FUM Ch.2

CH. 2 MARKETING AND ENVIRONMENT

FUNDAMENTALS OF MARKETING

START

by Elizabeth Frank

Marketing and company environment

Micro-environment

Macro-environment

Market Concept

Program

Market types

Chapter 2

01

Marketing and Company Environment

INTRO I

What is the company's marketing environment?

DEFINITION

Marketing environment

This includes a set of controllable and uncontrollable direct or indirect forces that are capable of exerting influence, from a microeconomic and macroeconomic level.

A company's marketing environment consists of the actors and forces out- side marketing that affect marketing management's ability to develop and maintain successful transactions with its target customers.

Why are Marketing professionals interested in carrying out a systematic analysis of the environment?

Reaching clients and maintaining good relationships

The environment keeps changing rapidly

Coordinate work with other agents

It is key to understand the Market

Build a network that creates value

Trend analysis

MarketingEnvironment

Threats

Micro-environment

The forces close to the company that affect its ability to serve its customers

The larger societal forces that affect the micro-environment

Macro-environment

It is made up of the forces that directly and immediately influence the management of the company and exchange relationships. The objective is to satisfy the needs of the market.

Micro-environment

External Micro-environment

Internal Micro-environment

The company cannot control it

The company can control it

Micro-environment

External Micro-environment

Suppliers

Intermediaries

Public (Stakeholders)

Clients

Competition

Example

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The company and all the other actors operate in a larger macro- environment of forces that shape opportunities and pose threats to the company. It is the set of all these forces/external elements of the company that are relevant to the company’s performance.

Macro-environment

Demographic Environment

Demographic Environment

Do you know Danica from the Philippines? Peter from London? Nargis from India? Natalia from Russia?

These are just some babies whose parents claim they were the 7th billion human born to this world.

Demographic Environment

Demography is the study of human populations in terms of size, growth, density, location, age, gender, race, occupation and other statistics. The demographic environment is of considerable interest to marketers because it involves people, and people make up markets. Marketers must know where populations are located and where they are headed.

DEFINITION

Demographic Environment

What are the most important demographic trends influencing markets and marketing throughout the world?

Activity

Demographic Environment

• In small groups, discuss global demographic trends.
• Discuss the significance of the trends for marketers.
• Have the trends changed over the last few decades?
• Explain the reasons behind the trend and the implications for marketers.
• How should marketers respond to these trends?

PREPARE A PRESENTATION TO BE PRESENTED AT THE END OF TODAY'S CLASS

Population size and growth trends

Demographic Environment

Changing age structure

Shifting family profiles

TRENDS

More educated population

Migration

Increasing diversity (ethnic and sexual)

Urbanization

Demographic Environment

Demographic Environment

Population size and growth trends

World Population Clock

TRENDS

https://www.census.gov/popclock/

Demographic Environment

Population size and growth trends

Demographic Environment

Changing age structure

Demographic Environment

Changing age structure

Demographic Environment

Changing age structure

What do Marketers need to consider?

People are living longer

People are staying healthy for longer

People are working longer

"Mature" citizens are wealthier

Demographic Environment

Changing age structure

REFLECTIONS In 2021, total health expenditure in the U.S. exceeded four trillion dollars (4,000,000,000,000$). Expenditure as a percentage of GDP is projected to increase to approximately 20 percent by the year 2031. To meet the demands of age-related illnesses, companies will need solutions that offer quality care at much lower costs, for patients and an overburdened healthcare system.

Demographic Environment

Changing age structure

REFLECTIONS Rising costs of healthcare and pensions at the same time fewer people work, pay taxes and social security. Retirement ages are increasing.

Demographic Environment

Changing age structure

Why are older consumers different?

Demographic Environment

Demographic Environment

Changing age structure

REFLECTIONS Retailers and manufacturers will have to adapt their - Products and - Sales channels

Demographic Environment

Examples:Travelling, Dining out, Dating, Wellbeing, Shopping...

Demographic Environment

Online dating

Hollywood

Demographic Environment

Demographic Environment

Changing age structure

SDG Goal 3: "Ensure healthy lives and promote well-being for all at all ages"Not only do people live longer, but the 'Health-adjusted life expectancy' (HALE) indicates the average number of years a person can expect to lifve in 'full health', not hampered by disabling illnesses or injuries.

