CHAPTER 3
The Marketing Environment, Social
Responsibility, and Ethics
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Purpose and Perspective
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Lecture Outline
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Discussion Starters
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Class Exercises
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Chapter Quiz
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Answers to Issues for Discussion and Review
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Answers to Developing Your Marketing Plan
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Comments on Video Case 3
IRM, p. 23
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PURPOSE AND PERSPECTIVE
This chapter examines competitive, economic, political, legal and regulatory, technological, and
sociocultural forces in the marketing environment. First it discusses environmental scanning, environmental
analysis, and two general approaches firms use to respond to environmental forces: a passive or reactive
approach and a proactive approach. Next, it discusses competitive forces, focusing on the types of
competition and competitive structures. Next, the chapter considers the effect of general economic
conditions, consumer demand, and spending behavior. Next, it defines political forces—how they influence
business decisions and how businesses may react to them. In its presentation of legal forces, it covers two
broad categories: pro-competitive laws and consumer protection laws. It then considers the effect of
compliance programs. In dealing with regulatory forces, the chapter describes the potential effects of
federal, state, and local government and nongovernment regulatory units on marketing decisions and
discusses specific ways legal and regulatory forces affect marketers’ decisions. It then describes technology
and considers the impact of technology on society and on marketing decisions. Sociocultural forces involve
diversity, demographic factors, cultural values, and consumer movements. Finally, it talks about social
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Chapter 3: The Marketing Environment, Social Responsibility, and Ethics
responsibility and ethics in marketing and the various dimensions pertaining to it, i.e. the economic, legal,
ethical, and philanthropic dimensions. It also talks about consumerism.
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Chapter 3: The Marketing Environment, Social Responsibility, and Ethics
LECTURE OUTLINE
I. The Marketing Environment
A. The marketing environment consists of external forces that directly or indirectly influence an
organization’s acquisition of inputs (human, financial, natural resources and raw materials, and
information) and creation of outputs (goods, services, or ideas).
B. The marketing environment includes six such forces—competitive, economic, political, legal and
regulatory, technological, and sociocultural.
C. Whether fluctuating rapidly or slowly, environmental forces are always dynamic.
D. Changes in the marketing environment create uncertainty, threats, and opportunities for marketers.
E. To monitor changes in the marketing environment effectively, marketers engage in environmental
scanning and analysis.
1. Environmental scanning is the process of collecting information about forces in the
marketing environment.
a. Scanning involves observation; secondary sources such as business, trade, government,
and Internet sources; and marketing research.
2. Environmental analysis is the process of assessing and interpreting the information gathered
through scanning.
a. A manager evaluates the information for accuracy; tries to resolve inconsistencies in the
data; and, if warranted, assigns significance to the findings.
b. By evaluating this information, the manager should be able to identify potential threats
and opportunities linked to environmental changes.
F. Responding to the Marketing Environment
1. An organization that views environmental forces as uncontrollable remains passive and
reactive toward the environment.
2. Marketing managers who believe that environmental forces can be shaped adopt a more
proactive approach.
a. A proactive approach can be constructive and bring desired results.
II. Competitive Forces
A. Few firms, if any, operate free of competition.
1. For most products, customers have many alternatives from which to choose.
B. When marketing managers define the target market(s) their firm will serve, they simultaneously
establish a set of competitors.
C. The number of firms that supply a product may affect the strength of competitors.
D. When just one or a few firms control supply, competitive factors exert a different sort of influence on
marketing activities than when many competitors exist.
E. Brand Competition
1. A marketer generally defines competition as other firms that market products that are similar
to or can be substituted for its products in the same geographic area.
2. Competitors can be classified into one of four types:
a. Brand competitors market products with similar features and benefits to the same
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customers at similar prices.
b. Product competitors compete in the same product class, but market products with
different features, benefits, and prices.
c. Generic competitors provide very different products that solve the same problem or
satisfy the same basic customer need.
d. Total budget competitors compete for the limited financial resources of the same
customers.
