Chapter 2: Understanding Markets and their Behaviour

Socio-cultural changes

Cultural values, ideas, and attitudes, as well as society’s morals and beliefs.

Environmental Scan

The process of continually acquiring information on events occurring outside an organization and to identify external trends. These trends may be opportunities or threats to a business.

• Marketers use this knowledge to ensure that goods, services, and ideas are relevant and meaningful in conjunction with the external environment in which the organization operates. 

• Scan is often the first step in developing a more extensive SWOT.

External Business Environment 5 Factors

(Environmental Scan)

The external environment must be considered along with the organization’s internal strengths and weaknesses.

1.       Social Factors

2.       Economic Factors

3.       Technological Factors

4.       Competitive Factors

5.       Regulatory Factors

Situation (SWOT) Analysis

SWOT is based on an exhaustive study of four areas upon which the firm builds its marketing program which includes:

1. Identify changes and trends in the organization’s industry.

2. Analyze the organization’s current and potential competitors.

3. Assess the organization itself, including available resources.

4. Research the organization’s present and prospective customers.

Importance of SWOT

To translate the results of the SWOT analysis into insights that inform specific marketing actions.

• The true goal is to identify the crucial strategy-related factors that impact the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats.

External Factors (Forces) in the Environmental Scan

1. Social Forces

2. Technological Forces

3. Competitive Forces

4. Regulatory Forces

Social Forces

Environmental Scan

Include the demographic characteristics of the population and its culture. Changes in these forces can have a dramatic impact on marketing strategy.

Demographics

Social Forces

Environmental Scan

The statistical study of populations related to social forces. This looks at traits of specific target groups of people such as gender, age, ethnicity, income, education and occupation. This can be a useful tool for marketers.

Aging population

Social Forces

Environmental Scan

Significant growth in Canada has occurred in the older population (over 65), which outnumbers children under 14.

Diverse generations

Social Forces

Environmental Scan

This includes the older generation (baby boomers), Generation X, Generation Y (millennials), and Generation Z. Each generation has different consumption patterns and attitudes.

Big city growth

Social Forces

Environmental Scan

Big cities are expected to grow through immigration. This can lead to a change in marketing practices through diverse ethic groups living in larger cities and increasing the population (e.g. related to services, foods, shopping, resources).

Ethnic Diversity

Social Forces

Environmental Scan

Immigration increases in recent years has led to a need for multicultural marketing strategies.

Changing household

Social Forces

Environmental Scan

The dominant household structure is now one person. There has also been an increase in common-law households, same gender couples, and the number of multigenerational families.

World Markets

Social Forces

Environmental Scan

Canada looks for future expansion into foreign markets that other countries populations dominate in.

Showrooming

Social Forces

Environmental Scan

The use of mobile devices in store to check competitive online product reviews and prices and to then purchase the cheaper product online.

• This is negative for the companies, as customers may leave to another store with a lower price. Related to culture, media and device connectivity.

• Can be combatted through offering price comparison to customers in store (e.g. Best Buy).

Gender attitudes and roles

Social Forces

Environmental Scan

Gender bending is occurring more, with less labelling on brands and more gender exclusive marketing.

• This includes gender neural clothing, scents and products.

Ethical consumption

Social Forces

Environmental Scan

Increased consumer consciousness in the decisions that effect the environment and the consumer.

• Increase concern for where products are being purchased and the health and environmental benefits.

Cord cutters

Social Forces

Environmental Scan

People who decide to cancel cable or satellite TV and focus on online viewing. This is with the increase in cellphone use for consuming content.

Social TV

Social Forces

Environmental Scan

An industry term that refers to viewers watching live TV while adding comments on social networks. Being on your phone, while watching TV.

• Can be popular amongst millennials and generations after them (Gen Z).

Economic Forces

Environmental Scan

The collective income, expenditures, and resources that affect the cost of running a business or a household. This area is becoming increasingly difficult to forecast with the increase in global interconnectedness.

This can include both micro and macro levels of economic influence.

• This affects consumer spending power through the economic changes.

  • Macro: Recession, interest rates, GDP, inflation, unemployment.

  • Micro: Gross income, disposable income, discretionary income.

Macroeconomic forces

Economic Forces

Environmental Scan

The state of a country’s economy as a whole. Key indicators of this include inflation rate (measured in GDP), unemployment rate and consumer confidence.

