CIM Revision card: Marketing Environment 05 06 (Cim Revision Card)

CIM REVISION CARDS Marketing Environment Mike Oldroyd of Marketing Knowledge

AMSTERDAM l BOSTON PARIS l SAN DIEGO l

HEIDELBERG SAN FRANCISCO

l

l l

LONDON l SINGAPORE

l

NEW YORK SYDNEY

l l

OXFORD TOKYO

Butterworth-Heinemann is an imprint of Elsevier Linacre House, Jordan Hill, Oxford OX2 8DP 30 Corporate Drive, Suite 400, Burlington, MA 01803 First published 2006 Copyright ß 2006, Elsevier Ltd. All rights reserved No part of this publication may be reproduced in any material form (including photocopying or storing in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication) without the written permission of the copyright holder except in accordance with the provisions of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London, England W1T 4LP. Applications for the copyright holders written permission to reproduce any part of this publication should be addressed to the publisher Permissions may be sought directly from Elsevier’s Science & Technology Rights Department in Oxford, UK: phone: (+44) (0) 1865 843830; fax: (+44) (0) 1865 853333, e-mail: permissions @ elsevier.co.uk. You may also complete your request on-line via the Elseiver homepage (http://www.elsevier.com), by selecting ‘Customer Support’ and then ‘Obtaining Permissions’ British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data A catalogue record for this book is available from the Library of Congress ISBN-13: 978-0-7506-6771-5 ISBN-10: 0-7506-6771-0 For information on all Elsevier Butterworth-Heinemann publications visit our website at http://books.elsevier.com Printed and bound in Great Britain 05 06 07 08 09 10

10 9 8 7 6 5 4 3 2 1

Working together to grow libraries in developing countries www.elsevier.com | www.bookaid.com | www.sabre.com

TABLE OF CONTENTS 1. 2. 3. 4. 5. 6. 7. 8. 9.

Preface ............................................................................. iv The nature of the organization .................................................. 1 The microenvironment ........................................................... 18 Analysis of the competitive environment ...................................... 30 The macroenvironment .......................................................... 44 The demographic social and cultural environment ........................... 55 The economic and international environment ................................. 68 The political and legislative environment ...................................... 82 The technical and information environment ................................... 94 Environmental information systems ............................................ 107

PREFACE Welcome to the CIM Revision Cards from Elsevier/Butterworth–Heinemann. We hope you will find these useful when coming to revise for your CIM exam. The cards are designed to be used in conjunction with the CIM Coursebooks from Elsevier/Butterworth–Heinemann, and have been written specifically with revision in mind. They also serve as invaluable reviews of the complete modules, perfect for those studying via the assignment route. n Learning outcomes at the start of each chapter identify the main points n Key topics are summarised, helping you commit the information to memory quickly and easily n Examination and revision tips are provided to give extra guidance when preparing for the exam n Key diagrams are featured to aid the learning process n The compact size ensures the cards are easily transportable, so you can revise any time, anywhere To get the most of your revision cards, try to look over them as frequently as you can when taking your CIM course. When read alongside the Coursebook they serve as the ideal companion to the main text. Good luck – we wish you every success with your CIM qualification!

THE NATURE OF THE ORGANIZATION

Unit 1

LEARNING OUTCOMES

KEY REVISION POINTS


Appreciation of the marketing environment
Classification and comparison of organizations
Understanding mission statements and the significance of objectives
Recognition of business as an open system
Identification of drivers for change


The interrelated and ever-changing nature of a dynamic environment
Strengths and weaknesses of various forms of organization
Differing missions and objectives and the forces that influence them
Organizations as systems within the wider environment
Flexible response to contingencies with marketing orientation as a success factor

Syllabus reference: 1.1–1.9 š

Study past questions on each main area and plan out brief key word answers

š

Plan/answer time-frame is 30–35 minutes

MARKETING ENVIRONMENT

1

THE NATURE OF THE ORGANIZATION

}

Marketing Environment (1.1) CIM defines marketing as:

}

The management process which identifies, anticipates and supplies customer requirements efficiently and profitably.

~

n Marketer must understand external environment n Recognize implications of changes n Must take into account changing tastes, preferences and spending power, as well as competitor offerings n Identify impact of broader environment on markets A main aim of the syllabus is: To explain the nature of the marketing environment and its relevance for organizations and marketing practice

The firm is a creature of its environment. Its resources, its income, its problems, its opportunities and its very survival are generated and conditioned by the environment. (Ansoff)

~

– Organizations operate in an environment of constraints, threats and opportunties – Need to monitor for and understand significant changes – Organizations must adapt to survive – The environment as the source of key inputs, revenues, pressures, competitors, allies: relationships are critical – Organizations possess differing strengths/ weaknesses – Survival demands marketing strategy and planning

2

š

Types of Organization (1.2) Public sector organizations n n n n n n n n n

State-provided goods or services Driven by government objectives Socially desirable goals, e.g. equity Supply public goods to all, e.g. defence Ensure supply of merit goods, e.g. education/ health Funded by taxation, fees or government borrowing Recent privatizations/deregulation (encourage marketing orientation) Shift from direct providers to service facilitators Public/private partnerships – marry strengths of each

Private sector organizations Marketable output and exports Privately owned and controlled Businesses compete to satisfy consumer wants Profit drives effective and efficient use of scarce resources n Includes global multinationals n Shareholder concerns may override social concerns n n n n

Voluntary sector organizations • Normally non-profit-making • Rely on voluntary contributions and dedicated staff • Compete for funds/public attention for causes

MARKETING ENVIRONMENT

3

THE NATURE OF THE ORGANIZATION

Business Classifications (1.2)

Advantages

Disadvantages

Sole Trader – characteristics

– Maximum privacy

– Unlimited liability for

n n n n n n

Simple to form Individual owns and controls Unincorporated No separate legal existence Self-employed Individual is the business

– Minimum formalities – Favourable taxes – Least cost to form – Focused/motivated – Close to customers – Close to employees – Flexible/responsive

debts – Specialized and high risk – Jack of all trades/ narrow view – Burden plus lack of continuity – Hard work and long hours – A lot of competition – Lack of management skills

4

Partnerships – characteristics n n n n n n n

Unincorporated Two or more partners By agreement/law Legal maximum, e.g. 20 Jointly liable for debt Share profits/losses ‘Limited partnership’ but one is liable

Advantages

Disadvantages

– Raise more funds

– Unlimited liability

– Pool expertise

– No legal identity

– Can specialize more

– Potential disagreements

– Suits professions

– Frozen investment

– No company tax

– Dissolve on partner’s

– Privacy high

death – Vulnerable if malpractice

MARKETING ENVIRONMENT

5

THE NATURE OF THE ORGANIZATION

Registered Companies – characteristics Dominant form Public (plc) and private limited Incorporated by law Shareholders contribute capital Regulated by Memorandum (external scope) and Articles (internal administration) of Association n Submit independent audited accounts/ directors’ report n n n n n

Issues • Short-termism, take-over threat • ‘Fat cat’ remuneration levels

Advantages

Disadvantages

– Separate legal form

– Complex/costly to

– Limited liability – Finance raising – Easy share transfer – Fund development – Customer confidence

form – Disclosure requirements – Government regulations – Operational inflexibility – Size may breed impersonality – Ownership/ management divide

6

The case for privatizing

Economic considerations

This involves transferring ownership of 51% or more of shares in a public sector organization to private hands

l

Limited competitve pressure when nationalized

l

Significant efficiency improvements

l

Increased competition and consumer choice

l

Pressure to become marketing orientated

l

Improved industrial relations

l

Freedom to exploit diverse opportunities

l

Lower prices and steep rise in productivity

l

l l l l

l l l

l

Poor record of efficiency Susceptible to pressure groups like unions and political interference Limited by government funding Privatization reduced state role Led to deregulation/cut red tape Encouraged wider share ownership – notably customers and workforce Greater freedom to market services Sale cuts government borrowing Regulators appointed with powers to enforce change, e.g. Oftel Examples: water; gas; electricity; telecoms; lotteries

Questions set on organizations often call for comparison of types or sectors

š

l

š

Political considerations

To focus on such questions use a grid for point by point comparison/to earn format marks

MARKETING ENVIRONMENT

7

THE NATURE OF THE ORGANIZATION

Strengths of SMEs (1.3) l l l l l l

l l

Cater closely for local customers Sensitive to buying habits/tastes Able to focus on a niche market Owns business/attention to detail Flexible/adaptable organization Attract ‘quality’ staff unwilling to work in large firm Finger on pulse as needs change Tend to be inventive/innovative

Relative weaknesses – See disadvantages of sole traders and partnerships – Reverse of large/global strengths*

Strengths of large/global firms l l l l l l l l l

Economies of scale, e.g. discounts Risk spread across various markets Justify use of specialized skills, etc. Secure cheaper finance Exploit best practice Transfer technology and ideas Vast bargaining power re suppliers Ability to centralize strategy Advantage from brand leadership

Relative weaknesses – See registered company drawbacks – Reverse of small firm strengths*

8

REMEMBER

-

Vision is the ability to imagine or foresee the future prospects/potential for an organization. Mission is the statement of the organization’s overall purpose that expresses what it stands for and seeks to accomplish in the wider environment – Vision is the responsibility of top management – Anticipates how markets, tastes, technologies evolve – Critical importance in formulating marketing strategy

Example of vision: a PC with Windows software on every desk (Microsoft) Example of mission: To organize the world’s information (Google)

Mission statements (1.4) Meaning: Describes core activities l

Fundamental reason for organization’s existence

l

Establishes what business it should be in

l

Distinguishes uniqueness from other organizations

l

Identifies competences, customers, relationships

Importance: Shapes corporate culture l

Enables sense of direction, unity, common purpose

– Triggers the mobilization of resources to achieve it

l

Provides a set of corporate values and priorities

– Drives organizational behavior

l

Clear statement for external stakeholders

– Key to securing a competitive edge

l

Provides a benchmark for assessing performance MARKETING ENVIRONMENT

9

THE NATURE OF THE ORGANIZATION

Organizational Objectives (1.4)

– Public: Public service/equity/cost effectiveness

Specific ends or achievements to be realized at a future time to fulfil the mission of the organisation

