#2 Environment Ch.3

7/30/2019 #2 Environment Ch.3

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Environment

Chapter 3


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Challenges Faces shifting consumer lifestyles

and preferences for healthierfoods.

Low ratings of food and servicequality.

Atmosphere not upscale.

Image is perceived as beinguncultured, uncool, and unclassyby younger target markets.

McDONALDS Facing New Challenges

Case Study

Marketing Initiatives

Focus on core competency ofconsistent products and reliableservice.

Offers upscale alternativesincluding McCafe and BistroGourmet.

Eliminates supersize, offers

healthier food options, andintroduces Go Active! Adult HappyMeal.


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Marketing Environments

The factors and forces outsidemarketings direct control that

affect marketing managements

ability to develop and maintain

successful transactions with its

target customers


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Microenvironment:

The Company Marketing success depends on others:

Other departments in the firm

Suppliers

Marketing intermediaries

Customers

Competitors Relevant publics


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Microenvironment: TheCompanys Internal

Environment

Topmanagement

Finance

R & D Purchasing

Manufacturing

Accounting

Marketing


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Microenvironment:

Marketing Intermediaries Help promote, sell,

and distribute to

final buyers

Includes:

Resellers

Physical distribution Financial services

Marketing services

Suppliers of

materials


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Microenvironment:

Customers

Consumer

markets

Businessmarkets

Reseller

marketsGovernment

markets

International

markets

Company


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Microenvironment:

Publics

Financial

Media

GovernmentCitizen

action

Local

General

Internal

Company


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The Marketing Process

TargetConsumers

Product

Place Price

Promotion

Competitors

MarketingChannels

PublicsSuppliers

Technological-natural

environment

Political-legal

environment

Social-cultural

environment

Demographic-

economic

environment


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3 Cs of Marketing

Consumerism: movement by consumers against business injustice. Movement which attempts to direct marketer away from commercial

gains, towards human welfare. Instead ofhow much, it deals with how well. Concerned with truth in advertising, safety and quality of ingredients,

full and reliable labelling, etc.

Clean up: Proper disposal and recycling. Ecological concerns; most noticeable in the packaging and promotion

aspects. Example: PCB disposal.

Conservation: Discriminate use of our diminishing resources to ensure rational,

constrained, and justifiable demand. A reaction against the long time abuse/misuse of resources and energy

sources. Observable in product design (auto design).

Describe some of our finite & infinite renewable & non-renewable resources.


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Macroenvironment p.85

Demographic

Economic

NaturalTechno-

logical

Political

Cultural

Company


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Macroenvironment:

Economics Types of economies

Changes in income

New economyparadoxes

Changing consumer

spending patterns


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ErnstEngels Law(1875) German accountant who studied workers and

their families p.100

As family income increases, % amount spent on:

Food - decreases

Housing - stays the same Other items - ex.: leisure, education, medical

increases

Todays rule of thumb for housing is to still spend approximately 25- 31% of gross income.

General levels of expenditures on food indicates affluence of society.

In Canada we spend 17% of GDP on food.

USA = 10%; Britain = 16%; Brazil = 23%; Thailand = 29%.

USA is one of the lowest in the world.


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Measures of Income

GDP (gross domestic product)

PI = gross income or personal income.

DPI = PI taxes (disposable personal income) (take home pay)

DI = PI taxes - essentials (discretionary income).

Essentials = rent, food, transport, etc. Key indicator for market essentials = DPI

Key indicator for market luxuries = DI


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Elasticity of Demand

The way potential clients see a firms good or service will affect theprice, availability, and overall eagerness or demand to buy theirgoods.

Elasticityrefers to ones sensitivity. [Reverse elasticity may be a factor]

P x Q = TR; if TR goes up when P goes down; or if TR goes down

when P goes up = Demand is elastic. Demand is inelastic if P goes in the same direction as TR. The term elasticity refers to an area between two specific points,

and this is our relevant range. Urgency of need & # of substitutes create elasticity


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Summary of Economic Factors

Real income per capita has not really grown. It hasbeen hurt by: Inflation

Unemployment Increasing tax burden (GST & QST)

The overall picture has caused regional differences in income, and growth levels. This is reflected in Provincial minimum wage laws, strength of unions, and purchase

patterns of the local pop.

