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• Electronic commerce is any activity that uses some form of electronic
communication in the inventory, exchange, advertisement, distribution, and
payment of products and services.
• Many companies have adapted Internet-based technology to internally support
their electronic business strategies.
• Today’s technologies allow chips to be placed in almost anything and be
connected to a network almost anywhere.
•
• Network of products embedded with connectivity-enabled electronics is known as
the Internet of Things (IoT).
V. COMPETITIVE FORCES [LO 3-5]
• Competition refers to the alternative firms that could provide a product to satisfy a
specific market’s needs.
• Each organization must consider its present and potential competitors in designing its
marketing strategy.
A. Alternative Forms of Competition
There are four basic types of competition that follow a continuum:
• Pure competition.
a. Occurs when there are many sellers that have a similar product.
• Monopolistic competition.
a. Occurs when many sellers compete with substitutable products within a price
range.
b. Example: If the price of coffee rises, consumers may switch to tea.
c. Coupons or sales are frequently used marketing tactics.
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• Oligopoly.
a. Occurs when just a few companies control the majority of industry sales.
• Pure monopoly.
a. Occurs when only one firm sells the product.
b. Is common for producers of products and services deemed essential to a
community, such as public utilities (water, electricity, cable TV, etc.).
e. Examples:
• Microsoft—91 percent of the PC operating system market led to
investigations from the U.S. Justice Department and the European Union.
B. Components of Competition
In developing a marketing program, companies must consider the factors that drive
competition and are used to create a barrier to entry, increase brand awareness, or
intensify a fight for market share.
[ICA 3-2: Competitive Intelligence]
1. Entry.
a. A firm must assess the likelihood of new entrants since more producers
increase industry capacity and lower prices.
b. Barriers to entry are business practices or conditions that make it difficult for
new firms to enter the market.
• Barriers to entry can be in the form of capital requirements, advertising
expenditures, product identity, distribution access, or switching costs.
• The higher the barrier’s expense, the more likely it will deter new entrants.
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2. Power of Buyers and Suppliers.
a. Powerful buyers exist when:
• They are few in number.
b. A supplier gains power when the product is critical to the buyer and it has
built up switching costs.
3. Existing Competitors and Substitutes.
a. Competitive pressures among firms depend on the industry growth rate.
C. Small Businesses as Competitors
• About 28.8 million small businesses in the United States employ 48 percent of all
private sector employees.
• Small businesses:
a. Generate 63 percent of all new jobs annually.
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LEARNING REVIEW
3-4. What is the difference between a consumer’s disposable and discretionary
income?
3-5. How does technology impact customer value?
3-6. In pure competition, there are a __________ number of sellers.
VI. REGULATORY FORCES [LO 3-6]
Regulation consists of restrictions state and federal laws place on business with regard to
the conduct of its activities. It exists to protect:
• Companies to ensure competition and fair business practices.
• Consumers against unfair trade practices and ensure safety.
A. Protecting Competition
Major federal legislation has been passed to encourage fair competition because it
permits the consumer to determine which competitor will succeed or fail.
• The Sherman Antitrust Act (1890) forbids:
a. Contracts, combinations, or conspiracies in restraint of trade.
b. Actual monopolies or attempts to monopolize any part of trade or commerce.
• The Clayton Act (1914) forbids certain actions that are likely to lessen
competition, although no actual harm has yet occurred.
• The Robinson-Patman Act (1936).
a. Makes it unlawful to discriminate in prices charged to different purchasers of
the same product…
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b. Where the effect may substantially lessen competition or help create a
monopoly.
B. Product-Related Legislation
Several laws address the product component of the marketing mix:
1. Company Protection.
a. Patent law. Gives inventors the right to exclude others from making, using, or
selling products that infringe the patented invention.
b. Copyright law (©).
• Gives the author of a literary, dramatic, musical, or artistic work the
exclusive right to print, perform, or otherwise copy that work.
2. Consumer Protection.
a. Laws relating to food, drugs, and cosmetics:
• Infant Formula Act (1980).
