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Chapter 3 The Marketing Environment

The Melamine TV Commercial in Egypt In the early 1960's, there was a TV commercial in Egypt about sets of dishes, bowls, cups, etc., used for serving food and drinks, made of melamine (a white, crystalline cyclic compound). Products made of melamine are unbreakable. Manufacturing of these sets using melamine was a breakthrough, since only sets made of china were known and used at that time. Chinaware is easy to break. Serving sets which were made of Melamine combined both an attractive look that was much similar to Chinaware, plus being unbreakable, and consequently durable. Such a product was expected to be a successful product in the market. The TV commercial was designed in such a way as to provide the TV audience with information about that product, along with its advantages over the Chinaware, to persuade people to buy it. The commercial consisted to two scenes in which a fight between an Egyptian husband and his wife, took place in a kitchen. In each scene, the wife tried hard to hurt the husband by throwing dishes and the like at him. They were targeted at his face and in a sarcastic manner, he was trying to avoid being hit by them. He succeeded in getting out of the fight safely in both scenes. In the first scene, the wife used Chinaware in the fight, which ended up being smashed. In the second scene, Melamine was used in the fight. The wife threw the pieces at her husband, while he tried, to avoid being hit. Although she threw them everywhere hitting the ceiling, walls and floor, none of the pieces, were broken or cracked. At the end, a strong and loud voice stated in Arabic that, Al-Melamine gamid wa matien. This can be translated into English as: Melamine is solid and durable." The advertising company expected that the commercial would be highly successful and to cause the audience to favorably react to it. The reasons for such expectations were: (1) it used an approach which ranges between a story line and slice-of-life format, where a situation is shown, which is supposed to be from real life, to transmit the message, an approach that is considered effective in associating the situation with reality, and the viewer would be involved in it, (2) the likelihood of being influenced by it is usually high, as a result of using real evidence/proof of the durability of the product advertised-as compared to Chinaware- which was different from just stating the major characteristic without using such evidence, (3) utilizing maximum audio-visual and motion capabilities of TV, to achieve the required influence of the advertised message on the viewer, (4) using humor in this situation to make the viewer feel good, and help obtain the desired effect, (5) constructing a commercial with rhymed prose (i.e., Al-Melamine gamid wa matien) which contains the core/essence of the advertising message intended to reach viewers,

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which makes it easy to recall-especially if the viewers are exposed to it at a high frequency. They assumed that using these attributes would lead to an increase in advertising effectiveness. Despite the fact that these reasons are logical and justify expecting the advertisement success, it failed as a result of the severe criticisms which it aroused. The TV commercial demonstrated the Egyptian family in a negative setting. It contradicted the good relationship which should exist between the husband and wife. It demonstrated the Egyptian wife as being highly aggressive, not respective of her husband, and it demonstrated the husband as being coward, and scared of his wife. Of course, the situation was unreal, but still unaccepted by all Egyptians at that time. Therefore, the advertisement was not accepted, and failed to achieve what the company was after. The failure of the Melamine TV commercial could be attributed to disregarding the characteristics of the socio-cultural environment within which the commercial was run at that time. Consequently, it did not consider this environment in its design. Therefore, being in conflict with certain socio-cultural values prevailing in a society, where the advertisement is run can result in attacking and criticizing it by the desired target audience. Socio-cultural environment is one component of the marketing environment which has to be taken into consideration when practicing marketing activities and making the related decisions. The marketing environment is the focal point of this chapter. First, the concepts and the importance of such an environment is outlined. Next, each of the components of this environment is discussed along with showing its impact on marketing. The marketing environment components (sub-environments) which are discussed in this chapter are: the competitive environment, economic environment political/legal and regulatory environment, technological environment, demographic environment and, finally, socio-cultural environment.

Concept and Importance of the Marketing Environment

The marketing environment consists of a number of external components (i.e., external sub-environments) which influence the organizations marketing practices either directly or indirectly. In the first chapter of this book, it is indicated that the evolution of the marketing concept and the stages through which it passed, was an outgrowth of the changes in the surrounding environment. This indicates that examining and responding to the marketing environment is considered an important practice for the success of any organization. It is worthwhile to note that marketing is probably the function that is most influenced by the external environment in an organization. Aside from some minor variations among marketing academicians concerning what constitute the marketing environment, such an environment usually includes: competitive, economic, political/legal, technological, demographic and sociocultural environments.

