CIM REVISION CARDS

Marketing EnvironmentMike Oldroyd of Marketing Knowledge

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TABLE OF CONTENTS

Preface .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv1. The nature of the organization .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. The microenvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183. Analysis of the competitive environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304. The macroenvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445. The demographic social and cultural environment . . . . . . . . . . . . . . . . . . . . . . . . . . . 556. The economic and international environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687. The political and legislative environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828. The technical and information environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949. Environmental information systems .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

PREFACEWelcome to the CIM Revision Cards from Elsevier/ButterworthHeinemann. We hope you will find these usefulwhen coming to revise for your CIM exam. The cards are designed to be used in conjunction with the CIMCoursebooks from Elsevier/ButterworthHeinemann, 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 assignmentroute.

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 CIMcourse. 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 THEORGANIZATIONLEARN ING OUTCOMES

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

Syllabus reference: 1.11.9

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

Plan/answer time-frame is 3035 minutes

KEY REV IS ION PO INTS

The interrelated and ever-changing nature of adynamic environment

Strengths and weaknesses of various forms oforganization

Differing missions and objectives and the forcesthat influence them

Organizations as systems within the widerenvironment

Flexible response to contingencies withmarketing orientation as a success factor

Unit 1

MARKETING ENVIRONMENT 1

Marketing Environment (1.1)

CIM defines marketing as:

} The management process which identifies,anticipates and supplies customerrequirements 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 ascompetitor offerings

n Identify impact of broader environment on markets

A main aim of the syllabus is: To explain thenature of the marketing environment and itsrelevance for organizations and marketingpractice

} The firm is a creature of its environment.Its resources, its income, its problems, itsopportunities and its very survival aregenerated and conditioned by theenvironment. ~ (Ansoff)

Organizations operate in an environment ofconstraints, threats and opportunties

Need to monitor for and understand significantchanges

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 andplanning

THE NATURE OF THE ORGANIZATION 2

Types of Organization (1.2)

Public sector organizations

n State-provided goods or servicesn Driven by government objectivesn Socially desirable goals, e.g. equityn Supply public goods to all, e.g. defencen Ensure supply of merit goods, e.g. education/

healthn Funded by taxation, fees or government

borrowingn Recent privatizations/deregulation (encourage

marketing orientation)n Shift from direct providers to service facilitatorsn Public/private partnerships marry strengths

of each

Private sector organizations

n Marketable output and exportsn Privately owned and controlledn Businesses compete to satisfy consumer wantsn Profit drives effective and efficient use of

scarce resourcesn Includes global multinationalsn Shareholder concerns may override social

concerns

Voluntary sector organizations

Normally non-profit-making

Rely on voluntary contributions and dedicated staff

Compete for funds/public attention for causes

MARKETING ENVIRONMENT 3

Business Classifications (1.2)

Sole Trader characteristics

n Simple to formn Individual owns and controlsn Unincorporatedn No separate legal existencen Self-employedn Individual is the business

Advantages Disadvantages

Maximum privacy Unlimited liability for

Minimum formalities debts

Favourable taxes Specialized and high

Least cost to form risk

Focused/motivated Jack of all trades/

Close to customers narrow view

Close to employees Burden plus lack of

Flexible/responsive continuity

Hard work and longhours

A lot of competition

Lack of managementskills

THE NATURE OF THE ORGANIZATION 4

Partnerships characteristics

n Unincorporatedn Two or more partnersn By agreement/lawn Legal maximum, e.g. 20n Jointly liable for debtn Share profits/lossesn 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 partners

Privacy high death

Vulnerable ifmalpractice

MARKETING ENVIRONMENT 5

Registered Companies characteristics

n Dominant formn Public (plc) and private limitedn Incorporated by lawn Shareholders contribute capitaln Regulated by Memorandum (external scope)

and Articles (internal administration) ofAssociation

n Submit independent audited accounts/directors report

Issues

Short-termism, take-over threat

Fat cat remuneration levels

Advantages Disadvantages

Separate legal form Complex/costly to

Limited liability form

Finance raising Disclosure

Easy share transfer requirements

Fund development Government

Customer confidence regulations

Operational inflexibility

Size may breedimpersonality

Ownership/management divide

THE NATURE OF THE ORGANIZATION 6

The case for privatizing

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

Political considerationsl Poor record of efficiencyl Susceptible to pressure groups like unions and

political interferencel Limited by government fundingl Privatization reduced state rolel Led to deregulation/cut red tapel Encouraged wider share ownership notably

customers and workforcel Greater freedom to market servicesl Sale cuts government borrowingl Regulators appointed with powers to enforce

change, e.g. Oftell Examples: water; gas; electricity; telecoms;

lotteries

Economic considerations

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

Questions set on organizations often call forcomparison of types or sectors

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

MARKETING ENVIRONMENT 7

Strengths of SMEs (1.3)

l Cater closely for local customersl Sensitive to buying habits/tastesl Able to focus on a niche marketl Owns business/attention to detaill Flexible/adaptable organizationl Attract quality staff unwilling to work in large

firml Finger on pulse as needs changel 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 Economies of scale, e.g. discountsl Risk spread across various marketsl Justify use of specialized skills, etc.l Secure cheaper financel Exploit best practicel Transfer technology and ideasl Vast bargaining power re suppliersl Ability to centralize strategyl Advantage from brand leadership

Relative weaknesses

See registered company drawbacks Reverse of small firm strengths*

THE NATURE OF THE ORGANIZATION 8

REMEMBER-Vision is the ability to imagine or foresee the futureprospects/potential for an organization.Mission is the statement of the organizationsoverall purpose that expresses what it stands forand seeks to accomplish in the wider environment

Vision is the responsibility of top management

Anticipates how markets, tastes, technologiesevolve

Critical importance in formulating marketingstrategy

Triggers the mobilization of resources to achieve it

Drives organizational behavior

Key to securing a competitive edge

Example of vision: a PC with Windows software onevery desk (Microsoft)

Example of mission: To organize the worldsinformation (Google)

Mission statements (1.4)

Meaning: Describes core activities

l Fundamental reason for organizations 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

l Provides a set of corporate values and priorities

l Clear statement for external stakeholders

l Provides a benchmark for assessing performance

MARKETING ENVIRONMENT 9

Organizational Objectives (1.4)

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

NATURE

l Strategic objectives are long-term goals set bysenior management, e.g. achieve marketleadership

l Tactical objectives are set by middle managersand are more measurable, e.g. open 10 new outlets

l Operational objectives are short-term and set byfirst line managers, e.g. cut customer complaintsby 5%

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

l Objectives vary by sector:

