. ENVIRONMENTAL SCANNING IN THE NEW MILLENNIUM

Environmental scanning is the process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends.

A. Tracking Environmental Trends Environmental trends typically arise from five sources: social, economic, technological, competitive, and regulatory forces. The declining consumption of coffee is an example of a trend identified by environmental scanning. Providing an explanation for the trend and assessing its implications are also an important part of environmental scanning.

B. An Environmental Scan of the United States Some emerging trends for each of the five environmental factors are listed

Below

II. SOCIAL FORCES o The social forces of the environment include the demographic

characteristics of the population and its values.

o Changes in these forces can have a dramatic impact on marketing strategy.

A. Demographics Describing the population according to selected characteristics such as age, gender, ethnicity, income, and occupation is referred to as demographics.

Population Trend

o "The graying of America. - The U.S. population shows a continued increase in the number of people over age 65

o Greater marketing attention has been focused on the mature household, headed by people over 50 years old.

o These households control 75 percent of the net worth of U.S. households

2. Generations

The Baby Boomo Born between 1946 and 1964.

o Account for 56-58% of the purchases in most consumer product and service categories.

o Individualism is very important

o Personalized economy product for boomers

custom-designed for small target markets

Immediacy of delivery

value.

o This group focuses on

family

health

convenience

finances

reading materials. Generation X

o 15 % of the U.S. population

o Born between 1965 and 1976 (the baby bust)

These consumers are o self-reliant,

o entrepreneurial,

(declining birth rate).

o 48 million consumers

o Marketers are now tracking this generation to identify the dominant

o supportive of racial and sexual diversity,

o better educated,

o Critical and suspicious

o not prone to extravagance,

o and likely to pursue lifestyles, products, and services that are very different from baby boomers

Generation Y: Born to Shop o Born after 1976, (baby boomers began having children.

o Also described as the echo-boom and the baby boomlet

o Generation Y:

11 About 58 million Americans under age 16

11 Great impact on companies selling products from toys to Club Med family vacations.

11 Environmental changes affecting Generation Y include:

60% of children aged < 6 have working mothers.

61% of children aged 3 - 5 attend preschool.

60% of households with children aged <=7 have computers.

More than one-third of elementary school students nationwide are Black or Hispanic.

About 15% of recent U.S. births were to foreign-born mothers.

Nearly one in three births in the early 1990's was to an unmarried woman.

One-quarter of children under age 6 are living in poverty.

3. The American

Family

o More households with single parents and unrelated persons

o The majority of divorced people remarry,

giving rise to the blended family,

one formed by the merging into a single household of two previously separated units.

4. Population Shifts

o Continued major shift to western and sunbelt states in the 1990s.

California, Texas, and Florida accounted for 33 percent of the net population change,

These states gained more than 3 million persons each.

o Populations are also shifting within states.

During the 1990s, the population shifted

from suburbs to more remote suburbs called exurbs

to smaller towns called penturbia.

o The Census Bureau collects data using a three-level classification system. From the largest to the smallest, these three areas are

the consolidated metropolitan statistical area (CMSA)

the primary metropolitan statistical area (PMSA)

the metropolitan statistical area (MSA).

o The average U.S. citizen moves every six years.

 5. Racial and Ethnic o Approximately one in four U.S. residents is

Diversity

African-American, American Indian, Asian, Pacific Islander, or a representative of another racial or ethnic group.

o Hispanics, who may be from any race, currently make up 12% of the U.S. population.

o Racial and ethnic groups tend to be concentrated in geographic regions.

o 38% of children in the U.S., will be African-American, Hispanic, or Asian in 2010

o The long-term consequences of their buying patterns must be understood.

6. Regional Marketing

o Developing marketing plans to reflect specific area differences

taste preferences,

perceived needs,

interests.

B. Culture

o Culture is the set of

values,

ideas,

attitudes

o of a homogeneous group of people

o that is transmitted from one generation to the next.

o Marketers monitor cultural trends to spot new opportunities. 1. The Changing

Attitudes and Roles of Women

o In the 1990s marketing to women focused on their challenges of balancing family and career.

o Many Generation Y women have

had career mothers,

participated in organized sports, and

benefited from the Internet’s providing a marketspace that makes gender, race, and ethnicity invisible.

o Now most manufacturers offer equal quality

products designed specifically for each sex.

o The financial services, insurance, and health-care industries are also developing programs for women’s individual interests and needs as consumers.

o Two-career families

1a Greater household incomes

1b Less available time for family activities.

1c Purchase roles are changing

1d Purchase patterns are changing

2. Changing Values o Values vary with age but tend to be similar for men and women.

o All age groups rank "protecting the family" and "honesty" as the most important values.

o Ranked as the "third" most important value

"friendship"  for consumers under 20

"self-esteem" for consumers aged 20–29

"health and fitness" for Consumers aged 30–39 .

o "Value consciousness"

the concern for obtaining the best quality, features, and performance of a product or service for a given price

will drive consumption behavior for the foreseeable future

Marketing-oriented values of the late 1990s

o Cultural Creative (24%)

Interested in new products

Scan information sources

Grab topics of interest

Explores the topic in depth.

o Heartlanders(29%) - Traditional Beliefs

o Modernists(47%) - Place high value on

11 Personal Success

11 Consumerism

11 Materialism

III. ECONOMIC FORCES The economy pertains to the income, expenditures, and resources that

affect the cost of running a business and household.

