3 Chapter Three The Global Marketing Environment After studying this chapter, you should be able to: 1 Understand the nature of the marketing environment and why it is important to marketers. 2 Describe the major components of the social environment and how trends in the social environment affect marketing. 3 Understand how the economic environment affects marketing. 4 See how the political/legal environment offers opportunities and threats to marketers. 5 Appreciate the importance of the technological environment to marketers. 6 Understand differences in the competitive environment. 7 Know how changes in the institutional environment affect marketers. http:// www. chrysler. com The Chrysler Corporation provides an informative Web site. Different sections offer information about the company’s products, safety efforts, and use of new technologies; an annual report along with media and investor relations information is also available; and the location of Chrysler distributors around the world is presented. Chrysler has always been the smallest of the ‘‘Big Three’’ automakers in the US. However, it has made many changes in recent years to improve sales, market share, and profit performance. Being smaller may have advantages, as Chrysler can often respond to changes in the marketing environment faster than larger competitors. Chrysler’s market share in the huge US car and truck market has increased by about 2.5 percent in recent years. The increase in overall sales and sales relative to competitors is largely due to Chrysler’s ability to develop new car and truck models more quickly than competitors can. In a constantly changing marketing environment, the ability to introduce new models to meet emerging consumer needs is an important competitive advantage. Chrysler has done this by introducing one consumer hit after another: the Neon, Dodge Ram truck, Cirrus/Stratus, and line of minivans are examples. The truck and minivan success has been maintained, but sales of Cirrus/Stratus and Neon have been mixed after promising introductions. One reason is that the overall sedan market has been shrinking and competition is fierce. The sedan market is expected to decrease by 3% in 1997 and competition to increase from the Ford Taurus, Toyota Camry, and Honda Accord. Chrysler is trying to improve its market position in this tough market by introducing new models. For example, the Intrepid and Concorde have been completely redesigned and will have aluminum engines that are 25% more powerful, but 10% more fuel efficient. Chrysler has also increased profits by lowering costs throughout the product development process. This has been achieved by developing long-term, mutually beneficial relationships with suppliers. Chrysler and these suppliers work closely together in the design and production of new models. This has reduced the development time for a new model from 234 weeks to 160 weeks and cut costs by 20–40 percent. Chrysler’s profit per vehicle has soared from $250 to $2,110, the highest in the industry. Although these results are impressive, Chrysler is constantly assessing the turbulent environment and continually trying to improve all aspects of its business. Source: Jeffrey H. Dyer, ‘‘How Chrysler Created an American Keiretsu,’’ Harvard Business Review, July–August 1996, pp. 42–56 and Bill Vlasic, ‘‘Trucks? Sure. But Can Chrysler Build a Hot Car?’’ Business Week, January 20,1997, p. 27. The Chrysler example illustrates how changes in the marketing environment profoundly affect a firm’s marketing operations. Legislative requirements, new technological developments, economic conditions, increased competition, the popu- lation changes worldwide, and political events around the world are some of the factors affecting Chrysler’s current and future marketing efforts. The long-term performance of Chrysler or any organization depends, in large part, on its ability to identify and respond effectively to the key changes in its marketing environment. The marketing environment consists of all factors external to an organization that can affect the organization’s marketing activities. These factors are largely uncontrollable, although marketers can influence some of them. For example, Chrysler cannot control population trends, economic conditions, or laws once passed, but it can have some influence on political processes, technological developments, and competitive situations. All marketers face the difficult task of identifying the important elements of the marketing environment for their organization, assessing current and likely future relationships between these factors, and developing effective strategies for a changing environment. This task has become increasingly difficult in recent years as many elements of the marketing environment change rapidly and unpredictably. The objective of this chapter is to help you understand the important elements and relationships in the marketing environment. The Marketing Environment In the contempo- rary marketing framework diagrammed in Chapter One (Exhibit 1.9), the marketing environment appears in the outer circle. We now expand that framework by describing the major elements of the marketing environment. Exhibit 3.1 presents the addition of the social, economic, political/legal, technological, competitive, and institutional environments to the original diagram. The best way to understand the marketing environment is to place yourself in the middle of the marketing circle. You are now a marketer for some organization and must make decisions about the marketing exchanges, strategies, activities, positions, and institutions employed by your organization. However, the decisions you can control depend on factors and trends in the marketing environment that you cannot control. Thus, your task as a marketer is largely to identify opportu- nities or threats in the marketing environment and then make marketing decisions that capitalize on the opportunities and minimize