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It is important to examine and analyze such environments before formulating the marketing mix and making the related decisions. One must take the results of these processes (examining and analyzing the environment) into consideration when planning, organizing and controlling marketing activities This could make the difference between the success or failure of any organization which operates in such environments. The melamine case which this chapter begins with clearly demonstrates the dysfunctional results of disregarding one element of the marketing environments (i.e., the socio-cultural environment) when practicing one of the marketing activities. The history of marketing practices of a large number of organizations supports this notion. Several companies have succeeded as a result of paying close attention to their marketing environments and intelligently responding to them. For example, during the baby boom era in U.S., which started after World War II, Johnson & Johnson was smart enough to specialize in baby products and was highly successful in the market. However, as that era came to an end, the company made some modifications in its marketing strategies. These modifications have been: (a) marketing some of its baby products (e.g., shampoos, soaps and powders) to adults, (b) looking for markets beyond U.S. boundaries, which witnessed a baby boom and could afford the companys products, and (c) introducing non-baby related products to the market, whether in or outside the U.S.A. This is an example of examining and responding to the environmentprimarily, the demographic environment in this case. It is important to note that the marketing environment is dynamic. Changes, whether they are slow or rapid, take place with the passage of time. This means that such an environment has to be monitored on a continuous basis, otherwise, the organization will not be able to grow and survive, especially in the long-run. Examining the marketing environment and monitoring the changes in such an environment can be done through both environmental scanning and environmental analysis. Environmental scanning is the process of gathering data about various components of the marketing environment. Scanning depends on several sources of data whether secondary (e.g., trade, business and government publications) or primary (e.g., personal observation). Marketing research can play a critical role in gathering such data from different sources.1 Undoubtedly, the Internet can effectively and efficiently be used in the scanning process. Environmental analysis is "the process of assessing and interpreting (the data) gathered through environmental scanning. 2 The marketing manager has to assess the data gathered based on such criteria as: their accuracy, source credibility, relevance, and comprehensiveness. Interpreting such data is as important as assessing them, since it helps marketing managers understand and comprehend the present state as well as the expected changes in the environment. It helps to identify the current or expected opportunities and threats in such an environment. Hopefully, marketing managers will be able to capitalize on

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opportunities and prepare to face threats through different approaches to marketing strategies, as well as other functional areas of business. It is worthwhile to indicate that environmental scanning and analysis are key tools in the marketing planning process, especially, strategic planning.3 In the above Johnson & Johnson case, it is easy to see that the baby boom posed an opportunity, whereas the decline in birth rates and peoples concern about birth control represented a threat to the company. As previously indicated, marketing managers have to respond to the marketing environment. The discussion in this chapter so far mostly refers to responding to such an environment through a reactive approach, i.e., the different environmental components are viewed as given or uncontrollable, and adjusting marketing strategies and decisions according to what is happening in the environment. This approach is relatively easy and less risky to use. However, marketing managers can utilize the proactive approach as well. Whereby they attempt to shape the environment or influence it through aggressive marketing practices.4 For example, marketers of fast food chains in Egypt have succeeded in changing the Egyptian eating habits from preparing meals at home to preferring to eat out, take away their meals, or order meals to be delivered to their homes. Another example is found in the tobacco industry abroad, especially in the U.S.A. Tobacco companies were successful in lobbying for less restriction on their products. This means that, they have influenced the legal environment to be on their side or, to minimize its negative impact on the marketing of their products. Nevertheless, the latter approach is not easy and is riskier to use. In addition, there are some environmental trends which a company cannot do that much to influence or shape such as birth and inflation rates at the national level, and the Gross National Product (GNP) at the national level. Therefore, the two approaches to respond to the marketing environment are available to use, by the marketing managers. There is no such a thing as the best approach or the approach which should be used in all circumstances. The choice between the two approaches is affected by such factors as: the companys philosophy/orientation, its goals and objectives, financial and non-financial capabilities, customers, skills and caliber of its personnel and, last but not least, the characteristics of the environment that surrounds the company. Companies such as Proctor & Gamble, Microsoft and General Motors can use the proactive approach when dealing with the environment, whereas other small companies with limited financial, human and other resources might have to use the reactive approach. As previously stated, the marketing environment includes a number of components/ sub-environments. These are: competitive, economic, political/legal/ regulatory, technological, demographic and sociocultural environments. Each of these environments is discussed in the following sections of this chapter.

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Competitive Environment
Any organization which operates in a certain market(s) has to pay attention to the competitive environment which surrounds it. Competitive environment involves the types of competition which an organization might face, and the competitive structures within which it operates.5

1. Types of competition
In general, competition can be defined as: other organizations that market products similar to or that can be substituted for a marketers products in the same geographic area6. Therefore, a marketer of soft drinks in Jordan might view competition in terms of other soft drinks producers or substitutes to soft drinks. However, there are several types of competition, and consequently of competitors. Total budget competitors are firms that compete for the limited financial resources of the same customer. Generic competitors are firms that provide very different products that solve the same problem or satisfy the same basic customer need. Product competitors are firms that compete in the same product class, but whose products have different features, benefits, and prices. Brand competitors are firms that market products with similar features and benefits to the same customers at similar prices.7 For example, automobile producing companies, home appliances marketers, and travel agencies which market to middle- social class customers are total budget competitors. Firms which market different products for entertainment (e.g., movie theaters, circus, producers of TV soap operas, and TV games parlors) can be viewed as generic competitors. Marketers of canned juices, ice teas, and sodas are considered product competitors. Producers/ marketers of various brands of toilet soap or detergents are brand competitors. Marketers have to determine which type of competition/ competitors it is concerned with. According to this, they can identify, locate and study their competitors, and take such information into consideration when designing their marketing mix.