SIGNIFICANCE

NATURE l

l

l

Strategic objectives are long-term goals set by senior management, e.g. achieve market leadership Tactical objectives are set by middle managers and are more measurable, e.g. open 10 new outlets Operational objectives are short-term and set by first line managers, e.g. cut customer complaints by 5%

– Private: Maximize profit/growth/maket share

l l l l l l

l

l

Objectives should be SMART ¼ specific, measurable, achievable, relevant and time-limited

l

l

Objectives vary by sector:

l

– Charity: Alleviate suffering/raise contributions

10

Reason why organizations exist Drive organizational behavior Supply motivation/sense of purpose Time-limited targets provide control Survival/profit stimulate competition Profit maximizing (revenue – cost) ensures that firms supply what consumers are prepared to pay for, using methods that minimize cost Rapid response to changing tastes/innovation of more efficient method Marketing may pursue market share/sales max. þ profit constraint Growth provides opportunities

Internal influences on aims l

Memorandum of Association limits business scope

l

Personal values/goals of directors/senior managers

l

Aversion to risk and future expectations

l

Resource limitations

l

Inertia and past success may prevent review

External influences on aims l

Must match internal strengths/weaknesses with external opportunites and threats

l

Present/future expectations of shareholders

l

Interests of connected and external stakeholders

l

Competitive forces

l

Changes in government policy and legislation

l

Pressure groups

Drivers for Change (1.5) Organizations must periodically review their aims: – renew objectives once achieved – reality of a dynamic environment – control process shows variances – respond to forces pushing it off-course – anticipate change in wants – meet emerging technical change – proactive to threats/opportunities – change in top management – as part of a formal corporate planning system

MARKETING ENVIRONMENT

11

THE NATURE OF THE ORGANIZATION

Organizations as Systems (1.6) l l

l

l

l

l

l l

View organizations as part of a wider system Inputs are drawn from environment and converted into outputs Positive (goods, services) and negative (wastes) outputs are returned Organizations made up of subsystems (e.g. marketing, production) Boundary between systems represents interface Feedback corrects deviations in outcomes vs. aims Interdependent with environment Scan/adapt to threats/opportunities

12

Marketing Interface (1.6/7) n Organizations often split into various functions so efficient conversion needs effective coordination n Departments must ‘optimize’ not ‘maximize’ by pursuing the best ‘organizational’ outcome n Marketing critical: bridges the boundary between the wider environment and internal departments n Must establish/maintain relationships across and within the organizational boundary, e.g. production n Demands a marketing orientation: focus on satisfying the needs of the buyer via the product/ things associated with creating, delivering and finally consuming it. (T. Levitt)

MARKETING ENVIRONMENT

13

THE NATURE OF THE ORGANIZATION

14

Dynamic Environment (1.8)

Importance to marketing

Marketing environments are in constant change Many environments are turbulent and subject to unpredictable and often uncontrollable forces: n Increasingly competitive markets are in flux, e.g. stock, currency, ICT and energy markets

l

Creates ambiguity over future patterns

l

Can create opportunities if managed well

l

The environment must be monitored and analysed to identify threats and potential impacts

l

Prioritize on most significant developments

l

A proactive response is demanded

n Even the natural environment appears unstable with freak weather conditions

l

Reduce resistance in favor of a ‘culture of change’

l

Requires flexible, decentralized, organic structures

Dynamic conditions suggest powerful forces are driving change, e.g. IT developments or a catalyst, e.g. new entrant or deregulation

l

Associated costs may be transferred to customers (higher price); workers (redundancy); competitors (lower sales); government (subsidies), etc.

l

Complex markets involve many interdependent causual factors producing non-routine problems

n Technological forces, political discontent, variable prosperity, fundamentalism also disturb stability

Managing the Environment (1.8)

Organizations of the future

A contingency approach:

l

Flexible dynamic structures

l

Organic and fluid

l

Focused but adaptable

l

Lateral networked relationships

l

Task, skill and relationship focused

l

Flexitime for effective task completion

l

Customer orientated

l

Employee involvement/participation

l

Shared benefits

l

Wider share ownership

l

Marketing secures collaboration and integration of key functions

Appropriate marketing action depends on the particular circumstances of the situation rather than predetermined rules or policies Marketers must recognize there are no certainties in a global economy-tailor response to an evolving situation Even McDonalds must modify its universal formula to match competitive/cultural realities – India’s sacred cow Logical development of the systems perspective to determine appropriate responses in the face of multi-faceted change

MARKETING ENVIRONMENT

15

THE NATURE OF THE ORGANIZATION

16

Emerging Challenges (1.9)

Significance for marketing

E-commerce

n Rising on-line sales challenge traditional retailers

Implies radical restructuring/culture shifts for organizations and will demand a systems-driven response

n Source of competitive advantage for supply chain

Globalization

n Need to monitor the global market-place

Rise of multinationals treating the world as an integrated market place for resources and products and developing relatively standardized products to meet customer needs

n Threat of competition in domestic market

Increasing competition

n Price must be comparable even when differentiating

Product of improved access to information; deregulation; more discerning customers

Digitalization Allows seamless integration of IT (text/sound/vision) into all aspects of life, e.g. mobiles and broadband TV

n Large reduction in transactions cost

n Small firms must exploit niches

n Action on monopoly abuse – Microsoft E497m fine n Broadband allows tailored promotion and interaction n Mobiles becoming a critical marketing resource

Hints and Tips

š

Identify ‘organizational’ questions – Q2 or Q3

l

Read through Unit 1 of the Marketing Environment Coursebook

š

*Note the potential overlap of points from different parts of this syllabus section

l

Seldom the main focus of a mini case or even case questions

š

Have a vision of e-commerce, e.g. based on PCs, digital TV or 3G mobile phones

l

Normally at least one full optional question per paper but may overlap with other sections

š

l

Many optional questions are set in a specific organizational context

Fix academic ideas by relating them to your own situation: Do you review your own goals, how have they changed, by what forces?

š

Your revision provides an example of an open system – you draw knowledge from lectures/ readings; convert it into understanding to yield output as coursework and get feedback

l

Focus to ensure you answer the question

l

Breakdown different components of the questions to ensure you address all of the issues

l

Make outline plans of all the exam questions

l

Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

MARKETING ENVIRONMENT

17

THE MICROENVIRONMENT

Unit 2

LEARNING OUTCOMES

KEY REVISION POINTS


Appreciation of interconnected environments
Importance of stakeholders and their interaction
Significance and impact of pressure groups
Role of marketing in managing these groups


Complex nature of the environment
Internal, connected and external stakeholder groups – their importance to the organization
Pressure groups and their influence on decision-making
Management of stakeholders and pressure groups

Syllabus reference: 2.1, 2.2, 2.5

Microenvironment Context (2.1) Includes the groups and organizations close to the business that affect its ability to satisfy customers. They have a two-way operational relationship with the business and may be influenced by it to some degree. n Refer back to systems theory n All organizations aim to make resources productive n Resources are scarce and diverse n They must be attracted from the environment

n Ineffectiveness or inefficiency threatens survival n Resource providers are stakeholders

Classifying the environment n Organizations face a confusion of environment factors n They need to sort and classify these factors n They may or may not represent threats/ opportunities for marketers n Represent jigsaw pieces for grasping the bigger picture n Include all factors/forces with significant impact on organization

n Inputs are transformed in time, place or form to create utility, value and satisfaction for the customer

MARKETING ENVIRONMENT

19

THE MICROENVIRONMENT

The Microenvironment

20

Stakeholders defined Any group or individual, other than shareholders, who can affect or are affected by the achievement of organizational goals. Primary stakeholders make a direct and often continuous contribution to core activities. The impact on or by secondary stakeholders is more intermittent and normally of less significance.

Microenvironment stakeholders Suppliers n Key to availability, delivery times and input quality n Wield bargaining power to drive up cost of materials n Relationships affect supply chain effectiveness n Dependence on 1 or 2 suppliers carries risks n Preferred suppliers may provide total quality, just-in-time delivery and R/D support

n Organizations are coalitions of stakeholders n Management needs a workable balance between the claims and interests of these groups n Shareholders are owners of the business

MARKETING ENVIRONMENT

21

THE MICROENVIRONMENT

Competitors

Intermediaries/distributors

n Potential threat to survival and profitability

l

n Must monitor actions and reactions of rivals

l

n Price wars may erupt from time to time l

n Marketing mix may be deployed to influence them

l

n May have common interest in collaboration

l

Customers l l l l l l

Often sole source of revenue Free to withdraw/transfer custom Dissatisfied customers tell others Preferences may change quickly Influence through marketing mix Retaining customers more cost effective due to potential lifetime revenue flow

22

Critical role/channel effectiveness Partnership offers advantages: transport, stock management, merchandising, after-sales, etc. High leverage, e.g. own brands E-commerce disintermediation? Tying in outlets may provide competitive edge

Employees n Retention of skilled preferred to new recruitment n Critical factor in productivity and customer interface n Central to coordination and achievement of goals n Potentially costly, e.g. salaries/disruption/poor morale n Evolution of flexible working patterns/virtual orgs.

Microenvironment importance Operational context for day-to-day tactical responses

Stakeholder Pressures (2.2) l

Organization can’t operate in isolation

l

Must satisfy legitimate expectations of stakeholders if these are to contribute value in return

l

Contributions may be withdrawn, e.g. shop elsewhere

l

Stakeholders can change organizational goals unless effectively managed

l

Conflicts of interest possible, i.e. higher wages ¼ lower profits or higher prices

Marketer at critical interface between primary stakeholders: organization Successful value chains are ‘clusters’ of collaboration Marketing mix deployed to influence actual and potential stakeholders Stakeholders can damage/advantage so choice of competing or cooperating

MARKETING ENVIRONMENT

23

THE MICROENVIRONMENT

Stakeholder Typology

24

Stakeholder pressure and expectations

Managing Stakeholders (2.2)

Customers

l

Pressure via reduced purchases, boycott and complaint

Recognize the behavior of organizations has become everybody’s business

l

Know who the critical stakeholders are

Expect value for money, quality products and service

l

Map stakeholders by level of interest in the organization and their power to influence outcomes

l

Use internal and external marketing to resolve or balance stakeholder conflicts

l

Keep key stakeholders well informed and on-side

Employees Pressure via absenteeism, low morale and work rate Expect fair wage, skill development, job satisfaction

Suppliers Pressure via low priority service, supplying rivals Expect prompt payment, clear supply schedules

Distributors Pressure via stocking rival/own brands, delay payment Expect just-in-time supplies, promotional support, etc.

