[marketing knowledge] cim revision card marketing
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MarketingTRANSCRIPT
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CIM REVISION CARDS
Marketing EnvironmentMike Oldroyd of Marketing Knowledge
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TABLE OF CONTENTS
Preface .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv1. The nature of the organization .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. The microenvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183. Analysis of the competitive environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304. The macroenvironment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445. The demographic social and cultural environment . . . . . . . . . . . . . . . . . . . . . . . . . . . 556. The economic and international environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 687. The political and legislative environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828. The technical and information environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949. Environmental information systems .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
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PREFACEWelcome to the CIM Revision Cards from Elsevier/ButterworthHeinemann. We hope you will find these usefulwhen coming to revise for your CIM exam. The cards are designed to be used in conjunction with the CIMCoursebooks from Elsevier/ButterworthHeinemann, and have been written specifically with revision in mind.They also serve as invaluable reviews of the complete modules, perfect for those studying via the assignmentroute.
n Learning outcomes at the start of each chapter identify the main points
n Key topics are summarised, helping you commit the information to memory quickly and easily
n Examination and revision tips are provided to give extra guidance when preparing for the exam
n Key diagrams are featured to aid the learning process
n The compact size ensures the cards are easily transportable, so you can revise any time, anywhere
To get the most of your revision cards, try to look over them as frequently as you can when taking your CIMcourse. When read alongside the Coursebook they serve as the ideal companion to the main text. Good luck we wish you every success with your CIM qualification!
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THE NATURE OF THEORGANIZATIONLEARN ING OUTCOMES
Appreciation of the marketing environment Classification and comparison of organizations Understanding mission statements and the
significance of objectives Recognition of business as an open system Identification of drivers for change
Syllabus reference: 1.11.9
Study past questions on each main area and planout brief key word answers
Plan/answer time-frame is 3035 minutes
KEY REV IS ION PO INTS
The interrelated and ever-changing nature of adynamic environment
Strengths and weaknesses of various forms oforganization
Differing missions and objectives and the forcesthat influence them
Organizations as systems within the widerenvironment
Flexible response to contingencies withmarketing orientation as a success factor
Unit 1
MARKETING ENVIRONMENT 1
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Marketing Environment (1.1)
CIM defines marketing as:
} The management process which identifies,anticipates and supplies customerrequirements efficiently and profitably. ~
n Marketer must understand external environment
n Recognize implications of changes
n Must take into account changing tastes,preferences and spending power, as well ascompetitor offerings
n Identify impact of broader environment on markets
A main aim of the syllabus is: To explain thenature of the marketing environment and itsrelevance for organizations and marketingpractice
} The firm is a creature of its environment.Its resources, its income, its problems, itsopportunities and its very survival aregenerated and conditioned by theenvironment. ~ (Ansoff)
Organizations operate in an environment ofconstraints, threats and opportunties
Need to monitor for and understand significantchanges
Organizations must adapt to survive
The environment as the source of key inputs,revenues, pressures, competitors, allies:relationships are critical
Organizations possess differing strengths/weaknesses
Survival demands marketing strategy andplanning
THE NATURE OF THE ORGANIZATION 2
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Types of Organization (1.2)
Public sector organizations
n State-provided goods or servicesn Driven by government objectivesn Socially desirable goals, e.g. equityn Supply public goods to all, e.g. defencen Ensure supply of merit goods, e.g. education/
healthn Funded by taxation, fees or government
borrowingn Recent privatizations/deregulation (encourage
marketing orientation)n Shift from direct providers to service facilitatorsn Public/private partnerships marry strengths
of each
Private sector organizations
n Marketable output and exportsn Privately owned and controlledn Businesses compete to satisfy consumer wantsn Profit drives effective and efficient use of
scarce resourcesn Includes global multinationalsn Shareholder concerns may override social
concerns
Voluntary sector organizations
Normally non-profit-making
Rely on voluntary contributions and dedicated staff
Compete for funds/public attention for causes
MARKETING ENVIRONMENT 3
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Business Classifications (1.2)
Sole Trader characteristics
n Simple to formn Individual owns and controlsn Unincorporatedn No separate legal existencen Self-employedn Individual is the business
Advantages Disadvantages
Maximum privacy Unlimited liability for
Minimum formalities debts
Favourable taxes Specialized and high
Least cost to form risk
Focused/motivated Jack of all trades/
Close to customers narrow view
Close to employees Burden plus lack of
Flexible/responsive continuity
Hard work and longhours
A lot of competition
Lack of managementskills
THE NATURE OF THE ORGANIZATION 4
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Partnerships characteristics
n Unincorporatedn Two or more partnersn By agreement/lawn Legal maximum, e.g. 20n Jointly liable for debtn Share profits/lossesn Limited partnership but one is liable
Advantages Disadvantages
Raise more funds Unlimited liability
Pool expertise No legal identity
Can specialize more Potential disagreements
Suits professions Frozen investment
No company tax Dissolve on partners
Privacy high death
Vulnerable ifmalpractice
MARKETING ENVIRONMENT 5
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Registered Companies characteristics
n Dominant formn Public (plc) and private limitedn Incorporated by lawn Shareholders contribute capitaln Regulated by Memorandum (external scope)
and Articles (internal administration) ofAssociation
n Submit independent audited accounts/directors report
Issues
Short-termism, take-over threat
Fat cat remuneration levels
Advantages Disadvantages
Separate legal form Complex/costly to
Limited liability form
Finance raising Disclosure
Easy share transfer requirements
Fund development Government
Customer confidence regulations
Operational inflexibility
Size may breedimpersonality
Ownership/management divide
THE NATURE OF THE ORGANIZATION 6
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The case for privatizing
This involves transferring ownership of 51% or more ofshares in a public sector organization to private hands
Political considerationsl Poor record of efficiencyl Susceptible to pressure groups like unions and
political interferencel Limited by government fundingl Privatization reduced state rolel Led to deregulation/cut red tapel Encouraged wider share ownership notably
customers and workforcel Greater freedom to market servicesl Sale cuts government borrowingl Regulators appointed with powers to enforce
change, e.g. Oftell Examples: water; gas; electricity; telecoms;
lotteries
Economic considerations
l Limited competitve pressure when nationalized
l Significant efficiency improvements
l Increased competition and consumer choice
l Pressure to become marketing orientated
l Improved industrial relations
l Freedom to exploit diverse opportunities
l Lower prices and steep rise in productivity
Questions set on organizations often call forcomparison of types or sectors
To focus on such questions use a grid for pointby point comparison/to earn format marks
MARKETING ENVIRONMENT 7
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Strengths of SMEs (1.3)
l Cater closely for local customersl Sensitive to buying habits/tastesl Able to focus on a niche marketl Owns business/attention to detaill Flexible/adaptable organizationl Attract quality staff unwilling to work in large
firml Finger on pulse as needs changel Tend to be inventive/innovative
Relative weaknesses
See disadvantages of sole traders and partnerships
Reverse of large/global strengths*
Strengths of large/global firms
l Economies of scale, e.g. discountsl Risk spread across various marketsl Justify use of specialized skills, etc.l Secure cheaper financel Exploit best practicel Transfer technology and ideasl Vast bargaining power re suppliersl Ability to centralize strategyl Advantage from brand leadership
Relative weaknesses
See registered company drawbacks Reverse of small firm strengths*
THE NATURE OF THE ORGANIZATION 8
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REMEMBER-Vision is the ability to imagine or foresee the futureprospects/potential for an organization.Mission is the statement of the organizationsoverall purpose that expresses what it stands forand seeks to accomplish in the wider environment
Vision is the responsibility of top management
Anticipates how markets, tastes, technologiesevolve
Critical importance in formulating marketingstrategy
Triggers the mobilization of resources to achieve it
Drives organizational behavior
Key to securing a competitive edge
Example of vision: a PC with Windows software onevery desk (Microsoft)
Example of mission: To organize the worldsinformation (Google)
Mission statements (1.4)
Meaning: Describes core activities
l Fundamental reason for organizations existence
l Establishes what business it should be in
