CHAPTER 3
The Marketing Environment
TEACHING RESOURCES QUICK REFERENCE GUIDE
Resource
Location
Purpose and Perspective
IRM, p. 46
Lecture Outline
IRM, p. 47
Discussion Starters
IRM, p. 54
Class Exercises
IRM, p. 55
Chapter Quiz
IRM, p. 56
Answers to Discussion and Review Questions
IRM, p. 57
Answers to Application Questions
IRM, p.60
Answers to Internet Exercise
IRM, p. 62
Answers Developing Your Marketing Plan
IRM, p. 63
Comments on the Cases
IRM, p. 64
Case 3.1
IRM, p. 64
Case 3.2
IRM, p. 65
Examination Questions: Essay
Testing CD
Examination Questions: Multiple-Choice
Testing CD
Examination Questions: True-False
Testing CD
PowerPoint Slides
PURPOSE AND PERSPECTIVE
In this chapter we examine competitive, economic, political, legal and regulatory, technological, and
sociocultural forces in the marketing environment. First we discuss environmental scanning,
environmental analysis, and two general approaches firms use to respond to environmental forces: a
passive approach and an aggressive approach. Next we discuss competitive forces, focusing on the
Chapter 3: The Marketing Environment 47
LECTURE OUTLINE
I. Examining and Responding to the Marketing Environment
A. The marketing environment consists of external forces that directly or indirectly influence an
B. These influences can create opportunities and threats for marketers, so marketers try to
forecast what will happen.
C. Environmental Scanning and Analysis
1. Environmental scanning is the process of collecting information about forces in the
marketing environment.
2. Environmental analysis is the process of assessing and interpreting the information
gathered through scanning.
a. Marketers evaluate the information for accuracy, try to resolve inconsistencies in the
D. Responding to Environmental Forces
1. Some marketers view environmental forces as uncontrollable and remain passive and
reactive to the environment.
II. Competitive Forces
A. Types of Competition
1. A marketer generally defines competition as other organizations that market products
similar to its own or products which can be substituted for its products in the same
geographic area.
2. These competitors can be classified into one of four types:
48 Chapter 3: The Marketing Environment
3. All four types of competition can affect an organization’s marketing performance, but
brand competitors are the most significant because buyers typically see the different
products of these organizations as direct substitutes.
B. Types of Competitive Structures
1. The number of organizations which supply a product may affect the strength of
competition.
4. Monopolistic competition exists when an organization with many potential competitors
attempts to develop a marketing strategy to differentiate its product.
C. Monitoring Competition
1. Marketers need to monitor the actions of major competitors to determine what specific
strategies competitors are using and how those strategies affect their own strategies.
III. Economic Forces
A. Economic forces in the marketing environment influence both marketers’ and customers’
decisions and activities.
B. Economic Conditions
1. Changes in general economic conditions affect (and are affected by) supply and demand,
2. Fluctuations in the economy follow a general pattern often referred to as the business
cycle, which traditionally consists of four stages:
a. Prosperity is a stage of the business cycle characterized by low unemployment and
b. Recession is a stage of the business cycle during which unemployment rises and total
buying power declines, stifling both consumer and business spending.
(1) Marketers should focus on marketing research during a recession to determine
Chapter 3: The Marketing Environment 49
c. Depression is a business cycle stage 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 is a stage of the business cycle in which the economy moves from
C. Buying Power
1. The strength of a person’s buying power depends on economic conditions and the size of
2. Major sources of buying power are income, credit, and wealth.
a. Income is money received through wages, rents, investments, pensions, and subsidy
payments for a given period.
(1) Disposable income, or after-tax income, is used for spending or saving. It is
affected by wage levels, rate of unemployment, interest rates, dividend rates, and
tax rates.
resources.
3. Marketers need to be aware of current levels of and expected changes in buying power
because they directly affect the types and quantities of goods and services that consumers
purchase.
D. Willingness to Spend
1. People’s willingness to spend (their inclination to buy because of expected satisfaction
from a product) is related to their ability to buy.
2. Willingness to spend is affected by several factors:
50 Chapter 3: The Marketing Environment
IV. Political Forces
A. Political, legal, and regulatory forces of the marketing environment are closely interrelated.
B. Marketing organizations must maintain good relations with elected political officials because
1. Political officials well disposed toward particular organizations or industries are less
C. Although many marketers view political forces as beyond their control and simply adjust to
conditions arising from those forces, other organizations seek to influence political forces
through public protests or campaign contributions.