• Nutritional Labeling and Education Act (1990).
– New labeling requirements for dietary supplements (1997).
b. Other consumer protection laws have a broader scope:
• Fair Packaging and Labeling Act (1966).
• Child Protection Act (1966).
• Consumer Product Safety Act (1972).
– Established the Consumer Product Safety Commission.
– Monitors product safety and establishes uniform product safety
standards.
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c. Many of these laws came about because of consumerism, a grassroots
movement started in the 1960s to increase the influence, power, and rights of
consumers in dealing with institutions.
d. Consumers today demand ecologically safe products and ethically and
socially responsible business practices.
3. Both Company and Consumer Protection. Trademarks are intended to protect
both the firm selling a trademarked product and the consumer buying it.
a. The Lanham Act (1946) provides for the registration of a company’s
trademarks (® and ™).
• Historically, the first user had the exclusive right to use the particular
word, name, or symbol in its business.
b. The Trademark Law Revision Act (1988) allows a company to secure rights to
a name before actual use by declaring its intent to use it.
c. In 2003, the U.S. agreed to participate in the Madrid Protocol, which is a
treaty that protects U.S. trademark rights globally.
d. Recent changes in trademarks regulations and rulings include:
• The U.S. Supreme Court held that a company may obtain trademarks for
colors associated with their products.
e. The Federal Dilution Act (1995) prohibits the use of a trademark on a
noncompeting product (a “Cadillac” brush).
C. Pricing-Related Legislation
Pricing is the focus of regulation from two perspectives:
• Price fixing. Is viewed as per se illegal (per se means “through or of itself”).
• Price discounting. Certain forms are allowed:
a. Quantity discounts, in which buyers can be charged different prices for a
product, provided there are differences in manufacturing or delivery costs.
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c. A firm can meet a competitor’s price “in good faith.”
D. Distribution-Related Legislation
The government has four concerns to maintain competition:
• Exclusive dealing.
a. Is an arrangement a manufacturer makes with a reseller to handle only its
products of one manufacturer and not those of competitors.
b. Is illegal under the Clayton Act when it substantially lessens competition.
• Requirement contracts.
a. Require a buyer to purchase all or part of its needs for a product from one
seller for a period of time.
• Exclusive territorial distributorships. A manufacturer grants a distributor the sole
rights to sell a product in a specific geographic area.
• Tying arrangements.
a. Occur when a seller requires the purchaser of one product to also buy another
item in the line.
[Video 3-4: FTC Video]
E. Advertising- and Promotion-Related Legislation
• The Federal Trade Commission (FTC):
a. Was established by The FTC Act of 1914.
b. Closely monitors promotion and advertising to identify deceptive or
misleading advertising and unfair business practices.
c. Has the power to:
• Issue cease and desist orders, which means it can order a company to stop
practices it considers unfair.
• Order corrective advertising, which means that it can require a company
to spend money on advertising to correct previously misleading ads.
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• Other laws designed to regulate advertising include:
a. Deceptive Mail Prevention and Enforcement Act (1999).
• Provides specifications for direct-mail sweepstakes.
• Requires that the “No purchase is necessary to enter” statement be
displayed in the mailing, rules, and entry form.
b. Telephone Consumer Protection Act (1991) provides requirements for
telemarketing promotions.
c. Do Not Call Registry, a nationwide list of consumers’ telephone numbers who
don’t want unsolicited telemarketing calls.
• Laws designed to restrict information collection and unsolicited e-mail include:
a. Children’s Online Privacy Protection Act (1998).
b. Controlling the Assault of Non-Solicited Pornography and Marketing
(CAN-SPAM) Act (2004).
c. Internet Tax Freedom Act (2007). A temporary law addressing the collection
of state sales taxes from Internet purchases.
MARKETING MATTERS
Technology: Does Protecting Privacy Hurt the Web?
• The collection of information by web browsers has raised the issue of privacy.
• Privacy advocates suggest that consumers do not realize that their data is being
“tracked”—collected and used without their consent to create profiles.