Charity: Alleviate suffering/raise contributions

Public: Public service/equity/cost effectiveness

Private: Maximize profit/growth/maket share

SIGNIFICANCE

l Reason why organizations existl Drive organizational behaviorl Supply motivation/sense of purposel Time-limited targets provide controll Survival/profit stimulate competitionl Profit maximizing (revenue cost) ensures that

firms supply what consumers are prepared topay for, using methods that minimize cost

l Rapid response to changing tastes/innovation ofmore efficient method

l Marketing may pursue market share/sales max. profit constraint

l Growth provides opportunities

THE NATURE OF THE ORGANIZATION 10

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 withexternal 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

Organizations as Systems (1.6)

l View organizations as part of a wider systeml Inputs are drawn from environment and

converted into outputsl Positive (goods, services) and negative (wastes)

outputs are returnedl Organizations made up of subsystems

(e.g. marketing, production)l Boundary between systems represents

interfacel Feedback corrects deviations in outcomes

vs. aimsl Interdependent with environmentl Scan/adapt to threats/opportunities

Marketing Interface (1.6/7)

n Organizations often split into various functions soefficient conversion needs effective coordination

n Departments must optimize not maximize bypursuing the best organizational outcome

n Marketing critical: bridges the boundary betweenthe wider environment and internal departments

n Must establish/maintain relationships across andwithin the organizational boundary, e.g. production

n Demands a marketing orientation: focus onsatisfying the needs of the buyer via the product/things associated with creating, delivering andfinally consuming it. (T. Levitt)

THE NATURE OF THE ORGANIZATION 12

MARKETING ENVIRONMENT 13

Dynamic Environment (1.8)

Marketing environments are in constant changeMany environments are turbulent and subject tounpredictable and often uncontrollable forces:n Increasingly competitive markets are in flux,

e.g. stock, currency, ICT and energy markets

n Technological forces, political discontent, variableprosperity, fundamentalism also disturb stability

n Even the natural environment appears unstablewith freak weather conditions

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

Importance to marketing

l Creates ambiguity over future patterns

l Can create opportunities if managed well

l The environment must be monitored and analysedto identify threats and potential impacts

l Prioritize on most significant developments

l A proactive response is demanded

l Reduce resistance in favor of a culture of change

l Requires flexible, decentralized, organic structures

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

l Complex markets involve many interdependentcausual factors producing non-routine problems

THE NATURE OF THE ORGANIZATION 14

Managing the Environment (1.8)

A contingency approach:

Appropriate marketing action depends on theparticular circumstances of the situation ratherthan predetermined rules or policies

Marketers must recognize there are no certainties ina global economy-tailor response to an evolvingsituation

Even McDonalds must modify its universal formulato match competitive/cultural realities Indiassacred cow

Logical development of the systems perspective todetermine appropriate responses in the face ofmulti-faceted change

Organizations of the future

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 ofkey functions

MARKETING ENVIRONMENT 15

Emerging Challenges (1.9)

E-commerce

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

Globalization

Rise of multinationals treating the world as anintegrated market place for resources and productsand developing relatively standardized products tomeet customer needs

Increasing competition

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

Significance for marketing

n Rising on-line sales challenge traditional retailers

n Source of competitive advantage for supply chain

n Large reduction in transactions cost

n Need to monitor the global market-place

n Threat of competition in domestic market

n Small firms must exploit niches

n Price must be comparable even whendifferentiating

n Action on monopoly abuse Microsoft E497m fine

n Broadband allows tailored promotion andinteraction

n Mobiles becoming a critical marketing resource

THE NATURE OF THE ORGANIZATION 16

Hints and Tips

l Read through Unit 1 of the MarketingEnvironment Coursebook

l Seldom the main focus of a mini case or even casequestions

l Normally at least one full optional question perpaper but may overlap with other sections

l Many optional questions are set in a specificorganizational context

l Focus to ensure you answer the question

l Breakdown different components of the questionsto ensure you address all of the issues

l Make outline plans of all the exam questions

l Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

Identify organizational questions Q2 or Q3

*Note the potential overlap of points from differentparts of this syllabus section

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

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

Your revision provides an example of an opensystem you draw knowledge from lectures/readings; convert it into understanding to yieldoutput as coursework and get feedback

MARKETING ENVIRONMENT 17

THE MICROENVIRONMENT

LEARN ING OUTCOMES

Appreciation of interconnected environments Importance of stakeholders and their

interaction Significance and impact of pressure groups Role of marketing in managing these groups

Syllabus reference: 2.1, 2.2, 2.5

KEY REV IS ION PO INTS

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

Unit 2

Microenvironment Context (2.1)

Includes the groups and organizations close to thebusiness that affect its ability to satisfy customers.

They have a two-way operational relationship withthe business and may be influenced by it to somedegree.

n Refer back to systems theory

n All organizations aim to make resourcesproductive

n Resources are scarce and diverse

n They must be attracted from the environment

n Inputs are transformed in time, place or form tocreate utility, value and satisfaction for thecustomer

n Ineffectiveness or inefficiency threatens survival

n Resource providers are stakeholders

Classifying the environment

n Organizations face a confusion of environmentfactors

n They need to sort and classify these factorsn They may or may not represent threats/

opportunities for marketersn Represent jigsaw pieces for grasping the

bigger picturen Include all factors/forces with significant

impact on organization

MARKETING ENVIRONMENT 19

The Microenvironment

THE MICROENVIRONMENT 20

Stakeholders defined

Any group or individual, other thanshareholders, who can affect or are affected bythe achievement of organizational goals.

Primary stakeholders make a direct and oftencontinuous contribution to core activities.

The impact on or by secondary stakeholdersis more intermittent and normally of lesssignificance.

n Organizations are coalitions of stakeholders

n Management needs a workable balance betweenthe claims and interests of these groups

n Shareholders are owners of the business

Microenvironment stakeholders

Suppliers

n Key to availability, delivery times and inputquality

n Wield bargaining power to drive up cost ofmaterials

n Relationships affect supply chain effectivenessn Dependence on 1 or 2 suppliers carries risksn Preferred suppliers may provide total quality,

just-in-time delivery and R/D support

MARKETING ENVIRONMENT 21

Competitors

n Potential threat to survival and profitability

n Must monitor actions and reactions of rivals

n Price wars may erupt from time to time

n Marketing mix may be deployed to influence them

n May have common interest in collaboration

Customers

l Often sole source of revenuel Free to withdraw/transfer customl Dissatisfied customers tell othersl Preferences may change quicklyl Influence through marketing mixl Retaining customers more cost effective due to

potential lifetime revenue flow

Intermediaries/distributors

l Critical role/channel effectivenessl Partnership offers advantages: transport, stock

management, merchandising, after-sales, etc.l High leverage, e.g. own brandsl E-commerce disintermediation?l 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/poormorale

n Evolution of flexible working patterns/virtual orgs.