2. Competitive structure
Being aware of various types of competitive structures is also important to marketers. In general, there are four types of competitive structures. They are: monopoly, oligopoly, monopolistic competition and pure competition. Monopoly is, a competitive structure in which an organization offers a product that has no close substitutes making the organization the sole source of supply. Oligopoly is a competitive structure in which a few sellers control the supply of a large proportion of a product. Monopolistic competition is a competitive structure in which a firm has many potential competitors and, to establish its own market, tries to develop a differential marketing strategy. Pure competition is a market structure characterized by an extremely large number of sellers, none strong enough to influence price or supply significantly.8

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For instance, public utility companies (e.g., electricity, wateretc.) operate in a monopoly competitive structure whereby there is only one company in a country or a city that provides the utility. The automobile market in a country like U.S.A. is characterized by an oligopoly competitive structure. Few companies like GM, Ford, and Chrysler control the supply of a large proportion of this product. Most industries nowadays such as home appliances, electric products, and cleaners, operate within a monopolistic competitive structure. Finally, pure competition can be found in case of very small producers of farm products especially in underdeveloped and developing nations. Undoubtedly, the competitive structure in which a certain firm operates does influence its marketing activities in one way or another. Usually, aside from the extreme cases of competitive structure (i.e., monopoly and pure competition), firms use several approaches to be able to compete in the market. These approaches are generally classified into pricecompetition approaches and non-price competition approaches. The Vodafone advertisement shown in Figure 3.1 below is an example of using price competition to market the companys product (i.e., mobile/cellular phone services).

Source: Al-Ahram Newspaper-Egypt (March 20, 2003), p.21. Figure 3.1: An example of using price competition Several approaches can be used in non-price competition such as : product quality and features, product innovation, after-sales services and warranty. Technogas techno-Aman cooker shown in the advertisement in Figure 3.2 is an example of using non-price competition (product features, especially providing safety for children).

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Source: Rosa Al Yossef Magazine-Egypt (February 1:7, 2003), p.94. Figure 3.2: Using non-price competition

Economic Environment
When studying and analyzing the economic environment, two major variables have to be considered. These are the general state of the economy, and buying power.

1. State of the economy

The state of the economy is usually determined by the stage in the business cycle in the economy in question. The business cycle is a pattern of economic fluctuations that has four stages. These are prosperity, recession, depression, and recovery. Prosperity is a stage of the business cycle characterized by low unemployment and relatively high total income, which together cause buying power to be high-provided that the inflation rate stays low. Recession is a stage of the business cycle during which unemployment rises and total buying power declines, stifling both consumer and business spending. Depression is a stage of the business cycle when unemployment is extremely high, wages are very low, total disposable income is at a minimum, and consumers lack confidence in the economy. Recovery is a stage of the business cycle in which the economy moves form recession or depression toward prosperity.9 As can be inferred from the above definitions of the business cycle stages, there is a number of economic indicators which are used to determine the stage through which a certain economy is passing. These indicators are mainly the unemployment rate, total income, inflation rate and peoples degree of confidence in the economy.

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Of course, what marketers do in a certain stage of the economy business cycle might change from what they do in another stage of a cycle. For instance, during prosperity, marketers usually expand their offerings of products (e.g., a larger number of products, several forms /styles of the same product, a wide range of prices), whereas in recession, marketers have to be more concerned about the functional features of the product(s), and might consider reducing product forms/styles as well as price, since customers become more price conscious.

2. Buying power
Buying power is the other important economic variable that marketers have to study and analyze. The buying power is determined by the various types of resources (e.g., money, goods, and services) which can be traded in an exchange, and therefore enables consumers to buy what they need or want. Thus, the greater the buying power in a certain economy, the better the marketing opportunities which exist in that economy. Income, credit, and wealth are considered major sources of buying power. Income for an individual is the amount of money received through wages, rents, investment, pensions, and subsidy payments for a given period.10 Two types of income are of great importance to marketers. They are disposable income, and discretionary income. Disposable income is after-tax income. 11 Discretionary income (is the) disposable income available for spending and saving after an individual has purchased the basic necessities of food, clothing and shelter.12 Credit increases the consumers' purchasing power in a certain period of time, since it enables them to spend future income at present or in the near future. Wealth (is) the accumulation of past income, natural resources, and financial resources.13 Income, credit, and wealth can be measured at the economy level or at the individual level. It is important to note that consumers buying power is affected not only by income (disposable income, and discretionary income), credit and wealth, but also by the inflation rates in the economy. Therefore, when inflation rates go upother things being equal-the purchasing power goes down. Of course, countries differ not only in terms of the purchasing power, but also in terms of the inflation rates which prevail in the country. Inflation rates vary from one country to another and in a certain year(s). For example, in the year 2002, the inflation rate in K.S.A was 1%, whereas it was 12.2% in Yemen.14 It is also important to note that marketers have to study and analyze not only the consumers buying power, but also their willingness to spend. Willingness to spend is an inclination to buy because of expected satisfaction from a product, influenced by the ability to buy and numerous psychological and social forces.15 Therefore, it is not sufficient that a consumer has buying power but also he/she has to have the willingness to spend, which is partially influenced by his/her buying power. However, other variables, mainly psychological and

