CH-3 The Marketing Environment, Social Responsibility, and Ethics – Foundations of Marketing : Book Guide

Chapter 3 The Marketing Environment, Social Responsibility, and Ethics TEACHING RESOURCES QUICK REFERENCE GUIDE Resource Location Purpose and Perspective IRM, p. 50 Lecture Outline IRM, p. 52 Discussion Starters IRM, p. 62 Class Exercises IRM, p. 64 Chapter Quiz IRM, p. 65 Answers to Issues for Discussion and Review IRM, p. 66 Answers to Marketing Application IRM, p. 69 Answers to Internet Exercise IRM, p. 71 Answers to Developing Your Marketing Plan IRM, p. 72 Comments on Video Case 3 IRM, p. 74 PowerPoint Slides Instructor’s website Note: Additional resources may be found on the accompanying student and instructor websites at www.cengagebrain.com. PURPOSE AND PERSPECTIVE This chapter examines competitive, economic, political, legal and regulatory, technological, and sociocultural forces in the marketing environment. First it discusses environmental scanning, environmental analysis, and two general approaches firms use to respond to environmental forces: a passive approach and an aggressive approach. Next it discusses competitive forces, focusing on the types of competition and competitive structures. Next, the chapter considers the effect of general economic conditions, consumer demand, and spending behavior. Next it defines political forces—how they influence business decisions and how businesses may react to them. In its presentation of legal forces, it covers two broad categories: pro-competitive laws and consumer protection laws. It then considers the effect of compliance programs. In dealing with regulatory forces, the chapter describes the potential effects of federal, state, and local government and nongovernment regulatory units on marketing decisions and discusses specific ways legal and regulatory forces affect marketers’ decisions. It then describes technology and considers the impact of technology on society and on marketing decisions and the sociocultural forces under which it discusses about diversity, demographic factors, cultural values, and consumer movements. Finally, it talks about social responsibility and ethics in marketing and the various dimensions pertaining to it, i.e. the economic, legal, ethical, and philanthropic dimensions. It also talks about consumerism. LECTURE OUTLINE I. The Marketing Environment A. The 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). B. The marketing environment includes six such forces—competitive, economic, political, legal and regulatory, technological, and sociocultural. C. Whether fluctuating rapidly or slowly, environmental forces are always dynamic. D. Changes in the marketing environment create uncertainty, threats, and opportunities for marketers. E. To monitor changes in the marketing environment effectively, marketers engage in environmental scanning and analysis. 1. Environmental scanning is the process of collecting information about forces in the marketing environment. a. Scanning involves observation; secondary sources such as business, trade, government, and Internet sources; and marketing research. 2. Environmental analysis is the process of assessing and interpreting the information gathered through scanning. a. A manager evaluates the information for accuracy; tries to resolve inconsistencies in the data; and, if warranted, assigns significance to the findings. b. By evaluating this information, the manager should be able to identify potential threats and opportunities linked to environmental changes. F. Responding to the Marketing Environment 1. An organization that views environmental forces as uncontrollable remains passive and reactive toward the environment. 2. Marketing managers who believe that environmental forces can be shaped adopt a more proactive approach. G. Competitive Forces 1. Few firms, if any, operate free of competition. a. For most products, customers have many alternatives from which to choose. 2. When marketing managers define the target market(s) their firm will serve, they simultaneously establish a set of competitors. 3. The number of firms that supply a product may affect the strength of competitors. 4. When just one or a few firms control supply, competitive factors exert a different sort of influence on marketing activities than when many competitors exist. H. Brand Competition 1. A marketer generally defines competition as other firms that market products that are similar to or can be substituted for its products in the same geographic area. 2. Competitors can be classified into one of four types: a. Brand competitors market products with similar features and benefits to the same customers at similar prices. b. Product competitors compete in the same product class, but market products with different features, benefits, and prices. c. Generic competitors provide very different products that solve the same problem or satisfy the same basic customer need. d. Total budget competitors compete for the limited financial resources of the same customers. 3. 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. I. Competitive Structures 1. When just one or a few firms control supply, competitive factors exert a different form of influence on marketing activities than when many competitors exist. 2. A monopoly exists when an organization offers a product that has no close substitutes, making it the sole source of supply. 3. An oligopoly exists when a few sellers control the supply of a large proportion of a product. 4. Monopolistic competition exists when an organization with many potential competitors attempts to develop a marketing strategy to differentiate its product. 5. Pure competition, if it existed at all, would entail a large number of sellers, none of which could significantly influence price or supply. 6. Marketers need to monitor the actions of major competitors to determine what specific strategies competitors are using and how those strategies affect their own. a. Price is one of the marketing strategy variables that most competitors monitor. 7. In monitoring competition, it is not enough to analyze available information; the firm must develop a system for gathering ongoing information about competitors. a. Understanding the market and what customers want, as well as what the competition is providing, will assist in maintaining a market orientation. J. Economic Forces 1. Economic forces in the marketing environment influence both marketers’ and customers’ decisions and activities. K. Buying Power and Willingness to Spend 1. The strength of a person’s buying power depends on economic conditions and the size of the resources—money, goods, and services that can be traded in an exchange—that enable the individual to make purchases. 