3. Although all four types of competition can affect a firm’s marketing performance, brand
competitors are the most significant because buyers typically see the different products of
these firms as direct substitutes for one another.
F. Competitive Structures
1. When just one or a few firms control supply, competitive factors exert a different form of
influence on marketing activities than when many competitors exist.
2. A monopoly exists when an organization offers a product that has no close substitutes, making
it the sole source of supply.
3. An oligopoly exists when a few sellers control the supply of a large proportion of a product.
4. Monopolistic competition exists when an organization with many potential competitors
attempts to develop a marketing strategy to differentiate its product.
5. Pure competition, if it existed at all, would entail a large number of sellers, none of which
could significantly influence price or supply.
6. Marketers need to monitor the actions of major competitors to determine what specific
strategies competitors are using and how those strategies affect their own.
a. Price is one of the marketing strategy variables that most competitors monitor.
7. In monitoring competition, it is not enough to analyze available information; the firm must
develop a system for gathering ongoing information about competitors.
a. Understanding the market and what customers want, as well as what the competition is
providing, will assist in maintaining a market orientation.\
III. Economic Forces
A. Economic forces in the marketing environment influence both marketers’ and customers’ decisions
and activities.
B. Buying Power and Willingness to Spend
1. The strength of a person’s buying power depends on economic conditions and the size of the
resources—money, goods, and services that can be traded in an exchange—that enable the
individual to make purchases.
2. The major financial sources of buying power are income, credit, and wealth.
a. For an individual, income is the amount of money received through wages, rents,
investments, pensions, and subsidy payments for a given period, such as a month or a
year.
(1) Marketers are most interested in the amount of money left after payment of taxes
because this disposable income is used for spending or saving. Several factors
determine the size of total disposable income, including the total amount of
income—which is affected by wage levels, the rate of unemployment, interest
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rates, and dividend rates—and the number and amount of taxes.
(2) Disposable income that is available for spending and saving after an individual
has purchased the basic necessities of food, clothing, and shelter is called
discretionary income.
b. Credit is important because it enables people to spend future income now or in the near
future.
(1) However, credit increases current buying power at the expense of future buying
power.
(2) Use of credit is affected by credit terms, such as size of the down payment and
amount and number of monthly payments.
c. Wealth is the accumulation of past income, natural resources, and financial resources.
(1) It exists in many forms, including cash, securities, savings accounts, gold,
jewelry, and real estate.
3. People’s willingness to spend—their inclination to buy because of expected satisfaction from a
product—is related, to some degree, to their ability to buy.
4. Several elements influence willingness to spend:
a. A product’s price and value influence almost all consumers.
b. The amount of satisfaction received from a product already owned may influence
customers’ desires to buy other products.
c. Satisfaction depends not only on the quality of the currently owned product but also on
numerous psychological and social forces.
C. Economic Conditions
1. Changes in general economic conditions affect (and are affected by) supply and demand, buying
power, willingness to spend, consumer expenditure levels, and the intensity of competitive
behavior.
2. Fluctuations in the economy follow a general pattern often referred to as the business cycle.
3. In the traditional view, the business cycle consists of four stages:
a. Prosperity—unemployment is low, and total income is relatively high, which—assuming
a low interest rate—together cause high buying power.
b. Recession—unemployment rises and total buying power declines.
c. Depression—a prolonged recession may become a depression, a period in which
unemployment is extremely high, wages are very low, total disposable income is at a
minimum, and consumers lack confidence in the economy.
d. Recovery—the economy moves from depression or recession to prosperity. During this
period, high unemployment begins to decline, total disposable income increases, and the
economic gloom that reduced consumers’ willingness to buy subsides.
e. In the prosperity stage, marketers may expand their product offerings to take advantage of
increased buying power. They may be able to capture a larger market share by
intensifying distribution and promotion efforts.
f. In times of recession or depression, when buying power decreases, many customers may
become more price conscious and seek more basic, functional products.
g. During economic downturns, a company should focus its efforts on determining precisely
what functions buyers want and ensure that these functions are available in its product
offerings. Promotional efforts should emphasize value and utility.
