52 Part 1 Designing Customer-Oriented Marketing Strategies
CHAPTER 3
THE MARKETING ENVIRONMENT, ETHICS, AND SOCIAL RESPONSIBILITY
CHAPTER OVERVIEW
Change is a fact of life for all people, including marketers. Adapting to change in an environment is as
complex and unpredictable as the world’s energy usage is perhaps the supreme challenge. High energy
costs continue to affect the bottom line for the world.
Although some change may be the result of sudden crises, more often it is the result of gradual trend in
lifestyle, income, population, and other factors. But technology can trigger a sudden change in the
marketplace: in one fell swoop, Internet music downloads replaced traditional CDs. And within mere
months of offering its iPhone, Apple introduced the iPod Touch MP3 player, which borrowed touch–
screen technology from the iPhone.
Changes in the Updated Edition
The chapter has been updated and revised, with new features in several areas:
• The Opening Vignette and Evolution of a Brand discuss Aflac Incorporated, the number one
provider of supplemental life and health insurance in the United States and Japan. Represented
• Solving an Ethical Controversy deals with the media’s revelation on the treatment of boneless
lean-beef trimmings with ammonium hydroxide to kill bacteria, including E. coli. The product was
dubbed “pink slime”. Although its maker, Beef Products, Inc. defended its product as safe,
nutritious, and 100% beef, many communities insisted it be taken off school-lunch menus
immediately. McDonald’s and Burger King announced they had stopped using ammonia-treated
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 53
• Marketing Success features IBM’s corporate social responsibility efforts. IBM is a 100-year-old
U.S. firm with more than 430,000 employees operating in almost 170 countries. It is constantly
looking for ways to make a real difference to all levels of its huge network of stakeholders. The
company’s challenges, strategies and outcome of their efforts to save the planet are highlighted in
“IBM’s CSR Initiatives.”
• Chapter Case 3.1 General Mills and Its CSR strategies illustrates how the company lives its
mission of “nourishing lives” on a daily basis. In addition to producing millions of servings of food
every day, from iconic breakfast cereals such as Cheerios to Yoplait dairy products and from
Green Giant vegetables to Häagen-Dazs ice cream, General Mills has also donated hundreds of
millions of dollars to not–for-profit organizations for over 50 years.
LECTURE OUTLINE
Opening Vignette and Evolution of a Brand—Alfac Insurance uses a humorous white duck as its
spokesperson to highlight its successful business and consistently is named one of the world’s
best companies and best employers. How does Aflac do business responsibly? How does its
ethical approach to business create a differentiator?
Chapter Objective 1: Identify the five components of the marketing environment.
Key Terms: environmental scanning, environmental management, strategic alliances
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Figure 3.1 Elements
and discuss its
relationship to
decision making.
1. The five components of the marketing environment:
a. The competitive environment
2. Environmental scanning and environmental management
a. Environmental scanning is the process of collecting
information about the external marketing environment to
54 Part 1 Designing Customer-Oriented Marketing Strategies
identify and interpret potential trends
i. The goal is to analyze the information and decide
whether these trends represent opportunities or
threats to the company
Assessment check questions
1.1. Define environmental scanning. Environmental scanning is the process
1.2. How does environmental scanning contribute to environmental
management? Environmental scanning contributes to environmental
management by providing current information about the five different
environments so marketers can predict and influence changes.
Chapter Objective 2: Explain the types of competition marketers face and the steps
necessary for developing a competitive strategy.
Key Terms: competitive environment, monopoly, temporary monopoly, antitrust, oligopoly, direct
competition, indirect competition, competitive strategy, time-based competition
PowerPoint Basic: 6-8
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1. The competitive environment
a. The interactive exchange between organizations and
customers creates the competitive environment
2. Monopolies
a. Monopoly: market structure in which a single seller
dominates trade in a good or service for which buyers can
find no close substitutes
i. Monopolies are rare today—government regulators
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 55
whether or not
students believe
oligopolies need to
be regulated.
Note: Ask students
to think of examples
where firms were
able to establish
strong competitive
positions in the
marketplace simply
by being first with an
innovative good or
service.
monopoly protection for most public utilities (such as
long-distance telephone companies, cell phone
providers, and even electric utilities)
b. Some firms still can achieve temporary monopolies
i. Drug firms enjoy monopoly protection, during the life
of a patent
3. Types of competition: marketers face three types of competition
a. Direct competition occurs among marketers of similar
products
b. Indirect competition involves products that are easily
substituted
4. Developing a competitive strategy
a. Developing a competitive strategy involves answering three
questions:
i. Should the firm compete?
ii. If so, in what markets should it compete?
iii. How should it compete?
b. The answer to the first question depends on the firm’s
resources, objectives, and expected profit potential
5. Time-based competition
a. Time-based competition is the strategy of developing and
56 Part 1 Designing Customer-Oriented Marketing Strategies
Assessment check questions
2.1. Distinguish between direct and indirect competition, and give an
example of each. Direct competition occurs among marketers of similar
2.2. What is time-based competition? Time-based competition is the
strategy of developing and distributing goods and services more quickly
than competitors.