2. The major financial sources of buying power are income, credit, and wealth. a. For an individual, income is the amount of money received through wages, rents, investments, pensions, and subsidy payments for a given period, such as a month or a year. (1) Marketers are most interested in the amount of money left after payment of taxes because this disposable income is used for spending or saving. Several factors determine the size of total disposable income, including the total amount of income—which is affected by wage levels, the rate of unemployment, interest rates, and dividend rates—and the number and amount of taxes. (2) Disposable income that is available for spending and saving after an individual has purchased the basic necessities of food, clothing, and shelter is called discretionary income. b. Credit is important because it enables people to spend future income now or in the near future. (1) However, credit increases current buying power at the expense of future buying power. (2) Use of credit is affected by credit terms, such as size of the down payment and amount and number of monthly payments. c. Wealth is the accumulation of past income, natural resources, and financial resources. (1) It exists in many forms, including cash, securities, savings accounts, gold, jewelry, and real estate. 3. People’s willingness to spend—their inclination to buy because of expected satisfaction from a product—is related, to some degree, to their ability to buy. 4. Several elements influence willingness to spend: a. A product’s price and value almost all consumers. b. The amount of satisfaction received from a product already owned may influence customer’s desires to buy other products. c. Satisfaction depends not only on the quality of the currently owned product but also on numerous psychological and social forces. L. Economic Conditions 1. Changes in general economic conditions affect (and are affected by) supply and demand, buying power, willingness to spend, consumer expenditure levels, and the intensity of competitive behavior. 2. Fluctuations in the economy follow a general pattern often referred to as the business cycle. 3. In the traditional view, the business cycle consists of four stages: a. Prosperity—unemployment is low, and total income is relatively high, which—assuming a low interest rate—together cause high buying power. b. Recession—unemployment rises and total buying power declines. c. Depression—a prolonged recession may become a depression, a period in which unemployment is extremely high, wages are very low, total disposable income is at a minimum, and consumers lack confidence in the economy. d. Recovery—the economy moves from depression or recession to prosperity. During this period, high unemployment begins to decline, total disposable income increases, and the economic gloom that reduced consumers’ willingness to buy subsides. e. In the prosperity stage, marketers may expand their product offerings to take advantage of increased buying power. They may be able to capture a larger market share by intensifying distribution and promotion efforts. f. In times of recession or depression, when buying power decreases, many customers may become more price conscious and seek more basic, functional products. g. During economic downturns, a company should focus its efforts on determining precisely what functions buyers want and ensure that these functions are available in its product offerings. Promotional efforts should emphasize value and utility. M. Political Forces 1. Political, legal, and regulatory forces of the marketing environment are closely interrelated. 2. Legislation is enacted; legal decisions are interpreted by courts; and regulatory agencies are created and operated, for the most part, by elected or appointed officials. 3. The political forces of the marketing environment have the potential to influence marketing decisions and strategies. 4. Reactive marketers view political forces as beyond their control and simply adjust to conditions arising from those forces. a. Some firms are more proactive, however, and seek to influence the political process. 5. In some cases, organizations publicly protest the actions of legislative bodies. a. More often, organizations help to elect to political offices individuals who regard them positively. b. Much of this help is in the form of campaign contributions. c. In the 2010 ruling Citizens United v. Federal Election Commission, the Supreme Court ruled that the government is not authorized to ban corporate spending in candidate elections. d. Marketers also can influence the political process through political action committees (PACs) that solicit donations from individuals and then contribute those funds to candidates running for political office. 6. Companies also can participate in the political process through lobbying to persuade public and/or government officials to favor a particular position in decision-making. a. Many companies concerned about the threat of legislation or regulation that may negatively affect their operations employ lobbyists to communicate their concerns to elected officials. N. Legal and Regulatory Forces 1. A number of federal laws influence marketing decisions and activities. a. Table 3.2 lists some of the most significant pieces of legislation. 2. Regulatory Agencies a. Federal regulatory agencies influence many marketing activities, including product development, pricing, packaging, advertising, personal selling, and distribution. b. These bodies have the power to enforce specific laws, as well as some discretion in establishing operating rules and regulations to guide certain types of industry practices. c. Of all the federal regulatory units, the Federal Trade Commission (FTC) influences marketing activities most. (1) Although the FTC regulates a variety of business practices, it allocates considerable resources to curbing false advertising, misleading pricing, and deceptive packaging and labeling. (2) When it receives a complaint or otherwise has reason to believe that a firm is violating a law, the commission issues a complaint stating that the business is in violation. If a company continues the questionable practice, the FTC can issue a cease-and-desist order demanding that the business stop doing whatever caused the complaint. (3) The FTC also assists businesses in complying with laws and files lawsuits against those engaging in deceptive marketing practices. d. Unlike the FTC, other regulatory units are limited to dealing with specific products, services, or business activities. (1) For example, the Food and Drug Administration (FDA) enforces regulations prohibiting the sale and distribution of adulterated, misbranded, or hazardous food and drug products. e. Laws have been created to prevent businesses from gaining an unfair advantage through bribery. (1) The U.S. Foreign Corrupt Practices Act (FCPA) prohibits American companies from making illicit payments to foreign officials in order to obtain or keep business. f. State consumer protection laws offer an opportunity for state attorneys general to deal with marketing issues related to fraud and deception. (1) Most states have consumer protection laws that are very general in nature and provide enforcement when new schemes evolve that injure consumers. 