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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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