the threats. Creation of Market Opportunities and Threats The marketing environment creates opportunities or threats in two basic ways. First, changes in the marketing environment can directly affect specific markets. A market is a group of people or organizations with common needs to satisfy or problems to solve, with the money to spend to satisfy needs or solve problems, and with the authority to make expenditure decisions. Specific markets can be defined at many different levels. For example, Chrysler’s overall car market includes the new car, the sports car, the luxury car, and the minivan markets. Customers in each of these markets desire a specific type of car and have the money to spend to satisfy that need and the authority to make the purchase decision. Changes in the marketing environment can make markets larger or smaller or sometimes create new markets. Market opportunities typically arise when markets increase in size or new markets are created. For example, population growth, increases in income, and lower interest rates should present market opportunities for Chrysler by expanding the pool of people who need some type of car and have the money to purchase one. Social changes, such as more women in the workforce Chapter Three The Global Marketing Environment 49 and as heads of households, can affect who makes the car buying decision, thus creating market opportunities. These and other trends also might produce new market opportunities because of developing needs for different types of cars. Conversely, slow population growth, reduced incomes, and higher interest rates would present threats to Chrysler in some car markets, because there would be fewer people with the financial ability to purchase cars. The second way the marketing environment produces opportunities or threats is through direct influences on specific marketing activities. Legislation requiring automakers to improve gas mileage is an example. The law can be viewed as a threat, at least in the short run, because it limits the number of current models carmakers can sell and forces them to design new models with better gas mile- age. This adds to the cost of making a car, which can either reduce sales, if car prices are raised to cover the additional costs, or reduce profits, if prices are not raised. The legislation, however, might also be viewed as an opportunity to create new markets for cars with extremely good gas mileage or those that use alterna- tive fuels, such as the electric car. Changes in the technological environment similarly provide opportunities to produce these high-mileage or alternative-fuel cars. The critical point of this discussion is that marketers need to understand the marketing environment to be able to make good decisions. Changes in the marketing environment may create opportunities or threats either by affecting markets or directly influencing marketing activities. Often, short-term threats might offer opportunities in the long run for astute marketers. E c o n o m i c E n v i r o n m e n t Marketing environment Global Customer Value Relationship Technology Productivity Ethics Entrepreneurship Marketing E n v i r o n m e n t L e g a l / P o l i t i c a l E n v i r o n m e n t T e c h n i c a l S o c Identifying Market Opportunities and Threats Many firms use environmental scanning to identify important trends and deter- mine if they represent present or future market opportunities or threats. As illustrated in Exhibit 3.2, this procedure consists of identifying relevant factors and assessing their potential impact on the organization’s markets and marketing activities. This is simpler to say than do, because many of the potentially important environmental factors are interrelated and many of them change constantly. Skandia, the $7 billion Swedish financial services giant, used an interesting approach to identify future growth opportunities. The company established a new unit, Skandia Future Center, and selected 30 diverse people from around the world to form five Future Teams. Each Future Team consisted of a mix of three generations (20-somethings to 60-somethings), functional roles, organizational experiences, and cultural backgrounds. The mission of each Future Team was to explore one of five major environmental forces (the European insurance market, demographics, technology, the world economy, and organizations and leadership) and develop a vision of the future for Skandia. The Future Teams presented their ideas to a group of 150 executives. The executives then formed 20 small groups to brainstorm responses to the ideas developed by the Future Teams. The process produced several innovative ways for Skandia to grow in the future. 1 One way to deal with a volatile marketing environment is to use the seven key marketing perspectives discussed in Chapter Two. As shown in Exhibit 3.1, these perspectives are at the interface between the controllable marketing circle and the uncontrollable marketing environment. They thereby provide important orienta- tions for viewing the marketing environment, assessing market opportunities and threats, and determining the best marketing responses to the changing environ- ment. The perspectives work both ways: they guide both a marketer’s outward evaluation of the environment and inward response to the environment through marketing decisions. Social Environment The social environment in- cludes all factors and trends related to groups of people, including their number, characteristics, behavior, and growth projec- tions. Since consumer markets have specific needs and problems, changes in the Identify relevant environmental factors & trends Does trend create a marketing opportunity? Does trend pose a marketing threat? Decide how to minimize threat Assess impact of trends on markets & marketing activities Decide how to take advantage of opportunity Exhibit 3.2 The environmental scanning approach Chapter Three The Global Marketing Environment 51