Chapter 3

 Chapter Overview
o Change is a fact of life for all people, including marketers
o Although some change may be the result of crisis, more often it is the
result of a gradual trend in lifestyle, income, population and other
factors
o Consumers are increasingly interest in buying “green” products
 Goods that minimize their impact on the environment
 Technology can trigger a sudden change in the marketplace
 In one fell swoop, it appeared that internet music
downloads had replaced traditional CDs
o Marketers must anticipate and plan for change
o They must set goals to meet the concerns of customers, employees,
shareholders and members of the general public
o Industry competition, legal constraints, the impact of technology on
product designs and social concerns are some of the many important
factors that shape the business environment
 All potentially have an impact on a firms goods and services
o Although external forces frequently are outside the marketers control,
decision makers must still onsider those influences together with the
variables of the marketing mix in developing – and occasionally
modifying – marketing places and strategies that take these
environmental factors into consideration
o Five Forces in marketing’s external environment
 Competitive
 Political-legal
 Economic
 Technological
 Social-culture
 Environmental Scanning and Environmental Management
o Marketers constantly monitor crucial trends and developments in the
business environment
o Environmental Scanning
 Is the process of collecting information about the external
marketing environment to identify and interpret potential
trends.
o The goal of this process is to analyze the information and decide
whether these trends represent significant opportunities or pose
major threats to the company
o Environmental scanning is a vital component of effective
environmental management
 o Environmental Management
 Involves marketers’ effort to achieve organizational objectives
by predicting and influencing the competitive, political-legal,
economic, technological and social-cultural environments
o In the political-legal environment, managers who are seeking
modifications of regulations, laws, or tariff restrictions may lobby
legislators or contribute to the campaigns of sympathetic politicians
o For many domestic and international firms, competing with
established industry leaders frequently involves strategic alliances
 Partnerships with other firms in which the partners combine
resources and capital to create competitive advantages in a
new markets
 Are especially common in international marketing, where
partnerships with local firms provide regional expertise for a
company expanding its operations abroad
 Members of such alliances share risk and profits
 The Competitive Environment
o Interactive process that occurs in the marketplace among marketers
of directly competitive products, markets of products that can be
substitutes for one another, and marketers competing for the
consumer’s purchasing power
o An organizations vie to satisfy customers, the interactive exchange
creates the competitive environment
o Marketing decisions by individuals firms influence consumer
responses in the market place
o Decision makers must continually monitor competitors’ marketing
activities
 Their products, distribution channels, prices, and promotional
efforts
o Few organizations have monopoly positions as the sole supplier of a
good or service in the marketplace
o Once a patent expires, all bets are off --- and competitors can flood the
market with generic versions of the item
o Rather than seeking sole dominance of a market, corporations
increasingly prefer to share the pie with just a few rivals
o Referred to by economists as an oligopoly
 This structure of a limited numbers of sellers in an industry
where high start-up costs from barriers to keep out new
competitors deters newcomers from breaking into markets,
while insuring that corporations remain innovative
o Types of Competition
 Markets face three types of competition
 The most direct form occurs among marketers of
similar products
 A Second type of competition is indirect and involves
products that are easily substituted
o A change in price or an improvement in a
products attributes can also affect demand for
substitute products
 The final type of competition occurs among all
organizations that compete for consumers’ purchases
 Traditional economic analysis views competition as a battle
among companies in the same industry (Direct competition) or
among substitutable goods and services (Indirect Competition
 Markets know that all firms compete for a limited number of
dollars that consumers can or will spend
o Developing a Competitive Strategy
 Markets at every successful firm must develop an effective
strategy for dealing with the competitive environment
 Determining a competitive strategy involves answering the
following three questions
 Should we compete?
 If so, in what markets should we compete?
 How should we compete?
