Economic environment

 The economic environment consists of economic factors that affect

consumer purchasing power and spending patterns.

 Where consumer purchasing power is reduced,as in countries experiencing

economic collapse or in an economic recession ,value-for-money becomes a
key purchasing criterion. Therefore marketers must capture and retain
price-conscious customers during lean economic times, unlike boom
periods when consumers become literally addicted to personal
consumption.

 These economic factors are often beyond a company’s control, and may be
either large-scale (macro) or small-scale (micro).

Macrofactors include:

1. Recessions
2. Employment/unemployment
3. Income
4. Inflation/Deflation
5. Interest rates
6. Tax rates
7. Currency exchange rate
8. Saving rates
9. Consumer confidence levels
10.How does inflation/deflation affects the Marketing enviroment?
 Inflationary and deflationary pressures alter the purchasing power of
money. This has a direct impact on consumer spending, business
investments ,employment rates, Governmental programs and tax policies .
 How does Interest rates affects the Marketing enviroment?
 It's possible for interest rate changes, either up or down, to have the effect
of increasing consumer spending or decreasing spending and increasing
saving. The ultimate determinant of the overall effect of interest rate
changes primarily depends on the consensus attitude of consumers as to
whether they are better off spending or saving in light of the change.
 An increase in interest rates may lead consumers to increase savings, since
they can receive higher rates of return. An decrease in interest rates is
 often accompanied by a corresponding increase in inflation, so consumers
may be influenced to spend less if they believe the purchasing power of
their money will be eroded by inflation.

 
 How does Consumer confidence
affects the Marketing enviroment?
 Consumer confidence is the outlook that consumers have towards the
economy and their own personal financial situation.
 The level of consumer confidence will be an important factor that
determines the willingness of consumers to spend, borrow and save. A high
level of consumer confidence will encourage a higher marginal propensity
to consume. A fall in levels of consumer confidence is often an indicator of
an economic downturn.
 How does Recession affects the Marketing enviroment?
 Consumption. The level of impact on consumption is related to the value of
goods. Basic goods (e.g. food) and luxury goods tend to be the most
resilient, so their respective supply chains are impacted marginally by
recessions. However, it is for durable goods (e.g. cars), discretionary goods
(e.g. electronics) and capital equipment (e.g. ships and port infrastructure),
that recessionary forces can have significant impacts in lowering their
respective demand depending on the severity of the recession.
 How does Income affects the Marketing enviroment?
The income effect represents the change in an individual's or economy's
income and shows how that change impacts the quantity demanded of a
good or service. The relationship between income and quantity demanded
is a positive one; as income increases, so does the quantity of goods and
services demanded. For example, when an individual's income increases,
that person demands more goods and services, thus increasing
consumption, all things equal.
 How does Currency exchange rate affects the Marketing enviroment?
Changes in the prices of imported goods and services – this has a direct
effect on the consumer price index. For example, an appreciation of the
exchange rate usually reduces the price of imported consumer goods and
durables, raw materials and capital goods.
 Changes in the growth of exports: A higher exchange rate makes it harder
to sell overseas because of a rise in relative prices. If exports slowdown
(price elasticity of demand is important in determining the scale of any
change in demand), then exporters may choose to cut their prices, reduce
output and cut-back employment levels.

 Importance of Economic Enviroment

Managers and Marketers study economic enviroment to estimate how
market trends and government policy influence the performance of their
companies.
A country ’s economic policies are a leading indicator of government’s
goals and its planned use of economic tools and market reforms.
Economic development directly impacts citizens ,managers ,companies
,policymakers,and isnstitutions.