MARKETING ENVIRONMENT

25

THE MICROENVIRONMENT

Pressure Groups (2.4)

Means of achieving their aims

Are sub-sections of society organized on the basis of specific common interests, goals or attitudes

Complain, e.g. to the media/regulators

Distinguish

Debate at local meetings

l

l

Inform and persuade affected parties

Sectional or interest groups who exert pressure on people, organizations and government for their own special purposes, e.g. unions

Lobby elected representatives/officials

Cause or promotional groups with common values and a specific ‘issue’, e.g. Friends of the Earth, World Wildlife Fund, CND

March and demonstrate outside business

l

Both seek influence over government decisions

l

Both may promote or resist particular decisions

l

Means for like-minded to make themselves heard

l

Increasing to influence all business/society aspects

Canvass and opinion form re stakeholders Boycott company products or services Legal action and test cases Demand negotiations for concessions

26

Example: Consumerists

Example: Environmentalists

Those groups and organizations who exert legal, moral and economic pressure on business to account for the interests of consumers over profit

Groups and organizations who seek to apply political, economic and moral pressures on business to adopt sustainable operations.

Impact on marketing

Significance for marketer

3 Customers no longer suffer in silence 3 Encouraged proactive businesses to adopt a customer orientation 3 Consumer rights enshrined in fair trading laws

Wide-ranging causes: conservation, recycling, emissions, animal rights and endangered species

Right of Safety Issues: tobacco, GM foods, additives

l

Right to be informed: Fraud, small print, misleading promotion, unsolicited junk mail

l

Right to choice: deregulation, reduce entry barriers

l

Right to a hearing: Poor service/substandard products

l

Rising concerns imply extra costs and higher prices: l

l

l

Corporate image damaged Customers may opt for less harmful alternatives Shareholders may switch funds to ethically sound Recruitment of high calibre staff affected May prompt over-strict legislation if fail to act Loss of community/local government support Cost penalties – legal claims, product recalls MARKETING ENVIRONMENT

27

THE MICROENVIRONMENT

Formal channels for pressure Pressure via government l

Government departments consult widely

l

Sound out recognized/responsible pressure groups

l

Able to influence new legislation and policies

Pressure via legislature l

Pressure group lobby support from legislators

l

Susceptible to issues affecting their constituencies

Pressure via public campaign l

Influence opinions through educational campaigns

l

In short term, mobilize public/stakeholder support through meetings, demonstrations, internet petitions

28

Managing Pressure Groups (2.5) 3 Prioritize resources that are scarce 3 Clarify corporate values/goals 3 Listen to their views 3 Communicate with them 3 Consult with them 3 Monitor their pressure on govt. 3 Liaise with them over developments/use their expertise 3 Respond positively to their ideas 3 Work with them for mutual benefit 3 Build trust 3 Support them to work with you 3 Oppose if necessary

š

The mini case counts for 40% of the marks and normally has 4 parts. 40% of your 3-hour exam time is 72 minutes so spend no more than 18 minutes per part (including reading)

n Some mini case topics, e.g. McDonalds (D03) and Cruise market (J03), but less frequent than macro

š

Re-read question and underline ‘key’ words

š

Make trigger word plan. Use marks as a guide

n Key case terms are highlighted in bold

š

Get feedback on your understanding

n Questions normally in context of a selected industry

š

Differentiate your examination script to the Examiner by making it stand out as a premium product

š

You can relate this syllabus area directly to your own experience as customer, employee and marketer

š

Generate more examples as you work through this passbook to use in your exam answers

Hints and Tips n Read through Unit 2 of the Marketing Environment Coursebook

n Normally 2 or 3 part questions n Normally at least one full optional question per paper but may overlap with others n Make outline plans of all the exam questions n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

MARKETING ENVIRONMENT

29

ANALYSIS OF THE COMPETITIVE ENVIRONMENT LEARNING OUTCOMES





Importance of monitoring competitors Explanation of strategic implications Understand impact of competition policies Awareness of internal/external information sources Syllabus reference: 2.3, 2.6, 2.7 (10%)

Unit 3

KEY REVISION POINTS
Characteristics of fragmented and concentrated industries
Description of five-force analysis and its strategic implications
Review of competition law and practice
Key sources of information on the microenvironment

Monitoring Competitors (2.6)

Intense competition: Characteristics

Competitive behavior involves actions and reactions of businesses to improve their profitability and market position at the expense of rivals.

Large number of small buyers/sellers

Importance

Ease of market entry or exit

High degree of market knowledge Rational consumers and businesses with high degree of market knowledge

l

Competition impacts directly and continuously

Price takers – set by market forces

l

Forms a two-way interaction

l

Marketers must understand the dynamics of different markets and the realities of competition

Examples: materials/foodstuffs; ‘commodities’ in maturity (PLC); e-commerce creates price transparency

l

Marketing strategy, tactics and responses must be set in the context of a changing market environment

MARKETING ENVIRONMENT

31

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

Industry types: Fragmented industries

Marketing implications

Large number of small competitors

Strategic actions

Rational to monitor closest rivals

3 Monitor close rivals and new entrants 3 Invest in relationship marketing

Easy entry to and exit from the market Adaptability to market diversity yields competitive advantage via innovation or successful differentiation Firms stress USPs but high profits are soon reduced by imitation/new entry Supply of me-too goods ¼ low margins

3 Build long-term mutual benefit 3 Create barriers to protect the market 3 Niche marketing of a habitual good 3 Buy out competitors 3 Cut costs to offer keen prices 3 Innovate continuously ¼ a moving target 3 Product differentiation and branding

32

Concentrated industries Small number of very large firms Economies of scale High barriers to entry and exit Interdependence – large market shares Outcomes depend on rival reactions Dominant market leaders may emerge Multiple competitive options

Marketing Implications 3 Understand kinked demand curve and tendency to price stability in oligopoly 3 If cut price others follow suit to protect market share 3 If raise price others don’t follow, so they gain share 3 New product development and differentiation used 3 Tendency for occasional price wars, e.g. airlines 3 Collusion raises profits but is illegal 3 Price leadership overcomes kink if rivals follow

MARKETING ENVIRONMENT

33

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

Porter Five Force Analysis

34

Strategic and marketing implications n Long run profitability rest on five forces that govern distribution of value added created by the firm n The analysis exposes what is driving competition n A competitive strategy is required to achieve goals, identify a defendable market position and secure a competitive advantage

The intensity of inter-rivalry n Ranges from zero (powerful monopoly) to cut-throat rivalry n Intense rivalry expands growth markets, e.g. mobiles, but may undermine a mature market n Degree depends on switching/exit costs, overheads, objectives, growth rate, product differentiation

Threat of substitutes An industry is a group of firms producing goods and services which are close substitutes — all goods compete for limited purchasing power, i.e. package holidays with hot tubs n May involve substitute material, alternative technology, new distribution channel (e-business) n Intense future rivalry if substitute price/ performance ratio is high n Switching costs are very low n Buyers are informed and willing to search

MARKETING ENVIRONMENT

35

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

Threat of new entry n Entry causes supply capacity to rise tending to reduce prices and increase input costs n High profitability attracts entry but barriers may delay it n Entry is less likely where: l Existing profitability low l Barriers to entry are very high l Economies of scale fully exploited l Set-up capital requirements high l Brand loyalty is high l Switching costs are high l Potential entrant expects fierce retaliation

Bargaining power of suppliers Can squeeze profit and redistribute value added Supplier power in future depends on: l The degree of supplier concentration l

Substitutability between suppliers

l

Switching costs involved

l

Threat of forward integration

Bargaining power of buyers This depends on: Price sensitivity: some cherry-pick for best value Buyer leverage: depends on market knowledge; availability of good substitutes; switching costs; importance of purchases to seller; buyer size, etc.

36

Strategic Implications (2.6)

}

Cost or differentiation focus – on least vulnerable niche

Companies succeed as long as they have matched their products and services to today’s marketing environment. (Kotler)

~

All these strategies are competitive options Market reality suggests collaboration as an alternative or complementary strategy

Strategy matches strengths/weaknesses of one’s resources to risks/opportunities of external environment

The ultimate in collaboration involves cartels. If these control industry supply, then output may be controlled and prices/profitability raised, e.g. OPEC

Three generic strategies provide the means of achieving a sustainable advantage and above average profitability:

Cartels tend to weaken due to internal dissension, a tendency for substitutes to be offered outside the cartel, and the difficulty of internal policing to prevent cheating

Broad cost leadership – emphasis on efficient scale, tight cost control, entry barriers and proximity in product Broad differentiation – proximity in cost but focus on unique and highly promoted product

Collaboration short of cartels can be achieved via: – relationship marketing – partnerships – alliances

MARKETING ENVIRONMENT

37

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

38

Competition Policies (2.7)

Relevant legislation

Rationale

l

Restraint of trade: most agreements must not have terms that restrict/prevent a person doing business

l

Restrictive practices: bans agreement between the majority of firms affecting their freedom of action

l

Fair Trading Act: agreement must be registered with Director General and are presumed against the public interest unless justified

l

Competition Commission: considers cases of referable monopolies and mergers (25% market share/if creates a monopoly)

l

EU legislation: overrides national laws to cover the Single Market

n Market forces insufficient to prevent monopoly n Desire a level playing field n To promote efficient use of resources n Natural monopolies must be regulated n Prevent abuse of market power

Policy Aims 3 To deregulate markets 3 Encourage SME 3 Act against anti-competitive behavior 3 Protect the interests of consumers 3 Keep entry barriers low 3 Prevent excessive concentration

Impact of policies On the organization l l

On the marketing environment l

Fines of up to 10% of turnover High profile E497m EU fines on Microsoft for abusing its market power in ‘bundling’ up functions like Media Player

l

l l

Adverse impact on company image

l

Surveys suggest that majority of mergers do not add value and many destroy it

l

Limit ability of organizations to dominate markets or collaborate to control output and prices

l

Only a small proportion of qualifying monopolies referred but ‘demonstration effect’ applies Ratchet effect of EU directives, e.g. ending exclusive car dealerships is transforming competition Regulators impact on privatized natural monopolies through a range of powers including price cuts Complaints can be made to the Director General who may institute an investigation, e.g. parallel pricing in electrical goods

