Environments Affecting Marketing

Key Terms: environmental threat, controllable and uncontrollable environments, demographics, geodemographics, six major macroenvironmental variables, price discrimination, Robinson-Patman Act, horizontal price fixing, vertical price fixing, predatory pricing, Federal Dilution Act, FDA, CPSC, FTC, Sherman Antitrust Act, Clayton Act, counterfeit goods, futuristics, cultural shift, and technological forecasting.

Some of the environmental variables affecting a firm are controllable and some are uncontrollable. The 4P’s of marketing, i.e., the marketing mix, are controlled by the marketing manager. There are variables, however, that are uncontrollable and managers have to take them as givens. These include the following six major macroenvironmental variables
(1) demographic --  Demographics are characteristics of the population.  Demographics includes gender, age, income, family size, occupation, ethnicity, etc.  Marketers study demographic trends. A company, for example, that sells baby food would be very interested in forecasts of the number of babies that will be born.  Colleges are interested in the number of teenagers who will be graduating high school.   Check out the demographics of the zip code you live in at: http://zipskinny.com/  A retailer who wants to open an upscale clothing store for children should study the demographics of the area where she wants to open her store.  Who lives there?  How many children?  Median income? How many married couples?  Marketers are very interested in zip codes -- this is part of  geodemographics (geography + demographics).  Marketers want to study the profiles of people who live in a certain area in order to sell them products.

The Census Bureau is the source of much of our demographic information. It announced on May 2011 that married couples are no longer a majority.  Married couples are currently 48% of all households (down from 78% in 1950).  Only about 20% of households are traditional nuclear families -- married couples with children.  It is interesting that college-educated women are more likely to be married (and stay married) than women with only a high school diploma.  Educated women marry later but are more likely to remain married.  Uneducated women with only a high school diploma tend not to marry the father of their children.  They feel that it is too difficult to support a husband (who tends to be unemployed because of the weak economy and lack of jobs for the uneducated) and children. It is clear that rising income inequality and employment instability are having a negative effect on marriage. The biggest change has been in the huge increase in households headed by women without husbands.  Also, a large number of households consist of people who are not family.  

(2) natural -- see below.
(3) cultural (this includes social) -- This will be discussed in detail in a later chapter.  What you have to understand about culture is that it is learned and it affects our core values, attitudes, behaviors, and morals. One simple example:  There was a time when women would wear a fur coat; it was socially acceptable.  Fur coats were advertised on television and sold in many department stores.  Today, our culture is opposed to it.  Women wearing fur coats risk being spat upon or having paint thrown on their coats.  The attitude toward smoking cigarettes and cigars has also changed.  I remember when you never saw a woman with a tattoo. In fact, very few men had tattoos.  Listen to songs of the late 1950s and compare to songs of today you will see what is meant by a cultural shift.  Better yet, look at an old film and compare with a film of today.  In many European countries such as France, marriage --even between straight couples -- is disappearing and being replaced by civil unions (see:  http://www.nytimes.com/2010/12/16/world/europe/16france.html).  
(4) economic -- The middle class seems to be shrinking in the United States.  This will affect the market for many different products including automobiles and housing.
(5) political (legal) -- We will see how various laws and government agencies affect the way  a marketer conducts business.  
(6) technological -- Technology can have a great impact on marketing. Notice how the Internet has had a huge impact on so many industries ranging from banking to retailing. There was a time when education was almost exclusively in a traditional classroom. 

Some books also add competitive environment (I would have a problem calling that a macroenvironmental variable), i.e., what the competition is doing. A good marketer scans these various environments for threats and/or opportunities.

Environmental threat—Sometimes, there is something going on in the environment that can have an adverse effect on an organization if no action is taken. Consider the effect of electronic commerce on various businesses, e.g., the music industry and software retailing. Similarly, do you think there is a future for travel agents and video rental stores?  Newspapers are now in trouble because on the new media.  Young people get their news from the Internet and are generally not newspaper readers.  Also, classified advertising has moved from newspapers to the Internet. 