1. A recent Supreme Court decision nullified a law limiting corporate political campaign
V. Legal and Regulatory Forces
A. A number of federal laws influence marketing decisions and activities.
B. Procompetitive legislation refers to laws designed to preserve competition and prevent unfair
D. Encouraging Compliance with Laws and Regulations
1. Legal violations usually begin when marketers develop programs that unknowingly
overstep legal bounds.
E. Regulatory Agencies
1. Federal regulatory agencies influence many marketing activities, including product
development, pricing, packaging, advertising, personal selling, and distribution. These
agencies often have the power to enforce specific laws and to establish operating rules
and regulations to guide some types of industry practices.
a. The Federal Trade Commission (FTC) most heavily influences marketing
activities.
(1) It regulates a variety of business practices and focuses in particular on curbing
Chapter 3: The Marketing Environment 51
2. Many states, cities, and towns have regulatory agencies that enforce laws and regulations
regarding marketing practices within their jurisdictions.
protection laws.
F. Self-Regulatory Forces
3. The best-known nongovernmental regulatory group is the Better Business Bureau, a
system of nongovernmental, independent, local regulatory agencies that are supported by
local businesses and aid in settling problems between specific business organizations and
4. The National Advertising Review Board (NARB) is a self-regulatory entity that
considers cases in which an advertiser challenges issues raised by the National
5. Self-regulatory programs have both advantages and disadvantages over laws and
regulatory agencies.
a. Self-regulatory programs have the advantages of being less expensive to establish
VI. Technological Forces
A. Technology is the application of knowledge and tools to solve problems and perform tasks
more efficiently.
1. It develops out of research conducted by many different kinds of organizations.
B. Impact of Technology
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1. Technology determines how society satisfies its physiological needs and has vastly
improved communications.
4. 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.
C. Adoption and Use of Technology
1. It is important for organizations to determine when a technology is changing an industry
and to define the strategic influence of the new technology.
2. The extent to which a firm can protect inventions stemming from research also influences
VII. Sociocultural Forces
A. Sociocultural forces are the influences in a society and its culture(s) which bring about
changes in attitudes, beliefs, norms, customs, and lifestyles.
B. Demographic and Diversity Characteristics
1. 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 because they lead to changes in how people live
and consume products.
a. One demographic change affecting the U.S. marketplace is the increasing proportion
of older consumers.
Chapter 3: The Marketing Environment 53
2. These and other changes create unique problems and opportunities for marketers. A more
diverse customer base means marketing practices must be modified and diversified to
meet changing needs.
C. Cultural Values
1. Changes in values have dramatically influenced people’s needs and desires for products;
these values change at varying speeds.
D. Consumerism
1. Consumerism involves organized efforts by independent individuals, groups, and
organizations seeking to protect consumers’ rights.
54 Chapter 3: The Marketing Environment
DISCUSSION STARTERS
Discussion Starter 1: Monopoly
ASK: Have you ever heard anyone call Google a monopoly? Did you know that the company was
declared a monopoly in France, where antitrust legislation tends to be stricter than in the United
States?
Many have accused Google of being a monopoly, and therefore engaging in unfair business practices.
These rumblings grow larger every time Google enters a new market. Its size and clever business
=Search
ASK: Do you think Microsoft is a monopoly? If yes, is it a bad thing?
Students should be able to defend their stance on this issue. Basically, it is not always a bad thing to
maintain their competitive edge—this is certainly not acceptable either.
Discussion Starter 2: Consumer Confidence Index
ASK: Have any of you heard of the Consumer Confidence Index (CCI)?
The CCI is derived from the Consumer Confidence Survey given to a representative sample of 5,000
ASK: How would marketers use the CCI?
By tracking the CCI marketers can make better predications about how much consumers will be
Chapter 3: The Marketing Environment 55
CLASS EXERCISES
Class Exercise 1
The six environmental forces are: Competitive, Economic, Political, Legal and Regulatory,
Technological, and Sociocultural. With which are each of the following most associated?
Question
Answer
1.
Prosperity
economic
2.
Federal Trade Commission
regulatory
3.
Personal computers that understand human speech
technological
4.
Development and widespread use of cellular phones
technological
5.
economic
6.
Contributions to campaign funds
political
7.
sociocultural
8.
Sherman Antitrust Act
legal
9.
Better Business Bureau
regulatory
10.
