New Areas

of Marketing Opportunity

George F. Frey

During the remainder of this decade, the American economy will experience unique structural changes which will lead to significant shifts in the market place. While a favorable growth of 7 percent a year for the overall economy (gross national product) during the decade is anticipated, there will be industries and product groups that will fail to achieve this rate of growth while others will exceed the norm.

The purpose of this article is to identify growth opportunities for American business. These will originate in demographic shifts which will affect consumer oriented goods and service industries. Technological changes leading to intensification of competition in the business and industrial sectors, and shifts in government spending will bring about social and economic changes which will create new investment opportunities.

To facilitate this presentation the writer has divided the analysis into three major categories as follows: Consumer, Business, Government. The discussion is intentionally broad to highlight the major trends occurring in

/

each area and the economic factors that favor their growth. This profile merely draws attention to areas of growth which may provide interesting vehicles for future diversification, investment, and marketing.

CONSUMER

The outlook for consumer expenditures is directly tied to demographic changes, upgrading of income and the role of government in its attempts to raise the standard of living of the poor. The impact of changing age groups on consumer spending in the 1970's is related to the mix in the age group of the population. Albeit the birth rate has declined since 1957 from 82.3 per 1,000 women age 15 to 44 to 73.4 per 1,000 in 1972, the current growth of 18-24 year olds and the subsequent rapid increase in the 25-44 year olds commencing around 1972, will mean an upgrading of income and purchases.

As the population age groups shift from the rapidly growing 18-24 year old groups to the 25-44 year old group, an increase in the standard of living is expected as the median family income shifts upward from $6200

25

26 FREY

to $8400 per year. This will lead to an upgrading of buying habits and a whole new market will develop for higher quality and higher priced products. The consumption patterns will also shift from the purchases of necessities to expenditures on more leisure and recreation activities.

The added impact on spending patterns of consumers from government policy can be highlighted through an examination of the housing market.

At the present time there appears to be a tremendous backlog of demand for housing. So far, private enterprise has not been able to satisfy this demand because of monetary limitations and the fact that many resources were diverted to the conduct of the Vietnam war. Many forecasts suggest that by 1980 an annual level of 3.0 million houses will be started, compared to 2.4 million in 1972. A major market is also developing for low cost housing to take care of the needs of the growing number of retirees and young married couples. For this reason the modular and mobile home markets will flourish and grow more rapidly than the whole housing market. The growth in the housing market coupled with the population factors has led the writer to single out the carpet industry as one of the fast growing fields which deserves particular attention. Yardage shipments of carpets are expected to grow at a rate of 13 to 14 percent a year. Projections indicate a market for mobile homes of 1.5 million units in 1980, compared to 398,000 units in 1970.

POPULATION PROFILE MILLIONS OF

25-44 YEAR OLD$ 62

6O

5O

S6

6,1.

52

50

48

,16

4,1:

42

LOW VS. HIGH INCOME m.~t~ou~ ~

2 8

26

24

22

~o

IB

16

14

12

I0 ~ ~)1/~ b3 19, b5 b6 ~57 ~8 ~ '7o '71 '72 ~3 '~ '75 '76 77 "~ "/9 "so

NEW AREAS OF MARKETING OPPORTUNITY 27

SERVICES

Services are a hedge against inflation because participation in this sector means participation in price trends that are increasing faster than the general price level. A moderately larger share of the consumer dollar will go into this sector. In 1972, service expenditures of $305 billion equale d 42 percent of all consumption spending. In terms of growth, it is estimated that the American consumer will expend $1.250 trillion in 1980 of which 46 percent ($575 billion) will be spent for services.

Scarcity of labor in the service sector is also becoming more important. Increasing personal income means that people will no longer want to do their own cooking, wash dishes, launder their clothes, and do other menial jobs. They would rather trade off spending for services than do the job themselves. We will see also new types of services gaining greater attention. Many of these services are still in an unorganized economic or marketing stage.