MARKETING ENVIRONMENT

39

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

40

Information Sources (2.3)

Competitor analysis

(Cross-refer to 3.2 and Unit 4)

Involves the gathering and interpretation of intelligence from diverse sources on key rivals with the aim of achieving a competitive edge by:

Collecting Information and its Interpretation and Presentation are key marketing skills Awareness of information on the marketing environment provides: 3 A basis for segmenting customers 3 Identifying emerging market trends and patterns 3 Forming/deepening customer or other relationships 3 Understanding of industry sales patterns, production capacities, stock levels and future plans 3 Understanding competitors, potential entrants, suppliers/distributors via analysis of balance sheets, pricing structures, market shares, marketing mix, etc.

l

Identifying strengths and weaknesses

l

Understanding rival response patterns

l

Avoiding surprises, e.g. product development

l

Focus on quality information

Information needs

Organizational information

Financial Information

3 Current problems and opportunities 3 Key decision-makers

3 Balance sheet: cash flow 3 Turnover and profit 3 Financial state: assets, debt 3 Rate of growth

3 New posts and recruitment patterns 3 Investments, new ventures, closures 3 Take-overs and acquisition

3 Export performance

Sources

Sources

l

Trade and quality press

Company annual accounts

l

On-line, e.g. www.companiesonline.com

l

Company Registration Office website

l

Common stakeholders

l

Commercial databases, e.g. Datastream

l

MARKETING ENVIRONMENT

41

ANALYSIS OF THE COMPETITIVE ENVIRONMENT

Production and product information

Marketing information

3 Number of employees 3 Product range and quality

3 Price terms and discount structure 3 Market share

3 Production cost and specification 3 Location and scale of operations

3 Packaging and delivery 3 Advertising and promotion

3 New product development

3 Marketing policy and plans

Sources

Sources

l

Trade Associations

l

Field sales force

l

Chambers of Commerce

l

Marketing surveys, e.g. Mintel

l

Patents Office

l

Networks

l

Trade press

42

Hints and Tips

Exam success results from:

n Read through Unit 3 of the Marketing Environment Coursebook

3 Preparation 3 Understand the question 3 Focus precisely on requirement

Practise interpreting past mini cases and relating them to the syllabus In the exam quickly read the case through once then carefully read all the questions Underline key points and examples

š

n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

3 Use of format and context 3 Effective time management

š

n Make outline plans of all the exam questions

š

n Up to a full optional question per paper

š

n Occasional mini case topic

Stick closely to the question

MARKETING ENVIRONMENT

43

THE MACROENVIRONMENT

Unit 4

LEARNING OUTCOMES

KEY REVISION POINTS

Appreciate the macroenvironment’s importance Recognition of key sources of information Understanding of the natural environment Marketing implications of the natural environment
Assessment of environmental challenges


Uncontrollable threats and opportunities
Relevant sources for the various environments
Business and marketing impacts on the natural environment
Understanding of the macroenvironment context







Syllabus reference: 3.1, 3.2, 3.6, 3.8

Macroenvironment Overview (3.1)

Political environment

Importance

Activities of the state in setting national objectives, legislating, policy-making and implementation

l

Organizations operate in this societal context

l

PEST SLEPT STEEPLE environments

l

Source of successive threats and opportunties

l

Largely uncontrollable

Determines key aggregates of income, output, employment and price levels

l

External half of SWOT analysis

Technical environment

Social environment Embraces changes in the nature, attitudes, behavior and values of society that affect employment and buying patterns

Economic environment

Embraces changes to products, processes and methods that impact on organizations

Natural environment Life resources including air, water, land, wildlife and the amenity they confer

MARKETING ENVIRONMENT

45

THE MACROENVIRONMENT

Challenges of Change (3.8) Macroenvironment seldom impacts on day-to-day operations but shapes future actions and perceptions

}

Examples: War on terrorism, oil price fluctuations, trrade disputes, enlarged EU, viruses, migrations Marketers can’t rely on patterns of the past and must: l

But tomorrow always arrives, it is different and then even the mightiest company is in trouble if it has not worked on its future. (Drucker)

~

Examples: EuroTunnel, Coca Cola (Dasani), McDonalds, Enron On a moving conveyor of changing tastes, technology and competitive forces, organizations must move fast to stand still! Change is characteristic of information societies but pace is accelerating, compounding uncertainties

46

l l

l l

}

Scan their environment Recognize challenges/forces driving change Respond strategically to threats and opportunities Monitor strategic outcomes Continue to scan Standing still is still the fastest way of going backwards in a rapidly changing world.

~

(Roddick)

Information Sources (3.2)

Secondary sources

(Cross-refer to Element 4 and 2.3)

• • • • • •

Research methods 1. Internal data: generated by operational activities 2. Secondary data: from published external sources

Quality and trade press Company reports Government statistics Directories of companies Academic journals Business periodicals

3. Primary data: from original sources, e.g. survey š

Examiners credit candidates who cite sources

š

Link sources to syllabus elements

š

Scan a broadsheet daily for news analysis: only include items of current/future concern

MARKETING ENVIRONMENT

47

THE MACROENVIRONMENT

Trade sources

48

Summary of sources Social – Cultural l l l l l

Guide to Official Statistics Social Trends Office of National Statistics (ONS) Census ACORN Market Research Bureau

Political – Legislative l l l l

JUSTIS online legal database EU Commission News databases www.news.bbc.co.uk www.statistics.gov.uk

MARKETING ENVIRONMENT

49

THE MACROENVIRONMENT

Summary of sources Economic – International l l l

l l l l l

Blue Book on national income/expenditure Economic Trends www.statistics.gov.uk News Media www.ft.com, www.theeconomist.com CBI Quarterly Survey Regional Trends International organizations, e.g. WTO, UN, OECD Professional bodies, e.g. Institute of Exporters DTI and Bank Reviews

Technical – Environmental l l l l

Technical abstracts and research papers Professional associations/industry networks Pressure group websites www.earthtrends.wri.org is an environment portal

50

Information Requirements

Example: The Economy

Example: Society

– Main economic indicators, e.g. interest rates

– Demographic trends

– Business confidence indicators, e.g. investment

– Work and leisure patterns

– Labour market changes

– Changing cultural norms

– Government tax and spending plans

– Ownership ratios, e.g. mobiles

– Income, output and expenditure patterns

Example: International – Stage of the global economic cycle – Movements in interest rates – Relative change in exchange rates – Activities of IMF and IBRD – Regional growth and inflation rates

MARKETING ENVIRONMENT

51

THE MACROENVIRONMENT

The Natural Environment (3.6) Embraces natural resources including land, vegetation, wildlife, air and water and the amenity that they confer.

Pollution arises when waste is in excess of the natural assimilative powers of the environment

Environmental consequences Arise from the interdependence of:

n Life-supporting systems

l

n Many are non-renewable assets

l

n Businesses discharge wastes into this

l

n Progressive loss of critical rainforest n Negative feedback effects, e.g. greenhouse gases n Challenge of achieving sustainable growth

52

l

Population growth in poorer countries Industrialization Mass affluence in developed countries Material expectations in developing countries

Result – – – –

progressive resource depletion emissions, effluents, solid wastes extreme weather conditions ozone depletion

Sustainability as a Goal Meeting the needs of the present generation without compromising the needs and requirements of future generations, i.e. continued growth in GDP but without the negative environmental consequences

Nature vs. Technology l

l

l

Technology may achieve sustainability but could equally destroy the world GM crops could eliminate food shortages but could unleash virus infections Massive potential to transform Third World farming but threat to wildlife

n International agreements to reduce greenhouse gases and ban ozone-producing chemicals n Development of environmentally friendly products n Renewable energy sources replace non-renewable n Redesign, recycling, reuse of materials

MARKETING ENVIRONMENT

53

THE MACROENVIRONMENT

Implications for marketers

Hints and Tips

3 Business central to the problem and solution 3 Rise in ‘green consciousness’

n Read through Unit 4 of the Marketing Environment Coursebook

3 Stakeholders require reassurance and customers prefer commitment to environmental standards 3 Involve and educate key stakeholders

n The mini case often concerns the macroenvironment and information sources

3 Ethically sound practices may provide an ‘edge’ 3 Strategy based on sustainable principles, audit, impact assessment and benchmarking

54

n A part question on the natural environment may arise or one linked to pressure groups n Always be prepared for general questions on the significance of the macroenvironment n Know relevant information sources for each major macroenvironment n Make trigger word plans for the past exam questions at the end of unit 5 n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

Unit 5

LEARNING OUTCOMES

KEY REVISION POINTS


Understanding of the social environment
Recognition of social and cultural influences
Assessment of the implications for marketing arising from social, demographic and cultural change


The structure and composition of the population – implications for segmentation
Cultural influences on stakeholder attitudes and buyer behavior
Key social trends and their significance for marketers
The significance of social influences such as lifestyle, class and reference groups
Challenges such as the changing role of women and ageism

Syllabus reference: 3.3

MARKETING ENVIRONMENT

55

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

Population Size and Structure

Dependency ratios

Explanation of trends

– Ratio: dependants (non-working) to work population

World population – Exponential growth to over 6 billion in 2000 – Pace slowing by demographic transition to lower birth and death rates with economic development

56

– Rising sharply with lower births, retirement and rising longevity in mature economies

Immigration – Uncertainty and continuing poverty stimulates

– Ageing offset by AIDS and changed attitudes

– A means of support for rapidly ageing populations

– Dismal outcomes of Malthus avoided bar Africa

– Remittances important to developing countries

Aggregate population

– Third World loses its skilled and dynamic workers

– Growth ¼ birth – death rate þ net migration

Demographic structure

– UK growth slowing to 60mþ

– Trends in age, gender, marital status, ethnicity, region and occupation

– EU growth to 415m but birth rate now below replacement level, i.e. 1.5 vs. necessary 2.1

Challenge of Ageing

Negatives

}

l

An increase in the average age of the population.