Chapter Objective 3: Describe how marketing activities are regulated and how marketers
can influence the political–legal environment.
Key Terms: political-legal environment, antimonopoly period, protecting competitors, consumer
protection, industry deregulation, cyberspace
PowerPoint Basic: 9-10
PowerPoint Expanded: 14–19
Table 3.1 Major
Federal Laws
Affecting Marketing.
1. The political-legal environment
a. The political-legal environment includes the laws and their
interpretations that require firms to operate under
2. Government regulation: the four phases
a. Antimonopoly period of the late 19th and early 20th centuries
i. The Sherman Antitrust Act, the Clayton Act, and the
guilty of crushing competition)
b. The second phase aimed at protecting competitors
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 57
health, children, etc.)
and determine which
law or laws may
have an effect on it.
competition from larger chain stores
ii. One such act is the Robinson-Patman Act
c. The third regulatory phase was a series of laws focused on
consumer protection
i. Examples include the Sherman Act, FTC Act, and
Federal Food and Drug Act
d. The fourth phase involved industry deregulation
i. Began during the 1970s and continues even today
3. Government regulatory agencies
a. The Federal Trade Commission (FTC)
i. (FTC) has the broadest power of any agency to
influence marketing activities
4. Other regulatory forces
a. Public and private consumer interest groups that seek to
protect consumers in many areas—such as health, safety,
5. Controlling the political-legal environment
a. Most marketers comply with laws and regulations
58 Part 1 Designing Customer-Oriented Marketing Strategies
Assessment check questions
3.1. Identify the four phases of U.S. government regulation of business.
What is the newest frontier? The four phases of government regulation are
3.2. Which federal agency wields the broadest regulatory powers for
influencing marketing activities? The Federal Trade Commission has the
broadest regulatory authority.
Chapter Objective 4: Outline the economic factors that affect marketing decisions and
consumer buying power.
Key Terms: gross domestic product (GDP), economic environment, business cycle, inflation,
deflation, unemployment, discretionary income, demarketing
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Note: Cite some
recent examples of
firms that have
“downsized.”
1. The economic environment
a. The overall health of the economy influences how much
consumers spend and what they buy
b. This also works the other way—what consumers spend and
2. Stages in the business cycle:
a. The business cycle refers to the pattern of stages in the
level of economic activity: prosperity, recession, depression,
and recovery
b. Consumer buying differs in each stage of the business cycle
i. During periods of prosperity, consumer spending
maintains a brisk pace and buyers are willing to
spend more for premium versions of well-known
brands
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 59
Note: What sectors
were most hit in the
recent economic
downturn?
companies were
able to flourish
despite turbulent
times? How were
these firms able to
positively influence
consumer buying
behavior amidst tight
iv. In periods of recovery, purchasing power increases,
but consumers remain cautious—businesses have to
earn profits while trying to gauge uncertain consumer
demand. Many cope by keeping costs low
3. The global economic crisis
a. Sometimes business cycles affect consumers and
businesses across the globe
4. Inflation and deflation
a. Inflation refers to rise in prices and devaluation of money
making products less affordable
b. Causes of inflation:
i. Excess demand for goods and services
ii. Increase in costs of raw materials, components
parts, or human resources
5. Unemployment
a. Unemployment refers to the proportion of people in the
economy who are actively seeking work but do not have
6. Income
a. Income is an important determinant of marketing’s economic
environment because it influences consumer buying power
i. Through the study of income statistics and trends,
60 Part 1 Designing Customer-Oriented Marketing Strategies
Getting a Job in
CSR. Tips on how to
land a job in
corporate social
responsibility.
benefits and
disadvantages of
offshoring of jobs
b. Periods of major innovation have been accompanied by
dramatic increases in living standards and rising incomes
7. Resource availability
a. Resources are not unlimited and shortages require
marketers to reorient their thinking
8. The international economic environment
a. Marketers must monitor the economic environment of other
nations
b. Economic factors affecting marketing decisions
i. Changes in foreign currency rates compared with the
Assessment check questions
4.1. Identify and describe briefly the four stages of the business cycle. The
4.2. Explain how inflation and income affect consumer buying decisions.
Inflation devalues money and therefore may restrict some purchasing,
particularly goods and services not considered necessary. Income also
influences consumer buying power—the more discretionary income a
household has, the more goods and services can be purchased.
Chapter Objective 5: Discuss the impact of the technological environment on a firm’s
marketing activities.