3. Self-Regulation a. In an attempt to be good corporate citizens and to prevent government intervention, some businesses try to regulate themselves. b. Several trade associations have also developed self-regulatory programs. c. Although self-regulatory programs are not a direct outgrowth of laws, many were established to stop or stall the development of laws and governmental regulatory groups that would regulate the associations’ marketing practices. d. Perhaps the best-known nongovernmental regulatory group is the Better Business Bureau, a local regulatory agency supported by local businesses. (1) More than 150 bureaus help to settle problems between consumers and specific business firms in the United States and Canada. (2) Each bureau also acts to preserve good business practices in a locality, although it usually lacks strong enforcement tools for dealing with firms that employ questionable practices. e. The National Advertising Division (NAD) of the Council of Better Business Bureaus operates a self-regulatory program that investigates claims of alleged deceptive advertising. f. Another self-regulatory entity, the National Advertising Review Board (NARB), considers cases in which an advertiser challenges issues raised by the National Advertising Division (NAD) about an advertisement. (1) The NARB, sponsored by the Council of Better Business Bureaus and three advertising trade organizations, has no official enforcement powers. (2) However, if a firm refuses to comply with its decision, the NARB may publicize the questionable practice and file a complaint with the FTC. g. Self-regulatory programs have several advantages over governmental laws and regulatory agencies. (1) Establishment and implementation are usually less expensive, and guidelines are generally more realistic and operational. In addition, effective self-regulatory programs reduce the need to expand government bureaucracy. (2) However, self-regulatory programs have several limitations. When a trade association creates a set of industry guidelines for its members, nonmember firms do not have to abide by them; many self-regulatory programs lack the tools or authority to enforce guidelines; and guidelines in self-regulatory programs are often less strict than those established by government agencies. O. Technological Forces 1. Technology is the application of knowledge and tools to solve problems and perform tasks more efficiently. a. It determines how we, as members of society, satisfy our physiologic needs. (1) In various ways and to varying degrees, eating and drinking habits, sleeping patterns, health care, and work performance are all influenced by both existing technology and advances in technology. b. The proliferation of cell phones, most with text-message capabilities, has led marketers to employ text and multimedia messaging on cell phones to reach their target markets. c. Computers have become a staple in American homes, but the type of computer has been changing drastically in the past decade. d. The rapidly evolving state of technology requires marketers to familiarize themselves with the latest technological changes. e. The effects of technology relate to such characteristics as dynamics, reach, and the self-sustaining nature of technological progress. (1) The dynamics of technology involve the constant change that often challenges the structures of social institutions, including social relationships, the legal system, religion, education, business, and leisure. (2) Reach refers to the broad nature of technology as it moves through society. (3) The self-sustaining nature of technology relates to the fact that technology acts as a catalyst to spur even faster development. 2. It is important for firms to determine when a technology is changing an industry and to define the strategic influence of the new technology. 3. To remain competitive, companies today must keep up with and adapt to these technological advances. 4. Through a procedure known as technology assessment, managers try to foresee the effects of new products and processes on their firms’ operations, on other business organizations, and on society in general. P. Sociocultural Forces 1. Sociocultural forces are the influences in a society and its culture(s) which bring about changes in attitudes, beliefs, norms, customs, and lifestyles. a. Profoundly affecting how people live, these forces help to determine what, where, how, and when people buy products. 2. Changes in a population’s demographic characteristics—age, gender, race, ethnicity, marital and parental status, income, and education—have a significant bearing on relationships and individual behavior. a. These shifts lead to changes in how people live and ultimately in their consumption of products and services. b. One demographic change affecting the U.S. marketplace is the increasing proportion of older consumers. c. The number of singles is on the rise. Single people have quite different spending patterns than couples and families with children. d. The United States is entering another baby boom. The newest baby boom is much more diverse than previous generations. e. The number of immigrants into the United States has risen steadily during the past 40 years. 3. Marketers recognize that these profound changes in the U.S. population bring unique problems and opportunities. A diverse population means a more diverse customer base, and marketing practices must be modified—and diversified—to meet its changing needs. 4. Changes in social and cultural values have dramatically influenced people’s needs and desires for products. Although these values do not shift overnight, they do change at varying speeds. 5. People today are more concerned about the foods they eat and thus are choosing more low-fat, organic, natural, and healthy products. a. Marketers have responded with a proliferation of foods, beverages, and exercise products that fit this new lifestyle. II. Social Responsibility and Ethics in Marketing A. In marketing, social responsibility refers to an organization’s obligation to maximize its positive impact and minimize its negative impact on society. It deals with the total effect of all marketing decisions on society. B. Evidence demonstrates that ignoring stakeholder demands for responsible marketing can destroy customer trust and even prompt government regulations. 1. Socially responsible activities can generate positive publicity and boost sales. C. Socially responsible efforts have a positive effect on local communities and indirectly help the sponsoring organization by attracting goodwill, publicity, and potential customers and employees. D. Socially responsible organizations strive for marketing citizenship by adopting a strategic focus for fulfilling the economic, legal, ethical, and philanthropic social responsibilities their stakeholders expect of them. 1. Companies that consider the diverse perspectives of stakeholders in daily operations and strategic planning are said to have a stakeholder orientation. a. A stakeholder orientation goes beyond customers, competitors, and regulators to understand and address the needs of all stakeholders, including communities and special-interest groups. 