Big threat to the music industry:  Consumers like to purchase individual songs on websites such as iTunes.  Will this have an effect on sales of albums?  Why buy an expensive CD consisting of many songs when all you want is one or two songs?  Sales of albums have been dropping while sales of individual digital songs have been rising. In fact, catalog sales (this is what the music industry calls the sale of old releases) account for 50% to 66.67% of the sales of digital singles. Some companies are afraid that online sales of digital singles will hurt profits so they only sell songs in album form and do not allow downloads of digital singles (see NY Times "When all the 'Greatest Hits' are too many to download."  2/2/2006 pp. 1, 6).

Natural Environment--  More and more people are concerned with the environment.  Global warming is making many of us aware that we are heading for ecological disaster unless something is done -- and soon.   Jared Diamond (NY Times, 1/2/2008,OP-ED, A17) is of the opinion that real problem facing humankind is overconsumption.  Developed countries (US, Canada, Western Europe, Japan, and Australia) with a total population of about 1 billion consume 32 times more resources such as oil and plastic than do those in developing countries with a population of 5.5 billion. If the entire world were to consume as much as the developed countries do, this would be the same as if the world population increased to 72 billion.  No one believes that the world can support this many people.  The companies that pollute are being forced by new legislation to invest in pollution-control equipment.  There are great opportunities for businesses that produce green products.  A large number of people want to buy products that are friendly to the environment.  This is why green business is definitely the way to go for all firms.   Issues that companies must address:  (1) raw materials such as oil, water, copper, gold, etc. are becoming scarcer.   The price of these raw materials will continue to rise.  We can no longer assume that there will be an endless supply of oil.   Alternative energy such as wind, geothermal, solar, nuclear, etc. must be considered.  (2)  global warming.  Firms have to come up with new and better ways to reduce the amount of carbon dioxide emissions.  (3) Price of energy will continue to rise.  Products that use less energy will be in demand.  (4) Firms must continue to find new and better ways to reduce pollution.  Dumping waste products into rivers is no longer allowed in much of the world.  Pollution has wreaked havoc with most of the major rivers in China. In many cities, the air is so polluted that it is difficult to breathe.  

Legal/Political (Regulatory) Environment of Marketing:

A. Pricing:

Robinson-Patman Act (1936) – prohibits price discrimination in interstate commerce unless based on a cost-difference or if the goods are not of "like grade and quality." This means that a company cannot charge different retailers (or wholesalers) different prices without justification. Very large retailers with their great buying power could demand huge price discounts which small retailers cannot.

Vertical price fixing—when a manufacturer controls the price charged by a retailer. 

On June 28, 2007, the Supreme Court eliminated a ban on manufacturers and retailers getting together and establishing minimum prices for products; agreements on minimum prices are legal if they do not hurt competition. This means that manufacturers and retailers are now permitted to set a price floor for products and are not violating federal antitrust law.  Why would manufacturers want to establish a price floor for a product?  Supposedly, this will make it possible for retailers to offer better service. If prices go too low because of discounters, service may suffer.   Is this true?  I have no idea.

Horizontal price fixing – competitors at the same level of the channel of distribution (e.g., manufacturers or retailers) getting together to set prices. This is illegal and a violation of the Sherman Antitrust Act.

Predatory pricing – Pricing below cost in order to drive a competitor out of business. This is also illegal.

B. Product:

Pure Food and Drug Act (1906) – prohibits adulteration and misbranding of foods in interstate commerce. The FDA is responsible for the safety of approximately 80% of the foods we eat (The Agriculture Dept. is responsible for some products, e.g., meat, poultry, and some eggs). Today the FDA (Food and Drug Administration) is concerned with misleading brand names and deceptive labels on food and drugs (e.g., the word "fresh"). Check out their web site at: http://www.fda.gov/
Example: The FDA has been concerned with sunscreens. The FDA issued new rules for sunscreen products in 2011. (a) Sunscreens cannot be labeled "sunblocks" since this is deceptive; they do not block the sun. (b) Sunscreens must protect skin from both UVB (causes sunburn) and UVA (causes wrinkling of skin) ultraviolet rays if they wish to consider themselves "broad spectrum." (c) Sunscreens are not permitted to claim that they are "waterproof"; that is deceptive. What the product label should indicate is how long the sunscreen is water resistant (usually between 40 and 80 minutes). (d) Sunscreens that make the claim that they reduce risk of skin cancer, must have an SPF of at least 15. By the way, if you use sunscreens, get one that has an SPF of between 30 and 50. [Source: NY Times article June 15, 2011 -- "New Rules to Show the Extent of Sunscreen Protection"]

The FDA does not allow manufacturers of baby bottles and sippy cups to use plastic that contains BPA (bisphenol A). BPA is a chemical that mimics estrogen. If you see a 7 on the bottom of a plastic bottle, that means it contains BPA.