Gross Domestic Product (GDP)

Macroeconomic forces

Economic Forces

Environmental Scan

The total dollar value of all goods and services produced in a country within a specified time period. A fairly accurate indicator of the economic health of a country.

Inflation

Macroeconomic forces

Economic Forces

Environmental Scan

A period when the cost to produce and buy products and services gets higher as prices rise.  If prices rise faster than customer income, customer purchasing power decreases.

Recession

Macroeconomic forces

Economic Forces

Environmental Scan

A time of slow economic activity within two consecutive periods of negative growth. During recessions, production levels decline, unemployment levels rise, and many customers have less money to spend. Less consumer spending power.

Interest Rates

Macroeconomic forces

Economic Forces

Environmental Scan

The amount charged as a fee for borrowing money, normally expressed as a percentage per year. Can affect customer spending

Unemployment Rates

Macroeconomic forces

Economic Forces

Environmental Scan

Measures the share of the labour force that is not working.

Microeconomic Forces

Economic Forces

Environmental Scan

The supply and demand of goods and services and how this is impacted by individual, household, and company decisions to purchase. A marketer needs to be alerted as to how these areas affect customer buying power.

This includes looking at things such as gross income, disposable income, discretionary income.

Gross income

Microeconomic Forces

Economic Forces

Environmental Scan

This is the total amount of money made in one year by a person, household, or family unit, before taxes.

Disposable income

Microeconomic Forces

Economic Forces

Environmental Scan

This is the after-tax income that customers have left for spending and savings. Typical ongoing purchases are for rent, clothing, and transportation.

Discretionary income

Microeconomic Forces

Economic Forces

Environmental Scan

This is the income a customer has left after paying taxes and for necessities such as food, shelter, and clothing. This income is used for discretionary purchases that are not deemed a necessity.

Technological Factors

Environmental Scan

Changes in how consumers use technology must be understood by marketers. Marketers need to know not only what new inventions are coming on the scene but also how consumers are integrating technology into their lives.

This includes Internet of Things (IoT)

• This refers to inventions or innovations that stem from scientific or engineering research.

• New waves of technology can replace existing products, and companies need to be aware that products do not become obsolete.

• This can be more difficult to predict.

Internet of Things (IoT)

Technological Factors

Environmental Scan

The network of products embedded with connectivity-enabled electronics. Computer chips that can be placed in almost anything and connected to a network.

Competitive Forces

Environmental Scan

Alternative products that can satisfy a specific market’s needs. This can include present and potential (future) competitors.

• Data about competitors can be obtained from large corporations through things such as Nielsen Company or comScore.

• Whereas smaller corporations may obtain data about competitors from salespeople, suppliers, customers, and retailers.

Direct Competitors

Competitive Forces

Environmental Scan

Very similar products sold in the same category. Changes are monitored of the competitive activity of products that compete head-to-head with one and other. Any changes made by a major competitor in areas of product, price, place, and promotion are routinely noted.

Indirect competitors

Competitive Forces

Environmental Scan

Products that compete for the same buying dollar but in a slightly different category.

example, while Pepsi may focus on Coke, they should not ignore Canada Dry ginger ale because these indirect competitors also compete for consumers wanting to purchase carbonated beverages.

Competitor Types (4)

Competitive Forces

Environmental Scan

1. Monopoly

2. Oligopoly

3. Monopolistic competition

4. Perfect competition

Monopoly Competition

Competitive Forces

Environmental Scan

Exists when there is only one company selling in the market. Examples are crown-corporations (e.g. regional electricity companies, Canada Post, VIA Rail, regional liquor marts).

Oligopoly

Competitive Forces

Environmental Scan

Which occurs when a few companies control a market. Examples include airlines, phone companies, and car companies.

• Can be harder to enter these markets.

• Large amounts of capital are required to enter.

• Research and understanding of competitors is imperative in this area.

Monopolistic Competition

Competitive Forces

Environmental Scan

When a large number of sellers compete with each other, offering customers similar or substitute products.

• Examples include clothing brands such as Nike, Adidas, Lululemon, New Balance, Reebok, Jordan Air, etc.

• Extensive modification can be undertaken to appeal to the customer more.

Perfect Competition

Competitive Forces

Environmental Scan

When there are many sellers with nearly identical products and little differentiation.  

• Companies that deal in commodities that is, products such as grains, vegetables, or rice, often function in an environment where perfect competition exists.

• There is only so many ways a corporation can modify things of things nature.