THE MICROENVIRONMENT 22

Microenvironment importance

Operational context for day-to-day tacticalresponses

Marketer at critical interface between primarystakeholders: organization

Successful value chains are clusters ofcollaboration

Marketing mix deployed to influence actual andpotential stakeholders

Stakeholders can damage/advantage so choiceof competing or cooperating

Stakeholder Pressures (2.2)

l Organization cant operate in isolation

l Must satisfy legitimate expectations ofstakeholders if these are to contribute value inreturn

l Contributions may be withdrawn, e.g. shopelsewhere

l Stakeholders can change organizational goalsunless effectively managed

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

MARKETING ENVIRONMENT 23

Stakeholder Typology

THE MICROENVIRONMENT 24

Stakeholder pressure and expectations

Customers

Pressure via reduced purchases, boycott andcomplaint

Expect value for money, quality products and service

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.

Managing Stakeholders (2.2)

l Recognize the behavior of organizations hasbecome everybodys business

l Know who the critical stakeholders are

l Map stakeholders by level of interest in theorganization and their power to influence outcomes

l Use internal and external marketing to resolve orbalance stakeholder conflicts

l Keep key stakeholders well informed and on-side

MARKETING ENVIRONMENT 25

Pressure Groups (2.4)

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

Distinguish

l Sectional or interest groups who exert pressureon people, organizations and government for theirown special purposes, e.g. unions

l Cause or promotional groups with commonvalues and a specific issue, e.g. Friends of theEarth, World Wildlife Fund, CND

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

Means of achieving their aims

Complain, e.g. to the media/regulators

Inform and persuade affected parties

Debate at local meetings

Lobby elected representatives/officials

Canvass and opinion form re stakeholders

Boycott company products or services

March and demonstrate outside business

Legal action and test cases

Demand negotiations for concessions

THE MICROENVIRONMENT 26

Example: Consumerists

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

Impact on marketing

3 Customers no longer suffer in silence

3 Encouraged proactive businesses to adopta customer orientation

3 Consumer rights enshrined in fair trading laws

Right of Safety Issues: tobacco, GM foods, additives

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

Right to choice: deregulation, reduce entry barriers

Right to a hearing: Poor service/substandardproducts

Example: Environmentalists

Groups and organizations who seek to applypolitical, economic and moral pressures onbusiness to adopt sustainable operations.

Significance for marketer

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

Rising concerns imply extra costs and higher prices:

l Corporate image damaged

l Customers may opt for less harmful alternatives

l Shareholders may switch funds to ethically sound

l Recruitment of high calibre staff affected

l May prompt over-strict legislation if fail to act

l Loss of community/local government support

l Cost penalties legal claims, product recalls

MARKETING ENVIRONMENT 27

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 supportthrough meetings, demonstrations, internetpetitions

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 theirexpertise

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

THE MICROENVIRONMENT 28

Hints and Tips

n Read through Unit 2 of the MarketingEnvironment Coursebook

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

n Key case terms are highlighted in bold

n Questions normally in context of a selectedindustry

n Normally 2 or 3 part questions

n Normally at least one full optional questionper paper but may overlap with others

n Make outline plans of all the exam questions

n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

The mini case counts for 40% of the marks andnormally has 4 parts. 40% of your 3-hour examtime is 72 minutes so spend no more than18 minutes per part (including reading)

Re-read question and underline key words

Make trigger word plan. Use marks as a guide

Get feedback on your understanding

Differentiate your examination script to theExaminer by making it stand out as a premiumproduct

You can relate this syllabus area directly to yourown experience as customer, employee andmarketer

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

MARKETING ENVIRONMENT 29

ANALYSIS OF THECOMPETITIVE ENVIRONMENTLEARN ING 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%)

KEY REV IS ION PO INTS

Characteristics of fragmented and concentratedindustries

Description of five-force analysis and itsstrategic implications

Review of competition law and practice Key sources of information on the

microenvironment

Unit 3

Monitoring Competitors (2.6)

Competitive behavior involves actions andreactions of businesses to improve theirprofitability and market position at the expenseof rivals.

Importance

l Competition impacts directly and continuously

l Forms a two-way interaction

l Marketers must understand the dynamics ofdifferent markets and the realities of competition

l Marketing strategy, tactics and responses must beset in the context of a changing marketenvironment

Intense competition: Characteristics

Large number of small buyers/sellers

High degree of market knowledge

Rational consumers and businesses with highdegree of market knowledge

Ease of market entry or exit

Price takers set by market forces

Examples: materials/foodstuffs; commodities inmaturity (PLC); e-commerce creates pricetransparency

MARKETING ENVIRONMENT 31

Industry types: Fragmented industries

Large number of small competitors

Rational to monitor closest rivals

Easy entry to and exit from the market

Adaptability to market diversity yields competitiveadvantage via innovation or successfuldifferentiation

Firms stress USPs but high profits are soonreduced by imitation/new entry

Supply of me-too goods low margins

Marketing implications

Strategic actions

3 Monitor close rivals and new entrants

3 Invest in relationship marketing

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 a moving target3 Product differentiation and branding

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 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 toprice stability in oligopoly

3 If cut price others follow suit to protect marketshare

3 If raise price others dont follow, so they gainshare

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

Porter Five Force Analysis

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 34

Strategic and marketing implications

n Long run profitability rest on five forces thatgovern distribution of value added created by thefirm

n The analysis exposes what is driving competition

n A competitive strategy is required to achievegoals, identify a defendable market position andsecure a competitive advantage

The intensity of inter-rivalry

n Ranges from zero (powerful monopoly) tocut-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, productdifferentiation

Threat of substitutes

An industry is a group of firms producinggoods and services which are close substitutes all goods compete for limited purchasingpower, i.e. package holidays with hot tubs

n May involve substitute material, alternativetechnology, new distribution channel(e-business)

n Intense future rivalry if substitute price/performance ratio is high

n Switching costs are very lown Buyers are informed and willing to search

MARKETING ENVIRONMENT 35

Threat of new entry

n Entry causes supply capacity to rise tendingto reduce prices and increase input costs

n High profitability attracts entry but barriers maydelay it

n Entry is less likely where:l Existing profitability lowl Barriers to entry are very highl Economies of scale fully exploitedl Set-up capital requirements highl Brand loyalty is highl Switching costs are highl 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.