Other terms to define/discuss: restructuring & outsourcing.


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Competitiondegrees of consumer freedom re: choices

Competitor myopia:latent competitors may be more dangerous thancurrent ones. Encyclopedia vs. Encarta

Q: Who is biggest threat to ..ie McDonalds?

Q: Who is the biggest threat to Publix & Loblaws?

Components of competition

1. Barriers to entry: via $, promotion expenditure, product identification, distributionaccess, and switching costs.

2. Bargaining power of suppliers & buyers (ie Apple vrs Wal-Mart)


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Competition

Levels of competition1. Pure: many buyers & sellers with easy market entry. Products are similar

and homogeneous in consumers eyes. (local restaurants).

2. Oligopoly: relatively few sellers, selling basically homogeneousproduct. Fairly inelastic demand with occasional price wars. (gas stations)

3. Monopolistic: derived by trying to create a differentiated orheterogeneous product in the eyes of the consumer. Price is important, butthere may be many sellers. (airlines, newspapers)

4. Monopoly: extreme case of monopolistic competition. Typicallyunder government scrutiny. (Gaz Metro & Videotron)


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Competition

Leader strategy Coke, McDonalds, Kodak, Boeing

Challenger strategy Pepsi, HP (they may choose to follow rather than attack)

Nichers very focused (Chez Coras, Dic Anns Burger)


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Macroenvironment:

Political Consists of laws, government agencies,

and lobby groups

Public policy Increasing legislation:

Protect companies from each other

Protect consumers from unfair businesses

Protect the interests of society

NAFTA and The Competition Act


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Macroenvironment:

Political

Ethics and social responsibility

Corporate codes and rules of ethics Stress long run interests of consumers and

the environment

Whats right as well as whats legal? Difficulty of determining the right thing

Cyberspace


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Corporate Ethics

Moral idealism: strict laws

Intuitionalism: using your own discretion (1 vs. 2 bottles)

Utilitarianism: the consequences and results of are moreimportant than the motives or the ethics themselves.


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Consumerism

Lack of information: too many items, too little service, toolittle control

Inadequate performance: questionable quality versesexpectations causing consumer let down

Antagonism towards advertising: creating falsewants (sexist ads, etc.)

Depersonalized market institutions: self serviceoutlets

Changing values: caused by a better educated, wealthierpopulation, disillusioned by materialism

Disillusionment with the system:political votes can

now be levered, thereby venting our rage (proposition 13 in California,GST protest, PQ vs. Liberals)


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Legal Environment p.108Unduly Lessen Competition

Abuses of the system: Trusts & Cartels: bid rigging, price fixing, tying

agreements (Microsoft, Bank of Montreal & Royal Bank)

Price discrimination: functional discounts, predatorypricing, refusal to deal

RPM: resale price maintenance (vertical price fixing ie Adidas ex.)

Bait & Switch

Reciprocity

Pyramid sales


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Macroenvironment:

Culturalp.109

Persistence of cultural values

Core vs. Secondary

Core are Highly persistent Secondary more open to change

Views of themselves

Views of others

Views of organizations

Views of society Views of nature

Views of the universe

Regional Differences


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Cultural & Social Concerns

Culture: heritage of tangible and intangible aspects of

life handed down from generation to generation. Itmay be strongly influenced and shaped by ourenvironment.

Social concerns: the way people live as they do. USAis referred to as a Melting Pot. Canada is referred to

as a Mosaic or Salad Bowl. 4 characteristics of Canada:

1. Mosaic diversity 2. Bi- cultural(not bi-lingual); 3. Negative nationalism 4. Conservatism (low risk takers & entrepreneurial spirit).

Cultural values are expressed in how they viewthemselves, others, organizations, nature, society, and

the universe.