2. The economic, legal, ethical, and philanthropic dimensions of social responsibility can be viewed as a pyramid (Figure 3.2). E. Economic Dimension 1. All companies have an economic responsibility to be profitable to provide a return on investment to owners and investors, create jobs for the community, and contribute goods and services to the economy. 2. How organizations relate to stockholders, employees, competitors, customers, the community, and the natural environment affects the economy. 3. Marketers also have an economic responsibility to compete fairly. 4. Large firms often can generate economies of scale that allow them to put smaller firms out of business. F. Legal Dimension 1. Marketers are expected to obey laws and regulations. 2. The efforts of elected representatives and special-interest groups to promote responsible corporate behavior have resulted in laws and regulations designed to keep U.S. companies’ actions within the range of acceptable conduct. 3. When marketers engage in deceptive practices to advance their own interests over those of others, charges of fraud may result. a. In general, fraud is any purposeful communication that deceives, manipulates, or conceals facts in order to create a false impression. It is considered a crime, and convictions may result in fines, imprisonment, or both. 4. When customers, interest groups, or businesses become outraged over what they perceive as irresponsibility on the part of a marketing organization, they may urge their legislators to draft new legislation to regulate the behavior, or they may engage in litigation to force the organization to “play by the rules.” a. Deceptive advertising in particular causes consumers to become defensive toward all promotional messages and become distrustful of all advertising; thus, it harms not only consumers but also marketers themselves. B. Ethical Dimension 1. Economic and legal responsibilities are the most basic levels of social responsibility a. Beyond these dimensions is marketing ethics, principles, and standards define acceptable conduct in marketing, as determined by stakeholders, including the public, government regulators, private-interest groups, consumers, industries, and the organization itself. 2. The most basic of the ethical principles have been codified as laws and regulations to encourage conformity to society’s expectations of conduct, but marketing ethics goes beyond legal issues. 3. Ethical marketing decisions foster trust, which helps build long-term marketing relationships. 4. Marketers should be aware of ethical standards for acceptable conduct from several viewpoints—company, industry, government, customers, special-interest groups, and society at large. a. When managers engage in activities that deviate from accepted principles, continued marketing exchanges become difficult, if not impossible. b. The best time to deal with such problems is during the strategic planning process, not after major problems materialize. 5. An ethical issue is an identifiable problem, situation, or opportunity requiring an individual or organization to choose from among several actions that must be evaluated as right or wrong, ethical or unethical. a. Any time an activity causes marketing managers or customers in their target market to feel manipulated or cheated; a marketing ethical issue exists, regardless of the legality of that activity. b. Regardless of the reasons behind specific ethical issues, marketers must be able to identify these issues and decide how to resolve them. To do so requires familiarity with the many kinds of ethical issues that may arise in marketing. B. Philanthropic Dimension 1. At the top of the pyramid are philanthropic responsibilities. a. Philanthropic responsibilities, which go beyond marketing ethics, are not required of a company but they promote human welfare or goodwill, as do the economic, legal and ethical dimensions of social responsibility. 2. More companies than ever are adopting a strategic approach to corporate philanthropy. b. Many firms link their products to a particular social cause on an ongoing or short-term basis, a practice known as cause-related marketing. c. Some companies are beginning to extend the concept of corporate philanthropy beyond financial contributions to adopt a strategic philanthropy approach, the synergistic use of organizational core competencies and resources to address key stakeholders’ interests and to achieve organizational and social benefits. (1) Strategic philanthropy involves employees; organizational resources and expertise; and the ability to link these assets to the concerns of key stakeholders, including employees, customers, suppliers, and social needs. (2) Strategic philanthropy involves both financial and nonfinancial contributions to stakeholders (employee time, goods and services, and company technology and equipment, as well as facilities), but it also benefits the company. 3. Although social responsibility may seem to be an abstract ideal, managers make decisions related to social responsibility every day. 4. To be successful, a business must determine the social expectations of customers, government regulators, competitors, and society in general. Two major categories of social responsibility issues are: a. Sustainability—one of the more common ways marketers demonstrate social responsibility is through programs designed to protect and preserve the natural environment. Many companies now engage in recycling activities and make significant efforts to reduce waste and conserve energy. (1) Many companies are making contributions to environmental protection organizations, sponsoring and participating in cleanup events, promoting recycling, retooling manufacturing processes to minimize waste and pollution, employing more environmentally friendly energy sources, and generally reevaluating the effects of their products on the natural environment. (2) This approach to the environment is to reduce, reuse, and recycle. b. Consumerism—consists of organized efforts by individuals, groups, and organizations seeking to protect consumers’ rights. The movement’s major forces are individual consumer advocates, consumer organizations and other interest groups, consumer education, and consumer laws. (1) To achieve their objectives, consumers and their advocates write letters or send e-mails to companies, lobby government agencies, broadcast public-service announcements, and boycott companies whose activities they deem irresponsible. Some consumers choose to boycott firms and products out of a desire to support a cause and make a difference. (2) Of great importance to the consumer movement are four basic rights spelled out in a “consumer bill of rights” drafted