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Chapter 3: The Marketing Environment, Social Responsibility, and Ethics
IV. Political Forces
A. Political, legal, and regulatory forces of the marketing environment are closely interrelated.
B. Legislation is enacted; legal decisions are interpreted by courts; and regulatory agencies are created
and operated, for the most part, by elected or appointed officials.
C. The political forces of the marketing environment have the potential to influence marketing decisions
and strategies.
D. Reactive marketers view political forces as beyond their control and simply adjust to conditions
arising from those forces.
1. Some firms are more proactive, however, and seek to influence the political process.
E. In some cases, organizations publicly protest the actions of legislative bodies.
1. More often, organizations help to elect to political offices individuals who regard them
positively.
2. Much of this help is in the form of campaign contributions.
3. In the 2010 ruling Citizens United v. Federal Election Commission, the Supreme Court ruled
that the government is not authorized to ban corporate spending in candidate elections.
4. Marketers also can influence the political process through political action committees (PACs)
that solicit donations from individuals and then contribute those funds to candidates running
for political office.
F. Companies also can participate in the political process through lobbying to persuade public and/or
government officials to favor a particular position in decision-making.
1. Many companies concerned about the threat of legislation or regulation that may negatively
affect their operations employ lobbyists to communicate their concerns to elected officials.
V. Legal and Regulatory Forces
A. A number of federal laws influence marketing decisions and activities.
1. Table 3.2 lists some of the most significant pieces of legislation.
B. Regulatory Agencies
1. Federal regulatory agencies influence many marketing activities, including product
development, pricing, packaging, advertising, personal selling, and distribution.
2. These bodies have the power to enforce specific laws, as well as some discretion in establishing
operating rules and regulations to guide certain types of industry practices.
3. Of all the federal regulatory units, the Federal Trade Commission (FTC) influences marketing
activities most.
a. Although the FTC regulates a variety of business practices, it allocates considerable
resources to curbing false advertising, misleading pricing, and deceptive packaging and
labeling.
b. When it receives a complaint or otherwise has reason to believe that a firm is violating a
law, the commission issues a complaint stating that the business is in violation. If a
company continues the questionable practice, the FTC can issue a cease-and-desist order
demanding that the business stop doing whatever caused the complaint.
c. The FTC also assists businesses in complying with laws and files lawsuits against those
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engaging in deceptive marketing practices.
4. Unlike the FTC, other regulatory units are limited to dealing with specific products, services, or
business activities.
a. For example, the Food and Drug Administration (FDA) enforces regulations prohibiting
the sale and distribution of adulterated, misbranded, or hazardous food and drug
products.
b. The Consumer Product Safety Commission ensures compliance with the Consumer
Product Safety Act and protects the public from unreasonable risk of injury from any
consumer product not covered by other regulatory agencies.
5. Laws have been created to prevent businesses from gaining an unfair advantage through
bribery.
a. The U.S. Foreign Corrupt Practices Act (FCPA) prohibits American companies from
making illicit payments to foreign officials in order to obtain or keep business.
6. State consumer protection laws offer an opportunity for state attorneys general to deal with
marketing issues related to fraud and deception.
a. Most states have consumer protection laws that are very general in nature and provide
enforcement when new schemes evolve that injure consumers.
7. Self-Regulation
a. In an attempt to be good corporate citizens and to prevent government intervention, some
businesses try to regulate themselves.
b. Several trade associations have also developed self-regulatory programs.
c. Although self-regulatory programs are not a direct outgrowth of laws, many were
established to stop or stall the development of laws and governmental regulatory groups
that would regulate the associations’ marketing practices.
d. Perhaps the best-known nongovernmental regulatory group is the Better Business
Bureau, a local regulatory agency supported by local businesses.
(1) More than 112 bureaus help to settle problems between consumers and specific
business firms in the United States and Canada.