• The information could lead to adverse outcomes for the consumers.
• The Federal Trade Commission (FTC):
a. Released a report calling for better self-regulation of online data collection.
b. Consumers must decide if giving up some privacy by sharing data is a reasonable
trade-off for increased function and personally customized experiences online.
F. Control through Self-Regulation
• Self-regulation. As an alternative to government control:
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a. Is where an industry attempts to police itself.
b. Has three problems:
• Noncompliance by members.
• The Better Business Bureau (BBB):
a. Is a voluntary alliance of companies whose goal is to help maintain fair
business practices.
b. Has no legal power; instead, it uses “moral suasion” to get members to
comply with its rulings.
c. Its BBB Online provides consumer protection for Internet shoppers.
d. Before they can display the BBB Accredited Business logo on their websites,
participating companies must:
• Be members of their local Better Business Bureau.
• Have been in business for at least one year.
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LEARNING REVIEW
3-7. The __________ Act was punitive toward monopolies, whereas the __________ Act
was preventive.
3-8. Describe some of the recent changes in trademark law.
Answer: A trademark identifies that a firm has legally registered its brand name or
trade name so the firm has its exclusive use, thereby preventing others from using it.
3-9. How does the Better Business Bureau encourage companies to follow its standards
for commerce?
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APPLYING MARKETING KNOWLEDGE
1. For many years, Gerber has manufactured baby food in small, single-sized
containers. In conducting an environmental scan, (a) identify three trends or factors
that might significantly affect this company’s future business and (b) propose how
Gerber might respond to these changes.
Answer: Three trends or factors that might affect Gerber’s future business and how it might
respond to these changes:
2. Describe the new features you would add to an automobile designed for consumers in
the 55+ age group. In what magazines would you advertise to appeal to this target
market?
Answer: Environmental scanning reveals that this market appreciates improvements aimed
at safety, security, and convenience.
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3. The population shift from suburbs to exurbs and small towns was discussed in this
chapter. What businesses and industries are likely to benefit from this trend?
How will retailers need to change to accommodate these consumers?
Answers:
4. New technologies are continuously improving and replacing existing products.
Although technological change is often difficult to predict, suggest how the following
companies and products might be affected by the Internet and digital technologies:
(a) Timex watches (b) American Airlines, and (c) the Metropolitan Museum of Art.
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5. In recent years in the brewing industry, a couple of large firms that have historically
had most of the beer sales (Anheuser-Busch and Miller) have faced competition from
many small “micro” brands. In terms of the continuum of competition, how would
you explain this change?
6. The Johnson Company manufactures buttons and pins with slogans and designs.
These pins are inexpensive to produce and are sold in retail outlets such as discount
stores, hobby shops, and bookstores. Little equipment is needed for a new competitor
to enter the market. What strategies should Johnson consider to create effective
barriers to entry?
7. Why would Xerox be concerned about having its name becoming generic?
8. Develop a “Code of Business Practices” for a new online vitamin store. Does your
code address advertising? Privacy? Use by children? Why is self-regulation
important?
Answer: The Better Business Bureau provides assistance to guide ethical business–to–
consumer conduct in electronic commerce in its Code of Online Business Practices. The
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BUILDING YOUR MARKETING PLAN
Your marketing plan will include a situation analysis based on internal and external
factors that are likely to affect your marketing program.
1. To summarize information about external factors, create a table similar to Figure 3-2
and identify three trends related to each of the five forces (social, economic,
technological, competitive, and regulatory) that relate to your product or service.
2. When your table is completed, describe how each of the trends represents an
opportunity for or a threat to your business.
The most rigorous way to have students do an environmental scan for their marketing
plan is to have them add two right-hand columns to the Figure 3-2 format—the first labeled
“opportunities” and the second labeled “threats.” This forces students to think about
implications of the trends for their business or product or service. The environmental scan can
give depth to the industry analysis, competitor analysis, and customer analysis portion of
“Section 4: Situation Analysis” in Appendix A.