by President John F. Kennedy. These rights include: (a) The right to safety—marketers have an obligation not to market a product they know could harm consumers. (b) The right to be informed—consumers should have access to and the opportunity to review all relevant information about a product before buying it. (c) The right to choose—consumers should have access to a variety of products and services at competitive prices; consumers should also be assured of satisfactory quality and service at a fair price. (d) The right to be heard—ensures that consumers’ interests will receive full and sympathetic consideration in the formulation of government policy. L. Incorporating Social Responsibility and Ethics into Strategic Planning 1. Although the concepts of marketing ethics and social responsibility are used interchangeably, it is important to distinguish between the two concepts. a. Ethics relates to individual and group decisions—judgment about what is right or wrong in a particular decision-making situation. b. Social responsibility deals with the total effect of marketing decisions on society. 2. To improve ethics, many organizations have developed codes of conduct (also called codes of ethics) consisting of formalized rules and standards that describe what the company expects of its employees. a. Codes help marketers deal with ethical issues or dilemmas that develop in daily operations by prescribing or limiting specific activities. b. Codes of conduct often include general ethical values such as honesty and integrity, general legal compliance, harmful acts, and obligations related to social values, as well as more marketing-specific issues such as confidentiality, responsibilities to employers and clients, obligations to the profession, and marketing-specific legal and technical compliance issues. c. It is important that companies consistently enforce standards and impose penalties or punishment on those who violate codes of conduct. 3. If ethics officers and other executives are not committed to the principles and initiatives of marketing ethics and social responsibility, the program’s effectiveness will be in question. 4. Increasing evidence indicates that being ethical and socially responsible pays off a. Social responsibility has a synergistic effect on market orientation that leads to improved business performance. 5. There is a direct association between corporate social responsibility and customer satisfaction, profits, and market value. 6. Recognition is growing that the long-term value of conducting business in a socially responsible manner far outweighs short-term costs. a. Companies that fail to develop strategies and programs to incorporate ethics and social responsibility into their organizational culture may pay the price with poor marketing performance and the potential costs of legal violations, civil litigation, and damaging publicity when questionable activities are made public. DISCUSSION STARTERS Discussion Starter 1: Monopoly ASK: Have you ever heard anyone call Google a monopoly? Did you know that the company was declared a monopoly in France, where antitrust legislation tends to be stricter than in the United States? Many have accused Google of being a monopoly, and therefore engaging in unfair business practices. These rumblings grow larger every time Google enters a new market. Its size and clever business tactics always seem to quickly give the company market dominance. The accusations of monopoly have been particularly fierce in the European Union where Google has spent a long time fighting charges in court. It is not the only U.S.-based multinational to face scrutiny in the EU. Microsoft was also accused of being a monopoly in Europe, where anticompetitive practices are punished harshly. The E.U. finally dropped its decade-long case against Microsoft when it promised to offer customers a choice of web browsers. Follow the URL below to access an article on Google’s potential monopoly status and why U.S. regulators are almost as wary as European ones. This article delves into the question of whether it is a bad thing that Google may be a monopoly, which segues into the next question. http://www.nytimes.com/2010/05/23/technology/23goog.html?scp=10&sq=monopoly%20Google&st=Search ASK: Do you think Microsoft is a monopoly? If yes, is it a bad thing? Students should be able to defend their stance on this issue. Basically, it is not always a bad thing to have access to only one system. However, monopolies limit choice and do not allow for fair market pricing. This could lead to expensive, inferior products compared to what might be available otherwise. Monopolies have also been known to engage in unfair business practices in order to maintain their competitive edge—this is certainly not acceptable either. Discussion Starter 2: Consumer Confidence Index ASK: Have any of you heard of the Consumer Confidence Index (CCI)? The CCI is derived from the Consumer Confidence Survey given to a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. Note: If possible visit the following website in class. If you are unable to visit the site in class, find the information for the most recent survey and report the results to the students. http://www.conference-board.org/data/consumerconfidence.cfm ASK: How would marketers use the CCI? By tracking the CCI marketers can make better predications about how much consumers will be willing to spend in the upcoming months. For example, if the CCI is falling, consumers are pessimistic about the future of the economy. This information might indicate consumers are less willing to purchase high-ticket items, such as cars or computers. It might also indicate that consumers may cut back on non-essential items. CLASS EXERCISES Class Exercise 1 The six environmental forces are competitive, economic, political, legal and regulatory, technological, and sociocultural. With which are each of the following most associated? Question Answer 1. Prosperity economic 2. Federal Trade Commission regulatory 3. Personal computers that understand human speech technological 4. Development and widespread use of cellular phones technological 5. People’s willingness to spend economic 6. Contributions to campaign funds political 7. A society’s high material standard of living sociocultural 8. Sherman Antitrust Act legal 9. Better Business Bureau regulatory 10. Consumerism sociocultural 11. Discretionary income economic 12. Food and Drug Administration regulatory 13. A monopoly competitive 14. Government purchases of goods and services political 15. Group of people threatening to boycott the sponsors of a television program that they believe contains too much sex and violence sociocultural CHAPTER QUIZ 1. The rapid adoption of the use of the Internet has resulted in rapid changes such as the increase of distance learning. These effects of technology are collectively known as: a. reach. b. the self-sustaining nature. c. growth. d. technological advancement. e. dynamics. 