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Ecology

Concerns pertaining to:

finite non-renewable resources (oil, coal)

as well as our supposedlyinfinite resources; (waterand air)

finite renewable resources (forests and food)

This will have ramifications on our cost of

energy, raw materials, and pollution levels. (Codfishing industry).


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Technology

Accelerating pace of change (newcomputers every day).

Unlimited innovational opportunities.A key factor with the above is the volume of

new patents launched by industry. This may

be affected by the level of Government patentprotection offered. (pharmaceutical firms).


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Resources & Objectives of Firm

Financial strength

Raw material reserves

Physical plant

Patents

Public acceptance

Skill of personnel

Management attributes


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Macroenvironment:

Demographics p.171-185 Size

Density

Location

Age

Sex

Race Occupation

Other statistics


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Limitations of Demographics

old or unavailable data ie OLED T.V.s

too broad for some smaller niches

single factors may not be adequate

psycho-social factors, motives & insightsarent considered


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Characteristics of a Market

A. Population: people with need & wantsto satisfy

B. Purchasing power: money to spend

C. Buyer behaviour: willingness to spendtheir money


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A. Population

Malthus in 1789 wrote his first essay on population and stated that

as the population grew geometrically, our food supply grewarithmetically.

Positive checks to increasethe death rate include: war, vice,disease, famine, and natural events- ie tsunamies.

Negative (preventive) checks to reduce the birth rate include:delayed marriages, moral restraint, and birth control.

Discuss the six pocket syndrome. (p.86)

Population depends upon: Fertility (women between 15 to 44) Mortality

Migration (into and out of a country) Other factors may include: rural / urban living, family size, educationallevel, occupation, ethnic origin, etc.

Question: what are the effects of an aging population on society?

D hi E i t


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Demographic Environment:Changing Age Structure in Canada (p.173)

Median age up from 25 to 38 in 30 years

Long-term slowing of birth rate (1.55)

Increasing life expectancy

Population bulge due to baby boom

Baby dearth of the 70s (lack of)

Growth rates vary for different age groups Yuppies have 2/3 Canadas disposable income


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Major Population Segments

Baby Boomers: generation of children bornbetween 1946 and 1964, accounts for the

majority of the purchases in most consumer

product and service categories. (9.8 million)

Generation X: 15 % of the Canadian population

born between 1965 and 1976. Consumers who

are not prone to extravagance and likely to prefer

lifestyles, products, and services that are verydifferent from baby boomers.

Baby Boomlet: Canadians born after 1976; also

described as Generation Y or the Net Generation.


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Demographic Environment:Changing Canadian Households

Increasing non-familyhouseholds

Marrying later (25w,28m)

Having fewer children(avg. family size 3.1)

No children under 18 in35% of all families

Increased divorce rates

Shift in couples roles


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Demographic Environment:Population Growth and Shifts

Population growth is 0.2%

Geographic shifts:

Movement from rural to

urban areas

Movement from cities to suburbs

50% of population lives in top 25Census Metropolitan Areas (CMA)


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Demographics

CMA (Census MetropolitanArea) 100,000+ people. CAA (CensusAgglomerationArea) 10,000

100,000 people. Montreal + Toronto = 24% Montreal + Toronto + Vancouver = 30%

(approximately 80% of ethnic population) Canada = 31.6 million as of July 1 2006; 2006: Toronto = 5.0; Montreal = 3.6; Vancouver =

2.1; Ottawa = 1.1; Calgary = 993; Edmonton =967; Quebec = 697;Hamilton = 687; Winnipeg =685.


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Demographics

Mobility in the public sector is usually a good sign.

People moving may be doing so due to a jobpromotion and have money to spend.

If due to other reasons, people will still have tobuy things.

Approximately 15 - 20% of Canadians moveannually.

Average number of people in a Canadian household= 2.56 in 1995 vs. 2.73 in 1985.

World population = 6.5 billion September 2003.

USA population = 300 million September 2006.