Key Terms: technological environment, VoIP
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1. The technological environment
a. The technological environment represents the application to
marketing of knowledge based on discoveries in science,
inventions, and innovations
b. Some impacts of technology:
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 61
service
iii. It can reduce prices through new production and
distribution methods
iv. It can rapidly make existing products obsolete and
open new opportunities in entirely new industries
(example: pets wearing radio–frequency identification
tags)
2. Applying technology
a. Creative applications of technology can give a firm a definite
competitive edge while benefiting society
b. VoIP (voice over Internet protocol) is an alternative to
Assessment check questions
5.1. What are some of the consumer benefits of technology? Technology
5.2. Why must marketers monitor the technological environment?
Marketers need to monitor the technological environment to stay at par
with—and possibly ahead of—competitors. If they don’t, they may wind up
with obsolete offerings.
Chapter Objective 6: Explain how the social-cultural environment influences marketing.
Key Terms: social-cultural environment, consumerism, consumer rights
PowerPoint Basic: 18
PowerPoint Expanded: 30-32
1. The social-cultural environment
a. As a nation, the U.S. is becoming older, more affluent, and
targeted toward the
Hispanic market.
Bring in advertising
examples of
products and
Controversy: Was
“Pink Slime”
Coverage Fair or
Foul?
Ask students to
discuss how they
feel about the
responsible for Beef
Products Inc.’s
downfall.
2. The social-cultural environment refers to the relationship between
the marketing, society, and culture
3. An important social-cultural consideration is cultural diversity
a. The U.S. is a diverse society composed of various
submarkets, each with its unique values, cultural
characteristics, consumer preferences, and purchasing
behaviors
4. Consumerism
a. Consumerism is defined as a social force within the
environment that aids and protects the consumer by
exerting legal, moral, and economic pressures on business
and government
b. In recent years, marketers have witnessed increasing
consumer activism
5. President John F. Kennedy offered some rules of thumb that
explain basic consumer rights. These rights have formed the
conceptual framework of much of the legislation passed in the first
50 years of the consumer rights movement:
a. The right to choose freely
b. The right to be informed
c. The right to be heard
Assessment check questions
6.1. Define consumerism. Consumerism is a social force within the
6.2. Identify the four consumer rights. The four consumer rights are the
right to choose freely, the right to be informed, the right to be heard, and
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 63
the right to be safe.
Chapter Objective 7: Describe the ethical issues in marketing.
Key Terms: marketing ethics
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Choose one step
and discuss how it
would apply to a
familiar business or
product.
Figure 3.4 Test Your
Workplace Ethics.
1. Ethical issues in marketing
a. As marketing is closely connected with various public
issues, it invites constant scrutiny by the public
b. Marketing acts as an interface between an organization and
the society in which it operates, so marketers carry much of
2. Marketing ethics
a. Ethics refers to matters of right and wrong: the responsibility
of the individual and the firm to do what is morally right
b. Marketing ethics refers specifically to marketers’ standards
of conduct and moral values
iii. Ensuring ethical practices means promising
customers and business partners not to sacrifice
quality and fairness for profit
c. People develop standards of ethical behavior based on their
own systems of values
i. Values help people deal with ethical questions in
their personal lives
3. Ethics in marketing research
a. Invasion of personal privacy is a critical issue in marketing
research
4. Ethics in product strategy
a. Issues include product quality, planned obsolescence, brand
5. Ethics in distribution
a. There are two ethical issues concerning a firm’s distribution
strategy:
i. What is the appropriate degree of control over the
distribution channel? (this typically arises in
relationships between manufacturers and franchise
dealers)
ii. Should a company distribute its products in
marginally profitable outlets that have no alternative
6. Ethics in promotion
a. Promotion raises many ethical questions because it is the
most direct link between a firm and its customers
b. Personal selling has always been a target of criticism
c. But promotion includes a broad range, including advertising
7. Ethics in pricing
a. Pricing is probably the most regulated aspect of a firm’s
marketing strategy
b. Unethical pricing behavior is often illegal
c. Other ethical issues concerning pricing:
i. Should some consumers pay more if distribution
costs are higher?
ii. Do marketers have an obligation to warn consumers
of impending price changes?
Chapter 3 The Marketing Environment, Ethics, and Social Responsibility 65
d. Certain laws allow companies to levy charges that
consumers are unaware of
Assessment check questions
7.2. Identify the five areas in which ethics can be a problem. The five areas
of ethical concern for marketers are marketing research, product strategy,
distribution, promotion, and pricing.
Chapter Objective 8: Identify the four levels of the social responsibility pyramid.
Key Terms: social responsibility, green marketing
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Figure 3.5 The Four
1. Social responsibility in marketing
a. Companies can do business in a way that everyone
2. Social responsibility consists of marketing philosophies, policies,
procedures, and actions that have the enhancement of society’s
welfare as a primary objective:
a. It demands that marketers accept an obligation to give equal
weight to profits, consumer satisfaction, and social well–
being in evaluating their firm’s performance
b. Government legislation can mandate or promote socially
responsible actions
3. Marketing’s responsibilities