Worsening dependency ratio

l

Higher taxes, pension contributions, loan repayments for workers

n Post-war baby boom generation approach retirement

l

Labour and skill shortages

l

Falling savings ratios as elderly spend

~

n EU median age rising from 38 to 49 by 2050 n Better off, better educated and better informed n Shift in centre of gravity of spending power to 0ver-55s n Healthy and fit old versus the poor old segments

Significance l

Increase in empty nest and single households

l

High discretionary income – no mortgage

l

Cultural and political influence grows

l

Favours travel, health-related, security, durable financial service and nostalgia products

l

Incentives to keep working beyond retirement

l

Responsibility for ageing relatives

MARKETING ENVIRONMENT

57

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

Marital status l l l

Later marriage but 40% divorce rates 570,000 marry and 300,000 divorce p.a 1 in 4 children raised by single parent

Household structure l

l l

Big rise in single households (elderly/young/ divorcees) Composite families from remarriage Rich source of segmentation

Regional distribution l l l

Drift from rural to urban/suburban living Ribbon development Retirement hot spots, e.g. South

Ethnicity l l

l

Black and Asian rose 40% 1991 on Younger age profile ¼ differ in public/private needs Asian food market worth £2bnþ

Occupation l

l

Core workforce shifts agriculture to manufacture to services to information Emphasis on consumer interface, i.e. customers, elderly, stakeholders

58

Employment Trends

Causes

Decline of full-time employment

l

Rise of flexible/customer-focused organizations

Rise in part-time employment

l

24-hour, 7-day week, 52-week year business

Longer hours

l

Need flexible workforce for peaks and troughs

Rise in self-employment

l

Entry of women into workforce

Rise in contractual employment

l

Changing culture for permanent workers

Flexible work lives

l

Demand for a dedicated workforce

Rise of knowledge workers

l

Attractions of affluent lifestyle/house price rises

l

Opportunities created by IT – teleworking

l

Organizations prefer to outsource non-core to specialists or contract-in skills as required

l

Employees prefer flexitime and staggered hours

l

Move to flexible shifts and work years, working from home and phased withdrawal to retirement

l

50% produce, process, use, distribute information

MARKETING ENVIRONMENT

59

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

Role of Women in Work

Policy responses

n Strongly influenced by culture and religion

l

Positive discrimination in career development

n Tend to work in different sectors, occupations and levels

l

Women-friendly recruitment

l

Enable a flexible work/life balance

n With household duties work harder but paid less

l

Common pay and conditions

n Dominate in interpersonal service sectors – health

l

Motivational training

n Men dominate top positions in all sectors

l

Financial support for child care

n Account for nearly half the workforce

l

Retraining after career breaks

n An underutilized resource to relieve shortages

60

Demographic influence felt on:

Implications for marketing

l

Aggregate demand for goods and services

Important demand condition in forecasting sales

l

The size of different market segments

Family life cycle to match product offerings to needs

l

The availability of labour

l

The mix and composition of social services

Organizations must market themselves to target groups

l

The scale of support infrastructure

Structural changes drive changing demand patterns

l

The tax burden of the dependent population

l

The regional distribution of demand

Marketers must respond to demographic consequences, e.g. flexible mortgages and pension plans, time-saving and convenient solutions for core workers Above-average income in populated South East – magnet for luxury producers

MARKETING ENVIRONMENT

61

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

Cultural Environment (3.3) Influences that affect society’s basic values, attitudes, perceptions and behavior.

62

Cultural influences l

What we eat, drink, our lifestyles and buying preferences

l

Internal marketing to cross-cultural workforces

Explanation

l

Moulds and regulates daily behavior via constant conditioning and positive/negative reinforcement

Regional and international marketing – when in Rome do as the Romans do is apt

l

Observe cultural mores/customs to avoid offence

l

On language translation and hidden meaning

l

UK government decision not to ban ritual Halal and Shechita butchery methods

Appropriate behavior and ideas in different social situations are learnt from: n Family n Education n Experience n Community n Religion Culture influences individuals/group in predictable ways

Cultural trends

Healthy living and fitness

Position of women

– Changing attitudes to desirability of smoking

– Rise of work and career

– Rising concern over heart disease and stress

– Decline of maternal and domestic roles

– Convenience lifestyle leading to obesity

– Smaller families – more use of childcare

– Dual society of the super-fit and over-weight

– Educational opportunity with rising aspirations

Implications

Implications

– Expanding market for organic food

– Control over discretionary spending power

– Price premiums

– Changing stereotypes in adverts

– Image consciousness and designer fitness wear

– Premium on time/convenience ¼ time-saving meals, appliances and family eating habits

– Negative aspects to figure consciousness

– One-stop, home and internet shopping

– Mounting public concerns over fat, sugar and salt content of fast and convenience foods

MARKETING ENVIRONMENT

63

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

64

Social Environment (3.3)

– D (working class)

Semi and unskilled manual

}

– E

Pensioners, long-term unemployed

Social Class comprises individuals with a defined status and who share common characteristics, including wealth, occupation, income level, educational background and various aspects of lifestyle.

Implications l

Marketer more interested in the class aspired to

l

Shared values/attitudes reflected in preferences

– Open educational access allows class movement

l

Status symbols proxies for class membership

– JICNAR classifies individuals and groups

l

Need to be mobilized in targeted promotions

~

– An upper class is superimposed (1% own 25%)

Social Class category

Occupation

– A (upper middle)

Professional, top management

– B (middle)

Intermediate managers

– C1 (lower middle)

Supervisory, clerical

– C2 (skilled working)

Skilled manual

Other social segmentation bases 3 Geographic, e.g. region or climate 3 Lifestyle and sub-cultures, e.g. Welsh 3 Demographic, e.g. age, ethnicity, gender 3 Geodemographic: neighbourhood

Reference groups

Implications

}

l

if marketers persuade opinion leaders, followers buy

l

Nike seek endorsements from top players

l

Premium prices when conspicuous consumption

A point of reference (of knowledge and influence) for consumers in making decisions.

~

– Actions and behavior of the family; peer groups and work colleagues influence individual attitudes and behavior – The ‘wish to belong’ to preferred groups encourages conformity to norms, dress codes

The family Is a close and influential reference group. Continuously influences values and buying decisions:

Family life cycle:

– Opinion formers influence the norms

n Young unmarried – high disposable income

– US cultural values mediated via global media control

n Newly married/no children – home/durables n Young married – family expenditure n Middle aged/teens – high income/replacement n Empty nest – peak income/luxuries/financial n Older retired/single – conservative/one-offs

MARKETING ENVIRONMENT

65

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT

66

Lifestyle

Implications for marketer

}

l

Must monitor and understand demographic changes

l

Recognize impacts on both supply and demand

l

Social, demographic and cultural change all influence tastes and preferences

l

Care with segmentation as assumptions change

l

Forecasts more difficult when aspirations or perceptions drive buying behavior

l

Family structures/decisions are now more complex

Patterns in which people live, spend time and money.

~

n A function of personality, class, prior learning, etc. n Measured by using Attitudes, Interests and Opinion scales combined with demographic clusters n Allows segmentation and tailored promotion/ marketing mixes to appeal to the cluster, e.g. Next n Generic catagories include strivers, aspirers, achievers and succeeders

Hints and Tips

š

n Read through Unit 5 of the Marketing Environment Coursebook

Demographic questions are relatively popular so be aware of key characteristics and implications

š

Questions sometimes link two different parts of the syllabus

š

Pay particular attention to ‘directions’ in a question, e.g. describe, compare, summarize

š

The term ‘outline’ demands a brief and probably a bullet point answer

n Will form mini case from time to time n Scope for optional question when three different environments are involved n Will tend to be set in context n Prepare brief answer plans to past exam questions at the end of the unit n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

Examination success factors: You don’t have to answer the mini case first Answering a good optional question first may build up your confidence First impressions are important

MARKETING ENVIRONMENT

67

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

Unit 6

LEARNING OUTCOMES

KEY REVISION POINTS


Understand the workings of the economy and the role and objectives of government in influencing it
Explain the business cycle
Impact of trade and the challenge of globalization
Assess international implications for the marketer


Measurement of economic activity and living standards
Understanding the current and short-term future economic environment
Use and meaning of economic indicators
The effects of key economic and trade policies
Policy impacts and implications for marketers

Syllabus reference: 3.4

Government Economic Objectives n A high rate of sustainable growth n Employment growth – low unemployment n Control inflation at low target level n Favourable balance of payments – averaged over a period

Subsidiary targets l

Concern for the ‘green’ environment

l

Maintain a competitive exchange rate

l

Equitable distribution of income

l

Maintain total tax ‘burden’ below 40% of income

n Economic growth is the primary goal: it underpins rising living standards and provides the resources for social goals n Growth derives from either unemployed resources or more fundamentally from rising productivity via investment in infrastructure, skills, capital goods and new technology n Developing countries seek structural transformation into an economy based on manufacturing, services and information n Negatives: growth absorbs scarce resources and creates a variety of externalities, e.g. emissions/ greenhouse effects; congestion; pollution and ozone depletion (air travel)

MARKETING ENVIRONMENT

69

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

70

Workings of the economy – circular flow

Other injections ¼ exports þ government spending

Marketers must understand the flows of income and expenditure circulating round the economic system

The economy is stable where injections ¼ leakages

Basically firms pay out incomes to households (as wages, dividends, rents) who in turn spend them buying the output of the firms. This flow of revenue finances the next round of production This flow of spending power will fall if households save (leakage) but may be offset by investment (injection) Other leakages are tax payments and import spending Aggregate demand comprises consumption þ investment þ government þ exports
imports and represents the pressure of demand on domestic businesses

If injections exceed leakages and there are unemployed resources, then the flow expands Higher aggregate demand tends to cause firms to produce more and employ extra staff Lower aggregate demand means lower sales revenue, forcing cutbacks in costs, e.g. redundancy

The multiplier–accelerator effect n Injections of government spending or new investment actually increases aggregate demand by more than the initial amount n Incomes created by the injections are spent on general goods and services in subsequent ‘rounds’ of the circular flow n The multiplier effect is reduced by leakages from the flow n E.g. if leakages are taxes 0.3, imports 0.1 and savings 0.1, the multiplier is 1/leakages ¼ 2

REMEMBER

-

It is important for the purpose of the examination to demonstrate a general appreciation of the economic environment and its implications for the marketer. You should also seek to apply economic concepts like the efficient allocation of scarce resources – in this case ‘time’, whether it be to revision or between different questions

n The accelerator reinforces the multiplier and arises because the capital investment needed to produce a given output is 4–5 times as much

MARKETING ENVIRONMENT

71

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

72

Measurement of Living Standards

Limitations

• Major factor in determining the volume and composition of consumer spending • Measured by Office for National Statistics using Gross Domestic Product (GDP) per capita • GDP is the sum of the market values of all final goods and services produced per annum in a country by domestic and foreign-owned firms • Can measure percentage change and make international comparisons • International marketer must also take into account culture, tastes and proportions spent on public goods

l

Quality of statistical services varies

l

Inflation may erode the real value of GDP

l

No direct benefit if extra GDP reflects more exports, military output or extra investment

l

A rise might reflect reduced leisure/longer hours

l

Ignores the informal economy, e.g. DIY

l

No account of externalities or ‘consumption’ of non-renewable resources, e.g. rain forest

l

Broader measures may be called for

The Business Cycle The regular fluctuations of economic activity and income through boom, downturn, recession and upturn. It is the average of a multitude of individual industry cycles.