l Distinguishes uniqueness from other organizations
l Identifies competences, customers, relationships
Importance: Shapes corporate culture
l Enables sense of direction, unity, common purpose
l Provides a set of corporate values and priorities
l Clear statement for external stakeholders
l Provides a benchmark for assessing performance
MARKETING ENVIRONMENT 9
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Organizational Objectives (1.4)
Specific ends or achievements to be realized at afuture time to fulfil the mission of the organisation
NATURE
l Strategic objectives are long-term goals set bysenior management, e.g. achieve marketleadership
l Tactical objectives are set by middle managersand are more measurable, e.g. open 10 new outlets
l Operational objectives are short-term and set byfirst line managers, e.g. cut customer complaintsby 5%
l Objectives should be SMART specific,measurable, achievable, relevant and time-limited
l Objectives vary by sector:
Charity: Alleviate suffering/raise contributions
Public: Public service/equity/cost effectiveness
Private: Maximize profit/growth/maket share
SIGNIFICANCE
l Reason why organizations existl Drive organizational behaviorl Supply motivation/sense of purposel Time-limited targets provide controll Survival/profit stimulate competitionl Profit maximizing (revenue cost) ensures that
firms supply what consumers are prepared topay for, using methods that minimize cost
l Rapid response to changing tastes/innovation ofmore efficient method
l Marketing may pursue market share/sales max. profit constraint
l Growth provides opportunities
THE NATURE OF THE ORGANIZATION 10
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Internal influences on aims
l Memorandum of Association limits business scope
l Personal values/goals of directors/senior managers
l Aversion to risk and future expectations
l Resource limitations
l Inertia and past success may prevent review
External influences on aims
l Must match internal strengths/weaknesses withexternal opportunites and threats
l Present/future expectations of shareholders
l Interests of connected and external stakeholders
l Competitive forces
l Changes in government policy and legislation
l Pressure groups
Drivers for Change (1.5)
Organizations must periodically review their aims: renew objectives once achieved reality of a dynamic environment control process shows variances respond to forces pushing it off-course anticipate change in wants meet emerging technical change proactive to threats/opportunities change in top management as part of a formal corporate planning system
MARKETING ENVIRONMENT 11
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Organizations as Systems (1.6)
l View organizations as part of a wider systeml Inputs are drawn from environment and
converted into outputsl Positive (goods, services) and negative (wastes)
outputs are returnedl Organizations made up of subsystems
(e.g. marketing, production)l Boundary between systems represents
interfacel Feedback corrects deviations in outcomes
vs. aimsl Interdependent with environmentl Scan/adapt to threats/opportunities
Marketing Interface (1.6/7)
n Organizations often split into various functions soefficient conversion needs effective coordination
n Departments must optimize not maximize bypursuing the best organizational outcome
n Marketing critical: bridges the boundary betweenthe wider environment and internal departments
n Must establish/maintain relationships across andwithin the organizational boundary, e.g. production
n Demands a marketing orientation: focus onsatisfying the needs of the buyer via the product/things associated with creating, delivering andfinally consuming it. (T. Levitt)
THE NATURE OF THE ORGANIZATION 12
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MARKETING ENVIRONMENT 13
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Dynamic Environment (1.8)
Marketing environments are in constant changeMany environments are turbulent and subject tounpredictable and often uncontrollable forces:n Increasingly competitive markets are in flux,
e.g. stock, currency, ICT and energy markets
n Technological forces, political discontent, variableprosperity, fundamentalism also disturb stability
n Even the natural environment appears unstablewith freak weather conditions
Dynamic conditions suggest powerful forces aredriving change, e.g. IT developments or a catalyst,e.g. new entrant or deregulation
Importance to marketing
l Creates ambiguity over future patterns
l Can create opportunities if managed well
l The environment must be monitored and analysedto identify threats and potential impacts
l Prioritize on most significant developments
l A proactive response is demanded
l Reduce resistance in favor of a culture of change
l Requires flexible, decentralized, organic structures
l Associated costs may be transferred to customers(higher price); workers (redundancy); competitors(lower sales); government (subsidies), etc.
l Complex markets involve many interdependentcausual factors producing non-routine problems
THE NATURE OF THE ORGANIZATION 14
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Managing the Environment (1.8)
A contingency approach:
Appropriate marketing action depends on theparticular circumstances of the situation ratherthan predetermined rules or policies
Marketers must recognize there are no certainties ina global economy-tailor response to an evolvingsituation
Even McDonalds must modify its universal formulato match competitive/cultural realities Indiassacred cow
Logical development of the systems perspective todetermine appropriate responses in the face ofmulti-faceted change
Organizations of the future
l Flexible dynamic structures
l Organic and fluid
l Focused but adaptable
l Lateral networked relationships
l Task, skill and relationship focused
l Flexitime for effective task completion
l Customer orientated
l Employee involvement/participation
l Shared benefits
l Wider share ownership
l Marketing secures collaboration and integration ofkey functions
MARKETING ENVIRONMENT 15
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Emerging Challenges (1.9)
E-commerce
Implies radical restructuring/culture shifts for organi-zations and will demand a systems-driven response
Globalization
Rise of multinationals treating the world as anintegrated market place for resources and productsand developing relatively standardized products tomeet customer needs
Increasing competition
Product of improved access to information;deregulation; more discerning customers
Digitalization
Allows seamless integration of IT (text/sound/vision)into all aspects of life, e.g. mobiles and broadband TV
Significance for marketing
n Rising on-line sales challenge traditional retailers
n Source of competitive advantage for supply chain
n Large reduction in transactions cost
n Need to monitor the global market-place
n Threat of competition in domestic market
n Small firms must exploit niches
n Price must be comparable even whendifferentiating
n Action on monopoly abuse Microsoft E497m fine
n Broadband allows tailored promotion andinteraction
n Mobiles becoming a critical marketing resource
THE NATURE OF THE ORGANIZATION 16
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Hints and Tips
l Read through Unit 1 of the MarketingEnvironment Coursebook
l Seldom the main focus of a mini case or even casequestions
l Normally at least one full optional question perpaper but may overlap with other sections
l Many optional questions are set in a specificorganizational context
l Focus to ensure you answer the question
l Breakdown different components of the questionsto ensure you address all of the issues
l Make outline plans of all the exam questions
l Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
Identify organizational questions Q2 or Q3
*Note the potential overlap of points from differentparts of this syllabus section
Have a vision of e-commerce, e.g. based on PCs,digital TV or 3G mobile phones
Fix academic ideas by relating them to your ownsituation: Do you review your own goals, howhave they changed, by what forces?
Your revision provides an example of an opensystem you draw knowledge from lectures/readings; convert it into understanding to yieldoutput as coursework and get feedback
MARKETING ENVIRONMENT 17
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THE MICROENVIRONMENT
LEARN ING OUTCOMES
Appreciation of interconnected environments Importance of stakeholders and their
interaction Significance and impact of pressure groups Role of marketing in managing these groups
Syllabus reference: 2.1, 2.2, 2.5
KEY REV IS ION PO INTS
Complex nature of the environment Internal, connected and external stakeholder
groups their importance to the organization Pressure groups and their influence on
decision-making Management of stakeholders and pressure
groups
Unit 2
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Microenvironment Context (2.1)
Includes the groups and organizations close to thebusiness that affect its ability to satisfy customers.
They have a two-way operational relationship withthe business and may be influenced by it to somedegree.
n Refer back to systems theory
n All organizations aim to make resourcesproductive
n Resources are scarce and diverse
n They must be attracted from the environment
n Inputs are transformed in time, place or form tocreate utility, value and satisfaction for thecustomer
n Ineffectiveness or inefficiency threatens survival
n Resource providers are stakeholders
Classifying the environment
n Organizations face a confusion of environmentfactors
n They need to sort and classify these factorsn They may or may not represent threats/
opportunities for marketersn Represent jigsaw pieces for grasping the
bigger picturen Include all factors/forces with significant
impact on organization
MARKETING ENVIRONMENT 19
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The Microenvironment
THE MICROENVIRONMENT 20
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Stakeholders defined
Any group or individual, other thanshareholders, who can affect or are affected bythe achievement of organizational goals.
Primary stakeholders make a direct and oftencontinuous contribution to core activities.