2. Although all types of competition will affect Specialty Motors' marketing performance, it will be most concerned about __________ competitors. a. total budget b. generic c. Japanese d. product e. brand 3. Total disposable income is at its lowest during which of the following? a. Stagflation b. Recession c. Recovery d. Depression e. Inflation 4. Environmental scanning means __________ information about the marketing environment, whereas environmental analysis is concerned with __________ this information. a. assessing; collecting b. assessing; interpreting c. collecting; assessing d. interpreting; observing e. gathering; observing Answers to Chapter Quiz: 1. e; 2. e; 3. d; 4. c. ANSWERS TO ISSUES FOR DISCUSSION AND REVIEW 1. Why are environmental scanning and analysis important to marketers? Understanding the current state of the marketing environment and recognizing the threats and opportunities arising from changes within it help marketing managers assess the performance of current marketing efforts and develop marketing strategies for the future. 2. What are the four types of competition? Which is most important to marketers? Four types of competition include: • Brand competitors, which market products with similar features, benefits, and prices to the same customers • Product competitors, which compete in the same product class but their products have different features, benefits, and prices • Generic competitors, which provide very different products which satisfy the same basic customer need • Total budget competitors, which compete for the limited financial resources of the same customers. Although all four types of competition can affect an organization’s marketing performance, brand competitors are the most significant because buyers typically see the different products of these firms as direct substitutes for each other. 3. Define income, disposable income, and discretionary income. How does each type of income affect consumer buying power? Income is the amount of money an individual receives through wages, rents, investments, pensions, and subsidy payments for a given time period. Disposable income is income remaining after paying taxes and is used for spending and/or saving. Discretionary income is disposable income available for spending and/or saving after an individual has purchased the basic necessities of food, clothing, and shelter. Each income measure relates to consumers’ buying power because the size of each may affect the degree of buying power. 4. What factors influence a buyer’s willingness to spend? Factors which influence a buyer’s willingness to spend are the product’s price and value, the individual’s level of satisfaction obtained from currently used products, family size, and the consumer’s expectations about future employment, income, prices, and general economic conditions. 5. What are the goals of the Federal Trade Commission? List the ways in which the FTC affects marketing activities. Do you think a single regulatory agency should have such broad jurisdiction over so many marketing practices? Why or why not? The FTC enforces laws and establishes guidelines and operating procedures. A major goal is to assist and inform businesses so that they may comply with the laws. The FTC explains to businesses what is considered unfair, deceptive, or illegal and considers each case on its own merits rather than strictly applying a single set of guidelines for all firms. The agency may encourage businesses within an industry to voluntarily establish their own trade practices, but it also has the power to set guidelines. The FTC’s actions affect marketing decisions and activities, such as pricing, advertising, labeling, packaging, product development, and distribution. Because marketing involves continuous change, new marketing practices must be evaluated by the FTC each year. As new commissioners are appointed, FTC rulings regarding what is illegal or unfair also change. To do their job effectively, marketers must constantly review FTC decisions to discern the agency’s current attitudes and positions. 6. Name several nongovernmental regulatory forces. Do you believe self-regulation is more or less effective than governmental regulatory agencies? Why? Students’ answers may vary. One well-known nongovernmental agency is the Better Business Bureau (BBB), a system of nongovernmental, independent, local regulatory agencies that are supported by local businesses. The BBB is concerned primarily with providing aid in settling problems that arise between consumers and businesses. The second part of this exercise can be used to stimulate class discussion about self-regulation. Businesspeople generally view self-regulation as a preferable alternative to further governmental intervention, but self-regulation may be unenforceable or less strict. 7. Discuss the impact of technology on marketing activities. Because technology affects people’s desires for goods and services, it affects marketing activities. Technology influences the types of products marketers can offer for sale; the production process, which affects the quality and price of products; the ways marketers reach consumers to communicate about products; and the way products are transported and stored. 8. In what ways are cultural values changing? How are marketers responding to these changes? Among the cultural changes occurring are an increased emphasis on health, nutrition, fitness, the family, the environment, and a shift away from conspicuous consumption. Marketers are responding by researching these changing values and developing new products to address them. 9. What is social responsibility, and why is it important? Social responsibility refers to an organization’s obligation to maximize its positive impact and minimize its negative impact on society. Ignoring society’s demands for responsible marketing can destroy customers’ trust, prompt government regulation or litigation, and jeopardize a marketer’s financial standing. On the other hand, socially responsible activities can generate positive publicity and boost sales. Most organizations embrace the concept of social responsibility with the expectation of indirect long-term benefits. 10. What are four dimensions of social responsibility? What impact do they have on marketing decisions? Social responsibility includes economic, legal, ethical, and philanthropic dimensions. Economic and legal responsibilities are the most basic levels of social responsibility; failure to consider them may mean that a marketer is not around long enough to engage in ethical or philanthropic activities. The most basic of marketing ethics principles have been codified as laws and regulations to encourage marketers to conform to society’s expectations of conduct. Philanthropic efforts are not required of a company, but they promote human welfare and goodwill. 