Markets require purchasing power as well as people. The available purchasing power in an economy depends on current income, prices, savings, debt, and credit availability. Marketers must pay close attention to major trends in income and consumer spending patterns.
Income Distribution
Nations vary greatly in level and distribution of income and industrial structure. There are four types of industrial structures.
1.Substince economics: In a subsistence economy, the vast majority of people engage in simple agriculture, consume most of their output, and barter the rest
for simple goods and services. These economics offer few opportunities for marketers.
2. Raw-material-exporting economics: These economics are rich in one or more natural resources but poor in other respects. Much of their revenue comes from exporting these resources. Examples are Zaire (copper) and Saudi Arabia (oil).
These countries are good markets for extractive equipment, tools and supplies, materials-handling equipment, and trucks. Depending on the number of foreign residents and wealthy native rulers and landholders, they are also a market for Western-style commodities and luxury goods.
3. Industrializing economics: In an industrializing economy, manufacturing begins to account for 10 percent to 20 percent of gross domestic product.
Examples include India, Egypt, and the Philippines. As manufacturing increases, the country relies more on imports of finished textiles, paper products, and processed foods. Industrialization creates a new rich class and a small but growing middle class, both demanding new types of goods.
4. Industrial economics: Industrial economies are major exporters of manufactured goods and investment funds. They buy manufactured goods from one another and also export them to other types of economies in exchange for raw materials and semi finished goods. The large and varied manufacturing activities of these nations and their sizable middle class make them rich markets for all sorts of goods.
Marketers often distinguish countries with five different income – distribution patterns: (1) very low incomes; (2) mostly low incomes; (3) very low, very high incomes; (4) low, medium, high incomes; and (5) mostly medium incomes.
Savings, Debt, and Credit Availability
Consumer expenditures are affected by consumer savings, debt, and credit availability. The Japanese, for example, save about 13.1 percent of their income, where as U.S consumers save about 4.7 percent. The result has been that Japanese banks were able to loan money to Japanese companies at a much lower interest rate than U.S. Banks could offer to U.S. companies. Access to lower interest rates helped Japanese companies expand faster. U.S. consumer also have a high debt-to-income ratio, which slows down further expenditures on housing and large ticket items. Credit is very available in the United States but at fairly high interest rates, especially to lower income borrowers. Marketers must pay careful attention to major changes in incomes, cost of living, interest rates, savings, and borrowing patterns because they can have a high impact on business, especially for companies whose products have high income and price sensitivity.
A society‘s economic system determines how it will allocate its scarce resources. Traditionally, capitalisms, socialism, and communism have been considered the world‘s major economic systems. In general, the western world‘s economics can be classified as modified capitalist systems. Under such systems, competition, both foreign and domestic, influences the interaction of supply and demand. Competition is often discussed in this context in terms of competitive market structures.
The competitive structure of a market is defined by the number of competing firms in some segment of an economy and the proportion of the market held by each competitor. Market structure influences pricing strategies and creates barriers to competitors wishing to enter a market. The four basic types of competitive market structure are pure competition, monopolistic competition, oligopoly, and monopoly.
Pure competition exists when there are no barriers to competition. The market consists of many small, competing firms and many buyers. This means that there is a steady supply of the product and a steady for demand for it. There fore, the
price cannot be controlled by either the buyers or the sellers. The product itself is homogeneous-that is, one seller‘s offering is identical to all others‘ offerings.
The markets for basic food commodities, such as rice and mushrooms, approximate pure competition.
The principal characteristic of monopolistic competition is product differentiation-a large number of sellers offering similar products differentiated by only minor differenced in, for example, product design, style, or technology.
Firms engaged in monopolistic competition have enough influence on the marketplace to exert some control over their own prices. The fast-food industry provides a good example of monopolistic competition.
Oligopoly, the third type of market structure, exists where a small number of sellers dominate the market.
Finally, markets with only one seller, such as a local telephone company or electric utility, are called monopolies. A monopoly exists in markets which there are no suitable substitute products.
Economic conditions
Economic conditions around the world are obviously of interest to marketers. The most significant long-term in the U.S. economy has been the transition to a service economy. There has been a continuing shift of workers away from manufacturing and into services, where almost 80 percent of U.S.
jobs are to be found. This shift has greatly affected economic conditions as well as marketing activity.