Each year, contaminated food will make one out of six Americans sick:  130,000 of them end up in the hospital and 3,000 die [NYT S. Strom “FDA proposes new rules on food safety,” Jan. 5, 2013, A1, A3].  The FDA proposed two new rules in 2013  to prevent contamination of food.  One big problem has to do with the water used in irrigation. This water will now have to meet certain standards.  Farm workers will need to have access to portable toilets (rather than urinating in fields of produce) and will have to wash hands.  Manufacturers of processed foods will have to keep records subject to audits and will have to devise ways to reduce risk of contamination.

Consumer Product Safety Act (1972) – Created the Consumer Product Safety Commission (CPSC), which establishes safety standards for products. Check out their web site at: http://www.cpsc.gov/

If you purchase a bicycle, you might find the following statement on it: "This bicycle meets the requirements of the Consumer Product Safety Commission standards."

Their research (performed by examining emergency room patients) found that two of the most dangerous products are bicycles and stairs/steps. The CPSC is also involved in removing dangerous products from the marketplace. The CPSC has recalled several dangerous products that were being sold to consumers. These include: disposable lighters that leaked and exploded, rayon skirts made abroad that ignited easily, child swings, foam cushions, etc. Many toys for infants have been found to be quite dangerous.

On July 8, 2004 the CPSC announced the recall of the largest number of products ever--150 million pieces of toy jewelry.  The jewelry is sold in vending machines and costs 25 to 75 cents. The problem with the toy jewelry (it is made in India) is that it has a very high lead content and children sometimes eat it.   One boy, who swallowed a toy pendant purchased for a quarter, suffered from lead poisoning.  If you have any toy metal jewelry, throw it away.

The CPSC is looking into the hanging cords and loops that one finds on window blinds.  Approximately one child a month dies by being strangled on those cords.  It is very easy to make cordless window blinds  but they cost a lot -- possibly twice as much -- more than blinds with cords.  Please note that there are more than one billion blinds in the United States (NY Times 4/21/2011, Andrew Martin, "A Debate Over Window Blinds").

There are still some dangerous products on store shelves.  Recently (June 2011), several people were seriously burned while adding a gel fuel to ceramic fire pots.  The fire pot exploded and they were covered with the gel fuel which burns like napalm.  They did not realize that the fire pot was still burning; you are not supposed to add fuel unless the pot is cold.  There was a warning on the wrapping but it is removed by the consumer.  The product was sold by Bed, Bath, and Beyond and has been removed from the store shelves. 

Lead poisoning has become a big issue in China.  Children and adults living near factories making batteries and metal smelting companies have extremely high levels of lead in their blood. This is a problem in several provinces in mainland China.  It led to a riot at the Zhejiang Haijiu Battery Factory; 200 people from the surrounding area stormed the factory and did a huge amount of damage.  High level of lead in children's blood will have serious effects on their development.  Economic growth is a big issue in China and local officials often ignore safety and environmental issues.  If you want more information about this, go to the following website:  http://www.nytimes.com/2011/06/15/world/asia/15lead.html

Trademarks

This will be covered more thoroughly in a later chapter.  You should know that a company can obtain legal protection for its brand name or symbol (e.g., Nike's swoosh).  Even a color can be part of a trademark.  Thus, no company is permitted to use the name Coke® or Pepsi® . The ® means that it is a registered trademark and no other company may use that name or even a similar name that might cause confusion e.g., Cooka Cola or Pepi's Cola.  In fact, if a company tries to introduce a new soft drink called Cooka Cola, I can almost guarantee them a lawsuit. There is no way that Coca Cola will allow a firm to market another brand of soft drink with such a similar name.  Indeed, the Lanham Act was enacted to prevent this kind of confusion among competing brands in the same product category.