11. What are some major social responsibility issues? Give an example of each. Among major social responsibility issues are the natural environment, consumerism, and community relations. Students’ responses to the second part of the exercise will vary, but they should be able to cite appropriate examples for each issue. • The Natural Environment—examples might include specific companies making contributions to environmental protection organizations, sponsoring and participating in clean-up events, promoting recycling, and retooling manufacturing processes to minimize waste and pollution. • Consumerism—examples might include specific companies which have positively responded to consumer issues, such as StarKist’s dolphin-safe tuna. • Community Relations—examples might include specific companies which have made significant financial or resource contributions to social causes or companies that engage in strategic philanthropy by tying social programs to the company’s goals. 12. Describe consumerism. Analyze some active consumer forces in your area. Consumerism is a social movement that offers consumers a means for expressing dissatisfaction and correcting some of the conditions which have caused it. Examples of forces in the students’ area might include the Better Business Bureau, government agencies, independent consumer groups, or individual consumer activists. 13. What is the difference between ethics and social responsibility? Marketing ethics is a dimension of social responsibility which refers to principles and standards that define acceptable marketing conduct. Social responsibility is a broader concept which refers to an organization’s obligation to maximize its positive impact and minimize its negative impact on society. Ethics relates to doing the “right thing” in making individual and group decisions, whereas social responsibility deals with the total effect of marketing decisions on society. ANSWERS TO MARKETING APPLICATION 1. Assume you are opening one of the following retail businesses. Identify publications at the library or online that provide information about the environmental forces likely to affect the business. Briefly summarize the information each source provides. a. Convenience store b. Women’s clothing store c. Grocery store d. Fast-food restaurant e. Furniture store Student answers may be very general if they are unfamiliar with specific sources at your school’s business library. This exercise also is a great opportunity for your students to visit the business library or for a member of the library staff to give a brief presentation to your students. However, student responses will fall into these general areas: a. Convenience store—transportation studies (sociocultural and competitive information) b. Women’s clothing store—fashion magazines (sociocultural forces), government economic data (economic forces including disposable income) c. Grocery store—government legislation (regulatory forces), newspapers (sociocultural forces and food recalls), census data (demographic information) d. Fast-food restaurant—government legislation (regulatory forces), newspapers (sociocultural forces), census data (demographic information) e. Furniture store—government economic data (economic forces including disposable income), home magazines (sociocultural trends) 2. Identify at least one technological advancement and one sociocultural change that have affected you as a consumer. Explain the impact of each change on your needs as a customer. Students’ responses will vary, but they should support their answers with how the shifts changed their buying habits. 3. Identify an organization in your community that has a reputation for being ethical and socially responsible. What activities account for this image? Is the company successful? Why or why not? Students’ answers will vary, but they should support their answers. They should make sure that the company’s socially responsible activities are not simply philanthropic. 4. Competitive forces are very important to companies, particularly those that operate in many different countries. However, the importance of each competitive force might vary depending upon the industry. For instance, legal and regulatory forces limit many of the activities of cigarette firms. While rising prices might impact the purchase of luxury goods, necessities such as diapers and antibiotics will not experience as much of an impact, because people require them whether the prices are high or not. With this in mind, examine the impact that economic forces, political forces, legal and regulatory forces, technological forces, and sociocultural forces have upon Exxon Mobil, General Motors, and Procter & Gamble. Rate each of these factors on a scale of 1-5, with 5 being most important and 1 as least important. Based on these three companies, which environmental variable do you think would be the highest priority for each company and why? And which environmental variable do you feel would be most important for marketers? Student answers will vary due to the subjective nature of this question. You may suggest that students answer the question in a table like the one below in order to encourage comparison between companies and industries. You may also ask that students provide reasons or examples to support their ratings. Economic Political Legal and Regulatory Technological Sociocultural Exxon Mobile General Motors Procter & Gamble For the final part of the question, students will have to think specifically about marketing activities. Many students will respond that sociocultural factors are more important in this case because marketing is concerned with the preferences of consumers. However, students should still consider the influence of other forces on marketing. For example, some of them may say that for Exxon Mobil political forces and legal and regulatory forces will be equally important because Exxon Mobil is an oil and gas corporation. And the extraction of oils and gases are strictly controlled by the government through legal and regulatory forces. 5. Develop your analytical and communication skills using the Role-Play Exercises Online at www.cengagebrain.com. Students can visit the website and develop their analytical and communication skills. ANSWERS TO INTERNET EXERCISE Business for Social Responsibility Business for Social Responsibility (BSR) is a nonprofit organization for companies who want to operate responsibly and demonstrate respect for ethical values, people, communities, and the natural environment. Founded in 1992, BSR offers members practical information, research, educational programs, and technical assistance, as well as the opportunity to network with peers on current social responsibility issues. To learn more about this organization and access its many resources, visit www.bsr.org. a. What types of businesses join BSR, and why? BSR membership is open to all companies, regardless of size, sector, location, level of CSR experience, corporate reputation, or other factors. BSR prefers to work with companies who have an interest and commitment to improving their overall performance