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The Political/Legal Environment All marketers must pay attention to changes in the political/legal community. Businesses seldom have any choice but to abide by the laws governing their industry. The political/legal environment can be felt at all levels: international, federal, state, and local. It can be as far-reaching as an embargo against a nation, or as simple as local "blue laws," which have often been on the books for decades, and restrict certain types of business (e.g., restrictions on the sale of alcoholic beverages on Sunday, or at all). The political/legal environment generally exerts its influence on the 4Ps that Marketers control. In other words, while Marketers get to decide the details of the 4Ps, they often must do so within the confines of the political/legal environment. For example, much of Texas and Oklahoma is "dry," meaning that alcoholic beverages cannot be sold at all....except, that is, in private "clubs." Thus, restaurants locating in "dry" cities or voting precincts must technically offer some sort of club membership. Customers must present an official membership card before alcoholic beverages can be sold to them. A tobacco products wholesaler located near a state line may face the double duty of recording and collecting taxes for two states. Liquor wholesalers must also keep track of taxes, as do retailers of gasoline. All retailers selling taxable merchandise must also collect and pay sales taxes. There may also be laws governing the types of communication a marketer may use to convey its selling proposition. The billboard below is soon to be obsolete, as the FDA is phasing in new regulations affecting the tobacco industry. Soon, tobacco advertising of any kind will be more and more scarce, and will be reduced to rather mundane messages stripped of any creativity or personal selling. (For an interesting website about the negative effects of smoking, check out ASH, which stands for Action on Smoking and Health.)
Marketers are not allowed to make false or misleading communications. In some cases, product categories are required to go above and beyond the normal call of duty. Case in point: the prescription drug industry. In August 1997, the FDA began allowing television advertisements for prescription drugs, BUT...the marketer has to announce side effects and other "fine print" that few if any other advertisers are required to say. A good example is that of Allegra, an allergy medication. The effect of the FDA ruling is to nearly double the length of the advertisement, in order to get all of the required information into the ad. Who has to pay for these long-play commercials? Not the FDA. In some rare cases, entire industries are allowed to self-regulate themselves, as has been the case with the distilled spirits industry in the US. Recently, though, this has blossomed into a hot issue, with some distilleries now wanting to be able to advertise on TV without fear or threat of reprisal by the government. The product can also be regulated to a large degree. Packaging can be dictated by the government, as in the case of the Nutrition Facts labeling that became a requirement a few years ago. Uniform language is now required, with specific definitions of "low fat," "sodium free," etc., being mandated. All food packages larger than that of a candy bar must have this same Nutrition Facts label clearly positioned, and all must contain the same essential information. Other examples of product packaging regulations include the warnings placed on tobacco products, as well as beer. Products that contain saccharin or NutraSweet must also bear warning messages. A final example of product regulation exists with items that are only available to persons of a certain age. For example, tobacco purchasers must be 18, while consumers must be 21 before they can buy alcoholic beverages. The distribution of products may also be regulated. For example, beer wholesalers are granted exclusive territorial monopolies. A retailer can only purchase products from distributors in its region, and may not make any other arrangements. Under the new tobacco laws, cigarettes will not be available in vending machines, except in bars. Many medications are only available by prescription. The last variable, price, can also be affected by the legal environment. Although the vast majority of the US economy is a true "free" market, some industries must abide by pricing regulations. These industries are, for the most part, in "protected monopolies," such as utilities like telephone, gas, and electricity. Rates are usually determined by a government commission. Another example of an industry heavily price-regulated is the insurance industry. While insurers do not have monopolies, consumers are often required to have insurance on automobiles (by law) and their homes (as required by their lender). Thus, with a captive market like this, insurance firms are scrutinized closely by state regulating agencies, who determine basic rates, as well as approve or disapprove rate increases. In summary, marketers must be knowledgeable of the laws that govern the industry in which they practice. Unless they can lobby the government for change, marketers are held accountable to these laws, and must adapt their marketing programs to fit within their confines.