Consumerism
sociocultural
11.
Discretionary income
economic
12.
Food and Drug Administration
regulatory
13.
A monopoly
competitive
14.
Government purchases of goods and services
political
56 Chapter 3: The Marketing Environment
CHAPTER QUIZ
1. The rapid adoption of the use of the Internet has resulted in rapid changes such as the increase
of distance learning. These effects of technology are collectively known as
a. reach.
b. the self-sustaining nature.
c. growth.
d. technological advancement.
e. dynamics.
2. Although all types of competition will affect Specialty Motors’ marketing performance, it will
be most concerned about ________ competitors.
3. Total disposable income is at its lowest during which of the following?
a. Stagflation
b. Recession
c. Recovery
d. Depression
e. Inflation
4. Environmental scanning means ___________ information about the marketing environment,
whereas environmental analysis is concerned with ___________ this information.
a. assessing; collecting
b. assessing; interpreting
c. collecting; assessing
d. interpreting; observing
e. gathering; observing
Chapter 3: The Marketing Environment 57
ANSWERS TO DISCUSSION AND REVIEW QUESTIONS
1. Why are environmental scanning and analysis important to marketers?
Understanding the current state of the marketing environment and recognizing the threats and
2. What are the four types of competition? Which is most important to marketers?
Four types of competition include brand competitors, which market products with similar
3. In what ways can each of the business cycle stages affect consumers’ reactions to
marketing strategies?
Prosperity. Assuming a low level of inflation, total buying power is high because
unemployment is low and aggregate income is high. Thus customers have the ability to
4. What business cycle stage are we experiencing currently? How is this stage affecting
businesses in your area?
This question is designed to prompt students to analyze the current state of our economy and to
5. Define income, disposable income, and discretionary income. How does each type of income
affect consumer buying power?
Income is the amount of money an individual receives through wages, rents, investments,
6. How do wealth and consumer credit affect consumer buying power?
58 Chapter 3: The Marketing Environment
7. What factors influence a buyer’s willingness to spend?
Factors which influence a buyer’s willingness to spend are the product’s price and value, the
8. Describe marketers’ attempts to influence political forces.
Firms attempt to influence the political structure by helping to elect officials who are or will be
9. What types of problems do marketers experience as they interpret legislation?
Many laws and regulations that affect marketers are written in vague terms, and marketers must
10. What are the goals of the Federal Trade Commission? List the ways in which the FTC
affects marketing activities. Do you think a single regulatory agency should have such
broad jurisdiction over so many marketing practices? Why or why not?
The FTC enforces laws and establishes guidelines and operating procedures. A major goal is to
assist and inform businesses so that they may comply with the laws. The FTC explains to
11. Name several nongovernmental regulatory forces. Do you believe self-regulation is more
or less effective than governmental regulatory agencies? Why?
One well-known nongovernmental agency is the Better Business Bureau (BBB), a system of
Chapter 3: The Marketing Environment 59
12. What does the term technology mean to you? Do the benefits of technology outweigh its
costs and potential dangers? Defend your answer.
As the chapter states, spacecraft, computers, and the Internet are applications or outgrowths of
technology, but no one of these is technology. As defined in this chapter, technology is the
13. Discuss the impact of technology on marketing activities.
Because technology affects people’s desires for goods and services, it affects marketing
14. What factors determine whether a business organization adopts and uses technology?
A business organization’s use of technology is determined by an organization’s ability to use it,
15. What evidence exists that cultural diversity is increasing in the United States?
Statistics indicate immigration has increased, resulting in a greater population of minorities in
the U.S. Students may cite specific numbers from the text.
16. In what ways are cultural values changing? How are marketers responding to these
changes?
Among the cultural changes occurring are an increased emphasis on health, nutrition, fitness,
17. Describe consumerism. Analyze some active consumer forces in your area.
Consumerism is a social movement that offers consumers a means for expressing dissatisfaction
60 Chapter 3: The Marketing Environment
ANSWERS TO APPLICATION QUESTIONS
1. Assume you are opening one of the following retail stores. Identify publications at the
library or online that provide information about the environmental forces likely to affect
the store. Briefly summarize the information each source provides.
Student answers may be very general if they are unfamiliar with specific sources at your
2. For each of the following products, identify brand competitors, product competitors,
generic competitors, and total budget competitors.
Make sure students understand the differences between the four types of competitors.
Responses can be presented in a table format such as the one below to make comparisons easier.