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 36

Strategic Implications (2.6)

} Companies succeed as long as they havematched their products and services totodays marketing environment. ~ (Kotler)

Strategy matches strengths/weaknesses of onesresources to risks/opportunities of externalenvironment

Three generic strategies provide the means ofachieving a sustainable advantage and above averageprofitability:

Broad cost leadership emphasis on efficient scale,tight cost control, entry barriers and proximity inproduct

Broad differentiation proximity in cost but focuson unique and highly promoted product

Cost or differentiation focus on least vulnerableniche

All these strategies are competitive options

Market reality suggests collaboration as an alternativeor complementary strategy

The ultimate in collaboration involves cartels. If thesecontrol industry supply, then output may be controlledand prices/profitability raised, e.g. OPEC

Cartels tend to weaken due to internal dissension, atendency for substitutes to be offered outside thecartel, and the difficulty of internal policing to preventcheating

Collaboration short of cartels can be achieved via:

relationship marketing

partnerships

alliances

MARKETING ENVIRONMENT 37

Competition Policies (2.7)

Rationale

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

Relevant legislation

l Restraint of trade: most agreements must nothave terms that restrict/prevent a person doingbusiness

l Restrictive practices: bans agreement betweenthe majority of firms affecting their freedom ofaction

l Fair Trading Act: agreement must be registeredwith Director General and are presumed againstthe public interest unless justified

l Competition Commission: considers cases ofreferable monopolies and mergers (25% marketshare/if creates a monopoly)

l EU legislation: overrides national laws to coverthe Single Market

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 38

Impact of policies

On the organization

l Fines of up to 10% of turnover

l High profile E497m EU fines on Microsoft forabusing its market power in bundling up functionslike Media Player

l Adverse impact on company image

l Surveys suggest that majority of mergers do notadd value and many destroy it

l Limit ability of organizations to dominate marketsor collaborate to control output and prices

On the marketing environment

l Only a small proportion of qualifying monopoliesreferred but demonstration effect applies

l Ratchet effect of EU directives, e.g. endingexclusive car dealerships is transformingcompetition

l Regulators impact on privatized naturalmonopolies through a range of powers includingprice cuts

l Complaints can be made to the Director Generalwho may institute an investigation, e.g. parallelpricing in electrical goods

MARKETING ENVIRONMENT 39

Information Sources (2.3)

(Cross-refer to 3.2 and Unit 4)

Collecting Information and its Interpretation andPresentation are key marketing skills

Awareness of information on the marketingenvironment 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 futureplans

3 Understanding competitors, potential entrants,suppliers/distributors via analysis of balancesheets, pricing structures, market shares,marketing mix, etc.

Competitor analysis

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

l Identifying strengths and weaknesses

l Understanding rival response patterns

l Avoiding surprises, e.g. product development

l Focus on quality information

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 40

Information needs

Financial Information

3 Balance sheet: cash flow

3 Turnover and profit

3 Financial state: assets, debt

3 Rate of growth

3 Export performance

Sources

l Company annual accounts

l Company Registration Office website

l Commercial databases, e.g. Datastream

Organizational information

3 Current problems and opportunities

3 Key decision-makers

3 New posts and recruitment patterns

3 Investments, new ventures, closures

3 Take-overs and acquisition

Sources

l Trade and quality press

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

l Common stakeholders

MARKETING ENVIRONMENT 41

Production and product information

3 Number of employees

3 Product range and quality

3 Production cost and specification

3 Location and scale of operations

3 New product development

Sources

l Trade Associations

l Chambers of Commerce

l Patents Office

Marketing information

3 Price terms and discount structure

3 Market share

3 Packaging and delivery

3 Advertising and promotion

3 Marketing policy and plans

Sources

l Field sales force

l Marketing surveys, e.g. Mintel

l Networks

l Trade press

ANALYSIS OF THE COMPETITIVE ENVIRONMENT 42

Hints and Tips

n Read through Unit 3 of the MarketingEnvironment Coursebook

n Occasional mini case topic

n Up to a full optional question per paper

n Make outline plans of all the exam questions

n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

Exam success results from:

3 Preparation

3 Understand the question

3 Focus precisely on requirement

3 Use of format and context

3 Effective time management

Practise interpreting past mini cases andrelating them to the syllabus

In the exam quickly read the case throughonce then carefully read all the questions

Underline key points and examples

Stick closely to the question

MARKETING ENVIRONMENT 43

THE MACROENVIRONMENT

LEARN ING OUTCOMES

Appreciate the macroenvironments importance Recognition of key sources of information Understanding of the natural environment Marketing implications of the natural

environment Assessment of environmental challenges

Syllabus reference: 3.1, 3.2, 3.6, 3.8

KEY REV IS ION PO INTS

Uncontrollable threats and opportunities Relevant sources for the various environments Business and marketing impacts on the natural

environment Understanding of the macroenvironment

context

Unit 4

Macroenvironment Overview (3.1)

Importance

l Organizations operate in this societal context

l PEST SLEPT STEEPLE environments

l Source of successive threats and opportunties

l Largely uncontrollable

l External half of SWOT analysis

Social environment

Embraces changes in the nature, attitudes,behavior and values of society that affectemployment and buying patterns

Political environment

Activities of the state in setting nationalobjectives, legislating, policy-making andimplementation

Economic environment

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

Technical environment

Embraces changes to products, processes andmethods that impact on organizations

Natural environment

Life resources including air, water, land, wildlifeand the amenity they confer

MARKETING ENVIRONMENT 45

Challenges of Change (3.8)

Macroenvironment seldom impacts on day-to-dayoperations but shapes future actions andperceptions

} But tomorrow always arrives, it is differentand then even the mightiest company is introuble if it has not worked on itsfuture. ~ (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 butpace is accelerating, compounding uncertainties

Examples: War on terrorism, oil price fluctuations,trrade disputes, enlarged EU, viruses, migrations

Marketers cant rely on patterns of the past andmust:

l Scan their environmentl Recognize challenges/forces driving changel Respond strategically to threats and

opportunitiesl Monitor strategic outcomesl Continue to scan

} Standing still is still the fastest way of goingbackwards in a rapidly changing world. ~(Roddick)

THE MACROENVIRONMENT 46

Information Sources (3.2)

(Cross-refer to Element 4 and 2.3)

Research methods

1. Internal data: generated by operational activities

2. Secondary data: from published external sources

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

Examiners credit candidates who cite sources

Link sources to syllabus elements

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

Secondary sources

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

MARKETING ENVIRONMENT 47

Trade sources

THE MACROENVIRONMENT 48

Summary of sources

Social Cultural

l Guide to Official Statisticsl Social Trendsl Office of National Statistics (ONS) Censusl ACORNl Market Research Bureau