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Demographic Environment:Better Educated, White-Collar

63% have diplomaor higher

66% of workforce iswhite collar

28% professional ormanagerial

More demand forquality products

Less TV watching


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Demographic Environment:Increasing Diversity

Ethnicity:

Ethnic purchasing power

$300 billion Growing market size

Avoid stereotyping

Use native languages

Choose ethnic media

Sexual orientations

Disabilities


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Summary Population is getting older; less children; life expectancy is

increasing. Canadas median age = 39 in 2002, up from 25 in 1970. Male & female gap = 5 years Immigration is up Better education in white collar population Fertility rate is declining (1.4 in Montreal and 1.55 in 1997 for

Canada) 1 out of three babies are aborted in Quebec. Rural to urban to suburban World wide population explosion Smaller families in North America due to

later marriages higher divorce rates; more working wives.

Family size in 2001 = 2.6 versus 2.9 in 1981 ; Marriage age for females = 25 , men = 28 years Family households: single & common law = 26% vs. 20% in 1990. Quebec leads the world in common law marriages @ 35% (2007) 61% of mothers work & 55% of women work vs. 42% in 1976


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B. Purchasing Power

1998 family income in Canada was $47,300. Oshawa was thehighest ($60,000), and highest single income ($25,900).

Influencing factors for income: UIC 2 income households

SPDW (Single parent, divorced, widowed) Inflation

Geographical Boundaries: Torontonians spend more for housingwhile Montrealers spend more on food, taxes, and clothing.

This may be partially explained by transportation costs, climate,social or cultural differences.

Rural/Urban Boundaries: rural people spend more on food, travel,and transportation. Urban spend more on housing, recreation, andeducation.

Age + Sex: Young people are becoming richer all the time. Femaleincome is closing the gap (approx. 80% of mens) .


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Purchasing Power(continued)

Occupation: Strongly linked in behaviour tosocial class.

Education: the higher the education, the moreone spends on recreation, reading, security, andeducation. They plan for the future. In 1995,17% have attended or graduated fromUniversity. Education/Occupation/Income are

strongly linked. Stage of the family life cycle: age & number of

children in family.


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Family life cycle of stages

Bachelor stage Newly married Young family (child under 6 years old) Young family II (youngest child > 6 years old) Teen age allocation Empty nester (vrs return of the twixter) * Senior citizens * Gold-collar market = young, living at home, buying status brands on

working class pay. Twixters are slightly older (ie 27+) than Gold-collar (ie 20-27 yearsold)


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C. Willingness to Buy

Basic models of behaviour

Stimulus response theories deal with drives, cues,

responses, and reinforcement.

Cognitive theoriesassumes that besides S/Rreactions, habits can be acquired by insight, thinking, and

problem solving techniques.


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Stimulus Response Models

Marshallian economic man theoryderived from Alfred Marshall, an economist, whose ideas were

based upon a modern utility theory:

Maximum satisfaction is sought. Consumer is rational.

Faults:

states what should be, not was is

product not consumer centred

Incomplete; assumes that only price and income affect ourchoices.


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Stimulus Response Models

Pavlovian learning model focus is on associative

processes: Drive; basic stimulus; Cues; weaker drives of why, when, where, or sales pitch; Response; individuals reaction Reinforcement; if experience is positive

Forgetting; if we have non-use Extinction; negative experience

Theory uses repetition, and enforcement. Useful as anadvertising strategy.

Example: Drive = hunger Cue = McDonalds golden arches, typically shown near noon

time slots.


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Cognitive Models

Veblian social-psychological model:man is a social animal and therefore is

influenced by our peer groups. True! but only a small part of the picture.

Veble was an American economist who studied social class systems.

Wrote a book Theory Of the Leisure Class.

Discovered the term Nouveau Richeand learned that this class flaunt theirnew found riches in order to gain acceptance, whereas Old Moneytend todownplay it.


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Cognitive Models

Freudian psychoanalytic theory: symbolic aswell as functional features play an important rolein purchasing. Motives are studied to determine

what causes people to buy the way they do.Why are they brand loyal? etc.

Useful for studying: items people buy

when they buy

how they use the item

frequency of their purchase

Documents

#2 Environment Ch.3