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, during weak economic conditions marketers of career preparation services, such as those offering resume development and job search assistance, may see increased interest by workers who are unemployed or who fear their job may not be stable.

Whether an organization benefits from improving or declining economic conditions, it is necessary to monitor 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 long-term change in the economy is occurring.

Changes extending over a long period (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 this decrease is 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).