VerywellHealth, 2020

Demographic Environment

Changing age structure

Demographic Environment

Changing age structure

Demographic Environment

Changing age structure

Demographic Environment

Demographic Environment

Demographic Environment

Shifting family profiles

TRENDS

Phases

Demographic Environment

Shifting family profiles

Single parent families

TRENDS

Patchwork families

Same sex couples with children

Mixed race couples family

Families with less children

"Pet" families

Couples wait longer to start a family

Demographic Environment

Shifting family profiles

As a result there are needs for special package sizes, ...

Shifting family profiles

And products ...

Demographic Environment

More educated population

SDG Goal 4: This is the education goal. It aims to “ensure inclusive and equitable quality education and promote lifelong learning opportunities for all.”

Demographic Environment

More educated population

Quality education includes higher education levels and CSR education.As a result people are more concerned with CSR topics, they show higher interest in how products are made (working conditions) and how these products come to market, their environmental impact, etc.

Demographic Environment

More educated population

Since the 1970s Nike used "sweatshops" producing its goods in South Korea, China and Taiwan. The exploitation of their factory workers included child labour. The the business model was built on minimizing (labour) costs. In the 1990s, Nike was criticised for this behaviour which changed the consumer's perception of the brand. Nike has strongly denied the claims, suggesting they had little control over sub-contracted factories. But, as sales decreased dramatically, Nike has reanalysed the business, and since focusses on ethics. Since 2002, Nike began auditing its factories.

EXAMPLE

Demographic Environment

Migration

• Migration has become much more diverse in terms of origins of migrants.
• Both globally and in Europe, most migration is intra-continental.
• The number of refugees is on the rise worldwide.
• Most refugees seek harbour in neighbouring countries. Since 2015, with the so-called “refugees and migrant crisis”, Europe too has dealt with increasing numbers of asylum seekers.

Demographic Environment

Migration

The main reasons for migration are:

• Persecution
• War
• Climate Change
• Violation Of Human Rights
• Economic & financial Hardships
• Hunger

Demographic Environment

Migration

As migration increases a population's ethnic diversity increases, and people want to be able to consume products and food from their Homelands.

Demographic Environment

Increasing diversity (ethnic and sexual)

Starting in the 1980s, companies began to increase marketing efforts around diversity. One driver was an increasingly international and global marketplace. As business abroad expanded, companies inevitably had to compete with local and national companies. In addition to the cultural and ethnic changes, communities began to celebrate their differences rather than striving to fit into the dominant culture. The importance of diversity in marketing has grown in response to the increasing diversity of the population.

Demographic Environment

Increasing diversity (ethnic and sexual)

Examples

Demographic Environment

Increasing diversity (ethnic and sexual)

Benneton’s marketing strategy was/is to challenge social norms, using shocking images to champion issues that affect humanity. Benneton’s campaigns were highly controverse and placed the brand in the centre of the public eye. Throughout the 80s and 90s the brand’s was highly successful.

Demographic Environment

Increasing diversity (ethnic and sexual)

Examples

Demographic Environment

Increasing diversity (ethnic and sexual)

Examples

Demographic Environment

Increasing diversity (ethnic and sexual)

Examples

Demographic Environment

Examples

Demographic Environment

Increasing diversity (ethnic and sexual)

Examples

Demographic Environment

Increasing diversity (ethnic and sexual)

Demographic Environment

Urbanization

More than half of the global population now lives in urban areas. By 2050 it is expected that two-thirds of all people will live in cities. Cities have become our primary engines of economic growth.

TRENDS

Demographic Environment

Urbanization

WHY DO PEOPLE MOVE TO CITIES?

Demographic Environment

Urbanization

Demographic Environment

Urbanization

Cities will lead the transition to a connected environment. The next generation of wireless connectivity, 5G, will become available in large cities in the next decade. This will be the catalyst for technologies such as AI, IoT, autonomous vehicles, drones and augmented reality.

Economic Environment

EconomicEnvironment

Economic environment

Economic factors that affect consumer purchasing power and spending patterns:

• Income / national wealth
• Growth / recession
• Level of inflation
• Unemployment
• Level of interest rate
• Monetary and fiscal policies
• Exchange rates
• Distribution of family expenditure

EconomicEnvironment

Economic environment

• BRIC’s growth
• Recent economic downturn (COVID19 crisis, frugal consumers and shift of income distribution)
• Energy crisis (due to war in Ukrania and conflict with Russia)
• China’s consumer class
• On-demand economy
• Growth of E-commerce
• Remote work

TRENDS

Natural Environment

Natural Environment

Natural Environment

Natural resources are needed as inputs for producing goods. Companies are responisble for developping environmentally friendly goods and ways of doing business. Since global population will double by 2050, we observe that natural resources are disappearing quickly.

