Managing External Forces

Importance of Economic Conditions

For many marketers there is a relationship between level of sales and how customers are doing financially.  For most products this relationship is a direct one – as customers’ financial condition improves so will selling opportunities for the marketer.  A clear example of this can be seen with the sale of luxury products where marketers are likely to see their sales improve as the target market’s economic condition improves.  However, other products may see improvement as economic conditions decline.  For instance, marketers of business certification programs (e.g., financial planning, quality management) or career preparation services (e.g., resume development help) may see increased interest in their programs during weak economic conditions as those who are unemployed or concerned about job stability seek additional credentials to make them more marketable to potential employers.

Whether an organization benefits from improving or declining economic conditions, it is important it monitors changes occurring in the economy in which the organization’s target markets are located.  In particular, marketers should watch for changing patterns in customer spending which may indicate that a longer term change in the economy is occurring.  Changes that extend over a long term (six months or longer) may be part of the business cycle of an economy. 

A business cycle is presented as a series of up (economic expansions) and down (economic contractions) measures.  During expansion an economy grows and this generally leads to more jobs, higher income and increased customer spending.  However, an economy growing too quickly can present problems of inflation where product prices grow too fast.  In this situation, even though customers have higher incomes, they may not be purchasing more since product prices have increased.  Such situations are a main reason an economy will contract or see customer spending decrease.  If severe this can lead to marketers seeing a major reduction in sales which may indicate the presence of an economic recession (i.e., economic decline).