3. Technological advances and sociocultural forces have a great impact on marketers. Identify
at least one technological advance and one sociocultural change that has affected you as a
consumer. Explain the impact of each change on your needs as a customer.
4. Examine the impact that economic forces, political forces, legal and regulatory forces,
technological forces, and sociocultural forces have upon Exxon Mobil, General Motors,
and Procter & Gamble. Rate each of these factors on a scale of 1–5, from 5 most
important to 1 least important. Based on these companies, which environmental variable
Chapter 3: The Marketing Environment 61
do you think would be the highest priority for each company and why? Based on these
three companies, which environmental variable do you feel would be most important for
marketers?
Student answers will vary due to the subjective nature of this question. You may suggest that
62 Chapter 3: The Marketing Environment
ANSWERS TO INTERNET EXERCISE
The Federal Trade Commision
1. Based on information on the website, describe the FTC’s impact on marketing.
Students should focus on the Bureau of Consumer Protection section of the website, which
describes the FTC’s agencies that focus on advertising practices, marketing practices, and
privacy and identity protection.
• Advertising Practices protects consumers by enforcing the nation‘s truth–in-advertising
laws, with particular emphasis on claims for food, over–the-counter drugs, dietary
2. Examine the sections entitled News and Actions. Describe three recent incidents of illegal or
inappropriate marketing activities and the FTC’s response to those actions.
3. How could the FTC’s website assist a company in avoiding misconduct?
The FTC’s website provides valuable information on current legal and regulatory standards.
Chapter 3: The Marketing Environment 63
ANSWERS TO DEVELOPING YOUR MARKETING PLAN
Note: All of the following questions are subjective and will be different for each student, as they
all have chosen different products.
1. Describe the current competitive market for your product. Can you identify the
number of brands or market share they hold? Expand your analysis to include other
products that are similar or could be substituted for yours.
2. Using the business cycle pattern, in which of the four stages is the current state of the
economy? Can you identify any changes in consumer buying power that would affect
the sale and use of your product?
Students must consider the four stages of the business cycle, think about the current state of
3. Referring to Tables 3.2 and 3.3, do you recognize any laws or regulatory agencies that
would have jurisdiction over your type of product?
Students should identify any laws or regulatory agencies that could apply to their product.
4. Conduct a brief technology assessment, determining the impact that technology has on
your product, its sale, or use.
Students should think about advances in the Internet, mobile technology, and other recent
5. Discuss how your product could be affected by changes in social attitudes,
demographic characteristics, or lifestyles.
Finally, students must think about how their product is affected by changes in social
attitudes, demographics, and lifestyles. They should consider whether their product is
64 Chapter 3: The Marketing Environment
COMMENTS ON THE CASES
VIDEO CASE 3.1: PRESERVE PRODUCTS CHALLENGE
TRADITIONAL BRANDS WITH GREEN ALTERNATIVES
Summary
Eric Hudson founded Preserve® Products despite the initial skepticism he encountered when he
told people he wanted to sell items made from recyclable materials. Today, Preserve® has
become a multi-million dollar company with products available in over a dozen countries.
Questions for Discussion
1. Describe the target market for Preserve® Products.
The most obvious answer is that Preserve® Products are targeted toward environmentally–
2. What environmental forces will be most important to understand for Preserve® to be
successful?
The company must monitor and understand economic and sociocultural forces to ensure its
3. Which elements of the marketing mix are key to Preserve® in dealing with competition?
Students can make an argument for all of the marketing mix elements. The products are
important because their quality and eco-friendliness are a competitive advantage for
Chapter 3: The Marketing Environment 65
CASE 3.2: WHOLE FOODS CAPITALIZES ON CONSUMER
DESIRES FOR ORGANIC FOOD
Summary
Whole Foods’ market orientation and focus on customer satisfaction makes the company
successful in a competitive market. Because Whole Foods products are often more expensive
than the competition, the company constantly examines its environment and modifies its
Questions for Discussion
1. How has Whole Foods been successful in the highly competitive supermarket industry?
Whole Foods has adopted the value of putting the customer first. It offers quality products,
being, customers continue to shop there.
2. How does the company adjust to changes in economic conditions?
Whole Foods engages in environmental scanning, which helps it to stay aware of changes in
3. How will changes in sociocultural forces provide opportunities for Whole Foods in the
future?
Whole Foods has built its reputation on anticipating the needs of its customers. As more