(2) Each bureau also acts to preserve good business practices in a locality, although it
usually lacks strong enforcement tools for dealing with firms that employ
questionable practices.
e. The National Advertising Division (NAD) of the Council of Better Business Bureaus
operates a self-regulatory program that investigates claims of alleged deceptive
advertising.
f. Another self-regulatory entity, the National Advertising Review Board (NARB),
considers cases in which an advertiser challenges issues raised by the National
Advertising Division (NAD) about an advertisement.
(1) The NARB, sponsored by the Council of Better Business Bureaus and three
advertising trade organizations, has no official enforcement powers.
(2) However, if a firm refuses to comply with its decision, the NARB may publicize
the questionable practice and file a complaint with the FTC.
g. Self-regulatory programs have several advantages over governmental laws and
regulatory agencies.
(1) Establishment and implementation are usually less expensive, and guidelines are
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generally more realistic and operational. In addition, effective self-regulatory
programs reduce the need to expand government bureaucracy.
(2) However, self-regulatory programs have several limitations. When a trade
association creates a set of industry guidelines for its members, nonmember firms
do not have to abide by them; many self-regulatory programs lack the tools or
authority to enforce guidelines; and guidelines in self-regulatory programs are
often less strict than those established by government agencies.
VI. Technological Forces
A. Technology is the application of knowledge and tools to solve problems and perform tasks more
efficiently.
1. It determines how we, as members of society, satisfy our physiologic needs.
a. In various ways and to varying degrees, eating and drinking habits, sleeping patterns,
health care, and work performance are all influenced by both existing technology and
advances in technology.
2. The Internet provides business opportunities for entrepreneurs and improves supply-chain
management as it allows manufacturers, distributors, retailers, and other members of the
supply chain to collaborate more closely and serve their customers more efficiently.
3. Computers have become a staple in American homes, but the type of computer has been
changing drastically in the past decade.
4. The rapidly evolving state of technology requires marketers to familiarize themselves with
the latest technological changes.
5. The effects of technology relate to such characteristics as dynamics, reach, and the self-
sustaining nature of technological progress.
a. The dynamics of technology involve the constant change that often challenges the
structures of social institutions, including social relationships, the legal system,
religion, education, business, and leisure.
b. Reach refers to the broad nature of technology as it moves through society.
c. The self-sustaining nature of technology relates to the fact that technology acts as a
catalyst to spur even faster development.
6. It is important for firms to determine when a technology is changing an industry and to define
the strategic influence of the new technology.
7. To remain competitive, companies today must keep up with and adapt to these technological
advances.
8. Through a procedure known as technology assessment, managers try to foresee the effects of
new products and processes on their firms’ operations, on other business organizations, and
on society in general.
VII. Sociocultural Forces
A. Sociocultural forces are the influences in a society and its culture(s) that bring about changes in
attitudes, beliefs, norms, customs, and lifestyles.
1. Profoundly affecting how people live, these forces help to determine what, where, how, and
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when people buy products.
B. Changes in a population’s demographic characteristics—age, gender, race, ethnicity, marital and
parental status, income, and education—have a significant bearing on relationships and individual
behavior.
1. These shifts lead to changes in how people live and ultimately in their consumption of products
and services.
2. One demographic change affecting the U.S. marketplace is the increasing proportion of older
consumers.
3. The number of singles is on the rise. Single people have quite different spending patterns than
couples and families with children.
4. The number of immigrants into the United States has risen steadily during the past 40 years.
C. Marketers recognize that these profound changes in the U.S. population bring unique problems and
opportunities. A diverse population means a more diverse customer base, and marketing practices
must be modified—and diversified—to meet its changing needs.
D. Changes in social and cultural values have dramatically influenced people’s needs and desires for
products. Although these values do not shift overnight, they do change at varying speeds.
1. People today are more concerned about the foods they eat and thus are choosing more low-fat,
organic, natural, and healthy products.
2. Marketers have responded with a proliferation of foods, beverages, and exercise products that
fit this new lifestyle.
VIII. Social Responsibility and Ethics in Marketing
A. In marketing, social responsibility refers to an organization’s obligation to maximize its positive
impact and minimize its negative impact on society. It deals with the total effect of all marketing
decisions on society.