 The answer to the first question depends on the firm’s
resources, objectives, and expected profit potential
 A firm may decide not to pursue or continue operating a
potentially successful venture that does not mesh with
its resources, objectives, or profit expectations
 Answering the second question requires marketers to
acknowledge their firms limited resources
o Sales personnel, advertising budgets, product
development capability, and the like
 They must allocate these resources to the areas of
greatest opportunity
 Some companies gain access to new technologies or
markets through acquisitions and mergers
 Answering the third question requires marketers to make
product, distribution, promotion and pricing decisions that
give the firm a competitive advantage in the marketplace
 Firms can compete on a variety of bases, including
product quality, price and customer service
 o Time-Based Competition
 With increases international competition and rapid changes in
technology, a steadily growing number of firms are using time
as a strategic competitive weapon
 is the strategy of developing and distributing goods and
services more quickly than competitors
 the flexibility and responsiveness of time-based competitors
enable them to improve product quality, reduce costs and
expand product offerings to satisfy new market segments and
enhance customer satisfaction
 The Political-Legal Environment
o The laws and their interpretations that require firms to operate under
certain competitive conditions and to protect consumer rights
o Ignorance of laws, ordinances, and regulations, or noncompliance
with them, can result in fines, negative publicity, and expensive civil
damage suits
o The existing Canadian legal framework was constructed on a
piecemeal basis, often in response to issues that were important at the
time individual laws were enacted
o Regulations enacted at the federal, provincial, and municipal levels
affect marketing practices, as do the actions of independent
regulatory agencies
o These requirements and prohibitions touch on all aspects of
marketing decision making
 Designing
 Labelling
 Packing
 Distributing
 Advertising
 Promoting goods and services
o Government Regulation
 Marketing decisions are influences by many laws and
regulations
 Federal
 Provincial
 Territorial and municipal
 The Competition Act
 Is the most comprehensive legislation in Canadian
 It replaces earlier pro-competition legislation
 Is administered by Industry Canada, whose mission is to
“foster a growing competitive, knowledge-based
Canadian economy”
 Among the areas industry Canada is responsible for is
“setting rules and services that support the effective
operation of the marketplace”
 Assists in this effort by fostering competition and by
protecting consumers, both of which are necessary to
have a healthy marketplace
 Many of the laws and regulations within the
Competition Act can be roughly categorized within
three specific marketing areas
o Pricing
 Among the pricing practices that are
covered by the competition Act are
 Price fixing
o Sellers collude to set prices
higher than they would be
in a free market
 Bid rigging
o Sellers collude to set prices
with respect to one or more
bids or quotations
 Price discrimination
o A seller charges different
prices for the same quantity
and quality of products to
two customers who are in
competition with each
other
 Predatory pricing
o Sellers set prices so low
they deter competition
from entering a market or
with the intention to drive
competition from the
market
 Double ticketing
o An item has been ticketed
with two prices (the lowest
 price must prevail although
there are now limits to
protect sellers)
 Resale price maintenance
o Manufacturers or other
channel members try to
influence the price at which
products are sold to
subsequent buyers
o Promotion
 Issues include
 Misleading advertising
o Representations, in print or
made orally, concerning a
product are false or
misleading
 Referral selling
o Price reductions or other
inducements are offered to
a customer for the names of
other potential customers
 Bait-and-switch selling
o Sellers attract customers
with low prices but then
offer another product at a
higher price because they
are unable to provide the
originally promoted item
 Tied Selling
o A seller requires a buyer to
purchase another product
or to refrain from
purchasing a product from
a specific manufacturer as a
condition to getting the
product they want
o Distribution
 Issues Include
 Refusal to deal
o Sellers refuse to sell to
legitimate buyers
 Exclusive dealing
o A seller refuses to sell to
another channel member
 unless that customer agrees
to buy from that seller
 Pyramid selling
o Salespeople are paid to
recruit additional
salespeople, and each new
salesperson pays to “invest”
in the scheme, with some of
that investment going to
earlier participants in the
scheme – not to be
confused with genuine
multi-level marketing plans