Political Legislative

l JUSTIS online legal databasel EU Commissionl News databases www.news.bbc.co.ukl www.statistics.gov.uk

MARKETING ENVIRONMENT 49

Summary of sources

Economic International

l Blue Book on national income/expenditurel Economic Trends www.statistics.gov.ukl News Media www.ft.com,

www.theeconomist.coml CBI Quarterly Surveyl Regional Trendsl International organizations, e.g. WTO, UN, OECDl Professional bodies, e.g. Institute of Exportersl DTI and Bank Reviews

Technical Environmental

l Technical abstracts and research papersl Professional associations/industry networksl Pressure group websitesl www.earthtrends.wri.org is an environment

portal

THE MACROENVIRONMENT 50

Information Requirements

Example: Society

Demographic trends

Work and leisure patterns

Changing cultural norms

Ownership ratios, e.g. mobiles

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

Example: The Economy

Main economic indicators, e.g. interest rates

Business confidence indicators, e.g. investment

Labour market changes

Government tax and spending plans

Income, output and expenditure patterns

MARKETING ENVIRONMENT 51

The Natural Environment (3.6)

Embraces natural resources including land,vegetation, wildlife, air and water and the amenitythat they confer.

n Life-supporting systems

n Many are non-renewable assets

n Businesses discharge wastes into this

n Progressive loss of critical rainforest

n Negative feedback effects, e.g. greenhouse gases

n Challenge of achieving sustainable growth

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

Environmental consequences

Arise from the interdependence of:

l Population growth in poorer countriesl Industrializationl Mass affluence in developed countriesl Material expectations in developing countriesResult

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

THE MACROENVIRONMENT 52

Sustainability as a Goal

Meeting the needs of the present generationwithout compromising the needs and requirementsof future generations, i.e. continued growth in GDPbut without the negative environmentalconsequences

n International agreements to reduce greenhousegases and ban ozone-producing chemicals

n Development of environmentally friendly products

n Renewable energy sources replace non-renewable

n Redesign, recycling, reuse of materials

Nature vs. Technology

l Technology may achieve sustainability butcould equally destroy the world

l GM crops could eliminate food shortages butcould unleash virus infections

l Massive potential to transform Third Worldfarming but threat to wildlife

MARKETING ENVIRONMENT 53

Implications for marketers

3 Business central to the problem and solution

3 Rise in green consciousness

3 Stakeholders require reassurance and customersprefer commitment to environmental standards

3 Involve and educate key stakeholders

3 Ethically sound practices may provide an edge

3 Strategy based on sustainable principles, audit,impact assessment and benchmarking

Hints and Tips

n Read through Unit 4 of the MarketingEnvironment Coursebook

n The mini case often concerns themacroenvironment and information sources

n A part question on the natural environment mayarise or one linked to pressure groups

n Always be prepared for general questions on thesignificance of the macroenvironment

n Know relevant information sources for each majormacroenvironment

n Make trigger word plans for the past examquestions at the end of unit 5

n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

THE MACROENVIRONMENT 54

THE DEMOGRAPHIC SOCIALAND CULTURALENVIRONMENTLEARN ING OUTCOMES

Understanding of the social environment Recognition of social and cultural influences Assessment of the implications for marketing

arising from social, demographic and culturalchange

Syllabus reference: 3.3

KEY REV IS ION PO INTS

The structure and composition of thepopulation implications for segmentation

Cultural influences on stakeholder attitudes andbuyer behavior

Key social trends and their significance formarketers

The significance of social influences such aslifestyle, class and reference groups

Challenges such as the changing role ofwomen and ageism

Unit 5

MARKETING ENVIRONMENT 55

Population Size and Structure

Explanation of trends

World population

Exponential growth to over 6 billion in 2000

Pace slowing by demographic transition to lowerbirth and death rates with economic development

Ageing offset by AIDS and changed attitudes

Dismal outcomes of Malthus avoided bar Africa

Aggregate population

Growth birth death rate net migration UK growth slowing to 60m EU growth to 415m but birth rate now below

replacement level, i.e. 1.5 vs. necessary 2.1

Dependency ratios

Ratio: dependants (non-working) to workpopulation

Rising sharply with lower births, retirement andrising longevity in mature economies

Immigration

Uncertainty and continuing poverty stimulates

A means of support for rapidly ageing populations

Remittances important to developing countries

Third World loses its skilled and dynamic workers

Demographic structure

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

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 56

Challenge of Ageing

} An increase in the average age of thepopulation. ~

n Post-war baby boom generation approachretirement

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 to0ver-55s

n Healthy and fit old versus the poor old segments

Negatives

l Worsening dependency ratio

l Higher taxes, pension contributions, loanrepayments for workers

l Labour and skill shortages

l Falling savings ratios as elderly spend

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, durablefinancial service and nostalgia products

l Incentives to keep working beyond retirement

l Responsibility for ageing relatives

MARKETING ENVIRONMENT 57

Marital status

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

Household structure

l Big rise in single households (elderly/young/divorcees)

l Composite families from remarriagel Rich source of segmentation

Regional distribution

l Drift from rural to urban/suburban livingl Ribbon developmentl Retirement hot spots, e.g. South

Ethnicity

l Black and Asian rose 40% 1991 onl Younger age profile differ in public/private

needsl Asian food market worth 2bnOccupation

l Core workforce shifts agriculture tomanufacture to services to information

l Emphasis on consumer interface,i.e. customers, elderly, stakeholders

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 58

Employment Trends

Decline of full-time employment

Rise in part-time employment

Longer hours

Rise in self-employment

Rise in contractual employment

Flexible work lives

Rise of knowledge workers

Causes

l Rise of flexible/customer-focused organizations

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

l Need flexible workforce for peaks and troughs

l Entry of women into workforce

l Changing culture for permanent workers

l Demand for a dedicated workforce

l Attractions of affluent lifestyle/house price rises

l Opportunities created by IT teleworking

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

l Employees prefer flexitime and staggered hours

l Move to flexible shifts and work years, workingfrom home and phased withdrawal to retirement

l 50% produce, process, use, distribute information

MARKETING ENVIRONMENT 59

Role of Women in Work

n Strongly influenced by culture and religion

n Tend to work in different sectors, occupations andlevels

n With household duties work harder but paid less

n Dominate in interpersonal service sectors health

n Men dominate top positions in all sectors

n Account for nearly half the workforce

n An underutilized resource to relieve shortages

Policy responses

l Positive discrimination in career development

l Women-friendly recruitment

l Enable a flexible work/life balance

l Common pay and conditions

l Motivational training

l Financial support for child care

l Retraining after career breaks

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 60

Demographic influence felt on:

l Aggregate demand for goods and services

l The size of different market segments

l The availability of labour

l The mix and composition of social services

l The scale of support infrastructure

l The tax burden of the dependent population

l The regional distribution of demand

Implications for marketing

Important demand condition in forecasting sales

Family life cycle to match product offerings to needs

Organizations must market themselves to targetgroups

Structural changes drive changing demand patterns

Marketers must respond to demographicconsequences, e.g. flexible mortgages and pensionplans, time-saving and convenient solutions for coreworkers

Above-average income in populated South East magnet for luxury producers

MARKETING ENVIRONMENT 61

Cultural Environment (3.3)

Influences that affect societys basic values,attitudes, perceptions and behavior.