B. Evidence demonstrates that ignoring stakeholder demands for responsible marketing can destroy
customer trust and even prompt government regulations.
1. Socially responsible activities can generate positive publicity and boost sales.
C. Socially responsible efforts have a positive effect on local communities and indirectly help the
sponsoring organization by attracting goodwill, publicity, and potential customers and employees.
D. Socially responsible organizations strive for marketing citizenship by adopting a strategic focus for
fulfilling the economic, legal, ethical, and philanthropic social responsibilities their stakeholders
expect of them.
1. Companies that consider the diverse perspectives of stakeholders in daily operations and
strategic planning are said to have a stakeholder orientation.
a. A stakeholder orientation goes beyond customers, competitors, and regulators to
understand and address the needs of all stakeholders, including communities and
special-interest groups.
2. The economic, legal, ethical, and philanthropic dimensions of social responsibility can be
viewed as a pyramid (Figure 3.2).
E. Economic Dimension
1. All companies have an economic responsibility to be profitable to provide a return on
investment to owners and investors, create jobs for the community, and contribute goods and
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services to the economy.
2. How organizations relate to stockholders, employees, competitors, customers, the community,
and the natural environment affects the economy.
3. Marketers also have an economic responsibility to compete fairly.
4. Large firms often can generate economies of scale that allow them to put smaller firms out of
business.
F. Legal Dimension
1. Marketers are expected to obey laws and regulations.
2. The efforts of elected representatives and special-interest groups to promote responsible
corporate behavior have resulted in laws and regulations designed to keep U.S. companies’
actions within the range of acceptable conduct.
3. When marketers engage in deceptive practices to advance their own interests over those of
others, charges of fraud may result.
a. In general, fraud is any purposeful communication that deceives, manipulates, or
conceals facts in order to create a false impression. It is considered a crime, and
convictions may result in fines, imprisonment, or both.
4. When customers, interest groups, or businesses become outraged over what they perceive as
irresponsibility on the part of a marketing organization, they may urge their legislators to draft
new legislation to regulate the behavior, or they may engage in litigation to force the
organization to “play by the rules.”
a. Deceptive advertising in particular causes consumers to become defensive toward all
promotional messages and become distrustful of all advertising; thus, it harms not only
consumers but also marketers themselves.
G. Ethical Dimension
1. Economic and legal responsibilities are the most basic levels of social responsibility
a. Beyond these dimensions is marketing ethics—principles, and standards that define
acceptable conduct in marketing, as determined by stakeholders, including the public,
government regulators, private-interest groups, consumers, industries, and the
organization itself.
2. The most basic of the ethical principles have been codified as laws and regulations to
encourage conformity to society’s expectations of conduct, but marketing ethics goes beyond
legal issues.
3. Ethical marketing decisions foster trust, which helps build long-term marketing relationships.
4. Marketers should be aware of ethical standards for acceptable conduct from several
viewpoints—company, industry, government, customers, special-interest groups, and society
at large.
a. When managers engage in activities that deviate from accepted principles, continued
marketing exchanges become difficult, if not impossible.
b. The best time to deal with such problems is during the strategic planning process, not
after major problems materialize.
5. An ethical issue is an identifiable problem, situation, or opportunity requiring an individual or
organization to choose from among several actions that must be evaluated as right or wrong,
ethical or unethical.
a. Any time an activity causes marketing managers or customers in their target market to
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feel manipulated or cheated, a marketing ethical issue exists, regardless of the legality of
that activity.
b. Regardless of the reasons behind specific ethical issues, marketers must be able to
identify these issues and decide how to resolve them. To do so requires familiarity with
the many kinds of ethical issues that may arise in marketing.
H. Philanthropic Dimension
1. At the top of the pyramid are philanthropic responsibilities.
a. Philanthropic responsibilities, which go beyond marketing ethics, are not required of a
company but they promote human welfare or goodwill, as do the economic, legal and
ethical dimensions of social responsibility.