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social variables, have significant influence on willingness to spend. Both consumers purchasing power-ability to buy-and willingness to spend determine the so-called effective demand. For example, a consumer might be able to buy a Super Star Adidas sports shoes which is sold at more than L.E. 550 in Egypt. However, he/she might not be willing to spend that much money on the brand, and would rather buy an unknown brand of sports shoes which is sold at a price of L.E. 40 or L.E. 50. The Arab Bank advertisement in Figure 3.3 demonstrates how a marketer can persuade a client to buy the product-in this case a service-by showing the client that in the future, his/her buying power may not enable him/her to afford several expenses such as school tuition and fees, or renting an apartment. Therefore, he/she should better sacrifices some of the current needs in order to satisfy the needs which will arise in the future. This means cutting a certain amount of money every month from now on in order to increase his/her buying power in the future, save now for the sake of the future.

Source: Rosa Al Yossef Magazine-Egypt (February 15-21, 2003), p.3. Figure 3.3: Focusing on increasing the consumers buying power in the future to persuade him/her to buy now

Political/Legal and Regulatory Environment

Political, legal and regulatory variables are closely interrelated environmental components. Of course, a company which markets in an antibusiness political environment will definitely act in a different way when compared with a situation where political officials are pro-business. The latter situation would positively affect the legal environment. Political officials

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attitudes towards and relationships with business organizations will result in either supporting business laws which restrain companies activities in the market or otherwise, i.e. supporting laws in favor of business firms. These must have organizations or agencies to enforce them. Such agencies can be established by the government i.e., governmental/regulatory agencies-or by other parties involved in or affected by marketing including self-regulatory agencies such as those formed by the business organizations themselves.

1. Political environment
Organizations have to build and maintain good relationships with political officials, since these relationships can positively influence officials, in regards to business laws and regulations which can become less restrictive and work in favor of these organizations. Good relations with political officials would also benefit firms, since purchases of governmental organizations of different types, are voluminous and usually represent a large portion of market demand for most products. In addition, business organizations can benefit from good and strong relationships with political officials in the area of international marketing. Such officials can help these organizations to extend their activities to foreign markets. Therefore, marketers should do their best to establish and build good relationships with political officials through such approaches as: contributions to certain political candidates election campaigns-like the case in U.S.A-whether directly or indirectly, greetings and complimentary advertisements in certain occasions, inviting them to visit the organizations, sponsoring certain events of interest to such political officials, and/or some other public relations activities which could enhance such relationships.

2. Legal environment
Companies operate within a certain legal environment. This environment consists of laws which govern marketing practices, influence them, and should be taken into consideration when formulating marketing strategies and making marketing decisions. These laws are basically of two types : (1) to protect business firms from malpractice of other firms in the market place, through preserving and protecting competition, and (2) to protect consumers from malpractices of business firms. The two types of laws are highlighted below. a. Pro-competitive laws The purpose of pro-competitive laws is to preserve competition. Therefore, they seek protecting business firms from malpractices among each other, which might hurt them and, in turn would have negative effects on consumers. Malpractice of firms could cause some of them to go out of businessending up with a monopoly state in the market. This would, in most cases, be against consumers interests and benefits. Countries vary in terms of the number of laws which aim at preserving competition, the rationale behind each law, and the specific purpose of each law.

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For example, in a country like the U.S.A., there are several major federal laws concerning competition such as: the Sherman Antitrust Act of 1890, which prohibits any action that restrains trade or leads to a state of monopoly in the market. The Clayton Act of 1914, which prohibits specific business practices-such as exclusive dealer agreements, and price discrimination-which significantly leads to lessening competition or creating a monopoly. The Celler-Kefauver Act of 1950 prohibits any firm involved in commerce from acquiring the whole or part of a stock, or other shares of assets or capital from another firm when this results in a substantial negative effect on competition-i.e. lessening competition-or creating a state of monopoly. In the Arab Countries, there are also laws which aim at preserving competition. For example, in Kuwait, there is Law No. 68 (1980) which organizes competition in the area of trade and which prohibits monopoly. In Egypt, there is the Antitrust and Competition Law, which has been a draft discussed by Marketing and Legal Affairs Committees of the Egyptian parliament (The Peoples Council). This law attempts to incorporate previous laws and their amendments, update them, and avoid any deficiencies that arose when attempting to impose them in the past. b. Consumer protection laws Consumer protection laws have mostly been issued in reaction to malpractices of business firms which might cause harm to consumers, whether health wise, money wise or other. Examples of such malpractices are the marketing of products which when used would threaten consumers health or safety, advertising deception, invading consumers privacy, unreal price reductions and dealing in counterfeit products. Therefore, these laws aim primarily at protecting consumers. Despite the fact that most of these laws have been issued to handle actual cases in which consumers need protection, they can be viewed as a means which contributes to preventing marketing malpractices, especially in the long-term. In most countries worldwide, consumer protection laws do exist. However, their enforcement vary from one country to another. In a country such as U.S.A., a relatively large number of these laws exist. Examples of these laws are: Fair Packaging and Labeling Act of 1966 that prohibits deceptive or unfair packaging or labeling of consumer products. The Trademark Counterfeiting Act of 1980 that outlaws dealing in counterfeit products that can threaten consumers health or safety, and Nutrition Labeling and Education Act of 1990 (which prohibits exaggeration in health claims and requires all processed food products to have labels which contain nutritional information). In the Arab countries, several consumer protection laws also exist. For example, in Egypt, there is the Anti-Deception and Fraud Law No. 48 (1941), which has been subject to several amendments ended up as Law No. 281 (1994). In K.S.A., there is Anti-Deception in Trade System, issued by the Royal Decree