A. Macroeconomic Conditions o Companies monitor inflationary or recessionary states of the

economy, whether actual or perceived by consumers or businesses.

o Consumer expectations are an important element of environmental

scanning.

o Consumer spending, which accounts for two-thirds of U.S. economic activity, is affected by expectations.

o The higher the Consumer Sentiment Index, the more favorable are consumer expectations–valuable knowledge for marketing planners of a company like Chrysler.

o  

B. Consumer IncomeA consumer’s ability to buy is related to income.

Gross income o is the total amount of money made in one year

by a person, household, or family unit.

Disposable income o is the money a consumer has left after paying

taxes to use for food, shelter, and clothing.

o As the marketplace has become more efficient, producing products that are more durable and use less energy, consumers have increased their disposable income.

o For example, car maintenance costs have declined 28 percent since 1985 because automobile quality has improved.

Discretionary income

o is the money that remains after paying for taxes and necessities.

o Discretionary income is used for luxuries.

o Studies suggest that two-thirds of all American households have some discretionary income.

IV. TECHNOLOGICAL FORCES . Technology refers to inventions or innovations from applied science or

engineering research. Technological innovation can replace existing products and companies

A. Technology of Tomorrow o Technological change is the result of research

o It is difficult to predict.

o Some changes occurring now include advances in

Nanotechnology (the science of unimaginably small electronics),

The convergence of personal computer and telephone technologies,

The Internet’s becoming the backbone of information-intensive industries,

The emergence of biotechnology as a key component of the economy.

B. Technology's Impact on Customer Value o The cost of technology is plummeting

o Causing customer value assessment of technology-based products to focus on other dimensions such as

quality,

service

relationships.

o Technology also provides value through the development of new products and the way existing products are produced.

o Many companies are using technological developments to allow recycling products through the manufacturing cycle several times.

o Another approach is precycling–efforts by manufacturers to reduce waste by decreasing the amount of packaging they use.

C. Electronic Business Technologies marketspace o communication-based electronic exchange

environment mostly occupied by

sophisticated computer technologies

telecommunication technologies and

digitized offerings.

o Growth illustrates the transformative power of technology

electronic commerceo Any activity that uses some form of electronic communication in the

inventory

exchange

advertisement

distribution

payment

o The most widely visible application is business-to-consumer interactive marketing, involving the

Internet,

the World Web

commercial online services.

The Internet

o An integrated global network of computers

o gives users access to information and documents. 

The World Wide Web

o Part of the Internet

o that supports a retrieval system

o that formats information and documents into Web pages. 

Commercial online services

o Such as America Online

o Offer electronic information and marketing services to subscribers who are charged a monthly fee.

o Many companies have adapted Internet-based technology internally to support their electronic business strategies.

Intranet o An Internet/Web-based network used within the boundaries of an organization.

o A private Internet

o May or may not be connected to the public Internet.

Extranets

o Uses Internet-based technologies

o Permit communication between a company and its

supplier,

distributors, and

other partners (such as advertising agencies).

US is not creating new technology as fast as in

the past.

o U.S. companies seem to have trouble changing results of pure research into goods and services.

o U.S. share of new patents, research and development funding, and the focus of R&D expenditures have fallen behind .

o The federal government spends about $75

billion a year on R&D

o Private industry spends $120 billion on R&D

o U.S. companies are

seeking short-term profits

Taking minimal risk.

This leads to line extensions rather than real innovations.

o Some political and cultural changes could encourage innovation

11 Tax incentives

11 Changes in organizational structure

11 Company encouragement of risk taking.

V. COMPETITIVE FORCES o Competition refers to the alternative firms that could provide a product

to satisfy a specific market's needs. Specifically

Number of competitors a firm must face

Relative size of competitors

Degree of interdependence within the industry.

o Competition is beyond the control of management

o The marketing mix, particularly pricing, depends on the type and amount of competition facing the firm.

A. Alternative Forms of Competition There are four basic forms of competition, forming a continuum from pure competition to monopoly.

pure competitionevery company has a similar product.

monopolistic competitionmany sellers compete with their products on a substitutable basis.

Oligopoly occurs when a few companies control the majority of industry sales.

Monopoly occurs when only one firm sells the product.

B. Components of Competition The factors that drive competition:

1. Entry

o Assess the likelihood of new entrants.

o Barriers to entry are business practices or conditions that make it difficult for new firms to enter the market.

2. Power of Buyers and Suppliers

o Powerful buyers exist when

Few buyers

Low switching costs,

Buyer can exert significant pressure for price competition.

o Suppliers gain power

Product is critical to the buyer

High switching costs. 3. Existing Competitors

and Substitutes o Industry growth and fixed costs affect

competitive pressures.

