Part 1
STRATEGIC MARKETING
AND ITS ENVIRONMENT
Dr. Chen, Principle of Marketing
1: Customer-Driven Strategic
Marketing
2: Planning, Implementing, and
Evaluating Marketing
Strategies
3:The Marketing Environment,
Social Responsibility, and
Ethics
Dr. Chen, Principle of Marketing
Chapter 3
The Marketing Environment,
Social Responsibility, and
Ethics
Professor Jason C. H. Chen, Ph.D.
School of Business Administration
Gonzaga University
Spokane, WA 99258
chen@jepson.gonzaga.edu
Dr. Chen, Principle of Marketing
Learning Objectives
 Recognize the importance of the marketing
environment
 Understand the concept and dimensions of
social responsibility and ethics in marketing
Dr. Chen, Principle of Marketing
4
Environmental Forces
Competitive
Political
Economic
Environmental
Forces
Legal and
Regulatory
Technological
Sociocultural
Dr. Chen, Principle of Marketing
Marketing Environment
 Monitoring the environment is crucial to
achieve long-term goals of the organization
 Changes in the marketing environment
monitored by:
 Environmental
scanning
 Environmental analysis
Dr. Chen, Principle of Marketing
6
Marketing Environment
 Environmental
scanning
________

Process of collecting
information about forces
in the marketing
environment which
involves:
Observation
Secondary sources such
as business, trade,
government, and Internet
sources
Marketing research
Dr. Chen, Principle of Marketing
 Environmental
analysis
_________
 Process of assessing and
interpreting information
gathered through
environmental scanning
 Manager should be able to
identify potential threats and
opportunities linked to
environmental changes
 How the manager deal with
the information collected
during scanning
7
Responding to Environmental Forces
 Marketers take two approaches to environmental
forces:

Passive (reactive) – Accepting them as
uncontrollable

Proactive – Attempting to influence and shape them
constructive and bring desired results.
It can be ____________
E.g., The pharmaceutical industry (lobby for fewer
restrictions on prescription drug marketing).
 No best way to react
 Depends on the organization, management, and
the situation
Dr. Chen, Principle of Marketing
8
Competitive Forces
 Competition – Other organizations that market
products that are similar to or can be substituted
for a marketer’s products in the same geographic
area
 Most firms have competition
 When marketing managers define the target
market(s) their firm will serve, they establish a set
of competitors
 Marketing managers must consider the type of
competitive structure in which the firm operates
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-9
Types of Competitors
Brand competitors
________
• Firms that market products with similar features and benefits to
the same customers at similar prices
________
Product Competitors
• Compete in the same product class but market products with
different features, benefits, and prices
_________
Generic Competitors
• Provide very different products that solve the same problem or
satisfy the same basic customer need
Total Budget Competitors
• Compete for the limited financial resources of the same customers
Dr. Chen, Principle of Marketing
10
Table 3.1 - Selected Characteristics of Competitive Structures
TYPES of
COMPETITION
1. PURE COMPETITION
2. MONOPOLISTIC COMP.
# OF
FIRMS
PRODUCT
Characteristics
PRICE
CONTROL
ENTRY
To Industry
EASY
MANY,
SMALL
SIMIAR
SUPPLY
&
DEMAND
MANY,
LARGE
&SMALL
DIFFERENT
SOME
FAIRLY
EASY
FEW
SIMILAR
OR DIFF.
A LOT
HARD
ONE
NO
SUBSTITUTE
REGULATED
NO
WAY!
3. OLIGOPOLY
4. MONOPOLY
Dr. Chen, Principle of Marketing
11
Table 3.1 - Selected Characteristics of
Competitive Structures
Dr. Chen, Principle of Marketing
12
Competitive Structures
Monopoly
 A competitive structure in which an
organization offers a product that has no
close substitutes, making that organization
the sole source of supply
Oligopoly
 A competitive structure in which a few
sellers control the supply of a large
proportion of a product
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-13
Competitive Structures
Monopolistic Competition
 A competitive structure in which a firm has
many potential competitors and tries to
develop a marketing strategy to differentiate
its product
Pure Competition
 A market structure characterized by an
extremely large number of sellers, none
strong enough to significantly influence price
or supply

