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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