The Federal Dilution Act goes beyond the Lanham Act, and may allow a firm to prevent another company, even one in a non-competing business, from using a registered name.  You can see why it is called dilution.  Suppose I want to use the Rolex name which represents quality on a new brand of toilet paper, Rolex toilet paper.  This might dilute the value of the Rolex name.  

C. Promotion

Federal Trade Commission Act (1914) – unfair methods of business competition and deceptive acts and practices, e.g., bait and switch advertising.

The FTC is a powerful regulatory agency that can issue fines and cease and desist orders. One of their major functions today is to protect consumers from deceptive advertising and selling practices. Check out their Web site at: http://www.ftc.gov/

One example of a power of the FTC is corrective advertising.  The FTC has the power in certain situations to force a company to run new ads that correct a false impression made by previous ads.  One famous example of the use of corrective advertising was when Warner Lambert was ordered to run ads that stated that Listerine will not prevent colds or lessen their severity.  There were a large number of television commercials that suggested that Listerine would help prevent colds.  Incidentally, if you have a cold and/or sore throat, no mouthwash can help.  You might as well just Gargling with warm salt water.  

Bait-and-switch pricing is illegal and works as follows: A store runs an advertisement for a product at a very low price (the bait) and once the customers come to the store, salespeople try to "switch them," i.e., convince the to buy more expensive models or brands.

Most of the time, companies do not want to go to court with the FTC and will agree to sign a consent order. This means that they waive all rights to seek a review and agree not to continue the questioned practice (e.g., running an ad the FTC claimed to be deceptive), but they do not have to admit that they did anything wrong. If a firm refuses to sign a consent decree, the FTC will issue a cease and desist order which is the first step in a process that leads to a trial before an administrative law judge.

The biggest settlement in FTC history is with Countrywide Home Loans.  More than 450,000 consumers who dealt with Countrywide were charged excessive fees.  This took place between 1/1/2005 and 7/1/2008.  Jon Liebowitz, chairman of the FTC said regarding Countrywide's business model:  "[It] was a business model based on deceit and and corruption, and the harm they caused to American consumers is absolutely massive and extraordinary."  Anyone who went into default on their mortgage paid excessive and/or improper fees to Countrywide for default-related services. Countrywide was the largest mortgage lender and loan servicer in the US.   Countrywide nearly went bankrupt because of the number of subprime mortgages they made.  Bank of America took over the company in 2008.   [Source:  Gretchen Morgenson, New York Times July 21, 2011, pp. B1, B6]

The FTC Web site that exposes popular Internet scams and informs consumers on how to avoid them is at: http://www.ftc.gov/dotcons Check out the Top Ten Dot Cons.

D. Place and Competition

Sherman Antitrust Act (1890) – deals with activities that are in restraint of trade or tend to create a monopoly (e.g., price fixing, predatory pricing, bid rigging, market/territory allocation). The Sherman Antitrust Act was the first federal law that was passed-- note the year of 1890-- to encourage competition. 

Clayton Act (1914) – Supplemented the Sherman Antitrust Act and also deals with exclusive dealing arrangements (which limit the sources of supplies available to consumers) and tying arrangements (the forced purchase by dealers of some products with others).

If a manufacturer insists that wholesalers and other intermediaries only carry their brands and not the brands of competing companies, this would be an example of exclusive dealing.  It might be illegal under the Clayton Act if it can be shown that competition is being hurt by this practice.

Suppose a company that manufactures printers forces intermediaries (wholesalers and/or retailers) that want its printers to also purchase fax machines, this is a tying arrangement.  It could be illegal under the Clayton Act if it can be shown that it hurts competition.  Car manufacturers sometimes try to do this.  A dealer wants small cars and is told that he also has to purchase some SUVs to get the small (and very popular) cars.  

