29 entering the workforce; these women earned 15% less than men.

MICROENVIRONMENTAL FACTORS

• factors affecting consumers' microenvironment: company capabilities, competition, corp. partners

MACROENVIRONMENTAL FACTORS

• marketers must also understand macroenvironmental factors: Aspects of the external environment—culture, demographics, social trends, technological advances, economic situation, and political/legal environment (CDSTEP)—that affect companies

MACROENVIRONMENTAL FACTORS - Political/Legal Environment

• political parties, government organizations, and legislation and laws that promote or inhibit trade and marketing activities. -> firms must fully understand/comply with any legislation regarding fair competition, consumer protection, or industry-specific regulation. • Government has promoted both fair trade/competition by prohibiting the formation of monopolies or alliances that would damage a competitive marketplace, fostering fair pricing practices for all suppliers and consumers, and promoting free trade agreements among foreign nations.