Explanation

Moulds and regulates daily behavior via constantconditioning and positive/negative reinforcement

Appropriate behavior and ideas in different socialsituations are learnt from:

n Family

n Education

n Experience

n Community

n Religion

Culture influences individuals/group in predictableways

Cultural influences

l What we eat, drink, our lifestyles and buyingpreferences

l Internal marketing to cross-cultural workforces

l Regional and international marketing when inRome 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 andShechita butchery methods

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 62

Cultural trends

Position of women

Rise of work and career

Decline of maternal and domestic roles

Smaller families more use of childcare

Educational opportunity with rising aspirations

Implications

Control over discretionary spending power

Changing stereotypes in adverts

Premium on time/convenience time-savingmeals, appliances and family eating habits

One-stop, home and internet shopping

Healthy living and fitness

Changing attitudes to desirability of smoking

Rising concern over heart disease and stress

Convenience lifestyle leading to obesity

Dual society of the super-fit and over-weight

Implications

Expanding market for organic food

Price premiums

Image consciousness and designer fitness wear

Negative aspects to figure consciousness

Mounting public concerns over fat, sugar and saltcontent of fast and convenience foods

MARKETING ENVIRONMENT 63

Social Environment (3.3)

} Social Class comprises individuals with adefined status and who share commoncharacteristics, including wealth, occupation,income level, educational background andvarious aspects of lifestyle. ~

Open educational access allows class movement

JICNAR classifies individuals and groups

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

Social Class category Occupation

A (upper middle) Professional, topmanagement

B (middle) Intermediate managers

C1 (lower middle) Supervisory, clerical

C2 (skilled working) Skilled manual

D (working class) Semi and unskilled manual

E Pensioners, long-termunemployed

Implications

l Marketer more interested in the class aspired to

l Shared values/attitudes reflected in preferences

l Status symbols proxies for class membership

l Need to be mobilized in targeted promotions

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

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 64

Reference groups

} A point of reference (of knowledge andinfluence) for consumers in makingdecisions. ~

Actions and behavior of the family; peer groupsand work colleagues influence individual attitudesand behavior

The wish to belong to preferred groupsencourages conformity to norms, dress codes

Opinion formers influence the norms

US cultural values mediated via global mediacontrol

Implications

l if marketers persuade opinion leaders, followers buy

l Nike seek endorsements from top players

l Premium prices when conspicuous consumption

The family

Is a close and influential reference group.

Continuously influences values and buying decisions:

Family life cycle:

n Young unmarried high disposable income

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

Lifestyle

} Patterns in which people live, spend time andmoney. ~

n A function of personality, class, prior learning, etc.

n Measured by using Attitudes, Interests andOpinion scales combined with demographicclusters

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

Implications for marketer

l Must monitor and understand demographicchanges

l Recognize impacts on both supply and demand

l Social, demographic and cultural change allinfluence tastes and preferences

l Care with segmentation as assumptions change

l Forecasts more difficult when aspirations orperceptions drive buying behavior

l Family structures/decisions are now more complex

THE DEMOGRAPHIC SOCIAL AND CULTURAL ENVIRONMENT 66

Hints and Tips

n Read through Unit 5 of the MarketingEnvironment Coursebook

n Will form mini case from time to time

n Scope for optional question when three differentenvironments are involved

n Will tend to be set in context

n Prepare brief answer plans to past exam questionsat the end of the unit

n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

Demographic questions are relatively popular sobe aware of key characteristics and implications

Questions sometimes link two different parts ofthe syllabus

Pay particular attention to directions in aquestion, e.g. describe, compare, summarize

The term outline demands a brief and probablya bullet point answer

Examination success factors:

You dont have to answer the mini case first

Answering a good optional question first may build upyour confidence

First impressions are important

MARKETING ENVIRONMENT 67

THE ECONOMIC ANDINTERNATIONALENVIRONMENTLEARN ING OUTCOMES

Understand the workings of the economy andthe role and objectives of government ininfluencing it

Explain the business cycle Impact of trade and the challenge of

globalization Assess international implications for the

marketer

Syllabus reference: 3.4

KEY REV IS ION PO INTS

Measurement of economic activity and livingstandards

Understanding the current and short-termfuture economic environment

Use and meaning of economic indicators The effects of key economic and trade policies Policy impacts and implications for marketers

Unit 6

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 averagedover 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 underpinsrising living standards and provides the resourcesfor social goals

n Growth derives from either unemployed resourcesor more fundamentally from rising productivity viainvestment in infrastructure, skills, capital goodsand new technology

n Developing countries seek structuraltransformation into an economy based onmanufacturing, services and information

n Negatives: growth absorbs scarce resources andcreates a variety of externalities, e.g. emissions/greenhouse effects; congestion; pollution andozone depletion (air travel)

MARKETING ENVIRONMENT 69

Workings of the economy circular flow

Marketers must understand the flows of income andexpenditure circulating round the economic system

Basically firms pay out incomes to households(as wages, dividends, rents) who in turn spend thembuying the output of the firms. This flow of revenuefinances the next round of production

This flow of spending power will fall if householdssave (leakage) but may be offset by investment(injection)

Other leakages are tax payments and import spending

Aggregate demand comprises consumption investment government exports imports andrepresents the pressure of demand on domesticbusinesses

Other injections exports government spendingThe economy is stable where injections leakagesIf injections exceed leakages and there areunemployed resources, then the flow expands

Higher aggregate demand tends to cause firms toproduce more and employ extra staff

Lower aggregate demand means lower sales revenue,forcing cutbacks in costs, e.g. redundancy