The impact on or by secondary stakeholdersis more intermittent and normally of lesssignificance.
n Organizations are coalitions of stakeholders
n Management needs a workable balance betweenthe claims and interests of these groups
n Shareholders are owners of the business
Microenvironment stakeholders
Suppliers
n Key to availability, delivery times and inputquality
n Wield bargaining power to drive up cost ofmaterials
n Relationships affect supply chain effectivenessn Dependence on 1 or 2 suppliers carries risksn Preferred suppliers may provide total quality,
just-in-time delivery and R/D support
MARKETING ENVIRONMENT 21
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Competitors
n Potential threat to survival and profitability
n Must monitor actions and reactions of rivals
n Price wars may erupt from time to time
n Marketing mix may be deployed to influence them
n May have common interest in collaboration
Customers
l Often sole source of revenuel Free to withdraw/transfer customl Dissatisfied customers tell othersl Preferences may change quicklyl Influence through marketing mixl Retaining customers more cost effective due to
potential lifetime revenue flow
Intermediaries/distributors
l Critical role/channel effectivenessl Partnership offers advantages: transport, stock
management, merchandising, after-sales, etc.l High leverage, e.g. own brandsl E-commerce disintermediation?l Tying in outlets may provide competitive edge
Employees
n Retention of skilled preferred to new recruitment
n Critical factor in productivity and customer interface
n Central to coordination and achievement of goals
n Potentially costly, e.g. salaries/disruption/poormorale
n Evolution of flexible working patterns/virtual orgs.
THE MICROENVIRONMENT 22
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Microenvironment importance
Operational context for day-to-day tacticalresponses
Marketer at critical interface between primarystakeholders: organization
Successful value chains are clusters ofcollaboration
Marketing mix deployed to influence actual andpotential stakeholders
Stakeholders can damage/advantage so choiceof competing or cooperating
Stakeholder Pressures (2.2)
l Organization cant operate in isolation
l Must satisfy legitimate expectations ofstakeholders if these are to contribute value inreturn
l Contributions may be withdrawn, e.g. shopelsewhere
l Stakeholders can change organizational goalsunless effectively managed
l Conflicts of interest possible, i.e. higher wages lower profits or higher prices
MARKETING ENVIRONMENT 23
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Stakeholder Typology
THE MICROENVIRONMENT 24
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Stakeholder pressure and expectations
Customers
Pressure via reduced purchases, boycott andcomplaint
Expect value for money, quality products and service
Employees
Pressure via absenteeism, low morale and work rate
Expect fair wage, skill development, job satisfaction
Suppliers
Pressure via low priority service, supplying rivals
Expect prompt payment, clear supply schedules
Distributors
Pressure via stocking rival/own brands, delay payment
Expect just-in-time supplies, promotional support, etc.
Managing Stakeholders (2.2)
l Recognize the behavior of organizations hasbecome everybodys business
l Know who the critical stakeholders are
l Map stakeholders by level of interest in theorganization and their power to influence outcomes
l Use internal and external marketing to resolve orbalance stakeholder conflicts
l Keep key stakeholders well informed and on-side
MARKETING ENVIRONMENT 25
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Pressure Groups (2.4)
Are sub-sections of society organized on the basisof specific common interests, goals or attitudes
Distinguish
l Sectional or interest groups who exert pressureon people, organizations and government for theirown special purposes, e.g. unions
l Cause or promotional groups with commonvalues and a specific issue, e.g. Friends of theEarth, World Wildlife Fund, CND
l Both seek influence over government decisions
l Both may promote or resist particular decisions
l Means for like-minded to make themselves heard
l Increasing to influence all business/society aspects
Means of achieving their aims
Complain, e.g. to the media/regulators
Inform and persuade affected parties
Debate at local meetings
Lobby elected representatives/officials
Canvass and opinion form re stakeholders
Boycott company products or services
March and demonstrate outside business
Legal action and test cases
Demand negotiations for concessions
THE MICROENVIRONMENT 26
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Example: Consumerists
Those groups and organizations who exert legal,moral and economic pressure on business toaccount for the interests of consumers over profit
Impact on marketing
3 Customers no longer suffer in silence
3 Encouraged proactive businesses to adopta customer orientation
3 Consumer rights enshrined in fair trading laws
Right of Safety Issues: tobacco, GM foods, additives
Right to be informed: Fraud, small print, misleadingpromotion, unsolicited junk mail
Right to choice: deregulation, reduce entry barriers
Right to a hearing: Poor service/substandardproducts
Example: Environmentalists
Groups and organizations who seek to applypolitical, economic and moral pressures onbusiness to adopt sustainable operations.
Significance for marketer
Wide-ranging causes: conservation, recycling,emissions, animal rights and endangered species
Rising concerns imply extra costs and higher prices:
l Corporate image damaged
l Customers may opt for less harmful alternatives
l Shareholders may switch funds to ethically sound
l Recruitment of high calibre staff affected
l May prompt over-strict legislation if fail to act
l Loss of community/local government support
l Cost penalties legal claims, product recalls
MARKETING ENVIRONMENT 27
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Formal channels for pressure
Pressure via government
l Government departments consult widely
l Sound out recognized/responsible pressure groups
l Able to influence new legislation and policies
Pressure via legislature
l Pressure group lobby support from legislators
l Susceptible to issues affecting their constituencies
Pressure via public campaign
l Influence opinions through educational campaigns
l In short term, mobilize public/stakeholder supportthrough meetings, demonstrations, internetpetitions
Managing Pressure Groups (2.5)
3 Prioritize resources that are scarce
3 Clarify corporate values/goals
3 Listen to their views
3 Communicate with them
3 Consult with them
3 Monitor their pressure on govt.
3 Liaise with them over developments/use theirexpertise
3 Respond positively to their ideas
3 Work with them for mutual benefit
3 Build trust
3 Support them to work with you
3 Oppose if necessary
THE MICROENVIRONMENT 28
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Hints and Tips
n Read through Unit 2 of the MarketingEnvironment Coursebook
n Some mini case topics, e.g. McDonalds (D03) andCruise market (J03), but less frequent than macro
n Key case terms are highlighted in bold
n Questions normally in context of a selectedindustry
n Normally 2 or 3 part questions
n Normally at least one full optional questionper paper but may overlap with others
n Make outline plans of all the exam questions
n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
The mini case counts for 40% of the marks andnormally has 4 parts. 40% of your 3-hour examtime is 72 minutes so spend no more than18 minutes per part (including reading)
Re-read question and underline key words
Make trigger word plan. Use marks as a guide
Get feedback on your understanding
Differentiate your examination script to theExaminer by making it stand out as a premiumproduct
You can relate this syllabus area directly to yourown experience as customer, employee andmarketer
Generate more examples as you work throughthis passbook to use in your exam answers
MARKETING ENVIRONMENT 29
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ANALYSIS OF THECOMPETITIVE ENVIRONMENTLEARN ING OUTCOMES
Importance of monitoring competitors Explanation of strategic implications Understand impact of competition policies Awareness of internal/external information
sources
Syllabus reference: 2.3, 2.6, 2.7 (10%)
KEY REV IS ION PO INTS
Characteristics of fragmented and concentratedindustries
Description of five-force analysis and itsstrategic implications
Review of competition law and practice Key sources of information on the
microenvironment
Unit 3
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Monitoring Competitors (2.6)
Competitive behavior involves actions andreactions of businesses to improve theirprofitability and market position at the expenseof rivals.