Does not exist in the real world, although
some industries come close
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-14
Monitoring Competition
 Helps determine competitor’s strategies and
their effects on the firm’s own strategies
Price is one of the marketing strategy
 ______
variables that most competitors monitor
 Firms must develop a system for gathering
ongoing information about competitors
 Information about competitors allows to:
 Assess
marketing efforts
 Recognize the strengths and weaknesses
Dr. Chen, Principle of Marketing
15
Economic Forces
 Buying power: Depends on economic conditions and
the size of the resources that enable the individual to
make purchases
 Income – For an individual, the amount of money
received through wages, rents, investments, pensions,
and subsidy payments for a given period
 Types of income


Disposable income: Amount of money left after payment
__________
of taxes
Discretionary income: Disposable income that is
______________
available for spending and saving
Dr. Chen, Principle of Marketing
16
Credit
 Credit enables to spend future income now or in
the near future
 Credit increases current buying power at the
expense of future buying power
 Factors affecting credit use
Availability
 ___________
of the loans
 Interest
rates
 Credit terms (such as size of down payment and
amount and number of monthly payments)
Dr. Chen, Principle of Marketing
17
Wealth
 Accumulation of past income, natural resources,
and financial resources
 Global wealth is increasing
 Like income, wealth is unevenly distributed
 As people become wealthier, they gain buying
power to:
 Make
current purchases
 Generate income
 Acquire large amounts of credit
Dr. Chen, Principle of Marketing
18
Willingness to Spend
 People’s inclination to buy because of expected
satisfaction from a product
 Factors that affect consumers’ general
willingness to spend
power
 Buying ______
price and _____
value
 Product’s ______
 Satisfaction
from a product already owned
 General economic conditions
Dr. Chen, Principle of Marketing
19
American Customer Satisfaction Index
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-20
Economic Conditions:
The Business Cycle
 Fluctuations in the economy that follow a
general pattern in four stages:
Prosperity
 1) __________
Low unemployment
Relatively high total income
High buying power when inflation rate is low
 2)
Recession
___________
Unemployment rises
Total buying power declines
Stifles both consumer and business spending
Dr. Chen, Principle of Marketing
21
Economic Conditions:
The Business Cycle
 3)
Depression
____________
Prolonged recession may become depression.
Unemployment is extremely high
Wages are very low
Total disposable income is at a minimum
Consumers lack confidence in the economy
 4)
____________
Recovery
Economy moves from depression or recession to
prosperity
High unemployment begins to decline
Both the ability and willingness to buy increase
Dr. Chen, Principle of Marketing
22
Political Forces
 Enactment of legislation
 Legal decisions interpreted by courts through
civil and criminal cases
 Influence of regulatory agencies
 Marketers may:


View political forces as beyond their control and
simply adjust to conditions that arise
Influence the process through contributions and
lobbying
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-23
Legal and Regulatory Forces
[1]
Procompetitive
Legislation
[5] (p.64)
BBB,
NARB
SelfRegulatory
Forces
[4] (p.63)
FTC,
FDA etc.
Regulatory
Agencies
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
Legal and
Regulatory
Forces
Consumer
Protection
Legislation
Trademark
and
copyright
protection
legislation
Table 3.2
[2]
(p.62)
[3]
3-24
Table 3.2 - Major Federal Laws Affecting Marketing Decisions
Dr. Chen, Principle of Marketing
25
Table 3.2 - Major Federal Laws Affecting Marketing Decisions
Dr. Chen, Principle of Marketing
26
Table 3.2 - Major Federal Laws Affecting Marketing Decisions
Dr. Chen, Principle of Marketing
27
Major Federal Regulatory Agencies
Agency
Major Areas of Responsibility
Federal Trade Commission (FTC)
•
•
Regulates a variety of business practices
Allocates a considerable resources to curbing false
advertising, misleading pricing, and deceptive packaging and
labeling
Food and Drug Administration (FDA)
•
Enforces regulations prohibiting the sale and distribution of
adulterated, misbranded, or hazardous food and drug
products
Consumer Product Safety Commission
(CPSC)
•
•
Ensures compliance with the Consumer Product Safety Act
Protects the public from unreasonable risk of injury from any
consumer product not covered by other regulatory agencies
U.S. Foreign Corrupt Practices Act
(FCPA)
•
Prohibits American companies from making illicit payments
to foreign officials in order to obtain or keep business
U.K. Bribery Act
•
•
More encompassing than the FCPA
Companies can be found guilty even if the bribery did not
take place within the U.K
Company officials without explicit knowledge about the
misconduct can still be held accountable
•
Dr. Chen, Principle of Marketing
28
Self-Regulatory Forces
 Better Business Bureau (BBB)


Acts to preserve good business practices in a locality
When a firm violates, warns consumers through newspapers
or broadcast media
 National Advertising Division (NAD) - Investigates
claims regarding alleged deceptive advertising
 National Advertising Review Board (NARB):
Considers cases in which an advertiser challenges
issues raised by the NAD about an advertisement
Dr. Chen, Principle of Marketing
29
Self-Regulatory Forces
 Advantages
 Establishment
and
implementation are
less expensive
 Guidelines are
realistic and
operational
 When effective,
reduce the need to
expand government
bureaucracy
Dr. Chen, Principle of Marketing
 Disadvantages

Nonmembers
___________ do not
have to abide by their
rules

Many lack the
authority to enforce
guidelines

Guidelines are less
strict than those
established by
government agencies
30
Technological Forces
Technology
Dynamic
Change
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Marketing
014 South-Western,
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Learning.
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Ability to Reach
Customers
Self-Sustaining
Technology
3-31
Technological Forces
Technology
 The application of knowledge and tools to help reach
vast numbers of people more efficiently through a
variety of media
 Impacts of technology:



Dynamic change
_________
reach customers
Ability to _______
Self-sustaining in nature; spurs more development
 Important to:


Determine when a technology is changing an industry
Define the strategic influence of the new technology
 Rapid technological growth and change are expected
to accelerate
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-32
Impact of Technology
 Mobile devices and consumers’ increasing use of the
Internet have changed:


How people communicate
How marketers reach consumers
 Technology can improve productivity
 Expanding opportunities for e-commerce
 Negative impacts of technology include:
 Concerns over privacy
 Intellectual property protection issues
 Managements estimate if benefits of adopting a
specific technology outweigh costs to the firm and the
society at large
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
3-33
Sociocultural Forces
Demographic
and Diversity
Characteristics
Sociocultural
Forces
Consumerism
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Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED
Cultural
Values
3-34
Sociocultural Forces
 Influences in a society and its culture(s) that
bring about changes in:
beliefs
and ______
 Norms and _______
customs
 __________
Lifestyles
 Attitudes
 Determine what, where, how, and when people
buy products
Dr. Chen, Principle of Marketing
35
Sociocultural Forces
 Changes in a population’s demographic characteristics
affect relationships and individual behavior

Leads to changes in how people live and ultimately in their
consumption
 Monitoring value changes helps marketers to predict
changes in consumers’ needs for products
 The organized efforts of individuals, groups, and
organizations to protect consumers’ rights (i.e.,
consumerism)


Lobbying government officials and agencies
Letter-writing/e-mail sending campaigns and boycotts
Dr. Chen, Principle of Marketing
36
Social Responsibility
 Organization’s obligation to maximize positive
impact and minimize negative impact on
society
 Deals
with the total effect of all marketing decisions
on society
 Managerial processes need to monitor, satisfy,
and exceed __________
stakeholder expectations and needs
 Can
have indirect long-term benefits
Dr. Chen, Principle of Marketing
37
Social Responsibility
 Socially responsible organizations strive for marketing
citizenship