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No. 11 in 1983 (1404 Hejrey). In Kuwait, there is the Law No. 20 of 1976 which prohibits deception in commercial transactions, and in Qatar the Consumer Protection Law issued by the Sultani Decree No. 81 in 2002. As previously indicated, there are some variations among countries concerning enforcement of consumer protection laws. In some counties such as the U.S.A. and a number of European countries, such laws are highly enforced. However, in other countries like Arab countries, there is evidence to support the notion that in some cases and practices, these laws are not enforced as they should be. It is worthwhile to note that one of the forces which have played a key role in passing and enforcing consumer protection laws and regulations in foreign countries is the consumerism movement(s), especially in U.S.A. and in some European countries. Consumerism can be defined as the voluntarily organized efforts of individuals, interest groups, and organizations to protect consumers from malpractices of business firms in the market. This movement has been very active in U.S.A. Its efforts have resulted in a number of laws, which regulate certain marketing activities, especially in the area of products. For example, when consumers complained about child-proof medicine containers, which seemed to be adult proof too, (e.g., in case of old patients who might have a hard time to open such containers), the Consumer Product Safety Commission (a government/federal regulatory agency) imposed new packaging standards. Manufactures have to abide by such standards which make it possible for adults to open medicine containers designated as child-resistant within-a maximum of-five minutes, whereas children must be unable to open such containers.20 In Arab countries, the consumer movements usually take an association form, referred to as Consumer Protection Associations. This is valid for such countries as: Jordan, Egypt, Algeria, Morocco, U.A.E., and Yemen. In addition, the Arab Union for Consumer Protection was initiated during the First Arab Conference for Consumer Protection held in the Arab League Headquarters on April 7, 1997. This consists of Consumer Protection Associations from a number of Arab countries such as Egypt and U.A.E. Despite existence of these consumer protection associations in the Arab World, they are still not active enough in protecting consumers rights.21 Of course, marketing managers have to be aware of the laws which govern their marketing activities, as well as the various forces behind the pressure for more and more laws and regulations in this respect (especially in the area of consumer protection along with various concerned parties). They must stay up-todate with these laws and related regulations, and do their best not to violate them. Otherwise, they may find themselves in trouble, which would have a negative impact on their marketing activities.

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3. Laws-enforcement organizations
As previously stated, laws which regulate marketing practices have to be enforced by certain organizations. There are two types: government regulatory organizations, and self-regulatory organizations. a. Government regulatory organizations Government regulatory organizations enforce laws that are related to marketing practices (e.g., product design, pricing, advertising and distribution). In addition, they can establish some operating regulations/rules as guidelines for certain marketing practices in general or in a specific industry. For example, the Federal Trade Commission (FTC) in the U.S.A. (which has a significant impact on most marketing practices there) has established criteria for deceptive advertising based on the lawsuit cases filed in this area of marketing practices. In a country like U.S.A., there are several major government/federal regulatory agencies such as: the FTC, the Food and Drug Administration (FDA), the Environmental Protection Agency (EPA), and the Consumer Product Safety Committee (CPSC). As indicated above, the FTC has access to many marketing practices. However, most of other agencies enforcement power is limited to a certain marketing area(s). For example, the CPSC is concerned with the product area, and aims at protecting consumers from unreasonable risk of injury from the products they use, which is not covered by other government regulatory agencies. In the Arab Countries, certain ministries or departments in ministries play the role of the government regulatory agencies, especially in the area of consumer protection. For instance, in Egypt, there are such organizations/agencies as: the Public Agency for Exports and Imports Control, Ministry of Trade as of late has been combined with Ministry of Industry to form one ministry, (Ministry of Trade and Industry), the Public Agency for Pharmaceuticals Control- and the Public Agency for Standardized Unification. In Syria, there are also similar organizations/agencies such as the Agency of Specifications (established by the law No. 248 in 1969), Ministry of Supply and Internal Trade, Ministry of Industry, and Ministry of Health. In Kuwait, there is the Department of Consumer Protection at the Ministry of Finance and Economy. b. Self-regulatory agencies Since intervention by government regulatory agencies would cause harm not only to the organization in question but also to other organizations in the same industry, business organizations attempt to avoid such intervention by establishing self-regulatory agencies. These agencies usually develop guidelines for marketing practices in such a way as to avoid violating business laws and regulations. For instance, the Water Quality Association based in U.S.A. has established a comprehensive Code of Ethics to help firms that sell water purification equipment, and avoid illegal as well as unethical practices. Several self-regulatory agencies have been established in the U.S.A. Among the most well known of these are: the Better Business Bureau (B.B.B), and the National Advertising Review Board (NARB). The BBB is a local, non-