Interdependent open economies in a global economy are particularly sensitive to fluctuations elsewhere

Turning points represent a sea-change in economic conditions, e.g. boom into downturn The marketer must respond to each phase and predict its severity and duration The multiplier reinforces cumulative change up/down

MARKETING ENVIRONMENT

73

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

The Stages of the Business Cycle

74

Economic Indicators Used by government, business and other stakeholders to monitor economic conditions and identify or predict the need for policy changes n Leading indicators provide advance warning of change n Industry trends survey (CBI) measures business confidence changes – optimism/ pessimism n Feel-good factor – positive expectations provide positive feedback and vice versa n State of the economy

n Unemployment rates Fall in boom to feedback into higher spending. High and rising among the over-50s. n Inflation rates Measured by Retail Price Index reflecting an average, e.g. house prices above, durables below n Driven by demand pull or cost push but currently under control n Balance of Payments Measured by figures on visible (goods) and invisible (services). Continuing deficit drives interest rates up or exchange rates down

MARKETING ENVIRONMENT

75

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

Economic Policies

Supply side

Fiscal and budgetary

l

l l

l l

l

Monitor through Blue Book and Budget statement Government taxation/spending accounts for 40% of GDP Can inject to or withdraw from circular flow Significant impact in general and on specific sectors, e.g. health and education spending Taxes will impact on different groups/segments

l

l l

l

l l l

l l

Control by Central Bank to realize inflation targets Controls spending financed by borrowing Relies on interest rates to govern demand for credit and supply of savings (up or down) Enforces via a variety of controls over money Impact of changes take time/reactions can be unpredictable

Aim to improve productivity and aggregate supply Involves removing distortions, improving incentives, increasing competition, enhancing skills, reducing barriers and encouraging contribution Work through privatization, deregulation and reform Have transformed organizations in public sector

Prices and incomes

Monetary and credit l

76

Price controls and incomes policies used to control rapid inflation Limited effectiveness due to eventual pay explosion

Trade and exchange l

l

l

Deficits can be financed (foreign borrowing) or reduced by import controls/exchange rate changes Important due to marketer’s potential currency risks Flexible exchange rates often slow to correct

The Case for Trade

EU enlargement

3 Diversity of choice 3 Exploits cost and price differences 3 Scope for specialization and scale economies

n 2004 sees 10 East European and Mediterranean nations joining EU n 75m additional consumers n Mutual trade advantages as well as movement of skills n Legislative compliance a condition for Single Market

3 Rapid diffusion of new products and technologies 3 Develops networks, contact and understanding 3 Global e-commerce scope through the internet 3 Extend PLC and escape saturated home market

MARKETING ENVIRONMENT

77

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

78

The Challenge of Globalization

Concerns

A process whereby multinational companies treat the world as an integrated market-place and develop relatively standardised products to meet its needs.

l

Culture clash with global products, e.g. Big Macs

l

Reaction to domination of US cultural norms

l

Risk of dependence on foreign multinationals

l

Governments being ‘played off’ against each other

l

Ability to avoid taxation through transfer pricing

n Account for nearly three-quarters of world trade

l

Widening gap between rich and poor nations

n Converging consumption patterns despite diverse cultures

l

Trade distortion of the EU subsidising exports

n Driven by multinationals, lower trade barriers and ICT (e.g. e-commerce and world media)

n Companies adopt a global marketing perspective n International institutions (IMF, WTO, World Bank) support its development

Trade Frictions

World Trade Organization

l

Tension between the advantages of free trade and the self-interest of protectionist behavior

l

Trade wars like price wars tend to damage all the parties concerned

l

Tension between industrial and developing nations

Problem of EU þ US farmers dumping subsidised surpluses on world markets

l

Both the US and EU seek anti-dumping duties, i.e. goods sold in their markets below cost of production

Poorer countries may decide that trade groups are better route to development, e.g. SADC, SAARC, Andean pact

l

‘Beggar my neighbour’ policies can trigger global recession if countries impose tariffs or cut exchange rates to protect domestic interests, causing others to retaliate, leading to a vicious downward spiral

Promotes free trade þ enforce world trade agreements of members accounting for over 90% of world trade

MARKETING ENVIRONMENT

79

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT

Implications for marketers n Need to monitor global environment for impending threats and trading opportunities n Be prepared for a far from level playing field n Recognize that failure to agree to future trade liberalization might lead to protectionism n Take into account ‘fair trade’ initiatives sponsored by charities to give preference to poorer producers

80

KEY POINTS ON THE ECONOMIC AND INTERNATIONAL ENVIRONMENT
View economies as open systems in a highly competitive global environment
Recognize that feedback effects on the circular flow can cause cumulative change
Multinationals and free-moving resources mean that governments are limited in policy terms by the need to maintain a healthy economy free from instability or inflation

Hints and Tips n Read through Unit 6 of the Marketing Environment Coursebook n The economy is an important part of the marketing environment, so make sure you know the current situation n Use information sources to revise the main economic indicators for your economy, e.g. growth, inflation and unemployment rates n Appreciate what economic policies your government currently uses to achieve its objectives

n Understand the various phases of the business cycle and marketing implications n Mini cases often concern multinationals or the global economy since it is common to all nationalities studying for CIM certificate n Questions on multinationals, trade and the economy therefore arise with frequency n Prepare outline answers for all the exam questions at the end of the unit n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

MARKETING ENVIRONMENT

81

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

Unit 7

LEARNING OUTCOMES

KEY REVISION POINTS


Understand the significance of politics and policy making for marketers
Identify key points of political influence and pressure
Appreciate the framework of regulation and the impact and implications of legislation


Alternative political frameworks and their influence on marketing
The significance of a change in government
The role of legislation and assessment of advantages/disadvantages of tight regulation
Implications of the changing nature of the legal environment

Syllabus reference: 3.5

The Political Environment

Limits to democratic political power

n Embraces the activities of the state in setting national objectives, legislating, policy-making and implementation

n Elections provide authority for policy-making

n Political change implies different policy outcomes for different interest groups

n Day-to-day government relies on feedback and cooperation of interest groups, so is susceptible to influence

n Political stability is vital in improving welfare

Role of a government: in market economies l

Significant overall impact in terms of jobs, spending and transfer payments between social groups

l

Influence over key decisions: to work, save, invest

l

Responsible for regulating social/business activity

l

Legislate to shape standards of conduct/behavior

l

Produce a positive and predictable business climate

n Periodic re-election opens government to accountability and external forces

n Operate in an open global system with rules and institutions limiting freedom of action n Pressure to conform: keep national performance in line with other countries n Recognize the power of multinationals and the internet to circumvent political authority

MARKETING ENVIRONMENT

83

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

Why monitor the political environment? l

Alert the business to possible legislation

l

Assess the impact of policy and implementation

l

Recognize the influence of various public bodies

l

Anticipate impacts of alternative political futures

l

Trigger lobbying to represent business interests

Government exerts control over the macroeconomic framework, so impacts on marketers through its distribution of the tax burden as well as the size and composition of its spending

84

Shifting political philosophies have transformed the public sector over the last two decades and impacted on the marketing environment: 3 Many industries have been privatized 3 Many services contracted out to tender 3 Private sector partnership encouraged 3 Markets liberalized through deregulation 3 Targets underline a shift to customer focus 3 Regulators have promoted a marketing orientation

Alternative Political Systems

Why Politics?

n Spectrum from popular democracy to autocracy

Society must resolve conflicts over objectives to pursue and resource allocation priorities

n Autocracy puts power in the hands of a single ruling party and no real choice in elections. Any opposition is repressed/minorities persecuted n Democracy spreads power throughout society with free speech and unbridled media n Autocracy centralizes political power and control

Parties wish to differentiate their USP but must command a wide constituency to gain power Exercise of political power and compromise reflects the reality of competing interests to achieve both stability and necessary change š

n Democracy is characterized by universal right to vote in regular and free elections. The majority rule but minorities are protected

Remember exam questions may require political and economic understanding, e.g. Capitalism versus Communism

MARKETING ENVIRONMENT

85

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

86

Influencing the Political Process

The value of the lobbyist

See the section on Pressure Groups in Unit 2 • Parliament is the supreme legislative body • Business can press for new laws or aim to influence proposals (bills) at an early stage • Lobbying is influencing members of a relevant legislature and soliciting their votes • Important but controversial means of exerting pressure when and where the key decisions are being made • Two-way process as government looks for support in implementation and positive ‘spin’

l

Early warning of proposed legislation

l

Interpretation of implications arising

l

Identification of likely political supporters

l

Informing political decision-makers about your industry problems and developments

l

Co-ordinating pressure on decision-makers

l

Advising the business on its strategy and tactics

l

Helping to secure laws the industry can work with

Supranational Political Institutions

The challenge of the single currency

The European Union (EU) is the most powerful economic block in the world

Implications of entry:

It is expanding as East European nations join to form a market approaching 450 million

3 Reduced currency uncertainty 3 Reduced transactions costs 3 Share of inward investment rises

Membership demands, obligations and loss of a degree of national sovereignity to be reinforced by a draft Constitution, extending majority voting into many new areas of economic policy and foreign affairs The European Commission drafts regulations and directives to ensure a single market prevails and these must be incorporated into national legislation The European Court becomes that of final appeal

3 Increased marketing opportunities 3 Some winners but many losers 5 Doubts over common monetary policy and adjustment processes 5 Unresolved structural problems 5 Inflationary impulse at entry 5 Doubts over convergence 5 Conversion costs hit small firms 5 Possible volatility of E vs. $

MARKETING ENVIRONMENT

87

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

The Legal Environment Made up of an existing framework of laws An independent judiciary interprets and applies common law based on natural justice/common sense Government statutes (new law) to implement its political manifesto and respond to public pressures Enabling legislation delegates authority to government agencies to set standards, interpret rules, conduct inspections and enforce laws using sanctions, e.g. fines Legal provisions of Economic Unions may supersede national law, e.g. EU competition policy requires fines up to 10% of turnover

88

If an exam question asks you to assess the effectiveness of your own country’s legal framework, then consider these criteria: l

Does it ensure a level playing field?

l

Does it resolve disputes and at low cost?

l

Does it balance rights of the business, the individual and wider society?

l

Is fairness achieved without excessive red tape?

l

Does it reflect current concerns and expectations?