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 70

The multiplieraccelerator effect

n Injections of government spending or newinvestment actually increases aggregate demandby more than the initial amount

n Incomes created by the injections are spent ongeneral goods and services in subsequent roundsof the circular flow

n The multiplier effect is reduced by leakages fromthe flow

n E.g. if leakages are taxes 0.3, imports 0.1 andsavings 0.1, the multiplier is 1/leakages 2

n The accelerator reinforces the multiplier and arisesbecause the capital investment needed to producea given output is 45 times as much

REMEMBER-It is important for the purpose of theexamination to demonstrate a generalappreciation of the economic environmentand its implications for the marketer. Youshould also seek to apply economic conceptslike the efficient allocation of scarceresources in this case time, whether it beto revision or between different questions

MARKETING ENVIRONMENT 71

Measurement of Living Standards

Major factor in determining the volume andcomposition of consumer spending

Measured by Office for National Statistics usingGross Domestic Product (GDP) per capita

GDP is the sum of the market values of all finalgoods and services produced per annum in acountry by domestic and foreign-owned firms

Can measure percentage change and makeinternational comparisons

International marketer must also take into accountculture, tastes and proportions spent on publicgoods

Limitations

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 ofnon-renewable resources, e.g. rain forest

l Broader measures may be called for

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 72

The Business Cycle

The regular fluctuations of economic activity andincome through boom, downturn,recession and upturn. It is the averageof a multitude of individual industry cycles.

Interdependent open economies in a globaleconomy are particularly sensitive to fluctuationselsewhere

Turning points represent a sea-change ineconomic conditions, e.g. boom into downturn

The marketer must respond to each phase andpredict its severity and duration

The multiplier reinforces cumulative changeup/down

MARKETING ENVIRONMENT 73

The Stages of the Business Cycle

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 74

Economic Indicators

Used by government, business and otherstakeholders to monitor economic conditions andidentify or predict the need for policy changes

n Leading indicators provide advance warningof change

n Industry trends survey (CBI) measuresbusiness confidence changes optimism/pessimism

n Feel-good factor positive expectationsprovide positive feedback and vice versa

n State of the economy

n Unemployment ratesFall in boom to feedback into higher spending.High and rising among the over-50s.

n Inflation ratesMeasured by Retail Price Index reflecting anaverage, e.g. house prices above, durablesbelow

n Driven by demand pull or cost push butcurrently under control

n Balance of PaymentsMeasured by figures on visible (goods) andinvisible (services). Continuing deficit drivesinterest rates up or exchange rates down

MARKETING ENVIRONMENT 75

Economic Policies

Fiscal and budgetary

l Monitor through Blue Book and Budget statementl Government taxation/spending accounts for 40%

of GDPl Can inject to or withdraw from circular flowl Significant impact in general and on specific

sectors, e.g. health and education spendingl Taxes will impact on different groups/segments

Monetary and credit

l Control by Central Bank to realize inflation targetsl Controls spending financed by borrowingl Relies on interest rates to govern demand for credit

and supply of savings (up or down)l Enforces via a variety of controls over moneyl Impact of changes take time/reactions can be

unpredictable

Supply side

l Aim to improve productivity and aggregate supplyl Involves removing distortions, improving incen-

tives, increasing competition, enhancing skills,reducing barriers and encouraging contribution

l Work through privatization, deregulation and reforml Have transformed organizations in public sector

Prices and incomes

l Price controls and incomes policies used to controlrapid inflation

l Limited effectiveness due to eventual pay explosion

Trade and exchange

l Deficits can be financed (foreign borrowing) orreduced by import controls/exchange rate changes

l Important due to marketers potential currencyrisks

l Flexible exchange rates often slow to correct

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 76

The Case for Trade

3 Diversity of choice

3 Exploits cost and price differences

3 Scope for specialization and scale economies

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

EU enlargement

n 2004 sees 10 East European andMediterranean nations joining EU

n 75m additional consumersn Mutual trade advantages as well as movement

of skillsn Legislative compliance a condition for Single

Market

MARKETING ENVIRONMENT 77

The Challenge of Globalization

A process whereby multinational companies treatthe world as an integrated market-place anddevelop relatively standardised products to meetits needs.

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

n Account for nearly three-quarters of world trade

n Converging consumption patterns despite diversecultures

n Companies adopt a global marketing perspective

n International institutions (IMF, WTO, World Bank)support its development

Concerns

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

l Widening gap between rich and poor nations

l Trade distortion of the EU subsidising exports

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 78

Trade Frictions

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

l Trade wars like price wars tend to damage all theparties concerned

l Tension between industrial and developing nations

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

l Beggar my neighbour policies can trigger globalrecession if countries impose tariffs or cutexchange rates to protect domestic interests,causing others to retaliate, leading to a viciousdownward spiral

World Trade Organization

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

Problem of EU US farmers dumping subsidisedsurpluses on world markets

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

MARKETING ENVIRONMENT 79

Implications for marketers

n Need to monitor global environment for impendingthreats and trading opportunities

n Be prepared for a far from level playing field

n Recognize that failure to agree to future tradeliberalization might lead to protectionism

n Take into account fair trade initiatives sponsoredby charities to give preference to poorer producers

KEY POINTS ON THE ECONOMICAND INTERNAT IONAL ENV IRONMENT

View economies as open systems in a highlycompetitive global environment

Recognize that feedback effects on the circularflow can cause cumulative change

Multinationals and free-moving resourcesmean that governments are limited in policyterms by the need to maintain a healthyeconomy free from instability or inflation

THE ECONOMIC AND INTERNATIONAL ENVIRONMENT 80

Hints and Tips

n Read through Unit 6 of the MarketingEnvironment Coursebook

n The economy is an important part of the marketingenvironment, so make sure you know the currentsituation

n Use information sources to revise the maineconomic indicators for your economy, e.g.growth, inflation and unemployment rates

n Appreciate what economic policies your govern-ment currently uses to achieve its objectives

n Understand the various phases of the businesscycle and marketing implications

n Mini cases often concern multinationals or theglobal economy since it is common to allnationalities studying for CIM certificate

n Questions on multinationals, trade and theeconomy therefore arise with frequency

n Prepare outline answers for all the exam questionsat the end of the unit

n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

MARKETING ENVIRONMENT 81

THE POLITICAL ANDLEGISLATIVE ENVIRONMENTLEARN ING OUTCOMES

Understand the significance of politics andpolicy making for marketers

Identify key points of political influence andpressure

Appreciate the framework of regulation and theimpact and implications of legislation

Syllabus reference: 3.5

KEY REV IS ION PO INTS

Alternative political frameworks and theirinfluence 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

Unit 7

The Political Environment

n Embraces the activities of the state in settingnational objectives, legislating, policy-making andimplementation

n Political change implies different policy outcomesfor different interest groups