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government regulatory agency, supported by local businesses, which handle problems and conflicts between customers and certain business firms. NARB is a self-regulatory organization, which challenges issues raised by the National Advertising Division concerning advertisements. In the Arab World, self-regulatory agencies usually take such forms as chamber of a certain type of business (e.g., the Chamber of Commerce and the Chamber of Industry in a country like Egypt, and the Chambers of Commerce and Industry in Countries like Kuwait and K.S.A), and associations or syndicates of professionals as doctors, lawyers, engineers, and business schools graduates. However, business firms in the Arab world need to establish more self-regulatory agencies similar to those established in other countries, especially the U.S.A. For example, advertising agencies in a country like Egypt can establish a board, council or similar organizational entity which would develop a code of ethics for its members. It would examine and review advertisements which are considered to be controversial, from a legal viewpoint, and defend the advertisements designed and administered by its members, in cases where they are criticized or subject to lawsuits filed by a person or an organization.

Technological Environment
Technology refers to applying knowledge and tools to handle specific problems and perform tasks in a more efficient manner.22 Recently, the world has witnessed a large number of technology-based advances such as compact discs, fax machines, personal computers, cellular phones, contact lenses, the Internet, robots and diet foods. Technology is characterized as being highly dynamic. Technological advancements occur on a continuous basis. Therefore, what is considered as a significant technological advancement at a certain period of time may not be considered as such in another period of time. For example, black and white TV sets were a remarkable outgrowth of technology and were viewed as one of the most remarkable and significant technological advancements when they were introduced for the first time. However, nowadays they are considered old fashion or out-of-date products, from a technological standpoint. Technological advancements take place as a result of intensive and extensive research done by concerned organizations such as universities, government research agencies/centers, and business firms. These technological advancements affect both customers and marketers. Therefore, marketers have to be concerned about technology in one way or another. Technology influences how people satisfy their needs and wants and consequently, their behavior as customers/buyers of products. As a result, marketers can initiate technological changes through their Research and Development (R & D) departments. Or they can make use of such changes/advancements which take place in their countries or in other parts of the

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world. This would be reflected by introducing new products, modifying existing products, and using technology to persuade potential customers to buy their products. Figure 3.4 demonstrates how a marketer of a cellular phone brand can use the advanced technology as an important appeal to influence consumers preference to it over other brands.

Source: Al Qabas Newspaper-Kuwait (February 12, 2004), p. 15. Figure 3.4: Using advanced technology to promote a product Marketers can also benefit from technological advancements in computers and the Internet. The Internet, for example, provides marketers with great opportunities to sell their product, using electronic marketing, which enables them to cover a large number of markets-whether domestic or international-at a relatively lower cost, when compared to the conventional marketing methods. Amazon.com (known as the biggest bookstore on earth) has been a pioneer in marketing products on the Internet. Undoubtedly, technology has enabled marketers to be more productive, accomplish their objectives, and better at competing with other marketers. Think of such technological advancements which have resulted in Automatic Teller Machines (ATMs) used by banks in a number of banking services, electronic scanners used by cashiers at retailing stores, electronic devices and computers utilized in marketing research, and technological advancements in mass media used in advertising. These are just a few examples of how technology has contributed to marketing. Of course, not all business organizations can act as leaders in technology, by initiating a technological advancement, since, as previously indicated, this

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requires intensive research which is costly. Therefore, large companies (such as Proctor & Gamble, Boeing, Microsoft, 3M, and Texas Instruments) can act as leaders in this respect, while other small business firms are usually followers. As is the case when making any business-related decision, the decision to initiate, adopt, or even imitate a certain technology needs to be based on the results of a cost/benefit analysis approach. This is usually referred to as technology assessment. Of course, if the benefits associated with such a decision outperform its costs, then the firm can decide in favor of utilizing the technology in question (whether initiating, adopting or imitating it), and vice versa. One of the most important variables to consider in such an analysis is the extent to which the business firm can protect its technologically advanced product by getting a patent for it (i.e., whether the product satisfies the requirements to be granted a patent). Also, it reflects the extent to which such a product can be copied or imitated by other firms with no violation of its patent.

Demographic Environment
The demographic environment23 reflects the population size and characteristics of a certain market. It is logical to assume that the larger the population size-other things being equal-the greater the marketing opportunities available for most business organizations to market their products. More consumers also implies a greater demand for a large number of different consumer products, and vice versa. Population characteristics also influence marketing activities. Demographic characteristics such as: age, marital status, education and gender significantly influence behavior of people either as individuals or as groups. The way in which people live and the products they buy and/or use are influenced by these characteristics. Such characteristics change over time. Therefore, they have to be traced-by marketers-over time, since they might represent opportunities available to or threats facing marketing. For example, recently, more than 30% of the U.S. population fell into the old age category (55 years and up).24 This means that the demand of such a group of people for products related to tourism, health care, and recreational activities will significantly increase. In the Arab world, countries differ in both the population size and in their population demographic characteristics. Table 3.1 contains population and demographic data of Arab countries in year 2003.