(Ecological Environment)

Natural Environment

Natural Environment

What constitutes the natural environment?

• Natural ressources (water, land, reserves, vegetation,...)

• Ecology (biodiversity)

• Climate (Temperature, wind, precipitation, humidity,...)

NaturalEnvironment

What businesses depend on climate?

Natural Environment

Natural Environment

• Shortages of raw materials (water, forests, foods, oil, coal, etc..)
• Increased cost of energy
• Increased pollution (mercury/plastics in oceans, chemical pollutants in soil/food)
• Increased government intervention in natural resource management

TRENDS

Natural Environment

Natural Environment

• By the year 2030 more than 1/3 of the world population will not have enough water to drink
• According to the WHO, 80% of all diseases in the developing world are water-related
• Only 1% of China’s citizens are breathing air that is considered safe by the EU
• Recycling 1 aluminium drink can is equivalent to the TV running during 3 hours
• A glass bottle can be recycled between 40 and 60 times

INTERESTING FACTS

Natural Environment

Natural Environment

Ecological FootprintThe Ecological Footprint is a resource accounting tool that measures how much biologically productive land and sea is used by a given population or activity, and compares this to how much land and sea is available. Productive land and sea areas support human demands for food, timber, energy,... These areas also absorb waste products from the human economy.The Ecological Footprint measures the sum of these areas, wherever they physically occur on the planet.

(Ecological Environment)

A VOLUNTEER?

Natural Environment

Natural Environment

Companies today recognize the link between a healthy ecology and a healthy economy. Environmentally responsible actions can also be good business. Aligning environmental issues with customer perceptions of value is what matters.

(Ecological Environment)

Natural Environment

Natural Environment

Some examples of Businesses that develop environmental friendly practices:

• Aldi (in Germany)
• Noem (in Spain)
• Patagonia

Examples

Technological Environment

TechnologicalEnvironment

Technological Environment

What major technological changes have we seen in the last decade?

Scan the QR code besides or visit mentimeter.com and enter the code: 5814 0695

TechnologicalEnvironment

Technological Environment

TechnologicalEnvironment

Technological Environment

Forces that create new technologies, creating new product and market opportunities. It is the most dramatic force now shaping our life. TRENDS:

• Fast pace of technological change & increased scientific infrastructure
• High R&D budgets
• Increased regulation: safety standards

TechnologicalEnvironment

Technological Environment

What major technological changes have we seen in the last decade?

TechnologicalEnvironment

Technological Environment

Some recent innovations:

• Big Data
• RFID-Technology
• QR-Codes
• 3-D Printing
• AR
• VR
• IoT

TechnologicalEnvironment

Technological Environment

TechnologicalEnvironment

TechnologicalEnvironment

Technological Environment

3M Post-it story

In the 80s, a scientist employed by 3M was researching the formula for a superglue. He accidentally developed an adhesive that did not stick well. It took him years to find use. The yellow trade-mark color came to be when they produced a prototype and had no other colour to hand. Nobody knew they needed the product, until they tried it out.

Example

TechnologicalEnvironment

Technological Environment

Sony vs Apple

In the 80s, everybody owned a Walkman, first cassette then discman. But when Apple launched the iPod, Sony did not follow suit and lost out on massive sales.

Examples

TechnologicalEnvironment

Technological Environment

Obsolescence

Planned (or built-in) obsolescence is a business strategy in which the obsolescence (the process of becoming either unfashionable or no longer usable) of a product is planned and built into it from its conception. This is done so that in future the consumer feels a need to purchase new products and services that the manufacturer brings out as replacements for the old ones.

Examples

TechnologicalEnvironment

Technological Environment

The Centennial Light

Thomas Edison invented commercially viable light bulbs in circa 1880. The “Phoebus cartel” in the 1920s (top light bulb manufacturers worldwide, Osram, Associated Electrical Industries and General Electric), decided to artificially reduce the bulbs’ lifetimes to 1,000 hours. Lightbulbs and various other technologies could easily last for decades, but it’s more profitable to introduce artificial lifespans so that companies get repeat sales.

Examples

TechnologicalEnvironment

Technological Environment

Ford vs GM (perceived obsolscence)

In the 1920s competition between General Motors and Ford in the car market led the former to introduce the now-familiar model year changes in its vehicles. This was a pioneer way to get customers to buy the latest, greatest car to satisfy themselves and impress those in their social circles

Examples

TechnologicalEnvironment

Technological Environment

Further examples:

• Nylon stocking
• Light bulb
• Cars
• Household appliances
• Mobile phones
• Computing (new versions support old ones, not the other way round)

Examples

TechnologicalEnvironment

Technological Environment

Conspiracy or Truth?