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 socialgroups

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 businessclimate

Limits to democratic political power

n Elections provide authority for policy-making

n Periodic re-election opens government toaccountability and external forces

n Day-to-day government relies on feedback andcooperation of interest groups, so is susceptible toinfluence

n Operate in an open global system with rules andinstitutions limiting freedom of action

n Pressure to conform: keep national performance inline with other countries

n Recognize the power of multinationals and theinternet to circumvent political authority

MARKETING ENVIRONMENT 83

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 macroeconomicframework, so impacts on marketers through itsdistribution of the tax burden as well as the size andcomposition of its spending

Shifting political philosophies have transformedthe public sector over the last two decades andimpacted 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

THE POLITICAL AND LEGISLATIVE ENVIRONMENT 84

Alternative Political Systems

n Spectrum from popular democracy to autocracy

n Democracy is characterized by universal right tovote in regular and free elections. The majorityrule but minorities are protected

n Autocracy puts power in the hands of a singleruling party and no real choice in elections. Anyopposition is repressed/minorities persecuted

n Democracy spreads power throughout society withfree speech and unbridled media

n Autocracy centralizes political power and control

Why Politics?

Society must resolve conflicts over objectives topursue and resource allocation priorities

Parties wish to differentiate their USP but mustcommand a wide constituency to gain power

Exercise of political power and compromise reflectsthe reality of competing interests to achieve bothstability and necessary change

Remember exam questions may require politicaland economic understanding, e.g. Capitalismversus Communism

MARKETING ENVIRONMENT 85

Influencing the Political Process

See the section on Pressure Groups in Unit 2

Parliament is the supreme legislative body

Business can press for new laws or aim toinfluence proposals (bills) at an early stage

Lobbying is influencing members of a relevantlegislature and soliciting their votes

Important but controversial means of exertingpressure when and where the key decisionsare being made

Two-way process as government looks for supportin implementation and positive spin

The value of the lobbyist

l Early warning of proposed legislation

l Interpretation of implications arising

l Identification of likely political supporters

l Informing political decision-makers about yourindustry 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

THE POLITICAL AND LEGISLATIVE ENVIRONMENT 86

Supranational Political Institutions

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

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

Membership demands, obligations and loss of adegree of national sovereignity to be reinforced by adraft Constitution, extending majority voting into manynew areas of economic policy and foreign affairs

The European Commission drafts regulations anddirectives to ensure a single market prevails and thesemust be incorporated into national legislation

The European Court becomes that of final appeal

The challenge of the single currency

Implications of entry:

3 Reduced currency uncertainty

3 Reduced transactions costs

3 Share of inward investment rises

3 Increased marketing opportunities

3 Some winners but many losers

5 Doubts over common monetarypolicy 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 Legal Environment

Made up of an existing framework of laws

An independent judiciary interprets and appliescommon law based on natural justice/common sense

Government statutes (new law) to implement itspolitical manifesto and respond to public pressures

Enabling legislation delegates authority to governmentagencies to set standards, interpret rules, conductinspections and enforce laws using sanctions,e.g. fines

Legal provisions of Economic Unions may supersedenational law, e.g. EU competition policy requires finesup to 10% of turnover

If an exam question asks you to assess theeffectiveness of your own countrys legalframework, 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, theindividual and wider society?

l Is fairness achieved without excessive red tape?

l Does it reflect current concerns and expectations?

THE POLITICAL AND LEGISLATIVE ENVIRONMENT 88

Negative impacts of legislation

The cost of compliance: retraining, newequipment, monitoring and control

Competitive disadvantage if costs dont apply toforeign rivals

Increased risks may deter innovation, e.g. drugs

Drive firms to locate in less regulated economies

Disproportionate burden on smaller firms

Cost of legal actions, fines, adverse publicity

Positive impacts of legislation

3 May form a barrier to entry

3 Differentiates the product internationally

3 Compliance to higher standards gains competitiveadvantage when later introduced in other markets

3 Multinationals may apply common approach in alllocations to avoid double standards

Be sure to understand the rules applying to yourexamination, e.g. allowable equipment, timeallowed, number of questions to answer

MARKETING ENVIRONMENT 89

Fair Trading and the Consumer

The supply of a good or service without restrictionof competition or consumer choice and inaccordance with prevailing legislation

Relevant legislation

n Contractual relationshipn 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

THE POLITICAL AND LEGISLATIVE ENVIRONMENT 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 anyproposed legislation be proactive

Alternatives to legal recourse

n Contracts include dispute resolution clausesn Voluntary codes set industry standards and

enforcementn Smaller companies exemptn Quangos or tribunalsn Regulators seek assurances

MARKETING ENVIRONMENT 91

Accounting Future Legislation

n Need to monitor the legal and regulatoryenvironment for potential threats/opportunities

n Lobby to apply pressure to legislate where importssuggest an unlevel playing field

n Ethical business demands standards in excess ofcurrent legal requirements

n Office of Fair Trading will act on unfair practices

n Adverse public reaction can lead to bad lawsbeing rushed in as over-reaction

n Current issues over miss-selling pensions,mortgages and other assets; junk mail

KEY PO INTS ON THE POL IT ICAL ANDLEGAL ENV IRONMENT

A source of potential uncertainty and instability,especially before elections

National and supranational bodies must bemonitored

There are many forms of regulation, rangingfrom custom and practice, through codes andstandards, to full statutes

Legal proceedings are normally a last resort,especially for small firms

THE POLITICAL AND LEGISLATIVE ENVIRONMENT 92

Hints and Tips

l Read through Unit 7 of the MarketingEnvironment Coursebook

l The legal framework is an important part of themarketing environment, so make sure youappreciate its significance

l Full mini cases unlikely due to the country-specificnature of these environments but part questionsquite possible

l The focus of questions more likely to be onimplications and impacts than specifics

l Questions may provide choice between discussionof alternative environments

l Refer to Unit 3 for competition polices

l Consider the political implications of a change ofgovernment in your country

l Prepare trigger word plans for all the examquestions at the end of the unit

l Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance

MARKETING ENVIRONMENT 93

THE TECHNICAL ANDINFORMATION ENVIRONMENTLEARN ING OUTCOMES

Understand the nature and importance oftechnical change

Explain the role and impact of informationcommunication technologies

Recognition of constraints on the drivers ofchange

Appreciate the significance of the informationrevolution

Syllabus reference: 3.7

KEY REV IS ION PO INTS

Role of business in driving technology and thenature 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

Unit 8

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 Accumulation of Knowledgen Invention Development of new ideas/

applicationsn Innovation commercial exploitation of an

idean Diffusio