Importance
l Competition impacts directly and continuously
l Forms a two-way interaction
l Marketers must understand the dynamics ofdifferent markets and the realities of competition
l Marketing strategy, tactics and responses must beset in the context of a changing marketenvironment
Intense competition: Characteristics
Large number of small buyers/sellers
High degree of market knowledge
Rational consumers and businesses with highdegree of market knowledge
Ease of market entry or exit
Price takers set by market forces
Examples: materials/foodstuffs; commodities inmaturity (PLC); e-commerce creates pricetransparency
MARKETING ENVIRONMENT 31
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Industry types: Fragmented industries
Large number of small competitors
Rational to monitor closest rivals
Easy entry to and exit from the market
Adaptability to market diversity yields competitiveadvantage via innovation or successfuldifferentiation
Firms stress USPs but high profits are soonreduced by imitation/new entry
Supply of me-too goods low margins
Marketing implications
Strategic actions
3 Monitor close rivals and new entrants
3 Invest in relationship marketing
3 Build long-term mutual benefit
3 Create barriers to protect the market
3 Niche marketing of a habitual good
3 Buy out competitors
3 Cut costs to offer keen prices
3 Innovate continuously a moving target3 Product differentiation and branding
ANALYSIS OF THE COMPETITIVE ENVIRONMENT 32
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Concentrated industries
Small number of very large firms
Economies of scale
High barriers to entry and exit
Interdependence large market shares
Outcomes depend on rival reactions
Dominant market leaders may emerge
Multiple competitive options
Marketing Implications
3 Understand kinked demand curve and tendency toprice stability in oligopoly
3 If cut price others follow suit to protect marketshare
3 If raise price others dont follow, so they gainshare
3 New product development and differentiation used
3 Tendency for occasional price wars, e.g. airlines
3 Collusion raises profits but is illegal
3 Price leadership overcomes kink if rivals follow
MARKETING ENVIRONMENT 33
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Porter Five Force Analysis
ANALYSIS OF THE COMPETITIVE ENVIRONMENT 34
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Strategic and marketing implications
n Long run profitability rest on five forces thatgovern distribution of value added created by thefirm
n The analysis exposes what is driving competition
n A competitive strategy is required to achievegoals, identify a defendable market position andsecure a competitive advantage
The intensity of inter-rivalry
n Ranges from zero (powerful monopoly) tocut-throat rivalry
n Intense rivalry expands growth markets, e.g.mobiles, but may undermine a mature market
n Degree depends on switching/exit costs,overheads, objectives, growth rate, productdifferentiation
Threat of substitutes
An industry is a group of firms producinggoods and services which are close substitutes all goods compete for limited purchasingpower, i.e. package holidays with hot tubs
n May involve substitute material, alternativetechnology, new distribution channel(e-business)
n Intense future rivalry if substitute price/performance ratio is high
n Switching costs are very lown Buyers are informed and willing to search
MARKETING ENVIRONMENT 35
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Threat of new entry
n Entry causes supply capacity to rise tendingto reduce prices and increase input costs
n High profitability attracts entry but barriers maydelay it
n Entry is less likely where:l Existing profitability lowl Barriers to entry are very highl Economies of scale fully exploitedl Set-up capital requirements highl Brand loyalty is highl Switching costs are highl Potential entrant expects fierce retaliation
Bargaining power of suppliers
Can squeeze profit and redistribute value added
Supplier power in future depends on:
l The degree of supplier concentration
l Substitutability between suppliers
l Switching costs involved
l Threat of forward integration
Bargaining power of buyers
This depends on:
Price sensitivity: some cherry-pick for best value
Buyer leverage: depends on market knowledge;availability of good substitutes; switching costs;importance of purchases to seller; buyer size, etc.
ANALYSIS OF THE COMPETITIVE ENVIRONMENT 36
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Strategic Implications (2.6)
} Companies succeed as long as they havematched their products and services totodays marketing environment. ~ (Kotler)
Strategy matches strengths/weaknesses of onesresources to risks/opportunities of externalenvironment
Three generic strategies provide the means ofachieving a sustainable advantage and above averageprofitability:
Broad cost leadership emphasis on efficient scale,tight cost control, entry barriers and proximity inproduct
Broad differentiation proximity in cost but focuson unique and highly promoted product
Cost or differentiation focus on least vulnerableniche
All these strategies are competitive options
Market reality suggests collaboration as an alternativeor complementary strategy
The ultimate in collaboration involves cartels. If thesecontrol industry supply, then output may be controlledand prices/profitability raised, e.g. OPEC
Cartels tend to weaken due to internal dissension, atendency for substitutes to be offered outside thecartel, and the difficulty of internal policing to preventcheating
Collaboration short of cartels can be achieved via:
relationship marketing
partnerships
alliances
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Competition Policies (2.7)
Rationale
n Market forces insufficient to prevent monopoly
n Desire a level playing field
n To promote efficient use of resources
n Natural monopolies must be regulated
n Prevent abuse of market power
Policy Aims
3 To deregulate markets
3 Encourage SME
3 Act against anti-competitive behavior
3 Protect the interests of consumers
3 Keep entry barriers low
3 Prevent excessive concentration
Relevant legislation
l Restraint of trade: most agreements must nothave terms that restrict/prevent a person doingbusiness
l Restrictive practices: bans agreement betweenthe majority of firms affecting their freedom ofaction
l Fair Trading Act: agreement must be registeredwith Director General and are presumed againstthe public interest unless justified
l Competition Commission: considers cases ofreferable monopolies and mergers (25% marketshare/if creates a monopoly)
l EU legislation: overrides national laws to coverthe Single Market
ANALYSIS OF THE COMPETITIVE ENVIRONMENT 38
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Impact of policies
On the organization
l Fines of up to 10% of turnover
l High profile E497m EU fines on Microsoft forabusing its market power in bundling up functionslike Media Player
l Adverse impact on company image
l Surveys suggest that majority of mergers do notadd value and many destroy it
l Limit ability of organizations to dominate marketsor collaborate to control output and prices
On the marketing environment
l Only a small proportion of qualifying monopoliesreferred but demonstration effect applies
l Ratchet effect of EU directives, e.g. endingexclusive car dealerships is transformingcompetition
l Regulators impact on privatized naturalmonopolies through a range of powers includingprice cuts
l Complaints can be made to the Director Generalwho may institute an investigation, e.g. parallelpricing in electrical goods
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Information Sources (2.3)
(Cross-refer to 3.2 and Unit 4)
Collecting Information and its Interpretation andPresentation are key marketing skills
Awareness of information on the marketingenvironment provides:
3 A basis for segmenting customers
3 Identifying emerging market trends and patterns
3 Forming/deepening customer or other relationships
3 Understanding of industry sales patterns,production capacities, stock levels and futureplans
3 Understanding competitors, potential entrants,suppliers/distributors via analysis of balancesheets, pricing structures, market shares,marketing mix, etc.
Competitor analysis
Involves the gathering and interpretation ofintelligence from diverse sources on key rivals withthe aim of achieving a competitive edge by:
l Identifying strengths and weaknesses
l Understanding rival response patterns
l Avoiding surprises, e.g. product development
l Focus on quality information
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Information needs
Financial Information
3 Balance sheet: cash flow
3 Turnover and profit
3 Financial state: assets, debt
3 Rate of growth
3 Export performance
Sources
l Company annual accounts
l Company Registration Office website
l Commercial databases, e.g. Datastream
Organizational information
3 Current problems and opportunities
3 Key decision-makers
3 New posts and recruitment patterns
3 Investments, new ventures, closures
3 Take-overs and acquisition
Sources
l Trade and quality press
l On-line, e.g. www.companiesonline.com
l Common stakeholders
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Production and product information
3 Number of employees
3 Product range and quality
3 Production cost and specification
3 Location and scale of operations
3 New product development
Sources
l Trade Associations
l Chambers of Commerce
l Patents Office
Marketing information
3 Price terms and discount structure
3 Market share
3 Packaging and delivery
3 Advertising and promotion
3 Marketing policy and plans
Sources
l Field sales force
l Marketing surveys, e.g. Mintel
l Networks
l Trade press
ANALYSIS OF THE COMPETITIVE ENVIRONMENT 42
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Hints and Tips
n Read through Unit 3 of the MarketingEnvironment Coursebook
n Occasional mini case topic
n Up to a full optional question per paper
n Make outline plans of all the exam questions
n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
Exam success results from:
3 Preparation
3 Understand the question
3 Focus precisely on requirement
3 Use of format and context
3 Effective time management
Practise interpreting past mini cases andrelating them to the syllabus
In the exam quickly read the case throughonce then carefully read all the questions
Underline key points and examples
Stick closely to the question
MARKETING ENVIRONMENT 43
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THE MACROENVIRONMENT
LEARN ING OUTCOMES
Appreciate the macroenvironments importance Recognition of key sources of information Understanding of the natural environment Marketing implications of the natural
environment Assessment of environmental challenges
Syllabus reference: 3.1, 3.2, 3.6, 3.8
KEY REV IS ION PO INTS
Uncontrollable threats and opportunities Relevant sources for the various environments Business and marketing impacts on the natural
environment Understanding of the macroenvironment
context
Unit 4
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Macroenvironment Overview (3.1)
Importance
l Organizations operate in this societal context
l PEST SLEPT STEEPLE environments
l Source of successive threats and opportunties
l Largely uncontrollable
l External half of SWOT analysis
Social environment
Embraces changes in the nature, attitudes,behavior and values of society that affectemployment and buying patterns
Political environment
Activities of the state in setting nationalobjectives, legislating, policy-making andimplementation
Economic environment
Determines key aggregates of income, output,employment and price levels
Technical environment
Embraces changes to products, processes andmethods that impact on organizations
Natural environment
Life resources including air, water, land, wildlifeand the amenity they confer
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Challenges of Change (3.8)
Macroenvironment seldom impacts on day-to-dayoperations but shapes future actions andperceptions
} But tomorrow always arrives, it is differentand then even the mightiest company is introuble if it has not worked on itsfuture. ~ (Drucker)
Examples: EuroTunnel, Coca Cola (Dasani),McDonalds, Enron
On a moving conveyor of changing tastes,technology and competitive forces,organizations must move fast to stand still!