Negative impacts of legislation

Positive impacts of legislation

• The cost of compliance: retraining, new equipment, monitoring and control • Competitive disadvantage if costs don’t apply to foreign rivals • Increased risks may deter innovation, e.g. drugs

3 May form a barrier to entry 3 Differentiates the product internationally

• Cost of legal actions, fines, adverse publicity

š

• Drive firms to locate in less regulated economies • Disproportionate burden on smaller firms

3 Compliance to higher standards gains competitive advantage when later introduced in other markets 3 Multinationals may apply common approach in all locations to avoid double standards Be sure to understand the ‘rules’ applying to your examination, e.g. allowable equipment, time allowed, number of questions to answer

MARKETING ENVIRONMENT

89

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

Fair Trading and the Consumer The supply of a good or service without restriction of competition or consumer choice and in accordance with prevailing legislation Relevant legislation n Contractual relationship n Fair Trading Acts provides for: – product safety assurance – product labelling assurance – quality assurance – fair payment terms – honest promotion

Influence on the marketer 3 Clarifies rights 3 Establishes obligations 3 Recourse for damages 3 Discourages rogue traders 3 Fair competition basis 3 Minimum standard required 3 Fit for purpose 3 Duty of care 3 Voluntary codes for more flexible regulation 3 Customer is king

90

Implications for the marketer l

Comply with minimum legal requirement

l

Recognize consequences of failure to meet: 3 expensive legal actions 3 damaged public image 3 stakeholder discontent

l

Implement rigorous control/compliance systems

l

Invest in staff training, especially direct sales

l

Monitor competitors’ ‘conditions of sale’ and any proposed legislation – be proactive

Alternatives to legal recourse n Contracts include dispute resolution clauses n Voluntary codes set industry standards and enforcement n Smaller companies exempt n Quangos or tribunals n Regulators seek assurances

MARKETING ENVIRONMENT

91

THE POLITICAL AND LEGISLATIVE ENVIRONMENT

Accounting Future Legislation n Need to monitor the legal and regulatory environment for potential threats/opportunities n Lobby to apply pressure to legislate where imports suggest an unlevel playing field n Ethical business demands standards in excess of current legal requirements n Office of Fair Trading will act on unfair practices n Adverse public reaction can lead to ‘bad’ laws being rushed in as over-reaction n Current issues over miss-selling pensions, mortgages and other assets; junk mail

92

KEY POINTS ON THE POLITICAL AND LEGAL ENVIRONMENT
A source of potential uncertainty and instability, especially before elections
National and supranational bodies must be monitored
There are many forms of regulation, ranging from custom and practice, through codes and standards, to full statutes
Legal proceedings are normally a last resort, especially for small firms

Hints and Tips l

Read through Unit 7 of the Marketing Environment Coursebook

l

The legal framework is an important part of the marketing environment, so make sure you appreciate its significance

l

Full mini cases unlikely due to the country-specific nature of these environments but part questions quite possible

l

The focus of questions more likely to be on implications and impacts than specifics

l

Questions may provide choice between discussion of alternative environments

l

Refer to Unit 3 for competition polices

l

Consider the political implications of a change of government in your country

l

Prepare trigger word plans for all the exam questions at the end of the unit

l

Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

MARKETING ENVIRONMENT

93

THE TECHNICAL AND INFORMATION ENVIRONMENT

Unit 8

LEARNING OUTCOMES

KEY REVISION POINTS


Understand the nature and importance of technical change
Explain the role and impact of information communication technologies
Recognition of constraints on the drivers of change
Appreciate the significance of the information revolution


Role of business in driving technology and the nature of the diffusion process
The importance of technological forecasting
Information technology and its marketing applications
Future applications of ICT
Marketing implications including resistance to change

Syllabus reference: 3.7

The Influence of Technology l

Impacts on all aspects of life

l

Fundamental to improvement in productivity

l

Interdependent with skills/skill acquisition

l

Shifts production possibilities outward

l

Underpins advances in marketing

l

Central to new product development

l

Source of new processes and techniques

l

Critical to the effective use of information

Stages in development of new technology: n Research þ Accumulation of Knowledge n Invention þ Development of new ideas/ applications n Innovation – commercial exploitation of an idea n Diffusion – rate of adoption through target market n Refinement – to fully exploit the new technology

MARKETING ENVIRONMENT

95

THE TECHNICAL AND INFORMATION ENVIRONMENT

96

The Information Society

n Electronic funds displace cash base

Technological progression from agricultural through industrial revolution to service economy, accelerating in most recent phase of post-industrial information and communication society

n Technological dependence, e.g. air traffic/banks

n Technological change is ubiquitous n Convergence of computer-telecommunicationsmedia technologies: ownership widespread n Extension of human capabilities via mobile, etc.

n ICT has transformed closed systems into open ones, e.g. China through the internet n Role of women transformed by convenient, labour-saving technologies in the home n Potential global vulnerability to viruses n Potential for socio-economic disruption if system failure

Business Drivers of Technology

l

Business is the main driving force due to the competitive threat posed by a technological edge n Global competition – powerful incentive to innovate products/more efficient processes n Changing consumer tastes n Stage of the product life cycle n Size of the firm

Fifty-year innovation cycle Economic development progresses in cycles based on clusters of innovations As a cluster reaches maturity in its life cycle and sales falter it forces business to invest in radical new technologies

l

Creative destruction Technological innovation as the dynamic of capitalism – provides an incentive for development of substitutes to challenge current market dominance

MARKETING ENVIRONMENT

97

THE TECHNICAL AND INFORMATION ENVIRONMENT

Technological Diffusion

n Marketable characteristics and applications

}

n Environmental credentials are positive

The rate at which firms adopt innovations appropriate to their industry and market.

~

Determinants of rapid adoption: n Profitability – the more profitable the technology relative to the existing technology n Deterrence – the more significant the cost consequences of not adopting the technology n Investment – development cost outlays are manageable n Structure of market – large firms with big resources in concentrated industries

n Change Agent – requires a risk-taker and entrepreneur to lead development

Technological Transfer n One firm to another via licensing n From military to industrial usage n From developed to developing countries via multinationals n Enhances global productivity n Key part of development process n Spin-off skills to second-generation domestic businesses

98

Technological Forecasting

Morphological analysis

}

– Systematic analysis of feasible alternative combinations of product characteristics

Involves the extrapolation of existing trends or identification of feasible technologies within a given timeframe.

~

Scenarios – Views of the technological future

n Must monitor own industry rivals and potential competitors n Underpins long-term planning n Audit current technology and extrapolate trends n Screen to remove ‘improbables’

Delphi techniques – To distil the expertise of practitioners

Imitate first mover – Only feasible if timely/well resourced

MARKETING ENVIRONMENT

99

THE TECHNICAL AND INFORMATION ENVIRONMENT

100

The Power of the Internet

n Is a powerful communication/promotional tool

}

n Allows low-cost entry to a global market

Global computer network providing computer access for computer users to innumerable international, public, and private networks.

~

It enables e-mail communication, information exchange and commercial transactions for users n It meets corporate information needs: Access to databases on markets and competitors n It meets consumer information needs: Websites for convenience, versatility and transparency in product and price comparison

n Provides a channel for e-commerce: 24/7 connectivity, speed of response, interactive n Vehicle for flexible business solutions: Facilitates development of digital super-highways delivering text/sound/vision, teleworking, etc. n Undermines traditional channels: Imminent threat to music and publishing industries n A major engine for economic development and job creation

ICT Applications to Marketing

Promotion

š

l

Database marketing for segmentation

l

Targeted promotional messages

l

Building long-term customer relationships

l

Promotional websites

A common question format involves an industry context and explanation of 3–4 developments with applications to marketing

Product l

Computer analysis of market research findings

l

Computer-aided design and manufacture

l

Just-in-time delivery to optimize floor space

l

Flexible manufacturing systems

l

EPOS stock control/automatic replenishment

l

Transportation models to optimize delivery

l

Customized on-line ‘home’ deliveries

Price l

Point of sale analysis of buying patterns

l

Computer analysis of price changes

l

Customer databases for purchase history

l

Electronic funds transfer

Place

MARKETING ENVIRONMENT

101

THE TECHNICAL AND INFORMATION ENVIRONMENT

102

E-business to Business

The challenge to business

n Rapid growth of business to business transactions using the internet as a global trading exchange for procurement

l

Requires a cultural change

l

Risk of displacing established supply relationships

l

Need for assurance on quality and service

n Potential to transform the productivity and profitability of supply chains

l

High deterrence factor if global potential for cost savings is ignored

n Horizontal exchanges using electronic auctions and tenders cater for supplies common to all

l

Need to develop competence in global electronic collaboration if to secure operational efficiencies

l

Price transparency shifts bargaining power from seller to buyer – lower margins as strategic driving force for exploiting opportunities

n Electronic data interchange (EDI) evolving through use of intranets – private networks using internet standards but with access controlled or limited to designated organizations and/or personnel

Mass Customization

}

Customer databases

Mass marketing solution tailored to the needs of the specific customer.