These then are a few of the basic and broad concepts which lie behind the growth of consumer markets. The reader will appreciate the fact that economic elements other than the consumer will affect the growth of many of the following products; however it seems to me that the primacy of the consumer impact warrants classification here. The following is a selective list of areas of opportunity offering strong growth rates:

Education

Manpower Training Centralized Information Systems Teaching Aids

Lab Equipment for Colleges Modular Approaches Audio Visual Aids

Housing

Mobile Homes Home Gardening Insulation Equipment Electrical Wiring Devices Lighting Fixtures Urban Renewal-Multiple Housing Office Furniture and Wood

Motels Central Air Conditioning Siding and Facing Materials Furniture Home Conveniences Man-made Fibers Tufted Carpets and Rugs

28

Recreation and Leisure

Sporting Equipment Camping Goods Discounted Foreign Travel National Overseas Airlines Book Publishing CATV

Family Formation and Upgrading

Giftwares Carpets Toiletries Silverware

Services

Refuse Disposal Consultants Cooperative Physician Clinics

FREY

Travel Agencies Radio and TV Broadcasting TV Commercial Production Photography Catering Services Recreational Games Hobby Toys and Related Goods

Home Furnishings Food Flavorings Tidbits, Snacks

Equipment Rental and Catering Legal Agencies Marketing Services

BUSINESS

The business climate in the next seven years will be more promising than ever. Given a government philosophy of maintaing full employment at relatively stable prices, the prospects of a severe downturn will be minimized. This, in turn, indicates that the expectational psychology of businessmen will become more favorable as they anticipate a more sound economic climate for their long-term investment goals.

Unfortunately, in a climate of full employment, several problems crop up which must be solved. For example, attempts to maintain full employment will put pressure on resources and increase the dangers of inflation. (Note the experiences of 1969-1972) When one adds to this the fact that there is a growing scarcity of skilled labor it becomes evident that profit pressures will require substitution of capital for labor. American business management must further look for labor saving devices and cost cutting equipment. We find too, that the current unfavorable balance of trade in 1972 ($6.9 billion) must result in a continued drive on improving

NEW AREAS OF MARKETING OPPORTUNITY 29

the competitive position of American products in the world markets. Inasmuch as we cannot compete with Asia on an hourly labor basis we must intensify our capital input. Indications are that capital expenditures will increase at a rate of 7.5 percent a year in the next seven years a n d reach a total of approximately $150 billion in 1980, compared to an estimated $100 billion in 1973.

The plan will be to increase efficiency by raising productivity. One way this can be done is to build larger plants to gain economies of scale. Another way is to expand by external acquisition into highly efficient new areas.

Perhaps one of the best ways of holding a firm's competitive edge is to concentrate on research and development. It is noted, also, that research and development is a disruptive element in that its purpose is to improve competitive position with more and better products.

The following is a list of growth areas related to the above concepts:

Transportation

Containerization Barges Airlines Freight Forwarding Cargo Airlines

Heat Exchangers Liquid Natural Gas Traffic Controls Piggyback

Labor Saving and Cost Cutting Devices

Computers and Related Machines Process Controls Automatic Measuring Devices Metal Cutting, Engraving Duplicating and Reproduction

Equipment Abrasive Products Conveyors

Peripheral Equipment Adhesives and Bonding Agents Hand Tools Pre-Fab Houses and Mobile Homes Oral Typewriter Industrial Controls Material Handling

Technological Products

Oceanography Cryogenics Chemical & Petroleum Additives Monitoring Systems

Instrumentation Carbon Fibers Optical Instruments and Lenses Fasteners

30 FREY

Engineering and Architectural Consultants

Water Purification and Filtration Equipment

Powdered Metals and Coatings Atomic Energy Nucleonic Electronics

Research and Development

Audio-Visual Software for Computers Testing and Measuring Instruments Hydraulics

Microfilm Computer Output Simulation Equipment Laboratory Equipment

Capital Expenditures

Typesetting by Computers Specialized Industry Machinery (Plastics, etc.)

