Managing External Forces Tutorial
The bulk of material covered up to this point the Principles of Marketing Tutorials is intended to give those new to marketing a basic understanding of the decisions marketers make as they work to satisfy customer needs. Up until this point our attention has focused mostly on decisions marketers control, such as product design, promotional message, type of distribution, setting price, etc. Now that we have laid out the Marketer’s Toolkit, we begin a new section examining additional issues facing marketers as they manage their marketing efforts.
In this tutorial, we explore factors that are outside of the marketer’s control but play a major role in shaping marketers’ strategies and tactics. The external forces we discuss present both opportunities and threats with some holding the potential to dramatically alter how an industry conducts its business. For example, newspaper marketers have experienced a major shift in how consumers obtain their news in large part due to technological innovation (e.g., use of mobile devices to obtain news). Newspapers that understood this key external factor embraced it as an opportunity and expanded their delivery of news to meet the needs of customers using these new technologies. Other newspapers, which were slow to recognize new methods for distributing news, now face serious threats to their survival as they see customers bypassing them in favor of new media outlets.
The lesson here is that marketers must continually monitor and respond to important external forces. Failure to do so could have negatively impact the organization and potentially threaten its survival.
Importance of External Forces
As we noted, most external forces are beyond the direct control of the marketing organization. By “direct control” we mean marketers lack the power to determine the direction and intensity of a change in these forces. Instead, marketers must treat external forces as something to be monitored and responded to when necessary.
While marketers lack direct control over external forces, in some cases, they can exercise a small amount of influence over these factors. For instance, advances in mobile devices have played a pivotal role in changing how consumers acquire information (e.g., access to online news). But while mobile device manufacturers are credited with being the catalyst for changing a social behavior (an external force), they represent just one of several organizational groups (e.g., software developers) and individuals (e.g., social media users), whose actions were necessary for behavior to change across a large group. Consequently, while one company can market goods and services with the intention of changing how a target market behaves, it is nearly impossible for one company alone to control the change.
For marketers, the key to dealing with external forces is to engage in continual marketing research. For larger organizations, this may involve dedicated research personnel to watch these factors as part of their day-to-day responsibilities. A research staff dedicated to monitoring external forces may offer marketers the ability to better predict changes and respond well in advance of a change. For example, researchers may be able to predict how the economy (an external force) will change over the next one to two years and through this information allow the marketing organization to respond (e.g., introduce new products, lower price, etc.).
For small organizations that do not have the luxury of marketing research staff, monitoring change is difficult and often means they react after a change has occurred. However, new marketing research tools are making the monitoring task much easier allowing small companies to respond quicker than in the past.
Books from KnowThis.com
External Forces Facing Marketing
For our discussion, we will highlight seven fundamental external forces:
- Demographics
- Economic Conditions
- Governmental Environment
- Influential Stakeholders
- Cultural and Societal Change
- Innovation
- Competitors
Each external force is described in detail though these are not presented in order of importance. In fact, the importance of each force may vary depending on the marketing organization and the industry in which they compete. For instance, a company manufacturing technology products may feel innovative forces are more important than demographic changes. While a financial services firm may more aggressively monitor and react to economic conditions.
Demographics
Demography involves the study of characteristics of a population and how these change over time. The characteristics that are of most interest to marketers fall into two categories:
Total Population – These characteristics take a very broad view of the population as a whole in terms of size (e.g., number of people, number of businesses) and location (e.g., geographic region).
Personal Variables – These characteristics look at how the population is changing based on individual factors, such as gender, age, income, level of education, family situation (e.g., single, married, cohabitation), sexual preference, ethnicity, occupation, and social class.
We saw in the Targeting Markets Tutorial, demographics is a key variable used to segment both consumer and business markets. In particular, demographic variables are an important component in creating customer profiles. These profiles are based on both demographic and non-demographic (e.g., customer behavior, attitudes, lifestyles) factors and are used for grouping customers into definable market segments from which a marketer then selects its target markets. Since demographics is tied directly to identifying target markets, monitoring how demographics change is critical for making marketing decisions.