By adopting a strategic focus for fulfilling the stakeholders’
expectations
 Marketing citizenship: Adoption of a strategic focus
for fulfilling the economic, legal, ethical, and
philanthropic social responsibilities expected by
stakeholders
 Stakeholder orientation - Companies that consider the
diverse perspectives of:


Stakeholders in their daily operations
Strategic planning
Dr. Chen, Principle of Marketing
38
Figure 3.2 - The Pyramid of Corporate Social Responsibility
RESPONSIBILITIES
Philanthropic
Be a good
corporate citizen
• Contribute resources to the
community; improve quality of life
•
Ethical
Be ethical
Obligation to do what is right, just and fair
•
Avoid harm
Legal
•
Obey the law
Law is society’s codification of right and wrong
•
Play by the rules of the game
Economic
•
Dr. Chen, Principle of Marketing
Be Profitable
The foundation upon which all other rest
39
Economic and Legal
Responsibility
 Followed by companies to be profitable so they
can:
 Provide
a return on investment to their owners and
investors
 Create jobs for the community
 Contribute goods and services to the economy
 Legal cases can be:
A
violation of law
 An attempt to interpret the law
 A fraud
Dr. Chen, Principle of Marketing
40
Marketing Ethics
 Principles and standards that define acceptable
marketing conduct
 As
determined by various stakeholders
 Goes beyond legal issues
 Foster trust, which helps to build long-term
marketing relationships
 Break down in exchange process can result in:
 Customer
dissatisfaction and lack of trust
 Lawsuit
Dr. Chen, Principle of Marketing
41
Ethical Issue
 Identifiable problem, situation, or opportunity
requiring an individual or organization to
choose from actions that must be evaluated as:
 Right
or wrong
 Ethical or unethical
 Greater the consequences associated with an
issue:
 More
likely it will be recognized as an ethics issue
 More important it will be to making an ethical
decision
Dr. Chen, Principle of Marketing
42
Table 3.3 - Ethical Issues in Marketing
Dr. Chen, Principle of Marketing
43
Philanthropic Responsibilities
 Promote human welfare or goodwill
 Cause-related marketing: Practice of linking a
firm’s products to a particular social cause on
an ongoing or short-term basis
 Strategic philanthropy approach: Synergistic
use of organizational core competencies and
resources
 To
address key stakeholders’ interests and achieve
both organizational and social benefits
Dr. Chen, Principle of Marketing
44
Strategic Philanthropy
 Involves
Employees
_____________
 Organizational resources and expertise
 Ability to link these assets to the concerns of key
stakeholders