2. More companies than ever are adopting a strategic approach to corporate philanthropy.
a. Many firms link their products to a particular social cause on an ongoing or short-term
basis, a practice known as cause-related marketing.
b. Some companies are beginning to extend the concept of corporate philanthropy beyond
financial contributions to adopt a strategic philanthropy approach, the synergistic use
of organizational core competencies and resources to address key stakeholders’ interests
and to achieve organizational and social benefits.
(1) Strategic philanthropy involves employees; organizational resources and
expertise; and the ability to link these assets to the concerns of key stakeholders,
including employees, customers, suppliers, and social needs.
(2) Strategic philanthropy involves both financial and nonfinancial contributions to
stakeholders (employee time, goods and services, and company technology and
equipment, as well as facilities), but it also benefits the company.
3. Although social responsibility may seem to be an abstract ideal, managers make decisions
related to social responsibility every day.
4. To be successful, a business must determine the social expectations of customers, government
regulators, competitors, and society in general. Two major categories of social responsibility
issues are:
a. Sustainability—one of the more common ways marketers demonstrate social
responsibility is through programs designed to protect and preserve the natural
environment. Many companies now engage in recycling activities and make significant
efforts to reduce waste and conserve energy.
(1) Many companies are making contributions to environmental protection
organizations, sponsoring and participating in cleanup events, promoting
recycling, retooling manufacturing processes to minimize waste and pollution,
employing more environmentally friendly energy sources, and generally
reevaluating the effects of their products on the natural environment.
(2) This approach to the environment is to reduce, reuse, and recycle.
b. Consumerism—consists of organized efforts by individuals, groups, and organizations
seeking to protect consumers’ rights. The movement’s major forces are individual
consumer advocates, consumer organizations and other interest groups, consumer
education, and consumer laws.
(1) To achieve their objectives, consumers and their advocates write letters or send e-
mails to companies, lobby government agencies, broadcast public-service
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announcements, and boycott companies whose activities they deem irresponsible.
Some consumers choose to boycott firms and products out of a desire to support a
cause and make a difference.
(2) Of great importance to the consumer movement are four basic rights spelled out
in a “consumer bill of rights” drafted by President John F. Kennedy. These rights
include:
(a) The right to safety—marketers have an obligation not to market a product
they know could harm consumers.
(b) The right to be informed—consumers should have access to and the
opportunity to review all relevant information about a product before
buying it.
(c) The right to choose—consumers should have access to a variety of
products at competitive prices; consumers should also be assured of
satisfactory quality and service at a fair price.
(d) The right to be heard—ensures that consumers’ interests will receive full
and sympathetic consideration in the formulation of government policy.
IX. Incorporating Social Responsibility and Ethics into Strategic Planning
A. Although the concepts of marketing ethics and social responsibility are used interchangeably, it is
important to distinguish between the two concepts.
1. Ethics relates to individual and group decisions—judgment about what is right or wrong in a
particular decision-making situation.
2. Social responsibility deals with the total effect of marketing decisions on society.
B. To improve ethics, many organizations have developed codes of conduct (also called codes of
ethics) consisting of formalized rules and standards that describe what the company expects of its
employees.
1. Codes help marketers deal with ethical issues or dilemmas that develop in daily operations
by prescribing or limiting specific activities.
2. Codes of conduct often include general ethical values such as honesty and integrity, general
legal compliance, harmful acts, and obligations related to social values, as well as more
marketing-specific issues such as confidentiality, responsibilities to employers and clients,
obligations to the profession, and marketing-specific legal and technical compliance issues.
3. It is important that companies consistently enforce standards and impose penalties or
punishment on those who violate codes of conduct.
C. If ethics officers and other executives are not committed to the principles and initiatives of
marketing ethics and social responsibility, the program’s effectiveness will be in question.
D. Increasing evidence indicates that being ethical and socially responsible pays off
1. Social responsibility has a synergistic effect on market orientation that leads to improved
business performance.
E. There is a direct association between corporate social responsibility and customer satisfaction,
profits, and market value.
F. Recognition is growing that the long-term value of conducting business in a socially responsible
manner far outweighs short-term costs.