To an extent, planned obsolescence is an inevitable consequence of sustainable businesses. To reduce production costs (and ultimately the price), cheaper material is used. As a result, many goods are cheaper and available to a wider customer base. Technology takes care of itself, it is evolving so rapidly, therefore many customers appreciate paying less for a smartphone upfront (knowing that the batteries won’t last for more than 3 years).

TechnologicalEnvironment

Technological Environment

Conspiracy or Truth?

As technology rapidly evolves, do we need goods to last us a lifetime? On a macroeconomic scale, the rapid turnover of goods powers growth and creates jobs. These jobs put money in the pockets of the consumers who in return can increase their spending (purchasing power). What we seem to have is a virtual-vicious cycle.

TechnologicalEnvironment

Technological Environment

Conspiracy or Truth?

Political/Legal Environment

Political/LegalEnvironment

Political/Legal Environment

• Laws, government agencies and pressure groups influence or limit organizations and individuals in a given society.
• Regulations are needed to ensure competition and ensure fair markets (Protection of companies, of consumers, of the interests of society)
• Marketers have to keep up with the changes in regulations and laws, nationally and internationally

Political/LegalEnvironment

Political/Legal Environment

Unfair comparitive advertising Advertising cannot be used at random, it must comply with a series of rules and regulations that depend on national law. In Spain: - The products that are compared must have the same purpose or satisfy the same need(s) - The comparison has to be made objectively between essential, relevant, verifiable and representative characte-ristics of the goods and can include price.

Example

Political/LegalEnvironment

Political/Legal Environment

Unfair comparitive advertising

Example

Political/LegalEnvironment

Example

Political/LegalEnvironment

Example

Political/LegalEnvironment

Example

Political/LegalEnvironment

Example

Political/LegalEnvironment

Political/Legal Environment

What are the political factors affecting marketing?

• Stability of political system / Governmental systems
• Market system
• Level of bureaucracy
• Level of corruption
• Foreign Trade Agreement (FTA) or Trade control

Political/LegalEnvironment

Political/Legal Environment

Example

Political/LegalEnvironment

Political/Legal Environment

What are the legal factors affecting marketing?

• Legislation
• Taxation (varies between countries, states)
• Protection of environment
• Employment law
• Health and Safety (Product liability laws vary between countries)
• Competition regulation
• Intellectual property law (Copyright, patents)

Political/LegalEnvironment

Political/Legal Environment

What are the legal factors affecting marketing?

• Increasing business legislation/regulation to protect companies, consumers and society (fair trade practices, environmental protection, product safety, truth in advertising, consumer privacy, etc...)
• Increased emphasis on ethics and socially responsible actions
• Growth of public interest groups
• Government influence over business

TRENDS

Political/LegalEnvironment

Political/Legal Environment

Google-China pulled its Web-search engine out of China after a very public confrontation with the Chinese government over censorship in 2010 after the Google computer codes were stolen by hackers and there were attempts to spy on Chinese human rights activists.

Example

Political/LegalEnvironment

Example

Cultural/Social Environment

Cultural/Social Environment

Cultural/Social Environment

The cultural environment consists of institutions that affect a society’s basic values, perceptions, preferences and behaviors. In recent times the cultural diversity, as a result of migration, is causing changes and new trends in the cultural environment of the society.

Cultural/Social Environment

Cultural/Social Environment

Core beliefs are passed on from parents and are reinforced in schools, churches, businesses and governments. They have a high degree of persistence.

Secondary beliefs are more open to change. They include people’s views of themselves, others, organizations, society, nature, the universe,…

Though we can observe a persistence of cultural values, marketers have some chance of changing secondary values (for example: to marry early in life) but little chance of changing core values (example: marriage).

Cultural/Social Environment

Cultural/Social Environment

• Better education
• Women in the labor market
• Social conflicts
• Grooming
• Greater appreciation for nature
• A changing spiritualism
• Search for more meaningful and enduring values
• Lessening trust in institutions
• Increasing patriotism

TRENDS

Cultural/Social Environment

Cultural/Social Environment

When designing marketing strategies, companies must understand how culture affects consumer reactions in each of its markets. Understanding cultural traditions, preferences and behaviors can help companies avoid embarrassing mistakes but also take advantage of cross-cultural opportunities.