Change is characteristic of information societies butpace is accelerating, compounding uncertainties
Examples: War on terrorism, oil price fluctuations,trrade disputes, enlarged EU, viruses, migrations
Marketers cant rely on patterns of the past andmust:
l Scan their environmentl Recognize challenges/forces driving changel Respond strategically to threats and
opportunitiesl Monitor strategic outcomesl Continue to scan
} Standing still is still the fastest way of goingbackwards in a rapidly changing world. ~(Roddick)
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Information Sources (3.2)
(Cross-refer to Element 4 and 2.3)
Research methods
1. Internal data: generated by operational activities
2. Secondary data: from published external sources
3. Primary data: from original sources, e.g. survey
Examiners credit candidates who cite sources
Link sources to syllabus elements
Scan a broadsheet daily for news analysis: onlyinclude items of current/future concern
Secondary sources
Quality and trade press Company reports Government statistics Directories of companies Academic journals Business periodicals
MARKETING ENVIRONMENT 47
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Trade sources
THE MACROENVIRONMENT 48
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Summary of sources
Social Cultural
l Guide to Official Statisticsl Social Trendsl Office of National Statistics (ONS) Censusl ACORNl Market Research Bureau
Political Legislative
l JUSTIS online legal databasel EU Commissionl News databases www.news.bbc.co.ukl www.statistics.gov.uk
MARKETING ENVIRONMENT 49
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Summary of sources
Economic International
l Blue Book on national income/expenditurel Economic Trends www.statistics.gov.ukl News Media www.ft.com,
www.theeconomist.coml CBI Quarterly Surveyl Regional Trendsl International organizations, e.g. WTO, UN, OECDl Professional bodies, e.g. Institute of Exportersl DTI and Bank Reviews
Technical Environmental
l Technical abstracts and research papersl Professional associations/industry networksl Pressure group websitesl www.earthtrends.wri.org is an environment
portal
THE MACROENVIRONMENT 50
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Information Requirements
Example: Society
Demographic trends
Work and leisure patterns
Changing cultural norms
Ownership ratios, e.g. mobiles
Example: International
Stage of the global economic cycle
Movements in interest rates
Relative change in exchange rates
Activities of IMF and IBRD
Regional growth and inflation rates
Example: The Economy
Main economic indicators, e.g. interest rates
Business confidence indicators, e.g. investment
Labour market changes
Government tax and spending plans
Income, output and expenditure patterns
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The Natural Environment (3.6)
Embraces natural resources including land,vegetation, wildlife, air and water and the amenitythat they confer.
n Life-supporting systems
n Many are non-renewable assets
n Businesses discharge wastes into this
n Progressive loss of critical rainforest
n Negative feedback effects, e.g. greenhouse gases
n Challenge of achieving sustainable growth
Pollution arises when waste is in excess of thenatural assimilative powers of the environment
Environmental consequences
Arise from the interdependence of:
l Population growth in poorer countriesl Industrializationl Mass affluence in developed countriesl Material expectations in developing countriesResult
progressive resource depletion emissions, effluents, solid wastes extreme weather conditions ozone depletion
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Sustainability as a Goal
Meeting the needs of the present generationwithout compromising the needs and requirementsof future generations, i.e. continued growth in GDPbut without the negative environmentalconsequences
n International agreements to reduce greenhousegases and ban ozone-producing chemicals
n Development of environmentally friendly products
n Renewable energy sources replace non-renewable
n Redesign, recycling, reuse of materials
Nature vs. Technology
l Technology may achieve sustainability butcould equally destroy the world
l GM crops could eliminate food shortages butcould unleash virus infections
l Massive potential to transform Third Worldfarming but threat to wildlife
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Implications for marketers
3 Business central to the problem and solution
3 Rise in green consciousness
3 Stakeholders require reassurance and customersprefer commitment to environmental standards
3 Involve and educate key stakeholders
3 Ethically sound practices may provide an edge
3 Strategy based on sustainable principles, audit,impact assessment and benchmarking
Hints and Tips
n Read through Unit 4 of the MarketingEnvironment Coursebook
n The mini case often concerns themacroenvironment and information sources
n A part question on the natural environment mayarise or one linked to pressure groups
n Always be prepared for general questions on thesignificance of the macroenvironment
n Know relevant information sources for each majormacroenvironment
n Make trigger word plans for the past examquestions at the end of unit 5
n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
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THE DEMOGRAPHIC SOCIALAND CULTURALENVIRONMENTLEARN ING OUTCOMES
Understanding of the social environment Recognition of social and cultural influences Assessment of the implications for marketing
arising from social, demographic and culturalchange
Syllabus reference: 3.3
KEY REV IS ION PO INTS
The structure and composition of thepopulation implications for segmentation
Cultural influences on stakeholder attitudes andbuyer behavior
Key social trends and their significance formarketers
The significance of social influences such aslifestyle, class and reference groups
Challenges such as the changing role ofwomen and ageism
Unit 5
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Population Size and Structure
Explanation of trends
World population
Exponential growth to over 6 billion in 2000
Pace slowing by demographic transition to lowerbirth and death rates with economic development
Ageing offset by AIDS and changed attitudes
Dismal outcomes of Malthus avoided bar Africa
Aggregate population
Growth birth death rate net migration UK growth slowing to 60m EU growth to 415m but birth rate now below
replacement level, i.e. 1.5 vs. necessary 2.1
Dependency ratios
Ratio: dependants (non-working) to workpopulation
Rising sharply with lower births, retirement andrising longevity in mature economies
Immigration
Uncertainty and continuing poverty stimulates
A means of support for rapidly ageing populations
Remittances important to developing countries
Third World loses its skilled and dynamic workers
Demographic structure
Trends in age, gender, marital status, ethnicity,region and occupation
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Challenge of Ageing
} An increase in the average age of thepopulation. ~
n Post-war baby boom generation approachretirement
n EU median age rising from 38 to 49 by 2050
n Better off, better educated and better informed
n Shift in centre of gravity of spending power to0ver-55s
n Healthy and fit old versus the poor old segments
Negatives
l Worsening dependency ratio
l Higher taxes, pension contributions, loanrepayments for workers
l Labour and skill shortages
l Falling savings ratios as elderly spend
Significance
l Increase in empty nest and single households
l High discretionary income no mortgage
l Cultural and political influence grows
l Favours travel, health-related, security, durablefinancial service and nostalgia products
l Incentives to keep working beyond retirement
l Responsibility for ageing relatives
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Marital status
l Later marriage but 40% divorce ratesl 570,000 marry and 300,000 divorce p.al 1 in 4 children raised by single parent
Household structure
l Big rise in single households (elderly/young/divorcees)
l Composite families from remarriagel Rich source of segmentation
Regional distribution
l Drift from rural to urban/suburban livingl Ribbon developmentl Retirement hot spots, e.g. South
Ethnicity
l Black and Asian rose 40% 1991 onl Younger age profile differ in public/private
needsl Asian food market worth 2bnOccupation
l Core workforce shifts agriculture tomanufacture to services to information
l Emphasis on consumer interface,i.e. customers, elderly, stakeholders
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Employment Trends
Decline of full-time employment
Rise in part-time employment
Longer hours
Rise in self-employment
Rise in contractual employment
Flexible work lives
Rise of knowledge workers
Causes
l Rise of flexible/customer-focused organizations
l 24-hour, 7-day week, 52-week year business
l Need flexible workforce for peaks and troughs
l Entry of women into workforce
l Changing culture for permanent workers
l Demand for a dedicated workforce
l Attractions of affluent lifestyle/house price rises
l Opportunities created by IT teleworking
l Organizations prefer to outsource non-core tospecialists or contract-in skills as required
l Employees prefer flexitime and staggered hours
l Move to flexible shifts and work years, workingfrom home and phased withdrawal to retirement
l 50% produce, process, use, distribute information
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Role of Women in Work
n Strongly influenced by culture and religion
n Tend to work in different sectors, occupations andlevels
n With household duties work harder but paid less
n Dominate in interpersonal service sectors health
n Men dominate top positions in all sectors
n Account for nearly half the workforce
n An underutilized resource to relieve shortages
Policy responses
l Positive discrimination in career development
l Women-friendly recruitment
l Enable a flexible work/life balance
l Common pay and conditions
l Motivational training
l Financial support for child care
l Retraining after career breaks
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Demographic influence felt on:
l Aggregate demand for goods and services
l The size of different market segments
l The availability of labour
l The mix and composition of social services
l The scale of support infrastructure
l The tax burden of the dependent population
l The regional distribution of demand
Implications for marketing
Important demand condition in forecasting sales
Family life cycle to match product offerings to needs
Organizations must market themselves to targetgroups
Structural changes drive changing demand patterns
Marketers must respond to demographicconsequences, e.g. flexible mortgages and pensionplans, time-saving and convenient solutions for coreworkers
Above-average income in populated South East magnet for luxury producers
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Cultural Environment (3.3)
Influences that affect societys basic values,attitudes, perceptions and behavior.