Most demographic shifts do not occur rapidly so marketers will not see dramatic changes in a short period of time in the manner that other external forces can impact an organization (e.g., impact of a new government regulation). However, over the long term, demographics can reshape a target market requiring marketing organizations to rework their marketing strategy in an effort to appeal to a changing market.
Adjusting to Demographic Trends
While demographic change occurs slowly, marketers can begin to see indicators of potential change by identifying small trends that may suggest a larger shift over time. By paying close attention to these trends, organizations can prepare their long-term marketing strategy to be ready when the shift becomes more apparent.
To illustrate how a marketer may respond, let’s consider the demographic characteristic birthrate. In some countries, the overall birthrate is declining while the average age of the population is growing (i.e., people living longer). For a company targeting the youth market with sporting products, this trend may suggest that in coming years they will see a shrinkage in demand for their products within the youth market as the population of this market declines. On the other hand, demographic data may signal to the company that another market (i.e., older consumers), which was not previously targeted, may hold potential for new products. If it is predicted that the shift will occur over several years, the sporting products company can slowly move into the new market by offering products geared toward older adults.
Economic Conditions
Since most marketers are engaged in activities designed to entice customers to spend their money, it makes sense that economic conditions represent a powerful external force. Economic analysis looks at how a defined group produces, distributes and consumes goods and services. These groupings can range from those defined very broadly (e.g., country) to those defined narrowly (e.g., small town).
Of course, the production, distribution, and consumption of products are also of high interest to marketers and, in fact, many leading scholars of marketing first studied economics before moving to marketing. In very simple terms (and with apologies to both marketers and economist), the major difference between the marketer and the economist is that marketers are engaged in activity that make things happen to individual customers (e.g., create demand for products), while economists are engaged in activity showing the results marketers’ decisions have on a group (e.g., study how much is being spent by certain groups). Additionally, economists whose job it is to study a group may use hundreds of economic variables when assessing how a group is responding. Marketers tend to evaluate far fewer economic variables preferring to concentrate on those variables that affect spending behavior of consumers and businesses.
For marketers, the economic variables of most interest include:
- Income – how much is being earned
- Spending – what consumers and businesses are doing with their money
- Interest Rates – the cost of borrowing money
- Inflation – how prices for products and services are changing
- Cost of Living – the financial requirements of living in a certain geographic area
- Employment Rates – the percentage of employable people who are working
- Exchange Rates – how the value of currencies are changing between countries and regions
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).
Governmental Environment
Marketing decisions must be made with an understanding of how they are impacted by international, national, regional, state and local laws and regulations. For marketers, laws (i.e., acts past by governmental ruling bodies) and regulations (i.e., requirements put in place by governmental agencies) identify rules and procedures that guide certain marketing activities. Failure to conform to requirements established by the governments and their agencies may result in fines, sanctions or other legal action.
The governmental environment is a difficult external force to monitor for two key reasons. First, the number and variety of laws and regulations can be overwhelming even for the most seasoned marketer. For instance, in the U.S. alone there are potentially hundreds of laws and regulations that are either directly or indirectly targeted to marketing decisions. The table below provides a sampling of the issues covered by U.S. laws and regulations and the primary marketing decision areas these affect:
(Tap image for larger view)
The second reason the governmental environment proves difficult is due to the complexity inherent in understanding laws and regulations which often makes it impossible for marketers to handle these issues on their own. Seeking legal assistance is necessary (and often costly) for most marketers no matter their size.
Dealing with the Government
In addition to seeking legal assistance, marketing organizations may find value by engaging in either direct discussion with governmental personnel or indirect discussion through firms hired to serve as a representative for the marketing company (e.g., consultants, lobbyists). Representatives are particularly beneficial when selling internationally, where existing relationships between government personnel and a hired representative can effectively reduce bureaucratic red tape.