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These characteristics have an impact on marketing in one way or another. For example, in countries such as Kuwait, U.A.E. and Qatar where the proportion of males is noticeably greater than the proportion of females (about 60%, 60% and 66% in the three countries, respectively), there are more opportunities available for marketers in each country to market products consumed by males (shaving creams, after-shave-lotions and mens footwear), as compared to such opportunities in countries where such a proportion is less, like Lebanon where the proportion is less than 49%. As far as education is concerned, marketers in countries like Jordan and Bahrain, in which the percentage of the educated people is very high (91% and 89%, in the two countries, respectively), marketers in each country will have greater opportunities to market products bought by educated people (such as books and encyclopedias). They can effectively use advertising media to which most educated people are exposed (newspapers and magazines) compared to marketers in other countries such as Somalia and Iraq where the proportion of the educated people is less (38% and 40%, in the two countries, respectively). The reader can further examine Table 3.1 and reach several conclusions concerning population characteristics in Arab countries and think of how such characteristics influence marketing practices in each country. As previously stated, marketers have to keep an eye on such characteristics and identify the changes which are taking place at a certain point in time or expected to occur in the future, and take them into consideration when performing various marketing activities in the specific country in question.

Sociocultural Environment
The sociocultural environment consists of the social values, norms, customs and traditions as well as culture, which identify a certain society and differentiate it from other societies. The socio-cultural environment of a country like the U.S.A, is different from a country like England or Jordan. The variables which constitute the socio-cultural environment influence not only how people live, but also the products they buy, the way they buy, the place from which they buy and when they buy, and in many cases, why they buy. Therefore, marketers have to study and analyze such an environment and take it into consideration in their marketing strategies and decisions, otherwise, they could get themselves into troubles. The Melamine TV commercial, presented in the beginning of this chapter, is a good example of how a company can hurt itself by ignoring, misunderstanding or underestimating the sociocultural environment in which it practices marketing. The socio-cultural environment, like any other environment, is subject to change over time. For example, a long time ago, there was not that much concern about overweight problem in a country like Egypt. Moreover, being overweight was used as an indicator of not only wealth but also health. At that time, some marketers made a fortune by selling products, which help people, especially

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women- since obesity was viewed as one aspect of beauty-gain weight. One of the most well known of these products was Kharas El-Baqar, in English Cow Beads. There was no way at that time to market diet food products or products which help people lose or control weight. However, over the passage of time, and for several reasons, people have become both aware of the risks and problems associated with being overweight, and are concerned about controlling their weight. As a result, several products which are associated with weight control have penetrated the market ( e.g., Xenical for fat control, low colary food products and diet drinks), and it is common to see advertisements about products which help the consumers reduce their weight like the ad shown in Figure 3.5 below.

Source: Al Gumhoria Newspaper- Egypt (June, 17, 2004), p.19. Figure 3.5: Advertising a product which reduces weight The way a society views and values education is another sociocultural variable. If marketers realize that people in the environment where they operate appreciate education, since education is associated with social status, this would create opportunities to establish private schools, institutes and universities. In addition, using highly educated persons to promote products, whether in advertising or personal selling, would result in a greater likelihood to persuade customers to buy the product being promoted. The tendency of people, in a certain society, to be socially liberal or conservative is another dimension of the sociocultural environment. In a socially liberal country like U.S.A., informal relationships between a male and a female who are not formally engaged or married are more acceptable, than in conservative societies, like the majority of the Arab world countries, where these relationships are not usually accepted. Therefore, while a marketer of gifts in the US can explicitly state in the advertisement that the product is the best gift for a boyfriend or girlfriend, a marketer of a similar type of product can not do that if he/she operates in a conservative society. The above are but few examples of how the sociocultural environment influences marketing practices.25