Examples

Cultural/Social Environment

Cultural/Social Environment

KFC - Kentucky Fried Chicken The slogan is: "It's finger likin' good" This was translated for the Hong Kong Market to the unfortunate slogan:"Eat your fingers off"

Examples

Cultural/Social Environment

Cultural/Social Environment

A t-shirt manufacturer in Miami printed shirts in Spanish to commemorate the Pope’s visit. By referring to the Pontiff as “la papa” instead of “el Papa”, their shirts read: “I saw the potato.”

Examples

Scandinavian vacuum manufacturer Electrolux once launched an American ad campaign by proclaiming, “Nothing sucks like an Electrolux.”

Cultural Environment

Cultural/Social Environment

Culture The set of basic values, perceptions, wants, behaviors learned by a member of society from family, friends and other important institutions. (example: American, European).

Cultural Environment

Cultural/Social Environment

Subculture A group of people with shared value systems based on common life experience. These can be age-subcultures, ethnic subcultures, geographic subcultures and more. (example: Hispanic Americans, Afro-Americans, Asian Americans, Baby Boomers, Millenials, Hippies, Goths,...)

Cultural Environment

Cultural/Social Environment

Social class Relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviors. (example: lower class, working class, middle class, upper class – social class is not determined by a single factor but a combination of Income, Occupation, Education, Wealth)

Cultural Environment

04

The conceptof Market

Market

have a need for a specific product or service

A market is a group of people (individually or organized in groups) that:

have a desire or can desire to buy it

have the capacity (economic and legal) to buy

When analyzing a market it is important to distinguish:

Market

PotentialMarket

TargetMarket

Current Market

is the specific group of consumers at which a company aims its products and services.

is the maximum number of buyers to which the commercial offer is available and directed.

is the market that requests a product at a given moment.

05

Types of Market and Characteristics

MarketClassifications

By the type of demand

By geographic dimension

A market is a group of people (individually or organized in groups) that:

By the nature of the products

By the intensity of offer & demand

By number of competitors

MarketClassifications

By the type of demand

Organizational Market

Consumer Market

1. Industrial buyers 2. Intermediaries / Agents 3. Institutional buyers

1. Immediate consumption 2. Durable goods 3. Services

Consumer Markets

1. Immediate consumption markets

2. Durable goods market

3. Service markets

• Tangible products
• Little time between purchases
• Little involvement in the purchasing decision process
• High turnover of stocks
• Importance of brands of distributors
• Long and wide distribution channels
• Low prices
• Sensitivity to price
• Short term use
• Reduced commercial margins

• Mid- to long-term use
• Tangible products
• Long time between purchases
• High involvement in the purchasing decision process
• Low stock rotation
• Importance of Manufacturer's brands
• Short and narrow distribution channels
• After sales service important
• High prices
• Low sensitivity to price
• High margins

• Intangible products
• Sale and consumption at the same time
• Do not admit stockage
• Short or direct distribution channels
• Difficulty to set quality standards
• Purchase behavior is based on own or external experiences

Consumer Markets

1. Immediate consumption markets

2. Durable goods market

3. Service markets

OrganizationalMarkets

INSTITUTIONAL MARKETS

INDUSTRIAL MARKETS

• Long-term use
• Short and narrow channel
• High volume of sales
• Individual price negotiation, payment, delivery, etc.
• No use of mass communication media
• Use of: Congresses, Expositions, Conferences, etc.
• Demand is derived of the demand in consumer markets
• Low sensitivity to price variations
• Complex purchasing decision process, several persons involved.
• Commercialization of not finished products is possible

INTERMEDIARIES / AGENTS

MarketClassifications

By the nature of the products

• Agricultural
• Raw material
• Manufactured goods
• Services
• Financial products
• Knowledge

MarketClassifications

By geographic dimension

• Local markets
• Regional markets
• National markets
• International markets

MarketClassifications

By the intensity of offer & demand

BUYER

SELLER

Buyers have more negotiating power than prospective sellers (because there is surplus of the product and too few buyers, buyers can purchase at a lower cost, prices tend to drop).

Sellers have more negotiating power than prospective buyers (because there is shortage of the product and many more buyers that compete).

MarketClassifications

By number of competitors

MarketClassifications

By number of competitors

MarketClassifications

By number of competitors

The Ecological Footprint

It measures the amount of “biologically productive” land or water that enables the population to sustain itself. This measurement takes into account the resources a population needs to (1) produce goods and (2) “assimilate,” or clean up, its waste. Biologically productive land and water can include arable land, pastures, and parts of the sea that contain marine life.