Regulations

Regulatory Forces

Environmental Scan

Restrictions placed on marketing practices by government and industry associations. Regulations are put in place to protect consumers from unscrupulous business practices, to set acceptable standards of practice, and to encourage fair competition. Regulations are updated and changed as laws and rules change.

Competition Bureau

Regulatory Forces

Environmental Scan

A key marketing regulation group in Canada.

An independent law-enforcement agency responsible for ensuring that the market in Canada is competitive and innovative.

• Responsible for the administration and enforcement of the various act related to marketing.

• They also review mergers and acquisitions and prohibit deceptive business practices.

• Prohibited pricing practices include bait-and-switch advertising, fraudulent advertising claims, and misleading pricing practices such as double ticketing. 

Bait and Switch Advertising

Regulatory Forces

Environmental Scan

Refers to the practice of advertising a low-priced product (bait) to lure customers into a store and then, because the product is not made available in large quantities, selling these customers higher-priced products (switch).

Advertising Standards Canada (Ad Standards)

Regulatory Forces

Environmental Scan

A self-regulatory non-profit body supported by advertising, media, and marketing companies with the purpose of setting and regulating standards of professional practice in the advertising industry.

• The industry has agreed to abide by its leadership, code, process, and rulings.

• Sets and regulates advertising guidelines, monitored through a consumer complaint process.

• A single complaint will trigger a review of advertising placed in the Canadian media, with the eventual withdrawal of the ad if changes are required and not made.

Do Not Call List (DNCL)

Regulatory Forces

Environmental Scan

Jurisdiction over this rests with the Canadian Radio-television and Telecommunications Commission (CRTC) (a government agency). The DNCL gives consumers the ability to elect to not receive telemarketing

Marketing

Regulatory Forces

Environmental Scan

The Canadian Marketing Association (CMA) guides the practices of the marketing industry through its Code of Ethics and Standards of Practice.

• It is mandatory for all members to abide by these policies.

Mobile

Regulatory Forces

Environmental Scan

The Canadian Wireless Telecommunications Association (CWTA) provides resources on the wireless industry in Canada.

• It deals with the government on issues related to cellular phones, personal communication devices, text messaging, and wireless and mobile satellite carriers, and represents companies working in that space.

Privacy

Regulatory Forces

Environmental Scan

The collection of personal data by private sector companies is governed by the Personal Information Protection and Electronic Documents Act (PIPEDA).

• Due to the rapid changes in digital marketing practices, PIPEDA is under constant pressure to update its legislation with regard to evolving digital marketing practices.

• Privacy is becoming an increasing concern with consumers.

Spam

Regulatory Forces

Environmental Scan

Refers to the dissemination of unsolicited electronic messages to recipients.

• CASL is enforced by the CRTC, the Competition Bureau, and the Office of the Privacy Commissioner of Canada.

• Canada’s anti-spam legislation (CASL) came into effect in July 2014 to protect consumers and businesses from unwanted commercial electronic messages (CEMs)

Online Behavioral Advertising (OBA)

Regulatory Forces

Environmental Scan

The tracking of consumers’ online browsing activities in order to deliver online ads that correspond to their browsing interests.

• OBA works by storing a text file (called a cookie) in a computer’s web browser to track which websites are visited by the browser.

•   It then predicts interests and serves ads that meet these interests.

Steps (3) in an Environmental Scan

An environmental scan will often be conducted annually as part of the marketing planning process, but marketers should be monitoring changes and developments in each area on an ongoing basis.

• Step 1: Collect the facts and identify trends

• Step 2: Determine the impact that this fact / trend will have on the business

• Step 3: Brainstorm, evaluate, and implement ideas to meet business objectives.

Step 1: Collect the facts and identify trends

Steps (3) in an Environmental Scan

• Gather accurate and relevant information on all areas of scan.

• Conduct competitive reviews related to the marketing mix (price, product, place and promotion).

• Cluster information into facts and trends in each area of the scan.

Step 2: Determine the impact that this fact / trend will have on the business

Steps (3) in an Environmental Scan

• Based upon your analysis and the state of your current business, determine business objectives.

• Analyze the external trends to determine their impact (positive or negative) on the business.

Step 3: Brainstorm, evaluate, and implement ideas to meet business objectives.

Steps (3) in an Environmental Scan

• Brainstorm ideas that address the facts, trends and business objectives.

• Evaluate the realistic alternatives against the business objectives and select those that are worthwhile and can be implemented.