Explanation
Moulds and regulates daily behavior via constantconditioning and positive/negative reinforcement
Appropriate behavior and ideas in different socialsituations are learnt from:
n Family
n Education
n Experience
n Community
n Religion
Culture influences individuals/group in predictableways
Cultural influences
l What we eat, drink, our lifestyles and buyingpreferences
l Internal marketing to cross-cultural workforces
l Regional and international marketing when inRome do as the Romans do is apt
l Observe cultural mores/customs to avoid offence
l On language translation and hidden meaning
l UK government decision not to ban ritual Halal andShechita butchery methods
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Cultural trends
Position of women
Rise of work and career
Decline of maternal and domestic roles
Smaller families more use of childcare
Educational opportunity with rising aspirations
Implications
Control over discretionary spending power
Changing stereotypes in adverts
Premium on time/convenience time-savingmeals, appliances and family eating habits
One-stop, home and internet shopping
Healthy living and fitness
Changing attitudes to desirability of smoking
Rising concern over heart disease and stress
Convenience lifestyle leading to obesity
Dual society of the super-fit and over-weight
Implications
Expanding market for organic food
Price premiums
Image consciousness and designer fitness wear
Negative aspects to figure consciousness
Mounting public concerns over fat, sugar and saltcontent of fast and convenience foods
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Social Environment (3.3)
} Social Class comprises individuals with adefined status and who share commoncharacteristics, including wealth, occupation,income level, educational background andvarious aspects of lifestyle. ~
Open educational access allows class movement
JICNAR classifies individuals and groups
An upper class is superimposed (1% own 25%)
Social Class category Occupation
A (upper middle) Professional, topmanagement
B (middle) Intermediate managers
C1 (lower middle) Supervisory, clerical
C2 (skilled working) Skilled manual
D (working class) Semi and unskilled manual
E Pensioners, long-termunemployed
Implications
l Marketer more interested in the class aspired to
l Shared values/attitudes reflected in preferences
l Status symbols proxies for class membership
l Need to be mobilized in targeted promotions
Other social segmentation bases
3 Geographic, e.g. region or climate
3 Lifestyle and sub-cultures, e.g. Welsh
3 Demographic, e.g. age, ethnicity, gender
3 Geodemographic: neighbourhood
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Reference groups
} A point of reference (of knowledge andinfluence) for consumers in makingdecisions. ~
Actions and behavior of the family; peer groupsand work colleagues influence individual attitudesand behavior
The wish to belong to preferred groupsencourages conformity to norms, dress codes
Opinion formers influence the norms
US cultural values mediated via global mediacontrol
Implications
l if marketers persuade opinion leaders, followers buy
l Nike seek endorsements from top players
l Premium prices when conspicuous consumption
The family
Is a close and influential reference group.
Continuously influences values and buying decisions:
Family life cycle:
n Young unmarried high disposable income
n Newly married/no children home/durables
n Young married family expenditure
n Middle aged/teens high income/replacement
n Empty nest peak income/luxuries/financial
n Older retired/single conservative/one-offs
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Lifestyle
} Patterns in which people live, spend time andmoney. ~
n A function of personality, class, prior learning, etc.
n Measured by using Attitudes, Interests andOpinion scales combined with demographicclusters
n Allows segmentation and tailored promotion/marketing mixes to appeal to the cluster, e.g. Next
n Generic catagories include strivers, aspirers,achievers and succeeders
Implications for marketer
l Must monitor and understand demographicchanges
l Recognize impacts on both supply and demand
l Social, demographic and cultural change allinfluence tastes and preferences
l Care with segmentation as assumptions change
l Forecasts more difficult when aspirations orperceptions drive buying behavior
l Family structures/decisions are now more complex
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Hints and Tips
n Read through Unit 5 of the MarketingEnvironment Coursebook
n Will form mini case from time to time
n Scope for optional question when three differentenvironments are involved
n Will tend to be set in context
n Prepare brief answer plans to past exam questionsat the end of the unit
n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
Demographic questions are relatively popular sobe aware of key characteristics and implications
Questions sometimes link two different parts ofthe syllabus
Pay particular attention to directions in aquestion, e.g. describe, compare, summarize
The term outline demands a brief and probablya bullet point answer
Examination success factors:
You dont have to answer the mini case first
Answering a good optional question first may build upyour confidence
First impressions are important
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THE ECONOMIC ANDINTERNATIONALENVIRONMENTLEARN ING OUTCOMES
Understand the workings of the economy andthe role and objectives of government ininfluencing it
Explain the business cycle Impact of trade and the challenge of
globalization Assess international implications for the
marketer
Syllabus reference: 3.4
KEY REV IS ION PO INTS
Measurement of economic activity and livingstandards
Understanding the current and short-termfuture economic environment
Use and meaning of economic indicators The effects of key economic and trade policies Policy impacts and implications for marketers
Unit 6
-
Government Economic Objectives
n A high rate of sustainable growth
n Employment growth low unemployment
n Control inflation at low target level
n Favourable balance of payments averagedover a period
Subsidiary targets
l Concern for the green environment
l Maintain a competitive exchange rate
l Equitable distribution of income
l Maintain total tax burden below 40% of income
n Economic growth is the primary goal: it underpinsrising living standards and provides the resourcesfor social goals
n Growth derives from either unemployed resourcesor more fundamentally from rising productivity viainvestment in infrastructure, skills, capital goodsand new technology
n Developing countries seek structuraltransformation into an economy based onmanufacturing, services and information
n Negatives: growth absorbs scarce resources andcreates a variety of externalities, e.g. emissions/greenhouse effects; congestion; pollution andozone depletion (air travel)
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Workings of the economy circular flow
Marketers must understand the flows of income andexpenditure circulating round the economic system
Basically firms pay out incomes to households(as wages, dividends, rents) who in turn spend thembuying the output of the firms. This flow of revenuefinances the next round of production
This flow of spending power will fall if householdssave (leakage) but may be offset by investment(injection)
Other leakages are tax payments and import spending
Aggregate demand comprises consumption investment government exports imports andrepresents the pressure of demand on domesticbusinesses
Other injections exports government spendingThe economy is stable where injections leakagesIf injections exceed leakages and there areunemployed resources, then the flow expands
Higher aggregate demand tends to cause firms toproduce more and employ extra staff
Lower aggregate demand means lower sales revenue,forcing cutbacks in costs, e.g. redundancy
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The multiplieraccelerator effect
n Injections of government spending or newinvestment actually increases aggregate demandby more than the initial amount
n Incomes created by the injections are spent ongeneral goods and services in subsequent roundsof the circular flow
n The multiplier effect is reduced by leakages fromthe flow
n E.g. if leakages are taxes 0.3, imports 0.1 andsavings 0.1, the multiplier is 1/leakages 2
n The accelerator reinforces the multiplier and arisesbecause the capital investment needed to producea given output is 45 times as much
REMEMBER-It is important for the purpose of theexamination to demonstrate a generalappreciation of the economic environmentand its implications for the marketer. Youshould also seek to apply economic conceptslike the efficient allocation of scarceresources in this case time, whether it beto revision or between different questions
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Measurement of Living Standards
Major factor in determining the volume andcomposition of consumer spending
Measured by Office for National Statistics usingGross Domestic Product (GDP) per capita
GDP is the sum of the market values of all finalgoods and services produced per annum in acountry by domestic and foreign-owned firms
Can measure percentage change and makeinternational comparisons
International marketer must also take into accountculture, tastes and proportions spent on publicgoods
Limitations
l Quality of statistical services varies
l Inflation may erode the real value of GDP
l No direct benefit if extra GDP reflects more exports,military output or extra investment
l A rise might reflect reduced leisure/longer hours
l Ignores the informal economy, e.g. DIY
l No account of externalities or consumption ofnon-renewable resources, e.g. rain forest
l Broader measures may be called for
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The Business Cycle
The regular fluctuations of economic activity andincome through boom, downturn,recession and upturn. It is the averageof a multitude of individual industry cycles.
