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Chapter 3 Analyzing the Marketing Environment
CHAPTER 3
ANALYZING THE MARKETING ENVIRONMENT
PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES
1 Describe the environmental forces that affect the company’s ability to serve its
customers.
2 Explain how changes in the demographic and economic environments affect
marketing decisions.
3 Identify the major trends in the firm’s natural and technological environments.
4 Explain the key changes in the political and cultural environments.
5 Discuss how companies can react to the marketing environment.
JUST THE BASICS
CHAPTER OVERVIEW
This chapter shows that marketing does not operate in a vacuum but rather in a complex
and changing environment.
Other actors in this environment—suppliers, intermediaries, customers, competitors,
publics, and others—may work with or against the company.
Major environmental forces—demographic, economic, natural, technological, political,
and cultural—shape marketing opportunities, pose threats, and affect the company’s
ability to serve customers and develop lasting relationships with them.
To understand marketing, and to develop effective marketing strategies, you must first
understand the environment in which marketing operates.
ANNOTATED CHAPTER NOTES/OUTLINE
FIRST STOP
Kellogg: Losing Its Snap, Crackle, and Pop?
From its origins, Kellogg has capitalized on environmental trends and shifts, even led
them.
But in recent years, amid a flurry of demographic, cultural, and lifestyle changes,
Kellogg’s bowl-of-cereal breakfast has lost a lot of its allure. Today, as people
increasingly reach for granola bars or Greek yogurt, cold cereal consumption has dipped.
As breakfast-eating behavior has changed, however, Kellogg has not. As a result, in
recent years, Kellogg’s overall revenues and profits have lost their snap, crackle, and pop.
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Last year, for example, sales of 19 of Kellogg’s 25 top cereals dropped by as much as 14
percent.
Now, with both parents often working, it’s a grab-and-go breakfast world, with little time
to linger over a bowl of Raisin Bran and the morning newspaper.
Also, increasingly today, consumers are looking for food with attributes such as
“low-carb,” “gluten-free,” “organic,” and “non-GMO” (genetically modified organisms).
That presents a big problem for Kellogg, which churns out box after box of carb-heavy,
processed foods made from corn, oats, wheat, and rice.
Increased health concerns also add new weight to long-standing claims by food activists
that the cereal industry is peddling junk food to children.
Kellogg has responded to some of these concerns. Over the years it has lowered the
amount of sugar in its top-selling children’s cereals, added gluten-free and GMO-free
cereal varieties, and added healthier extensions.
But moves toward a healthier Kellogg have been compromised by decisions that seemed
at odds with shifting customer lifestyles and preferences. For example, at the same time
that Kellogg was adding healthier options to its mainstream brands, it was weighing
down its more wholesome brands like Special K and Kashi with less-than-healthy
extensions—such as Special K Chocolately Pretzel Bars and Kashi Blueberry Frozen
Waffles—processed foods loaded with carbs and calories.
Despite its recent woes, Kellogg remains a strong, iconic brand. Kellogg’s CEO doesn’t
seem all that worried: “The company has been around for 109 years,” he says. “We have
the time. We have a plan to turn it around.” Some analysts, however, paint a more
ominous picture. “Carbs, sugar, and stubbornness are killing Kellogg,” says one.
Companies that understand and adapt well to their environments can thrive. Those that
don’t risk their very survival.
Use Key Term Marketing Environment here.
Use Chapter Objective 1 here.
A company’s marketing environment consists of the actors and forces outside marketing
that affect marketing management’s ability to build and maintain successful relationships
with target customers.
The microenvironment consists of the actors close to the company that affect its ability
to service its customers.
The macroenvironment consists of larger societal forces that affect the
microenvironment.
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Use Key Terms Microenvironment and Macroenvironment here.
THE MICROENVIRONMENT
Marketing management’s job is to build relationships with customers by creating
customer value and satisfaction.
Figure 3.1 shows the major actors in the marketer’s microenvironment.
Use Figure 3.1 here.
The Company
All the interrelated groups form the internal environment.
All groups should work in harmony to provide superior customer value and relationships.
Suppliers
Suppliers provide the resources needed by the company to produce its goods and
services.
Marketing managers must watch supply availability—supply shortages or delays, labor
strikes, and other events can cost sales in the short run and damage customer satisfaction
in the long run.
Marketing managers monitor the price trends of their key inputs.
Marketing Intermediaries
Marketing intermediaries help the company to promote, sell, and distribute its products
to final buyers.
Use Key Term Marketing Intermediaries here.
Resellers are distribution channel firms that help the company find customers or
make sales to them. These include wholesalers and retailers.
Physical distribution firms help the company to stock and move goods from their
points of origin to their destinations.
Marketing services agencies are the marketing research firms, advertising
agencies, media firms, and marketing consulting firms that help the company
target and promote its products to the right markets.
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Financial intermediaries include banks, credit companies, insurance companies,
and other businesses that help finance transactions or insure against the risks
associated with the buying and selling of goods.
Marketers recognize the importance of working with their intermediaries as partners
rather than simply as channels through which they sell their products.
Competitors
Marketers must gain strategic advantage by positioning their offerings strongly against
competitors’ offerings in the minds of consumers.
No single competitive marketing strategy is best for all companies.
Publics
Use Key Term Public here.
A public is any group that has an actual or potential interest in or impact on an
organization’s ability to achieve its objectives.
Financial publics influence the company’s ability to obtain funds.
Media publics carry news, features, and editorial opinions.
Government publics. Management must take government developments into
account.