4. Start-Ups, Entrepreneurs, and

Small Business

o Employment peaked in large corporations in the early 1980s.

o About the same time, small firms generated 66 percent of all new jobs created in the U.S.

o The recession of 2001

Contributed to the downsizing of giant corporations

Failure of hundreds of start-ups

Led to the formation of hundreds of new start-ups.

C. The New Look in American Corporations

o Past successful practices won’t work any more.

o The need to expand beyond

Today’s organization requires 11 constant change rather than stability

domestic markets

o Increase in the importance of intellectual capital

11 networks rather than hierarchies

11 partnerships and alliances rather than self-sufficiency.

"network organization"

AKA"e-corporation"

o The Web gives everyone in the organization the ability to access and process information at any time and from any location.

o The Web allows employees to manage formal and informal networks of

contractors,

designers,

manufacturers,

distributors.

Global competition o Growing facet of U.S. business.

o U.S. firms consider going international as a growth strategy

o Foreign firms are entering the United States to do business.

o Global competition will be covered in more detail in the chapter on global marketing

o In the past, foreign firms entered U.S. markets by emphasizing price, but today the accent is on quality.

o U.S. companies often battle one another in global markets just as intensively as they battle in the domestic market.

o Increased competition for market share

o More companies offering more products aimed at the same customers

o Increased market share often results in economies of scale and domination of supply chains

VI. REGULATORY FORCES

Regulation consists of restrictions state and federal laws place on business with regard to the conduct of its activities.

A. Protecting Competition

Major federal legislation passed to encourage fair competition:

o the Sherman Antitrust Act (1890)

o the Clayton Act (1914)

o the Robinson-Patman Act (1936).

o Federal Trade Commission Act

o Celler-Kefauver Antimatter Act

o Hart-Scott-Rodino Act 

B. Product-Related Legislation

1. Company Protection

o Companies are afforded basic protection for their products under the patent law.

o The copyright law gives the author of a literary, dramatic, musical, or artistic work the exclusive right to print, perform, or copy the work.

o Digital technology has necessitated new copyright legislation to improve protection of copyrighted digital products against piracy.

2. Consumer Protection

o There are many consumer-oriented federal laws regarding products.

Meat Inspection Act (1906).

Food, Drug, and Cosmetics Act (1938).

o Laws with a broader scope,

Fair Packaging and Labeling Act (1966)

Consumer Product Safety Act (1972).

o Consumerism

A grassroots movement started in the 1960s to increase the influence, power, and rights of consumers in dealing with institutions.

Responses to consumer interests

Clean Air Act (1990,

Telephone Consumer Protection Act (1991),

Children’s Online Privacy Protection Act (1998).

3. Both Company and

Consumer Protection

o The Lanham Act (1946) provides for registration of a company’s trademarks for exclusive use unless it becomes generic.

o The Trademark Law Revision Act (1988) changed the Lanham Act to allow a company to secure rights to a name before actual use by declaring an intent to use the name.

o Trademarks also protect consumers by assuring them that they get the product they want.

o The U.S. Supreme Court has ruled that companies

may obtain trademarks for colors associated with their products.

C. Pricing-Related legislation o The Robinson-Patman Act - regulate pricing practices.

o The courts view price fixing itself as illegal.

o Certain forms of price discounting are allowed.

Quantity discounts are acceptable

Buyers can be charged different prices for a product provided there are differences in manufacturing or delivery costs.

D. Distribution-Related legislation The government has four concerns with regard to distribution and the maintenance of competition:

(1) Exclusive dealing

o Buyer to handle only the products of one manufacturer and not those of competitors.

o This is illegal when it substantially lessens competition.

(2) Requirement contracts

o Require a buyer to purchase all or part of its needs for a product from one seller for a period of time.

o Not always illegal, depending on a court’s interpretation of their impact on distribution.

(3) Exclusive territorial

distributorships

o Manufacturer grants a distributor the sole rights to sell a product in a specific geographic area.

o Often receive regulatory scrutiny.

(4) Tying arrangements

o Seller requires the purchaser of one product also to buy another item in the line.

o These contracts may be illegal when the seller has such economic power in the tying product that the seller can restrain trade in the tied product.

E. Advertising- and Promotion-Related Legislation o The Federal Trade Commission (FTC)

monitors deceptive or misleading advertising and unfair business practices.

It has the power to issue cease and desist orders and to order corrective advertising.

o Other laws designed to regulate advertising

The Wheeler-Lea Act - controls false advertising.

Federal Cigarette Labeling and Advertising Act (1967)

The Children’s Television Act (1990).

Control through Self-Regulation o An alternative to government

control

o An industry attempts to police itself.

o The best known self-regulatory group is the Better Business Bureau (BBB),

Recently developed a reliability assurance program, BBB Online, to provide objective consumer protection for Internet shoppers.

Participating companies must follow the BBB’s standards before they display the BBB logo on their

o Two problems:

noncompliance by members

enforcement.

website.