THE BUSINESS CYCLE
The business cycle reflects recurrent fluctuations in general economic activity. The various booms and busts in the health of an economy influence unemployment, inflation, and consumer spending and saving patterns, which, in turn, influence marketing activity. The business cycle has four phases:
Prosperity – the phase in which the economy is operating at or near full employment and both consumer spending and business output are high.
Recession – the download phase, in which consumer spending, business output, and employment are decreasing.
Depression – the low phase, in which unemployment is highest, consumer spending is low, and business output had declined drastically.
Recovery – the upward phase, when employment, consumer spending, and business output are rising.
Because marketing activity, such as the successful introduction of new products is strongly influenced by the business cycle, marketing managers watch the economic environment closely. Unfortunately, the business cycle is not always easy to forecast. The phases of the cycle need not be equal in intensity or duration, and the contractions and expansions of the economy do not always follow a predictable pattern. Furthermore, not all economies of the world are in the same stage of the business cycle. So a single global forecast may not accurately predict activity in certain countries.
Marketing strategies in a period of prosperity differ substantially from strategies in a period of depression.
The Health of a Country‘s Economy
Two common measures of the health of a country’s economy are gross domestic product (GDP) and gross national product (GNP). The GDP measures the value of all the goods and services produced by workers and capital in a country. The GNP measures the value of all the goods and services produced by a country’s residents or corporations, regardless of their location.
Political Legal Environment
The political environment - the practices and polices of governments – and the legal environment - laws and regulations and their interpretation-affect marketing activity in several ways. First, they can limit the actions marketers are allowed to take – for example, by baring certain goods from leaving a country, as when Congress passed the Export Administration Act, which prohibited the export of strategic high-technology products to nations such as Iran and Libya. Second, they may require marketers to take certain actions. For instance, cookies called ―chocolate chip cookies‖ are required to contain chips made of real chocolate, and the surgeon general’s warning must appear on all cigarette packages. Last, policies and laws may absolutely prohibit certain actions by marketers – for example, the sale of products such as narcotic drugs and nuclear weapons –except under the strictest of controls. Political processes in other countries may have a dramatic impact on international marketers.
Political and Legal forces
Every company’s conduct is influenced, often a great deal, by the political and legal processes in our society. The political and legal forces on marketing can be grouped into the following four categories.
Monetary and fiscal policies. Marketing efforts are affected by the level of government spending, the money supply, and tax legislation.
Social legislation and regulations. Legislation affecting the environment –antipollution laws, for example – and regulations set by the Environmental Protection Agency fall into this category.
Governmental relationships with industries. Here we find subsides in agriculture, shipbuilding, passenger rail transportation, and other industries. Tariffs and import quotas also affect specific industries.
Government deregulation continues to have an effect on financial institutions and public utilities (such as electric and natural gas suppliers) as well as on the telecommunications and transportation industries.
Legislation related specifically to marketing. Marketing executives do not have to be lawyers, but they should know something about laws affecting marketing – why they were passed, their main provisions, and current ground rules set by the courts and regulatory agencies for administering them.
Up to this point, our discussion of political and legal forces affecting marketing has dealt essentially with the activities of the federal government. However, there are also strong political and legal influences at the state and local levels. For instance, many firms’
marketing programs are affected by zoning requirements, interest-rate regulations, state and local taxes, prohibitions against unsubstantiated environmental claims, and laws affecting door-to-door selling. All of these have been put in place by numerous states and municipalities.
Science and Technology
Although the two terms are sometimes used interchangeably, science is the accumulation of knowledge about human beings and the environment, and technology is the application of such knowledge for practical purposes. Thus, the discovery that certain diseases can be prevented by immunization is a scientific discovery, but how and when immunization is administered is a technological issue.
Like other changes in the macro environment, scientific and technological advances can revolutionize an industry or destroy one. Examples of organization that suffered because they did not adapt to changing technology are easy to find.
Western Union‘s telegrams, which were sent by an electromechanical device, were made obsolete by telephones, computers, and fax machines. More recently, Atari and several other marketers of video games fell victim to competitors, such as Sony Playstation and Nintendo, that were more technologically advanced, with higher-performance microprocessors.
DIGITAL TECHNOLOGY AND THE INTERNET: CHANGING