Citizen-action publics. A company’s marketing decisions may be questioned
by consumer organizations, environmental groups, etc.
Local publics include neighborhood residents and community organizations.
General public. The general public’s image of the company affects its buying.
Internal publics include workers, managers, volunteers, and the board of
directors.
Customers
Use Discussion Question 3-1 here.
Five types of customer markets:
1. Consumer markets: individuals and households that buy goods and services for
personal consumption.
2. Business markets buy goods and services for further processing or for use in their
production process.
3. Reseller markets buy goods and services to resell at a profit.
4. Government markets consist of government agencies that buy goods and services
to produce public services.
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5. International markets: buyers in other countries, including consumers, producers,
resellers, and governments.
THE MACROENVIRONMENT
Figure 3.2 shows the six major forces in the company’s macroenvironment.
Use Figure 3.2 here.
Demographic Environment
Use Key Term Demography here.
Use Chapter Objective 2 here.
Demography is the study of human populations in terms of size, density, location, age,
gender, race, occupation, and other statistics.
Changes in the world demographic environment have major implications for business.
Thus, marketers keep close track of demographic trends and developments in their
markets, both at home and abroad.
Changing Age Structure of the Population
The U.S. population stands at nearly 321 million and may reach almost 364 million by
the year 2030.
The single most important demographic trend in the United States is the changing age
structure of the population.
Baby Boomers
The post-World War II baby boom produced 78 million baby boomers, born between
1946 and 1964.
Baby boomers account for nearly 35 percent of the population, account for almost 50
percent of total consumer spending, and hold 70 percent of the nation’s disposable
income.
Generation X
The baby boom was followed by a “birth dearth,” creating another generation of 49
million people born between 1965 and 1976.
Author Douglas Coupland calls them Generation X.
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Increasing parental divorce rates and higher employment for their mothers made them the
first generation of latchkey kids.
They developed a more cautious economic outlook.
The GenXers are a more skeptical bunch.
Millennials (also called Generation Y or the echo boomers)
Born between 1977 and 2000, these children of the baby boomers number 83 million.
They don’t just embrace technology; it’s a way of life.
For them, technology is not something separate; it’s just something they do.
They engage with brands in an entirely new way, such as with mobile or social media.
More than sales pitches from marketers, Millennials seek authenticity and opportunities
to shape their own brand experiences and share them with others.
Use Discussion Question 3-2 here.
Generation Z
Born after the year 2000.
In the U.S., Gen Zers consist of 72 million girls and boys (kids, tweens and teens) who
spend an estimated $344 billion annually of their own money and influence another $200
billion of their parents’ spending.
They have an utter fluency and comfort with digital technologies – even more so than
Millennials.
More than half of all Generation Z tweens and teens do product research before buying a
product or having their parents buy it for them.
Use Key Terms Baby Boomers, Generation X, Millennials/Generation Y, and Generation
Z here.
Use Discussion Question 3-3 here.
Generational Marketing
Defining people by their birth date may be less effective than segmenting them by their
lifestyle, life stage, or the commons values they seek in the products they buy.
The Changing American Family
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The “traditional household” consists of a husband, wife, and children (and sometimes
grandparents).
In the U.S.:
Married couples with children under 18 make up 19 percent of the households;
Married couples without children make up 23 percent;
Single parents comprise 14 percent.
Nonfamily households make up 34 percent.
Both husband and wife work in 60 percent of all married-couple families.
Geographic Shifts in Population
About 12 percent of all U.S. residents move each year.
The U.S. population has shifted toward the Sunbelt states.
Americans have been moving from rural to metropolitan areas.
A Better- Educated, More White-Collar, More Professional Population
The U.S. population is becoming better educated.
In 2012, 88 percent of the U.S. population over age 25 had completed high school and 32
percent had completed college.
Between 2010 and 2020, of 30 detailed occupations projected to have the fastest
employment growth, 17 require some type of postsecondary education.
Increasing Diversity
The United States has become more of a “salad bowl” in which various groups have
mixed together but have maintained their diversity by retaining important ethnic and
cultural differences.
The U.S. population is about 62 percent white, 17 percent Hispanic, and 13 percent
African American.
The Asian American population now totals about 5 percent of the population.
By 2060, Hispanics will comprise an estimated 28 percent of the U.S. population.
Many companies have begun to target gay and lesbian consumers.
Another attractive segment is the nearly 57 million adults with disabilities.
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Use Critical Thinking Exercise 3-7 here.
Use Marketing by the Numbers here.
Use Linking the Concepts here.
The Economic Environment
Use Key Term Economic Environment here.
The economic environment consists of factors that affect consumer purchasing power
and spending patterns.
Changes in Consumer Spending
In recent years, American consumers spent freely, fueled by income growth, a boom in
the stock market, and rapid increases in housing values.
However, the global economic crisis has dashed this free-spending attitude. As a result,
consumers who overindulged in the past have now adopted a ‘back-to-basics’ frugality.
Value marketing—just the right combination of product quality and service at a fair price.
Income Distribution
Income distribution in the United States is very skewed.
The top 5 percent of Americans earn 22 percent of the country’s adjusted gross income,
and the top 20 percent of earners capture 51 percent of all income.
In contrast, the bottom 40 percent of American earners receive just 11.5 percent of the
total income.
Natural Environment
The natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities.
Trends in the natural environment:
1. Shortages of raw materials.
2. Increased pollution.
3. Increased government intervention.
Companies are developing environmentally sustainable strategies.
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