Helping with Common Student Problems
As with the SWOT analysis activity for Chapter 2, students often end their analysis by
simply listing the environmental trends in their environmental scan. By having students add the
“opportunities” and “threats” columns described above, they are forced to try to translate the
trend into what it means for their marketing plan. Sometimes it suggests a specific action. At
other times, it suggests the student be aware of the trend, which may lead to actions in the future.
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TEACHING NOTE FOR VIDEO CASE VC-3
Geek Squad: A New Business for a New Environment
Synopsis
Robert Stephens started repairing computers to help pay his bills while he was a college
student. He soon observed that changes in both technology and consumers had created a need
for a technology support service with employees that were timely, friendly, understandable,
and could solve technology problems. So, with $200, Stephens founded Geek Squad in 1994.
To ensure that employees were not threatening to consumers, they wore a uniform
consisting of black-and-white clothes and drove a black-and-white Volkswagen Beetle known as
a “Geekmobile.” They charged fixed prices regardless of how much time was needed and they
made house calls. In 2002, consumer electronics retailer Best Buy purchased Geek Squad to
help reduce return rates of its complex products. Today, there are more than 20,000 Geek Squad
“agents” working from “precincts” located in Best Buy stores. Geek Squad repairs more than
3,000 PCs a day and generates more than $2 billion in revenue. The company’s website
proclaims, “We’re here to help” and “No One Stands Behind You Like Geek Squad.”
Teaching Suggestions
1. Start by asking your students to describe how technology has changed in the past five
years. They are likely to mention the many new capabilities of computers, phones,
televisions, cameras, and appliances. They are also likely to mention the “connectivity”
of many products that link to the Internet and sync with each other. Ask if they have
observed other changes in consumers, competitors, regulations, or the economic
environment related to consumer electronics.
2. Ask students to describe how the changes they’ve observed in the marketplace might lead
to the need for new services. Most students will have a “story” about a computer that
crashed or a music or electronic product that wouldn’t work quite right, and the help they
needed to solve the problem. Use these examples to help illustrate how scanning the
environment can help identify opportunities—like Robert Stephens identified the need for
Geek Squad.
3. Some students may be familiar with Geek Squad while others may be unfamiliar with the
[Video 3-5: Geek Squad Video Case]
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Answers to Questions
1. What are the key environmental forces that created an opportunity for Robert
Stephens to start the Geek Squad?
Answers:
2. What changes in the purchasing patterns of (a) all consumers and (b) women made
the acquisition of Geek Squad particularly important for Best Buy?
Answers:
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3. Based on the case information and what you know about consumer electronics,
conduct an environmental scan for Geek Squad to identify key trends. For each of
the five environmental forces (social, economic, technological, competitive, and
regulatory), identify trends likely to influence Geek Squad in the near future.
Answers:
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4. What promotional activities would you recommend to encourage consumers who use
independent installers to switch to Geek Squad?
Answers:
Epilogue
Geek Squad’s role at Best Buy is becoming increasingly important. Geek Squad
assistance is now available 24 hours a day, 7 days a week, 365 days a year. In addition, Geek
Squad agents are now responsible for much more than computer repair, as Best Buy repositions
itself from a seller of computers and televisions to a provider of long-term advice and service to
consumers and businesses. The company recently hired 500 new agents to focus on in-store
customer service where they may be asked to activate mobile devices, install software, and
educated customers about the use of smartphones, digital cameras and tablets. While this level
of service is expensive, Best Buy believes that it will pay off in customer loyalty and customer
satisfaction.
Geek Squad founder Robert Stephens recently left his position at Best Buy to pursue a
new start-up in San Francisco. However, he continues to be influential in the information
technology industry through activities such as delivering the keynote address at industry
association CompTIA, where he discussed the culture of service and the future of technology.
Stephens’ replacement, Christopher Askew, is a former executive with NCR, Lenovo, and Dell,
who is likely to help Geek Squad expand into business services. The global market for IT
services is approximately $290 billion and growing at a rate of 2 percent.
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