In situations where proposed legislation is likely to impact an entire industry, communication with the government may occur through a marketer’s participation in an industry trade group. These groups perform many tasks on behalf of their members, including maintaining relations with governmental groups to ensure the industry’s voice is heard with regard to pending legislation affecting the industry.
Finally, marketers should not view the governmental environment as always erecting obstacles. In many cases, laws and regulations present marketing opportunities. For example, in response to U.S. Federal Government rules limiting the size of liquid, gel, and aerosol products that may be carried aboard an airplane, several personal care products companies (e.g., shaving cream, hair care, toothpaste, etc.) viewed this as an opportunity to market their products in new packaging that they promote as approved for airline travel.
Influential Stakeholders
Besides dealing with the government, marketers must also pay close attention to other groups that can affect marketing activity. The most important of these groups are those that have an interest or stake in the organization. While such groups are not backed directly by the power of a government agencies, stakeholders can still command a great deal of influence, especially in terms of swaying public opinion. If their voice is strong enough, this can then lead to governmental action.
Influential stakeholders can be divided into two categories:
Connected Stakeholders – These stakeholders consist of groups that regularly interact with the marketing organization and often hold important roles in helping the marketer succeed. Examples include: supply and distribution partners (e.g., distributors, material suppliers), industry standards groups, and support companies (e.g., advertising agencies). To address concerns raised by these groups often requires direct communication by management with their connected stakeholders.
Peripheral Stakeholders – These stakeholders consist of groups that may not routinely impact the marketer unless a specific issue arises that draws their attention. Examples include religious organizations, community activists, and cause supporters. To address concerns and to communicate with these peripheral stakeholders, marketers often seek the help of public relations professionals. Depending on the circumstances, the PR strategy may involve initiating contact prior to an issue becoming public (i.e., preemptive strategy) or the strategy may be to take a wait-and-see approach (i.e., responsive strategy) before taking action.
Cultural and Societal Change
Society is made up of many different cultural groups. As we noted in the Consumer Buying Behavior Tutorial, members of a cultural group share similar values and beliefs, which are learned and reinforced by others within the same cultural group. These shared values and beliefs lead members of a cultural group to behave in similar ways (e.g., customs, traditions, likes/dislikes, attitudes, perceptions, etc.).
Cultural groups can be viewed on several levels. At a broad level, a cultural group consists of a very large number who share basic values (e.g., ethnicity, religious affiliation). While looking at the broad level can offer some insight into how a general cultural group behaves, marketers are much more concerned with examining cultural groups at narrower levels.
Narrow level analysis of cultural groups leads to the study of subcultures, which consists of individuals sharing values and beliefs that revolve around special interests. For instance, a large cultural group may exist in a certain region of a country. While they share basic cultural values with others in their country (e.g., sense of patriotism), they may also share values with those in their region that are not shared consistently throughout the country (e.g., work ethic, taste in food, etc.).
Examining these subcultures even more closely will reveal thousands of smaller subcultures (e.g., sports interests, type of shopper, music preference, online gaming enthusiast, etc.). It should be evident that a single consumer may belong to many different subcultures. It should also be evident that members of a subculture sharing similar values are also likely to have similar needs and, as we discussed in the Targeting Markets Tutorial, this suggests that subcultures are natural for market segmentation.
Evolution of Cultural Change
Cultural values and beliefs are not stagnant; these do evolve and change. However, the pace of change will differ depending on the level examined. At the broad cultural level changes often evolves slowly. For instance, consider how people in the United States and Switzerland view the importance of saving money. People in the United States are more inclined to spend their earned income than they are to save resulting in a low household savings rate for Americans. Those living in Switzerland are more concerned with saving and show a high household savings rate. The difference in values toward savings has been consistent for many years and no one expects consumers from either country to alter their values in the near future.
While broad cultures tend to shift values and beliefs slowly, changes within subcultures can occur relatively quickly. This can be seen within the music industry, which often experiences rapid shifts as a subculture of music enthusiasts discovers new artists and musical styles. The key for marketers targeting subcultures is to maintain close contact with these groups through regular marketing research. In this way, marketers can see how different subcultures behave and also spot trends, which the marketer can capitalize on through new marketing tactics (e.g., new products, new sales channels, added value, etc.).