~

n Enabled by computer-integrated manufacturing, e.g. vehicles n Robotic production line – each unit individually specified n Buyers specify design elements n ICT provides the link

l l

l

l

l

Complements mass customization Computers mine, capture, store, process and analyse individual buyer behavior Opportunity to fine-tune marketing mix for each customer/target group Past purchase history used to anticipate future wants Mail-order/on-line retail applications

MARKETING ENVIRONMENT

103

THE TECHNICAL AND INFORMATION ENVIRONMENT

Organizational Impacts Teleworking Working from home but linked to the organization by ICT Facilitates work–life balance Scope for productivity gains l Reduces unproductive time l Employee empowerment l Savings in overheads l Global location possibilities BUT l l

– Quality control issues – Losing touch with organization – Social isolation

104

Teleconferencing n Digital broadband allows networked text, video and graphics n Economizes use of ‘scarce’ executive time n Travel reduced to global clients and stakeholders n Improves communication and contribution in meetings

Virtual (networked) organizations n ‘A small core organization that outsources major business functions’. n Few overheads, computers integrate contribution, highly flexible but big premium on control and coordination

Resistance to Change

MARKETING CHANGE

Technical change has always been resisted:


Identifying and anticipating the likely impacts of the proposed change
Timely communication with affected stakeholders
Consultation over proposed change
Securing the participation of those affected in driving the change process
Promoting ‘change’ as the norm

– Double-edged by its nature: has goods and bads – Process innovations ¼ short-term unemployment – Product innovations ¼ long-term growth – Internal resistance from managers/employees – External resistance of customers, suppliers, etc

Causes of resistance include: l

Force of habit

l

Social and economic needs threatened

l

Culture of complacency

l

Legislation, custom and practice

l

Pressure from interest groups

l

Negative experience of past change

MARKETING ENVIRONMENT

105

THE TECHNICAL AND INFORMATION ENVIRONMENT

106

Hints and Tips

n Be as up-to-date as possible

n Read through Unit 8 of the Marketing Environment Coursebook

n Candidates from developing economies suffer weakness in this area so must work harder to make it a strength

n Be aware of the ICT used by your own organization (or college) n Prepare examples that link new technology to stakeholders and to improving marketing mix effectiveness n CIM views using information communication technologies and the internet as one of the ‘key skills’ of the complete marketer

n Has been the subject of a full mini case but part question more likely n Questions might be linked with Unit 9 n Prepare plans or outline answers for each of the specimen exam questions and get it checked by a tutor or past student n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

ENVIRONMENTAL INFORMATION SYSTEMS

Unit 9

LEARNING OUTCOMES

KEY REVISION POINTS


Understand the importance of information and the concept of a marketing information system
Appreciate the role of market research
Explain the techniques for forecasting future demand
Assess the importance of information systems in meeting the challenge of change


The distinction between marketing data and marketing information
The contribution of market research to the development of strategy and planning
The role and importance of information systems to marketing decision-making
Information technologies that enhance marketing effectiveness
Methods of analysing environmental information

Syllabus reference: 4.1, 4.2, 4.3, 4.6, 4.7

MARKETING ENVIRONMENT

107

ENVIRONMENTAL INFORMATION SYSTEMS

n Lifeblood of the organization

What is ‘quality’ information?

n Control over information provides power over competitors and the environment

– – – – – – – –

n Informed and effective decisions need information n Information is data that is collected, ordered, processed and analysed in time for relevant decisions to be taken n An input in SWOT analysis for strategy purposes n Fundamental to control by comparing actual to planned achievement of objectives

right sources sufficent for purpose timely cross-referenced communicated clearly available to appropriate decision-makers cost-effective concise, avoiding overload

108

Smart Marketers l

Recognize the importance of information

l

Realize that knowledge is power

l

Understand the need to manage information

l

Develop the necessary information skills such as networking and the effective use of ICT

l

Build a network of business environment contacts

l

Use quality information to make better decisions

l

Form strategies to cope with information explosion

A personal information system – Daily scanning of news media – Review of trade press – Network of organizational and stakeholder contacts – Personal database – Online to central database – Electronic diary – E-mail/fax/internet connection – Mobile communications – Skill in video/teleconferencing – Ability in desktop publishing

MARKETING ENVIRONMENT

109

ENVIRONMENTAL INFORMATION SYSTEMS

Marketing Information System

}

The people, equipment and procedures to gather, sort, analyse, evaluate and distribute needed, timely and accurate information to marketing decision-makers. (P. Kotler)

~

110

‘To manage a business well is to manage its future – to manage its future is to manage information’ (Harper Jr)

Marketing intelligence – distilled from stakeholders and market/competitor research

Subsystems

Marketing research

– – – – – –

– lack of secondary sources – to identify threats and marketing opportunities – monitor effectiveness of the marketing process

a a a a a a

sensing/monitoring system classification system processing system database and retrieval system control system communication system

An Integrated Internal and External Information System

MARKETING ENVIRONMENT

111

ENVIRONMENTAL INFORMATION SYSTEMS

Online Information An information service that is in active and continuous communication with a central system that is frequently updated — allows the marketer to access, for example, current prices, competitor data, supplier status, economic and financial context, specific product and market information

Online positives – – – – – – – – –

Real time Remote access via mobile or laptop Interactive Time-saving Flexible Sales support Quality; information on tap Competitive edge Falling cost

112

3 Online access to the changing environment 3 Search engines facilitate access to external databases 3 Enables telecommuting and enriches sales and executive effectiveness in the field 3 Must be combined with human judgement 3 Must balance cost/avoid information overload

Importance of Marketing Research

}

The process of collecting and analysing information in order to solve marketing problems.

~

• Provides specific information not available from secondary sources • Provides quality information when it is needed

Benefits of marketing research l l l l l l

Organization specific Defines problems Future orientated Potential competitive edge Tailored to providing solutions Informs strategy and planning

• Helps to define the customer/their future needs • Identifies opportunites and threats • Calculates market potential, assesses trends, analyses competitors and feeds in to forecasts • Prerequisite to marketing mix decisions

MARKETING ENVIRONMENT

113

ENVIRONMENTAL INFORMATION SYSTEMS

Forecasting: Problems

Meeting the forecasting challenge

}

A. Abandon forecasts

Quantitative and qualitative estimates of the future.

~

114

– Impractical: marketing is planning

n The future is essentially unknowable, yet marketing concerns anticipating needs and wants

– Clear view of the future required even in day-today decisions

n The longer the time horizon the greater the uncertainty, yet future planning is essential

B. Flexible response

n Uninsurable business risk of producing in anticipation of demand

– Only possible if short planning horizons

n Which are the ‘right’ forecasts? When does a pattern become a trend? When are the turning points? What is the pace of change?

– Aim for rapid adaptation to environment change

C. Improve conventional forecast – Obtain quality data input – Apply statistical methods to extrapolations – Based on past relationships/historical data

Qualitative forecasts Delphi: Combined view of experts – Relies on human judgement and expertise, not statistical technique – May be functional specialists, academics or consultants – Each makes an independent forecast, then all feed back for comment and refinement – Informed consensus results – But costly, time-consuming, may reflect common mindset

Scenarios: Alternative views of the future – Need more than one to compare – Describes possible futures using different assumptions regarding key variables – A tool for understanding context of strategic decision-making – Places responsibility on the decision-taker, not the forecast – Based on belief that the future cannot be measured or controlled

MARKETING ENVIRONMENT

115

ENVIRONMENTAL INFORMATION SYSTEMS

Techniques for Analysing Information A. Environmental audit A formal means of taking stock of an organization’s marketing environment. It involves examination of markets, competitors, external environments, opportunities and threats. l l l l l l

Systematic assessment Current situation Input to strategy Complements marketing audit Means of control Respond and adapt to any deviation from realization of objectives

B. Environmental set A ranking of the key environmental factors currently impacting on the organization and specific to it. • Starting point for envionmental assessment • Focus on critical impacts • Set factors change in importance over time • A threat for one organization may be an opportunity for another

116

C. Impact Grids l

l l

l

Assesses likely impacts of changing environmental parameters on the organization/ rivals Allows visual comparative analysis Cross impact analysis recognizes that the impact of a change in one variable may affect others, causing positive or negative feedback effects Influence diagrams also seek to classify cause and effects of key environmental factors

D. SWOT Analysis n Internal strengths and weaknesses compared to competitors n Identify and assess external threats and opportunities n Uses output from internal and external audit and forms input into strategy/planning n Use matrices to rank opportunities by degree of attractiveness/probability of success and to rank threats by probability of occurrence/ degree of impact

MARKETING ENVIRONMENT

117

ENVIRONMENTAL INFORMATION SYSTEMS

Continuing Impact of ICT Convergence of information technology and digital communication advances

118

ICT Effects on Organizations l l

l

Driver of change in a dynamic information society

l

l

Precisely targeted communication

l

l

Ultimate information source for marketers

l

Development of digital broadband via cable, satellite, TV aerial and 3G mobiles

l

Exponential growth in developing countries

l

Interactive internet facilitates networks and relationships: connected stakeholders

l

Better connectivity to stakeholders Two-way communication to customers — opens up opportunities E-business to business having dynamic effects New intermediaries emerge, e.g. infomediaries in marketing research Scope for virtual organizations

Hints and Tips n Read through Unit 9 of the Marketing Environment Coursebook n Combine revision with that of information sources in Unit 3 and Unit 4 n Element 4 of the syllabus is relatively new and very important, so optional questions continue to be posed relatively frequently n Also expect at least part questions in the mini case n Revise all aspects but particularly MIS, SWOT, forecasting techniques and ICT

n To manage your exam you must manage your information, i.e. organize revision notes n Environmental information systems may be linked with other aspects of the syllabus n Important: prepare outline answers for all the exam questions at the end of the unit n A common cause of not passing the exam is failure to answer the question posed: so practise on past questions; follow key word instructions; provide format and context n Go to www.cimvirtualinstitute.com and www.marketingonline.co.uk for additional support and guidance

MARKETING ENVIRONMENT

119