 Many of these practices, such as price fixing, bid rigging, price
discrimination, predatory pricing and misleading advertising,
are criminal offences
 Others such as tied selling, refusal to deal and exclusive dealing
are noncriminal offences where actions are taken based on
how each particular situation reduces or interferes with
competition or otherwise affects consumers in the marketplace
 Provincial and territorial consumer protection legislation in
Canada is generally focused on the rights of buyers and sellers
with respect to direct sales contracts
 These sales include
o Direct mail or telemarketing sales
o Door-to-door sales
o Seminar sales where customers are enticed to a
hotel
o Convention centre
o Some other venue where the intention is to sell a
product or service to them
 This legislation is commonly referred to as the consumer
protection act or the direct seller’s act in most provinces or
territories
 These laws are called “cooling-off” laws because an important
aspect they have in common is the right of the buyer to
reconsider a buying decision that was made under the
persuasive influence of a salesperson
 The cooling-off period may vary depending on the provincial
or territorial legislation
 A notice that informs the customer of the cooling-off period
must be part of the contract
 If a buyer demands that a contract be cancelled, the seller must
return the purchase price and any trade-in that was taken
within a specified period of time
 The consumer Measures Committee, created under the
Agreement on Internal Trade, is a join federal, provincial, and
territorial committee that focuses attention on common issues
o Government Regulatory Agencies
 Governments at all levels have established regulatory agencies
that influence marketing decisions and practices, including
 those related to product development and
commercialization,
 packaging,
 pricing,
 advertising,
 personal selling and distribution
 Federal agencies may provide advice and assistance to
Canadian businesses or may have responsibility to regulate
specific industries
o Other Regulatory Forces
 Public and private consumer interest groups and self-
regulatory organizations are also part of the legal environment
 Consumer interest organizations have mushroomed since the
late 1970s, and today, hundreds of groups operate at national,
provincial and territorial, ad municipal level
 These organizations seek to protect consumers in as many
areas as possible
 People for the Ethical Treatment of animals (PETA), which
operates in Canada, the United States, India, Germany, and
many other countries, opposes the use of animals for product
testing
 The humane society of Canada tries to “protect animals and the
earth.”
 Self regulatory groups represent industries’ attempts to set
guidelines for responsible business conduct
 Advertising Standards Canada (ASC) is the advertising
industry’s self-regulatory body
 Its mission is to ensure the integrity and viability of advertising
in Canada
 ASV administers the Canadian Code of Advertising Standards,
the principal instrument of self-regulation
 ASC tries to promote truth and accuracy in advertising and to
ensure that advertising is not offensive to viewers, listeners, or
readers
 It provides consumers with a mechanism to complain about
any particular advertisement
 It reviews and advocates voluntary resolution of advertising-
related complaints between consumers and businesses
  ASC also provides industry with a mechanism to resolve
competitive disputes about advertising, and with the clearance
service that is a fee-based review of advertising copy to help
ensure that advertising complies with current laws and
regulations
 In addition to ASC, many individual trade associations set
business guidelines and codes of conduct and entourage
members’ voluntary compliance
 The Canadian Marketing Association (CMA) has over 800
corporate members who include the country’s largest financial
institutions, insurance companies, retailers, publishers,
charitable organizations, relationship marketers and others
 It is the Canadian marketing industry’s leading advocate on
legislative maters and has participated in a variety of
government-led initiatives on such issues as privacy, electronic
commerce, consumer protection and the prevention of
telemarketing fraud
 The CMA has a number of internal task forces that develop self-
regulatory standards and policies on ethics, privacy, and
marketing to children and teenagers and has developed the
code of ethics and standards of practice to which its members
must adhere
o Controlling the Political-Legal Environment
 Most marketers comply with laws and regulations
 Doing so not only serves their customers but also avoids legal
problems that could ultimately damage a firm’s image and hurt
profits
 But smart marketers get ahead of the curve by providing
products that will meet customers’ future needs while also
addressing government goals