Mining

Off Shore Drilling

FINANCIAL

The financial sector abounds with opportunities for those alert enough to spot them. A good example is the entry of commercial banks in many fields (consumer loans) which in the past were considered taboo. One area which is tied directly into the fast growing housing market is the mortgage intermediary field. The following are some of the financial areas to be considered:

Financial

Credit Cards Pension Funds Mortgage Banking Title Insurance

Banking Business Forms and Files Insurance Savings and Loan Associations

GOVERNMENT SECTOR

Although the role of the government has been growing over the years, expenditures by the Federal Government in programs for farm subsidies

NEW AREAS OF MARKETING OPPORTUNITY 31

and spending for defense and space should show negligible growth over the next seven years.

One can, however, see considerable opportunities coming up in the field of health. Here the government is committed to a medicare program and will be faced with the problem of a growing shortage of hospitals and related personnel. Expenditures for the construction of hospitals have grown 6.5 percent a year in the last ten years and are expected to increase at an annual rate of 9.0 percent in this decade. This will put total construction expenditures for hospitals at $1.9 billion by 1980. There are significant growth areas to be investigated, especially those dealing with increasing the productivity in hospitals such as the use of disposables. Medical instrumentation fields also offer good opportunities for growth. Government assistance to municipalities and industries for reducing the pollution of air and water is of prime importance. Not only will these programs become an essential part of the capital expenditure program of business but t the investment incentives provided by the government will be specifically geared to promote tthe solution of these problems. A veritable burst of spending in these areas is to be anticipated in the future. Participation in this area could produce very favorable results if the proper steps are taken.

The government has shifted its emphasis from one of concentrating on interest savings programs to promote home construction to one of direct subsidies of mortgages, rents and down payments. This will open up many new opportunities for those families who could not afford good housing. As a result of this government program, the mix in housing will change from single to multiple family construction. In 1980, the single housing market will represent 50.0 percent of new housing starts, compared to 60.0 percent for 1968.

Education is another area where the government will increase its expenditures. In this field, I refer specifically to the manpower programs designed to raise the skills of workers and the expenditures for new devices that can lighten and expedite the task of teaching. As is well known, salaries of teachers are increasing quite rapidly and any information systems, education aids, like audiovisuals and microfilming of library material and other aids have a great deal of potential and require further exploration. The following growth list will be a derivation of growth in the public sector.

Health

Nursing Home Hospital Disposables

Medical and Surgical Instruments Pollution (Air and Water)

32

Diagnostic Equipment Biomedical Instruments Group Hospitals

Medical Labs X-Ray Apparatus and Tubes Pharmaceutical Preparations

Educational Aids (See previous list)

SLOW GROWTH AREAS

There are, of course, industries which will not participate fully in the growth of the economy partly because they have reached saturation and also because they are subject to new product substitution and a slow rate of technological change. Some of these industries are of sizable importance and, therefore, cannot-be overlooked. The following list of industries is not all inclusive but does present a sample of slower growth areas for the decade of the 1970's. Defense oriented industries, for example, will undergo a transition period which will also affect adversely the rate of increase in related industries, such as electronics, metal industries and others.

Slow Growth Areas

Wholesale Trade All Specialty Stores Food Stores (e.g. Appliance, Apparel) Textile Manufacturers Railroads Coal Lumber Leather Paper Metals Tobacco Commercial Agriculture Petroleum Ordinance Manufacturers Newsprint

This brief outline has presented areas of opportunity and slow growth and is in no way exhaustive. It has been designed to pinpoint some areas of interest to marketing people.

ABOUT THE AUTHOR

GEORGE F. FREY, Associate Professor of Marketing, C. W. Post Center, Long Island University, has taught a broad range of marketing courses at New York University and at C. W. Post over a period of twenty-five years.

33

For over a decade, he was Vice-President and a Senior Economist of Lionel D. Edie & Company, a subsidiary of Merrill Lynch, Pierce, Fenner, and Smith. He was instrumental for the development of short and long-range business strategies and planning for many American corpora- tions.

He has co-authored with Dr. Raymond Buteux a series of marketing books for Printers' Ink Book Co., New York and contributed many articles appearing in magazines such as Medical Economics, Iron Age, Newsweek, Financial Chronicle, Hardware Age and others.