The Technological Environment Marketers must stay current with regard to technology, be they manufacturers, or resellers like retailers and wholesalers. Further complicating the issue is the rate of change in technology, which is causing change to occur at a faster rate than previously experienced. Thus, any marketer the least bit resistant to change will be sorely incapable of keeping up with each season's new status quo. Two of the more recent big technological changes in business have been the advent of computerized operations, as well as bar-coding. The former has swept businesses (and now 40-percent of American homes) by storm, and redefined productivity in the workplace. Businesses without a computerized inventory control system are hopelessly mired in an analog world whose days are numbered. Bar-coding is, of course, closely related to computers, but demands special note because of its far-reaching implications for middlemen. With each and every product now identified by a unique bar code (i.e., each unique item is now a SKU--stock-keeping unit), middlemen have now been empowered to collect information about every item they carry, such as sales volume, item profitability, contribution to overall profit, sales patterns, etc. Whereas middlemen once just relied on a global sales figure, or, at best, vague descriptions ("grocery," "beauty," etc.), now they know beyond a shadow of a doubt which products are moving, and which ones aren't. This has effectively helped change the balance of power in manufacturer-middlemen relations (but more on that in a later lecture...) A final example of technology in marketing is the ability to integrate computers and bar codes into a sophisticated inventory ordering system, also known as electronic data interchange. Perhaps the best example of this in practice is Wal-Mart, who has the ability to monitor inventory levels of nearly 100,000 SKUs at 2200 stores. From regional distribution centers, trucks are filled daily and sent to replenish stocks at nearby stores, thereby helping avoid stock-outs and always keeping a "full" look to the shelves. It is no mistake that Wal-Mart has become the premier American retailer. They not only have what people want at reasonable prices, they also have it when people want it.
The Economic Environment There is likely no factor scrutinized more closely than the state of the economy. When things are going well, we thank the robust economy. When things are going poorly, we blame a sagging economy. The state of the economy dictates the mood of the populace, which determines how they spend or save money. There are three critically important statistics that analysts use to keep their fingers on the pulse of the economy. The first two of these statistics are called leading indicators, meaning that they tend to lead the economy, or foretell economic prosperity. In contrast, lagging indicators tend to not react until after the economy has already started moving in a particular direction. These three statistics are:
Marketers also watch these numbers, because they give a good idea of the strength or weakness of the economy, be it domestic or international. For example, a high rate of inflation signifies uncertainty, both for consumers and businesses. Consumers tend to exhibit panic buying, fearing higher prices in the short term. Businesses tend to act irrationally as well, because inventory decisions become more important when prices are increasing on a regular basis. A low rate of inflation, such as has been enjoyed by the US for nearly a decade, is generally seen as a positive indicator of the strength of the economy. The interest rate is also critical, because the price of borrowing money can spell financial disaster for both consumers and businesses alike. It can also inhibit or promote borrowing and spending, which can then impact the inflation rate. The Federal Reserve Board manipulates the interest rate in order to keep inflation in check, raising the federal funds rate to discourage borrowing and spending. Naturally, Wall Street reacts loudly when the Fed intervenes. The unemployment rate is also a good indicator of the strength of an economy. Economists have for several decades generally accepted six-percent unemployment as "full employment," meaning that one could not expect there to be any less unemployment. In the US, unemployment has dipped below five-percent during 1997, with some areas of Texas hovering around only two-percent unemployment. In spite of a decade of downsizing and out-sourcing to foreign lands, the US employment scene remains one of envy to many other nations. Contrast the situation of 1997 (very low inflation, moderate interest rates, and very low unemployment), with that of the late 1970s, during President Carter's administration. Those were the years of the "triple-doubles," with double-digit inflation, unemployment, and interest rates. Analysts even coined a new word for the phenomenon: "stagflation." Household mortgages were at 14-percent, inflation was over 10-percent, and unemployment in some parts of the country surpassed 20-percent. On the other hand, 1997 sees the US enjoying a very sound economy, with the Dow having passed the 8000 mark in late summer. Consumer and business confidence abounds, and nearly everyone is smiling. There are also many other indicators of the strength or weakness of the economy. For example, the number of housing starts is often used to gauge consumer willingness to take on long-term debt (usually 30 years). Furthermore, each new house started will result in ripple effects: new furniture and household items, new appliances, carpeting, lawn and garden equipment, etc. Thus, a new house signifies that there will be many ancillary purchases a few months down the road.