in key CSR areas. Companies join to gain access to a powerful network of member companies, and thought leaders, peers, and stakeholders focused on creating viable sustainability solutions. b. Describe the services available to member companies. How can these services help companies improve their performances? Member companies get access to networks, newsletters, information, discounts on consulting and workshops, invitations to events, and job postings on the site. This helps companies to exchange ideas, find qualified people, and fine-tune their activities to improve their social responsibility and business performance. c. Peruse the “BSR Conference—Overview” link, located at the top of the home page. What are some advantages to attending the BSR conference and listening to industry leaders and experts in corporate social responsibility? According to the website, “The BSR Conference 2013 will celebrate and explore the power of networks, bringing together more than 1,000 leaders from business and sustainability from around the world to share their expertise and knowledge. For more than 20 years, the BSR Conference has provided the preeminent global platform for sharing best practices, collaborative approaches, and opportunities to advance sustainable business. Joining the Conference will help experience the power of networks firsthand and to accelerate progress as BSR works to create a just and sustainable world.” ANSWERS TO DEVELOPING YOUR MARKETING PLAN The information obtained from the following questions should assist you in developing various aspects of your marketing plan. Develop your marketing plan online using the Interactive Marketing Plan at www.cengagebrain.com. 1. Describe the current competitive market for your product. Can you identify the number of brands or market share they hold? Expand your analysis to include other products that are similar or could be substituted for yours. Students should conduct solid research into their potential markets and support their answers. 2. Using the business cycle pattern, in which of the four stages is the current state of the economy? Can you identify any changes in consumer buying power that would affect the sale and use of your product? Students must consider the four stages of the business cycle, think about the current state of the economy, and apply it to their product. This will help them then outline any potential changes in consumer buying behavior (due to economic forces) that would affect the potential success of their product. 3. Referring to Tables 3.2 and 3.3, do you recognize any laws or regulatory agencies that would have jurisdiction over your type of product? Students should identify any laws or regulatory agencies that could apply to their product. They should realize that laws and regulations that control business practices apply to everyone while some industries have more specific regulations. Students should also consider the purpose of these regulations. 4. Conduct a brief technology assessment, determining the impact that technology has on your product, its sale, or use. Students should think about advances in the Internet, mobile technology, and other recent advances. They should consider whether any of these will have an impact on customer desire for their product. Is their product being rendered obsolete by technology; does technology perform some or all of the functions of their product and therefore reduces demand? 5. Discuss how your product could be affected by changes in social attitudes, demographic characteristics, or lifestyles. Students must think about how their product is affected by changes in social attitudes, demographics, and lifestyles. They should consider whether their product is particularly popular among one or two demographic groups and whether the popularity might wane with demographic shifts. They may want to consider how they might market their product to different demographics or target markets with different lifestyles than have been traditionally drawn to their product. Mostly, this exercise should make students aware of how much is not controllable by marketers, and how important it is to plan and anticipate changes in the marketing environment. COMMENTS ON VIDEO CASE 3: TOMS SHOES EXPANDS ONE-TO-ONE MODEL TO EYEWEAR Summary TOMS is known for their for-profit philanthropic business model, which allows the company to donate one pair of shoes to a child for every pair of shoes purchased. TOMS is now applying that model to eyewear. For every pair of sunglasses TOMS sells, a person with vision problems in a developing nation receives surgery, prescription glasses, or medical treatment to help restore his or her sight. TOMS takes its obligations for social responsibility seriously by working closely with local humanitarian organizations and striving for a responsible supply chain. Even though they pay higher prices, TOMS’ customers feel committed to the company because they know that their purchases are going toward a good cause. Questions for Discussion 1. Do you think TOMS is successful because of its unique products, or is it the firm’s approach to social responsibility? Students’ opinions will vary. Some people really like TOMS for its products, regardless of the company’s activities. Some of TOMS’ products are stylish and have not been replicated at lower prices, so students may argue that the shoes and eyewear are important. However, students will most likely answer that the one to one model is a large contributor to TOMS’ success. Students may believe that they receive extra benefits when they know they are helping someone in need with their purchase. 2. How does TOMS manage its supply chain in order to ensure ethical and socially responsible conduct? TOMS uses factories in China, Argentina, and Ethiopia for manufacturing, which creates complex supply chain relationships that must be carefully managed. TOMS created a set of manufacturing standards based on International Labor Organization compliance standards for its manufacturers. The company regularly performs audits to check that the factories are complying with company standards. TOMS also seeks to create strong organizational relationship with its employees and volunteers. The company often allows employees to participate in Shoe Drops (distributing the shoes to children) so they can see firsthand how their efforts are helping others. 3. How does TOMS’ business model relate to the understanding of stakeholders and strategic philanthropy? Strategic philanthropy is the synergistic use of organizational core competencies and resources to address key stakeholders’ interests and achieve both organizational and social benefits. TOMS address the needs of a wide variety of stakeholders, including their customers, employees, and society, which helps the company to accomplish both their financial and philanthropic goals. Solution Manual for Foundations of Marketing William M. Pride, O. C. Ferrell 9781305361867, 9781305405769, 9780357033760