 Consumer groups and political action committees within
industries may try to influence the outcome of proposed
legislation or change existing laws by engaging in political
lobbying or boycotts
 Lobbying groups frequently enlist the support of customers,
employees, and suppliers to assist their effort
 The Economic Environment
o The overall health of the economy influences how much consumers
spend and what they buy
o Consumers buying plays an important role in the economy’s health; in
fact, consumer spending accounts for nearly 70% of the nation’s total
gross domestic product (GDP)
 The sum of all goods and services produced by a nation in a
year
o Because marketing activities are directed toward satisfying
consumers wants and needs, marketers must first understand how
economic conditions influence the purchasing decisions consumers
make
o Marketing’s economic environment consists of forces that influence
consumer buying power and marketing strategies
 They include the stage of the business cycle, inflation and
deflation, unemployment, income, and resource availability
o Stages in the Business Cycle
 The economy has tended to follow a cyclical pattern consisting
of four stages
 Prosperity
o Consumer spending maintains a brisk pace, and
buyers are willing to spend more for premium
versions of well-known brands
 Recession
o Marketers consider lowering prices and
increasing promotions that include special offers
to stimulate demand
o They may launch value-prices products likely to
appeal to cost-conscious buyers
 Depression
o Consumer spending sinks to its lowest level
during depression
 Recovery
o The economy emerges from recession and
consumer purchasing power increases
o But while consumers have money to spend,
caution often restrains their willingness to buy
 Consumer buying differs in each stage of the business cycle,
and marketers must adjust their strategies accordingly
 Growth in services such as banking and restaurants usually
indicates a strong economy
 When economists predict such conditions as low inflation and
low unemployment, marketers respond by offering new
products, increasing their promotional efforts and expanding
distribution
 During economic slowdowns consumers focus on more basic,
functional products that carry lower price tags
 Through its monetary and fiscal policies, the federal
government attempts to control extreme fluctuations in the
business cycle that lead to depression
 Business cycles, like other aspects of the economy, are complex
phenomena that, despite the efforts of governments,
 businesspeople, and othes to control them, sometimes have a
life of their own

o The Global Economic Crises

 Sometimes business cycles take a severe turn and affect
consumers and businesses across the globe
 Typically, nations’ GDP rate grows – some modestly at 2 to 4
percentage points a year and some, such as rapidly expanding
India and China, at or near double digits
 A struggling economy generates its own downward spiral
 Fearing worse days ahead, consumers and businesses
become cautious about spending money and as they
spend less, demand for many products also drops
 Lessened demand forces employers to take extraordinary
steps just to stay in business
 Institute a shortened workweek with reduces salaries
or even slash the workforce
 During a recession, marketers look to emphasize value in their
offerings
 Some slash prices or offer sales to help customers
stretch their budget dollars
 With the severity of the recession, all marketers need to
reevaluate their strategies and concentrate on their most
promising products
o Inflation and Deflation
 A major constraint on consumer spending, which can occur
during any stage of the business cycle is Inflation
 Rising prices caused by some combination of excess
demand and increases in the costs of raw materials,
component parts, human resources, or other factors of
production
 Devalues money by reducing the products it can buy
through persistent price increase
 These rising prices increase markets’ costs, such as
expenditures for wages and raw materials, and the resulting
higher prices may therefore negatively affect sales
 Deflation
 Can be a long and damaging downward spiral, causing a
freefall in business profits, lower returns on most
investments and widespread job layoffs
o Unemployment
 Is defined as the proportions of people in the economy who are
actively seeking work but do not have a job
 Rises during recessions and declines in the recovery and
prosperity stages of the business cycle
  Like inflation, unemployment affects the way consumers
behave

o Income
 Is another important determinant of marketing’s economic
environment because it influences consumer buying power
 A rise in income represents a potential for increasing overall
sales
 Many marketers are particularly interested in discretionary
income
 The amount of money people have to spend after
buying necessities such as food clothing, and housing
 Those whose industry involves the necessities seek to turn