New homes like this one translate into many related purchases for the home, thereby giving analysts a good idea of future economic activity, and a good feel for consumer confidence. Each new home that is started foretells the sale of many building supplies, as well as carpeting, draperies, furniture, appliances, and many other items. There are other examples of new building and business construction that signify the strength of the economy. For example:
This Days Inn built in Amarillo, TX, in 1997 illustrates the strength of the tourism industry. Numerous motel chains are rapidly expanding in recent years, building many new units, and entering smaller markets (e.g., population centers of 15,000 or less) that were once ignored. Low gas prices (when inflation and new taxes are factored out, gas prices are lower now than in the mid-1970s), increased leisure time, and consumer confidence have sent Americans packing---for a vacation, that is.
This 16-screen theater complex built in Amarillo in 1997 is typical of the new generation of entertainment centers popping up across America. This is surprising given that consumers now have access to a variety of inexpensive satellite TV systems that allow them to "rent" movies on demand at low prices in the convenience of their homes. Still, investors are bullish on Americans' love affair with Hollywood. As might be expetced, the mega-theater complexes have put the squeeze on smaller theater complexes, with many going out of business. In Amarillo, the two large complexes have all but demolished the rest of the competition.
The Gene Messer Ford dealership in Amarillo, built in 1997 as well, is also a significant investment, and demonstrates the strength of the Amarillo economy. At a time when car owners are hanging on to their cars for seven to fourteen years, it is a bold move to invest in a new, larger dealership. All told, marketers look at a variety of important statistics in an attempt to understand the economy. While the field of Economics may be labeled "the dismal science," marketers see it as their window to the future.
The Socio-Culutral Environment Our ever-changing society and culture spell a myriad of opportunities and threats for marketers. Failure to be responsive in this regard is to deny that change ever occurs. Listed below are eight of the most significant cultural changes to be marked in the last 30 years. Many are related to one another. These changes include not just shifts in values and customs, but also demographic changes (the numerical composition of various groups within the larger population).
Of course, there are other indications of change in our society and cultures, but these are the most visible. Below are several illustrations of how marketers have responded to these changes.
This storage center is one of but thousands of similar facilities erected across the US in the last decade. In spite of larger homes and smaller families, people just don't have enough room for all of their "stuff." Thus, astute business people saw the problem, and capitalized on it. Our desire to accumulate "things" and measure our wealth by how many "toys" we own has created a serious problem on the home front, and the personal storage unit cures that problem nicely.
This Phillips 66 and Kicks 66 complex is quite a sight to see. It is a combination gasoline station, convenience store, ATM, car wash, and fast-food restaurant (with two eateries inside). What could be more convenient in the 21st century?
This Texaco oil and lube facility is an excellent example of businesses that have adapted to the changes in our society. While changing the oil may only take 15 minutes for most people, time is so scarce that many customers will gladly pay $25 to let someone else do it.
This new retirement center is a sign of the times, as America continues to age. Experts predict that by early this century, people will routinely live to the age of 115 (what a scary thought!). With society no longer stressing care for elderly family members, and adult children too busy with their careers to do it anyway, it will be the lot of most Americans to spend their later years in a center such as this. There's one difference, though: these new centers are not typical "old folks" homes. A variety of living options (condos, duplexes, apartments, etc.) are available to fit the needs and abilities of senior citizens, lending some dignity to the aging process. The investment potential for developers is sizeable; rents in these centers often range from $25,000-35,000 per year; it's basically a dormitory for senior citizens.
Summary Marketers operate in two distinct domains: one in which they can control their actions, and one in which they have no control. This lecture has explored both of these domains in detail, and set the stage for the remaining lectures, which will explore a variety of contemporary marketing topics. Everything else that happens in Marketing is ultimately based on a thorough understanding of these two domains, and how the marketer is constantly forced to see things in terms of threats and opportunities, and to make appropriate and decisive responses.
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