Interdependent open economies in a globaleconomy are particularly sensitive to fluctuationselsewhere
Turning points represent a sea-change ineconomic conditions, e.g. boom into downturn
The marketer must respond to each phase andpredict its severity and duration
The multiplier reinforces cumulative changeup/down
MARKETING ENVIRONMENT 73
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The Stages of the Business Cycle
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Economic Indicators
Used by government, business and otherstakeholders to monitor economic conditions andidentify or predict the need for policy changes
n Leading indicators provide advance warningof change
n Industry trends survey (CBI) measuresbusiness confidence changes optimism/pessimism
n Feel-good factor positive expectationsprovide positive feedback and vice versa
n State of the economy
n Unemployment ratesFall in boom to feedback into higher spending.High and rising among the over-50s.
n Inflation ratesMeasured by Retail Price Index reflecting anaverage, e.g. house prices above, durablesbelow
n Driven by demand pull or cost push butcurrently under control
n Balance of PaymentsMeasured by figures on visible (goods) andinvisible (services). Continuing deficit drivesinterest rates up or exchange rates down
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Economic Policies
Fiscal and budgetary
l Monitor through Blue Book and Budget statementl Government taxation/spending accounts for 40%
of GDPl Can inject to or withdraw from circular flowl Significant impact in general and on specific
sectors, e.g. health and education spendingl Taxes will impact on different groups/segments
Monetary and credit
l Control by Central Bank to realize inflation targetsl Controls spending financed by borrowingl Relies on interest rates to govern demand for credit
and supply of savings (up or down)l Enforces via a variety of controls over moneyl Impact of changes take time/reactions can be
unpredictable
Supply side
l Aim to improve productivity and aggregate supplyl Involves removing distortions, improving incen-
tives, increasing competition, enhancing skills,reducing barriers and encouraging contribution
l Work through privatization, deregulation and reforml Have transformed organizations in public sector
Prices and incomes
l Price controls and incomes policies used to controlrapid inflation
l Limited effectiveness due to eventual pay explosion
Trade and exchange
l Deficits can be financed (foreign borrowing) orreduced by import controls/exchange rate changes
l Important due to marketers potential currencyrisks
l Flexible exchange rates often slow to correct
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The Case for Trade
3 Diversity of choice
3 Exploits cost and price differences
3 Scope for specialization and scale economies
3 Rapid diffusion of new products and technologies
3 Develops networks, contact and understanding
3 Global e-commerce scope through the internet
3 Extend PLC and escape saturated home market
EU enlargement
n 2004 sees 10 East European andMediterranean nations joining EU
n 75m additional consumersn Mutual trade advantages as well as movement
of skillsn Legislative compliance a condition for Single
Market
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The Challenge of Globalization
A process whereby multinational companies treatthe world as an integrated market-place anddevelop relatively standardised products to meetits needs.
n Driven by multinationals, lower trade barriers andICT (e.g. e-commerce and world media)
n Account for nearly three-quarters of world trade
n Converging consumption patterns despite diversecultures
n Companies adopt a global marketing perspective
n International institutions (IMF, WTO, World Bank)support its development
Concerns
l Culture clash with global products, e.g. Big Macs
l Reaction to domination of US cultural norms
l Risk of dependence on foreign multinationals
l Governments being played off against each other
l Ability to avoid taxation through transfer pricing
l Widening gap between rich and poor nations
l Trade distortion of the EU subsidising exports
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Trade Frictions
l Tension between the advantages of free trade andthe self-interest of protectionist behavior
l Trade wars like price wars tend to damage all theparties concerned
l Tension between industrial and developing nations
l Both the US and EU seek anti-dumping duties,i.e. goods sold in their markets below cost ofproduction
l Beggar my neighbour policies can trigger globalrecession if countries impose tariffs or cutexchange rates to protect domestic interests,causing others to retaliate, leading to a viciousdownward spiral
World Trade Organization
Promotes free trade enforce world tradeagreements of members accounting for over 90%of world trade
Problem of EU US farmers dumping subsidisedsurpluses on world markets
Poorer countries may decide that trade groups arebetter route to development, e.g. SADC, SAARC,Andean pact
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Implications for marketers
n Need to monitor global environment for impendingthreats and trading opportunities
n Be prepared for a far from level playing field
n Recognize that failure to agree to future tradeliberalization might lead to protectionism
n Take into account fair trade initiatives sponsoredby charities to give preference to poorer producers
KEY POINTS ON THE ECONOMICAND INTERNAT IONAL ENV IRONMENT
View economies as open systems in a highlycompetitive global environment
Recognize that feedback effects on the circularflow can cause cumulative change
Multinationals and free-moving resourcesmean that governments are limited in policyterms by the need to maintain a healthyeconomy free from instability or inflation
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Hints and Tips
n Read through Unit 6 of the MarketingEnvironment Coursebook
n The economy is an important part of the marketingenvironment, so make sure you know the currentsituation
n Use information sources to revise the maineconomic indicators for your economy, e.g.growth, inflation and unemployment rates
n Appreciate what economic policies your govern-ment currently uses to achieve its objectives
n Understand the various phases of the businesscycle and marketing implications
n Mini cases often concern multinationals or theglobal economy since it is common to allnationalities studying for CIM certificate
n Questions on multinationals, trade and theeconomy therefore arise with frequency
n Prepare outline answers for all the exam questionsat the end of the unit
n Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
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THE POLITICAL ANDLEGISLATIVE ENVIRONMENTLEARN ING OUTCOMES
Understand the significance of politics andpolicy making for marketers
Identify key points of political influence andpressure
Appreciate the framework of regulation and theimpact and implications of legislation
Syllabus reference: 3.5
KEY REV IS ION PO INTS
Alternative political frameworks and theirinfluence on marketing
The significance of a change in government The role of legislation and assessment of
advantages/disadvantages of tight regulation Implications of the changing nature of the legal
environment
Unit 7
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The Political Environment
n Embraces the activities of the state in settingnational objectives, legislating, policy-making andimplementation
n Political change implies different policy outcomesfor different interest groups
n Political stability is vital in improving welfare
Role of a government: in market economies
l Significant overall impact in terms of jobs,spending and transfer payments between socialgroups
l Influence over key decisions: to work, save, invest
l Responsible for regulating social/business activity
l Legislate to shape standards of conduct/behavior
l Produce a positive and predictable businessclimate
Limits to democratic political power
n Elections provide authority for policy-making
n Periodic re-election opens government toaccountability and external forces
n Day-to-day government relies on feedback andcooperation of interest groups, so is susceptible toinfluence
n Operate in an open global system with rules andinstitutions limiting freedom of action
n Pressure to conform: keep national performance inline with other countries
n Recognize the power of multinationals and theinternet to circumvent political authority
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Why monitor the political environment?