nonfinancial
 Involves both financial and ___________
contributions to stakeholders
Dr. Chen, Principle of Marketing
45
Social Responsibility Issues
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Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED.
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Sustainability
 Social responsibility is demonstrated through
programs designed to protect and preserve the
natural environment
 Aims
to reduce, reuse, and recycle
Green marketing - Stakeholder assessment
 ________
creating long-term relationships with customers
 While
maintaining, supporting, and enhancing the
natural environment
Dr. Chen, Principle of Marketing
47
Consumerism
 Consists of organized efforts by individuals,
groups, and organizations seeking to protect
consumers’ rights
 Basic rights of consumer movement
safety
 Right to ______
 Right
to be _________
informed
choose
 Right to ________
 Right to be heard
Dr. Chen, Principle of Marketing
48
Community Relations Issue
 Being a good community citizen means
avoiding harmful actions that could damage
the community
 Marketers can improve a community’s
quality of life through
 Employment
opportunities
 Economic development
 Financial contributions to educational, health,
cultural and recreational causes
Dr. ©
Chen,
of Marketing
Copyright
2014Principle
South-Western,
Cengage Learning. ALL RIGHTS RESERVED.
4-49
Incorporating Social Responsibility
and Ethics into Strategic Planning
 Difference between ethics and social
responsibility
Ethics
 ________________
- Judgments about what is right
or wrong in a particular decision-making situation
Social responsibility- Deals with the total effect of
 _________________
marketing decisions on society
 Both are interrelated and profitable leading to
their adoption by companies in strategic
planning
Dr. Chen, Principle of Marketing
50
Code of Conduct
 Consists of formalized rules and standards that
describe what the company expects of its
employees
 Promote ethical behavior by reducing
opportunities for unethical behavior
 Employees know:
 What
is expected of them
 What kind of punishment they face if they violate
the rules
Dr. Chen, Principle of Marketing
51
Code of Conduct
 Less instances of observed unethical behavior
can be a result of:
 Effective
content
 Frequency of communication regarding the code
 Quality of communication
 Incorporation of the code into the organization
 Include general ethical values and more
marketing-specific issues
Dr. Chen, Principle of Marketing
52
Social Responsibility, Ethics and
Marketing Performance
 Social responsibility has a synergistic effect on market
orientation
 More firms are adopting a stakeholder orientation that
focuses on all constituents
 Direct association exists between:


Corporate social responsibility and customer satisfaction
Profits and market value
 Long-term value of conducting business in a socially
responsible manner outweighs short-term costs
Dr. Chen, Principle of Marketing
53
Video Case 3.1
 VIDEO CASE 3.1 : TOMS SHOES
EXPANDS ONE-TO-ONE MODEL TO
EYEWEAR
Dr. Chen, Principle of Marketing
54
 Summary

 TOMS is known for their for-profit philanthropic business
model, which allows the company to donate one pair of shoes
to a child for every pair of shoes purchased. TOMS is now
applying that model to eyewear. For every pair of sunglasses
TOMS sells, a person with vision problems in a developing
nation receives surgery, prescription glasses, or medical
treatment to help restore his or her sight.
 TOMS takes its obligations for social responsibility seriously
by working closely with local humanitarian organizations and
striving for a responsible supply chain. Even though they pay
higher prices, TOMS’ customers feel committed to the
company because they know that their purchases are going
toward a good cause.
Dr. Chen, Principle of Marketing
55
 1. Do you think TOMS is successful because of its
unique products, or is it the firm’s approach to social
responsibility?

 Some people really like TOMS for its products,
regardless of the company’s activities. Some of TOMS’
products are stylish and have not been replicated at
lower prices, so students may argue that the shoes and
eyewear are important.
 However, students will most likely answer that the one
to one model is a large contributor to TOMS’ success.
Students may believe that they receive extra benefits
when they know they are helping someone in need with
their purchase.
Dr. Chen, Principle of Marketing
56
 2. How does TOMS manage its supply chain in order to
ensure ethical and socially responsible conduct?

 TOMS uses factories in China, Argentina, and Ethiopia for
manufacturing, which creates complex supply chain
relationships that must be carefully managed. TOMS created a
set of manufacturing standards based on International Labor
Organization compliance standards for its manufacturers.
 The company regularly performs audits to check that the
factories are complying with company standards. TOMS also
seeks to create strong organizational relationship with its
employees and volunteers. The company often allows
employees to participate in Shoe Drops (distributing the shoes
to children) so they can see firsthand how their efforts are
helping others.
Dr. Chen, Principle of Marketing
57
 3. How does TOMS’ business model relate to the
understanding of stakeholders and strategic
philanthropy?

 Strategic philanthropy is the synergistic use of
organizational core competencies and resources to
address key stakeholders’ interests and achieve
both organizational and social benefits. TOMS
address the needs of a wide variety of stakeholders,
including their customers, employees, and society,
which helps the company to accomplish both their
financial and philanthropic goals.
Dr. Chen, Principle of Marketing
58