Find online legal help and get free access to a vast collection of understandable legal information at: http://www.mycounsel.com/

As far as self-regulation for businesses, i.e., businesses regulating themselves, the self-regulatory organization that is the best known is, of course, the Better Business Bureau
(BBB).  They have a website at  http://welcome.bbb.org/  You can use the BBB website to check out a charity or company and see whether a retailer has a satisfactory record.  I checked out a store in my neighborhood and this is what I found:

"Based on BBB files, this business has a satisfactory record with the Bureau. A “satisfactory record” means that a company has been in business for at least 12 months, and has properly addressed complaints referred to it by the Bureau. The business cannot have an unusual volume or pattern of complaints, or any government actions against it involving its marketplace conduct. The Bureau must understand and have no concerns about the business’s products, services and type of business."

Counterfeit Goods

The unauthorized copy of a product is known as a counterfeit good.  It is against the law; the Federal Anti-Counterfeiting Law was passed in 1984.  You can go to jail and pay a stiff fine for manufacturing counterfeit goods. It is a huge problem and has caused plane crashes (key engine components were found to be counterfeit) and faulty medical equipment (counterfeit batteries in pace-makers). At least 11% of the world's branded clothing (t-shirts, jeans, etc.) is fake.  Many people think that buying a counterfeit handbag or t-shirt is a victimless crime.  In fact, it is easy to pick up counterfeit goods on Canal Street in NYC and many flea markets. It is not a victimless crime. According to Magnus Ranstorp, an expert on terrorism, "Profits from counterfeiting are one of the three main sources of income supporting international terrorism." (quoted in NY Times, "Terror's Purse Strings" by Dana Thomas --  p. A23, 8/30/2007). Many counterfeit goods are manufactured in factories in China using child labor.  According to Dana Thomas, The average American woman buys more than four handbags a year; the average brand name bag costs 10 to 12 times what it costs to manufacture it.  Many women (even judges) will shop for counterfeit handbags with a designer label (e.g., Gucci bag) to save money.  People are proud to tell others how much they saved by buying the fake bags. The phonies look exactly like the real thing.  Quality is not that important since many women will buy a new hand bag every year as the fashion changes, even if the "old" hand bag is still in excellent shape. The next time you are thinking of buying a counterfeit good, remember that you might be supporting international terrorism, child labor, and/or organized crime.  What do you think?  Is it ethical to knowingly buy counterfeit goods?


Future Environment/Technological Environment

Futuristics is the study of the future. A good marketer should have a future orientation and try to determine what lies ahead as far as technological, social, and cultural changes. Technological forecasting refers to the prediction of future technology and inventions and is part of futuristics. Technology is not the only factor with which marketers have to be concerned. Marketers also have to be concerned with social/cultural shifts. A shift away from materialism and ostentatiousness towards simplicity, for example, could have a huge impact on the demand for super luxury products such as $10,000 watches, $2,000 pens, and $100,000 cars. The current financial meltdown has caused many Americans to become frugal and learning to tighten their belts.  Showing off wealth is not cool, especially when millions of people are out of work.  Several articles have been written about religion and spirituality in the workplace. Apparently, religion and spirituality are becoming more important to Americans. Americans are also concerned about the environment and green marketing is in.  

Many shopping malls were built assuming that women stay home and take care of the children. The percentage of women in the labor force with small children keeps growing. Today, working women do not go to malls on weekdays, they have to be at work. They prefer shopping from catalogs. In fact, there are several successful catalogs that specialize in clothing for working women. Electronic commerce will have a huge impact on catalogs and, in the future, it seems quite likely that people will prefer electronic catalogs (using the Web) to paper catalogs.

It is only a matter of time before technology makes video rental stores obsolete.  Consumers will be able to easily download (from a Web site) movies they wish to see ("video on demand"). The future of the music industry is also moving to the Web. Consumers are downloading the music they want and pay per individual song. The same is true of books. I believe that it is quite likely that in the future most books will be downloaded; you will print books on your own printer, rather than buying books at bookstores.

If you want to see how the new media (this includes blogs, wikis, YouTube, Facebook, etc.) have had a huge impact on numerous areas, go to:   http://www.morexpertise.com/topic/11 and read "High Impact Areas of the New Media Technologies:  A Review.  

Check out the Futurist magazine site and examine their Top 10 Forecasts:
http://www.wfs.org/futurist.htm

The Future-at-Society site has numerous links that might be of interest to you:
http://future.at-society.com/

 

 


(c) 2012 H.H. Friedman