l Alert the business to possible legislation
l Assess the impact of policy and implementation
l Recognize the influence of various public bodies
l Anticipate impacts of alternative political futures
l Trigger lobbying to represent business interests
Government exerts control over the macroeconomicframework, so impacts on marketers through itsdistribution of the tax burden as well as the size andcomposition of its spending
Shifting political philosophies have transformedthe public sector over the last two decades andimpacted on the marketing environment:
3 Many industries have been privatized
3 Many services contracted out to tender
3 Private sector partnership encouraged
3 Markets liberalized through deregulation
3 Targets underline a shift to customer focus
3 Regulators have promoted a marketing orientation
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Alternative Political Systems
n Spectrum from popular democracy to autocracy
n Democracy is characterized by universal right tovote in regular and free elections. The majorityrule but minorities are protected
n Autocracy puts power in the hands of a singleruling party and no real choice in elections. Anyopposition is repressed/minorities persecuted
n Democracy spreads power throughout society withfree speech and unbridled media
n Autocracy centralizes political power and control
Why Politics?
Society must resolve conflicts over objectives topursue and resource allocation priorities
Parties wish to differentiate their USP but mustcommand a wide constituency to gain power
Exercise of political power and compromise reflectsthe reality of competing interests to achieve bothstability and necessary change
Remember exam questions may require politicaland economic understanding, e.g. Capitalismversus Communism
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Influencing the Political Process
See the section on Pressure Groups in Unit 2
Parliament is the supreme legislative body
Business can press for new laws or aim toinfluence proposals (bills) at an early stage
Lobbying is influencing members of a relevantlegislature and soliciting their votes
Important but controversial means of exertingpressure when and where the key decisionsare being made
Two-way process as government looks for supportin implementation and positive spin
The value of the lobbyist
l Early warning of proposed legislation
l Interpretation of implications arising
l Identification of likely political supporters
l Informing political decision-makers about yourindustry problems and developments
l Co-ordinating pressure on decision-makers
l Advising the business on its strategy and tactics
l Helping to secure laws the industry can work with
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Supranational Political Institutions
The European Union (EU) is the most powerfuleconomic block in the world
It is expanding as East European nations join to forma market approaching 450 million
Membership demands, obligations and loss of adegree of national sovereignity to be reinforced by adraft Constitution, extending majority voting into manynew areas of economic policy and foreign affairs
The European Commission drafts regulations anddirectives to ensure a single market prevails and thesemust be incorporated into national legislation
The European Court becomes that of final appeal
The challenge of the single currency
Implications of entry:
3 Reduced currency uncertainty
3 Reduced transactions costs
3 Share of inward investment rises
3 Increased marketing opportunities
3 Some winners but many losers
5 Doubts over common monetarypolicy and adjustment processes
5 Unresolved structural problems
5 Inflationary impulse at entry
5 Doubts over convergence
5 Conversion costs hit small firms
5 Possible volatility of E vs. $
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The Legal Environment
Made up of an existing framework of laws
An independent judiciary interprets and appliescommon law based on natural justice/common sense
Government statutes (new law) to implement itspolitical manifesto and respond to public pressures
Enabling legislation delegates authority to governmentagencies to set standards, interpret rules, conductinspections and enforce laws using sanctions,e.g. fines
Legal provisions of Economic Unions may supersedenational law, e.g. EU competition policy requires finesup to 10% of turnover
If an exam question asks you to assess theeffectiveness of your own countrys legalframework, then consider these criteria:
l Does it ensure a level playing field?
l Does it resolve disputes and at low cost?
l Does it balance rights of the business, theindividual and wider society?
l Is fairness achieved without excessive red tape?
l Does it reflect current concerns and expectations?
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Negative impacts of legislation
The cost of compliance: retraining, newequipment, monitoring and control
Competitive disadvantage if costs dont apply toforeign rivals
Increased risks may deter innovation, e.g. drugs
Drive firms to locate in less regulated economies
Disproportionate burden on smaller firms
Cost of legal actions, fines, adverse publicity
Positive impacts of legislation
3 May form a barrier to entry
3 Differentiates the product internationally
3 Compliance to higher standards gains competitiveadvantage when later introduced in other markets
3 Multinationals may apply common approach in alllocations to avoid double standards
Be sure to understand the rules applying to yourexamination, e.g. allowable equipment, timeallowed, number of questions to answer
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Fair Trading and the Consumer
The supply of a good or service without restrictionof competition or consumer choice and inaccordance with prevailing legislation
Relevant legislation
n Contractual relationshipn Fair Trading Acts provides for:
product safety assurance product labelling assurance quality assurance fair payment terms honest promotion
Influence on the marketer
3 Clarifies rights
3 Establishes obligations
3 Recourse for damages
3 Discourages rogue traders
3 Fair competition basis
3 Minimum standard required
3 Fit for purpose
3 Duty of care
3 Voluntary codes for more flexible regulation
3 Customer is king
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Implications for the marketer
l Comply with minimum legal requirement
l Recognize consequences of failure to meet:
3 expensive legal actions
3 damaged public image
3 stakeholder discontent
l Implement rigorous control/compliance systems
l Invest in staff training, especially direct sales
l Monitor competitors conditions of sale and anyproposed legislation be proactive
Alternatives to legal recourse
n Contracts include dispute resolution clausesn Voluntary codes set industry standards and
enforcementn Smaller companies exemptn Quangos or tribunalsn Regulators seek assurances
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Accounting Future Legislation
n Need to monitor the legal and regulatoryenvironment for potential threats/opportunities
n Lobby to apply pressure to legislate where importssuggest an unlevel playing field
n Ethical business demands standards in excess ofcurrent legal requirements
n Office of Fair Trading will act on unfair practices
n Adverse public reaction can lead to bad lawsbeing rushed in as over-reaction
n Current issues over miss-selling pensions,mortgages and other assets; junk mail
KEY PO INTS ON THE POL IT ICAL ANDLEGAL ENV IRONMENT
A source of potential uncertainty and instability,especially before elections
National and supranational bodies must bemonitored
There are many forms of regulation, rangingfrom custom and practice, through codes andstandards, to full statutes
Legal proceedings are normally a last resort,especially for small firms
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Hints and Tips
l Read through Unit 7 of the MarketingEnvironment Coursebook
l The legal framework is an important part of themarketing environment, so make sure youappreciate its significance
l Full mini cases unlikely due to the country-specificnature of these environments but part questionsquite possible
l The focus of questions more likely to be onimplications and impacts than specifics
l Questions may provide choice between discussionof alternative environments
l Refer to Unit 3 for competition polices
l Consider the political implications of a change ofgovernment in your country
l Prepare trigger word plans for all the examquestions at the end of the unit
l Go to www.cimvirtualinstitute.com andwww.marketingonline.co.uk for additional supportand guidance
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THE TECHNICAL ANDINFORMATION ENVIRONMENTLEARN ING OUTCOMES
Understand the nature and importance oftechnical change
Explain the role and impact of informationcommunication technologies
Recognition of constraints on the drivers ofchange
Appreciate the significance of the informationrevolution
Syllabus reference: 3.7
KEY REV IS ION PO INTS
Role of business in driving technology and thenature of the diffusion process
The importance of technological forecasting Information technology and its marketing
applications Future applications of ICT Marketing implications including resistance to
change
Unit 8
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The Influence of Technology
l Impacts on all aspects of life
l Fundamental to improvement in productivity
l Interdependent with skills/skill acquisition
l Shifts production possibilities outward
l Underpins advances in marketing
l Central to new product development
l Source of new processes and techniques
l Critical to the effective use of information
Stages in development of new technology:
n Research Accumulation of Knowledgen Invention Development of new ideas/
applicationsn Innovation commercial exploitation of an
idean Diffusio