those needs into preferences for their goods and services
 With slowdowns in the Canadian economy, consumers
experienced a drop in their net worth because their homes and
stock investments lost value
 At the same time, Canadians are spending less on nonessential
items, and a greater proportion of their income goes toward
food and other necessities
o Resource Availability
 Resources are not unlimited
 Shortages can result from several causes
 Lack of raw materials
 Component parts
 Energy
 Labour
 One reaction to shortages is demarketing
 the process of reducing consumer demand for a product
to a level that the firm can reasonably supply
 a shortage presents marketers with a unique set of challenges
 they may have to allocate limited supplies, a sharply
different activity from marketing’s traditional objective
of expanding sales volume
 may require marketers to decide whether to spread
limited supplies over all customers or limit purchases
by some customers to that the firm can completely
satisfy others
o The International Economic environment
 Marketers must also monitor the economic environment of
other nations
 Changes in foreign currency rates compared with the Canadian
dollar also affect marketing decisions
 The high value of the Canadian dollar has made it more
expensive to ship Canadian goods to the United States and has
 made it less attractive for U.S companies to operate
manufacturing plants here

 The Technological Environment

o Represents the application to marketing of knowledge based on
discoveries in science, inventions and innovations
o Technology leads to new goods and services for consumers
 It also improves existing products, offers better customer
service and often reduces prices through new, cost-efficient
production and distribution methods
o Technology can quickly make products obsolete but it can just as
quickly open new marketing opportunities, in entirely new industries
o Technology can sometimes address social concerns
o In response to societal pressure for fuel savings and environmental
improvements, automakers used technology to develop more fuel-
efficient vehicles and reduce dangerous emissions
o Industry and government – as well as educational and other not-for-
profit institutions – all play roles in the development of new
technology
o Another major source of technology is the government, including he
military
o Applying Technology
 Marketers monitor the technological environment for a
number of reasons
 Creative applications of new technologies not only give a firm a
definite competitive edge but can also benefit society
 VoIP – Voice over Internet Protocol
 Is an alternative to traditional telecommunications
services provided by companies such as rogers
communications
 The telephone is not connected to a traditional phone
jack but instead is connected to a personal computer
with any type of broadband internet connection
 Special software transmits phone conversations over
the internet, rather than through telephone lines
 as convenient as the internet, cell phones and Wi-Fi are for
businesspeople and consumers, the networks that facilitate
those connections aren’t yet compatible with each other
 The implications for various communications providers are
enormous
 Not only will they find new ways to cooperate but they
will also find new ways to compete
 The Social-Cultural Environment
o These aspects of consumer lifestyles help shape marketing’s Social-
cultural environment
 The relationship among marketing, society, and culture
o To remain competitive marketers must be sensitive to society’s
demographic shifts and changing values
o these variables affect consumers’ reactions to different products and
marketing practices
o Consumerism
 Changing societal values have led to consumerism
 Defined as a social force within the environment that
aids and protects the buyer by exerting legal, moral and
economic pressures on business
 In recent years, marketers have witnessed increasing
consumer activism
 Firms cannot always adjust to meet the demands of consumer
groups
 The choice between pleasing all consumers and remaining
profitable defines one of the most difficult dilemmas facing
business
 U.S president John F. Kennedy- Good rule of thumb to explain
basic consumer rights
 The right to choose freely
o Consumers should be able to choose from among
a range of goods and services
 The right to be informed
o Consumers should be provided with enough
education and product information to enable
them to be responsible buyers
 The right to be heard
o Consumers should be able to express their
legitimate displeasure to appropriate parties –
that is, sellers, consumer assistance groups, and
consumer affairs offices
 The right to be safe
o Consumers should be assured that the goods ad
services they purchase are not injurious with
normal use. Goods and services should be
designed in such a way that the average
consumer can use them safely
o