Innovation
Arguably the external force possessing the greatest potential for changing how marketers and industries compete are those associated with innovation. When most people think of innovation, they immediately assume it has to do with computers and other high-tech equipment. While today the majority of innovative new products rely in some way on computer technology, it is not a requirement for something to be considered innovative. Instead, an innovation is viewed as anything new that solves needs by offering a significant advantage (e.g., more features, more convenient, easier to use, lower cost, etc.) over existing ways.
For example, an airline may devise a new way to load passengers using existing products (no new technologies). The impact of this new method is that it decreases the amount of time needed to fill a plane and improves the airline’s on-time performance rate. If this new method is viewed positively by customers, governmental groups, and the media it may gain widespread acceptance by other airlines, who will make similar changes to their loading procedures.
As noted in the above example, for an innovation to be truly important it must be widely adopted within a targeted group (e.g., within an industry, by a target market). Once adopted an innovation becomes important if it leads to behavioral changes including changing how consumers and business satisfy their needs. These changes present both opportunities and threats to marketers.
Because of the potential innovation has in affecting products and industries, it is no surprise that many marketing organizations direct a significant amount of funds to researching this external force. In fact, in many industries, such as pharmaceuticals and information technology, spending on technological research and development represents a significant portion of a organization’s overall budget.
Innovation in Marketing
Marketers in many industries know that innovation through new product development is vital to remain competitive. But product decisions are not the only marketing areas affected by new developments. As we’ve discussed throughout the Principles of Marketing Tutorials, innovation can affect almost all marketing elements. Below is a sampling of how innovation has affected different marketing areas:
(Tap image for larger view)
Many of the benefits shown in the table above are driven by the evolution of the internet and mobile devices. These technologies are transforming how all functional areas within an organization perform work. However, it can be argued that no functional area has been more affected than marketing. Over the next decade, it is expected that innovation in information technology will continue to impact marketing and marketers are well served to embrace it.
Competitors
For many marketers, the competitive external force is the one most relevant to immediate day-to-day decision making. While the other external forces we’ve discussed tend to be examined periodically (or in some cases rarely), monitoring competitor activity is often a daily undertaking.
Monitoring competitors can serve several goals:
Competitors as Threats
The most obvious reason to monitor the competition is to see how they are responding in the same markets in which the marketer operates. Many larger companies recognize the importance of keeping tabs on their competition and create specific positions or even departments that focus on gathering and analyzing competitor data. These competitive intelligence programs mainly employ high-tech methods to locate information about competitors, such as news reports, government filings (e.g., patents, stock reports), social media postings, and changes to competitors’ websites. Even small-sized marketers can track competitors’ actions. For instance, several news and information services that will alert a marketer (usually via email) when a competitor is mentioned in the news.
Competitors as Partners
While many may consider competitors as representing the enemy, there are situations where competitors can present opportunities. This happens often to large companies that offer a broad product line serving many target markets. In some markets, a company may compete aggressively with another firm but in other markets both firms may be lagging and it may make more sense for both to work together. This can be seen in the computer industry where Apple, which at one time would not consider building computers with Intel processors since these were used by competitors that run the Microsoft operating system, has now adopted these processors for much of its computer line.
Competitors of Tomorrow
In many industries and, in particular, those in technology-focused industries, the most dangerous competitors are the ones that have yet to emerge. Because technology-dependent industries, such as high-tech, consumer electronic and pharmaceuticals, rely heavily on innovative new products, serious competitors can emerge quickly from what seems to be out of nowhere. For instance, news organizations have been quickly and significantly impacted by social media, especially by the continuing growth and influence of Twitter and YouTube. The ease by which information can be posted and made available for mass viewing essentially allows nearly anyone to become a broadcaster and, consequently, a threat to traditional news outlets.