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Summary
The marketing environment is the topic of this chapter. The marketing environment encompasses all external variables surrounding an organization which operates in a certain country or society. It consists of a number of subenvironments/components which are the competitive, economic, political/legal/ regulatory, technological, demographic and sociocultural environments. These marketing environments influence the marketing activities of different business, and non-business organizations as well. Therefore, marketers have to be aware of such environments as they exist, be able to project the changes which are expected to take place in the future, and take these into consideration when formulating marketing strategies and making marketing decisions. Environmental scanning and environmental analysis are two major processes which would help in this respect. Environmental scanning is a process of collecting data about various components which constitute the marketing environment. These data have to be assessed and interpreted through the environmental analysis process. Since the marketing environment is characterized as being dynamic, environmental scanning and environmental analysis have to be performed on a continuous basis. Based on the results reached through these two processes, marketers can decide how to respond to many variables constituting the marketing environment. Two approaches can be used in this respect, to accept the environment as it is, and attempt to adapt to it, or take the initiative to influence it through marketingrelated or other decisions, actions, strategies, etc. Of course, no matter how an organization responds to the marketing environment, it has to be familiar with all of its components and their influence on its marketing activities. The competitive environment is the first environmental variable presented in this chapter. Competition is defined, along with presenting various types of competition/competitors (total budget, generic, product and brand competition/ competitors). Of course, the type of the competition faced by a marketer will have an impact on the way through which marketing activities are performed. Then, various types of competitive structures (monopoly, oligopoly, monopolistic competition and pure competition) are presented. Such a structure definitely influences marketing practices. The economic environment consists of two major variables which have to be scanned and analyzed. These are the general state of the economy and buying power. The state of the economy can be judged through the stage of its business cycle. These stages are prosperity, recession, depression, and recovery. Several indicators can be used to determine the stage. They are mainly unemployment rate, income/buying power, and consumers confidence in the economy. Several variables determine consumers buying power. They are income, disposable

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income, discretionary income, as well as credit. The existence of buying power is a necessary but not sufficient condition to create the effective demand for products in the marketplace. It has to be accompanied by consumers willingness to spend. Such willingness is partially influenced by the ability to buy as well as a number of social and psychological variables. Political/legal and regulatory environment is one of the important components of the overall marketing environment. Marketers must build and maintain good relationships with political officials through a number of approaches such as contribution to their election campaigns or public relations activities. The legal dimension is also critical to marketers. They have to be aware of various laws which regulate marketing practices. These laws can be classified into two groups those that protect business organizations from malpractice of other businesses, which might negatively affect competition, and those that protect consumers from malpractice by business firms. These laws vary in number, related marketing practices, and enforcement from one country to another. However, more laws, which tackle numerous areas of marketing practices, exist in foreign countries, especially in a country like the U.S.A., compared to such laws in the Arab countries. It is important to note that the consumerism movement in foreign countries is considered one of the major forces behind passing and enforcing such laws. Despite the fact that consumerism movements exist in most of the Arab countries, their role in either influencing consumer protection laws and regulations or enforcing them is still limited, and more efforts are needed to activate this role. These laws and regulations are enforced by two types of regulatory agencies, government regulatory agencies (e.g., FTC and FDA in U.S.A.), and self-regulatory agencies (e.g., the BBB and NARB in U.S.A.). The fourth type of marketing environment is the technological environment. Technology involves applying knowledge and tools to handle specific problems in a more efficient manner. Technology is highly dynamic and is an outgrowth of intensive and extensive research of organizations such as universities, business firms, and government agencies. It influences the way in which people satisfy their needs and wants and, consequently, their buying behavior. Technology can open new avenues for marketers. However, it could be one source of threats or challenges. The demographic environment is also an important factor which has to be considered by marketers, since population size and characteristics (e.g., age, education, marital status, and gender) influence marketing activities. Finally, the sociocultural environment, including such variables as social values, has to be also scanned and analyzed. Marketers can benefit from understanding this environment either in terms of adapting to it or, avoiding a situation in which a conflict arises between what is prevailed in the society and marketing actions. In addition, they can use the marketing activities to change or reshape such an environment. However, changing or reshaping the sociocultural environment is not as easy as viewing it as an uncontrollable force and attempting to adapt to it.

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Important Terms
Environmental scanning Environmental analysis Competition Total budget competitors Generic competitors Product competitors Brand competitors Monopoly Oligopoly Monopolistic competition Pure competition Business cycle Prosperity Recession Depression Recovery Buying power Income Disposable income Discretionary income Wealth Credit Patent Willingness to spend Federal Trade Commission (FTC) Consumerism Consumer protection associations Better Business Bureau (BBB) National Advertising Review Board (NARB) Professional syndicates Chamber of Commerce Technology Technological advances Demographic environment Uncontrollable environment Inflation rate Government regulatory agencies Self-regulatory agencies Pro-competition laws Arab Union of Consumer Protection Associations Sociocultural values Conservative societies Liberal societies

Discussion and Review Questions

1. Define the following terms: 2. Competition Oligopoly Business cycle Discretionary income Technology Recession Buying Power Willingness to spend Consumerism Uncontrollable environment

Discuss briefly the concept of the marketing environment, and demonstrate how such an environment is very important to business organizations, concerning marketing. The competitive environment has a significant impact on marketing practices. Discuss this statement and provide examples to clarify and/or support your discussion. Marketers have to scan and analyze the economic environment in order to be effective in their marketing activities. Discuss this statement in detail.

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4.

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5.

Although the technological environment and the socio-cultural environment can be viewed as two separate types of the marketing environments, they are interrelated and have mutual influences. Discuss this statement along with giving examples to support your answer. What is meant by the demographic environment? Does this environment create opportunities or challenges/threats to marketers? How? What is meant by the sociocultural environment? How does this environment influence marketing practices? Does the sociocultural environment in your country witness certain changes? If Yes, what are these changes? How do they influence marketers? Is it possible that environmental scanning and analysis could reveal that there is an opportunity available for marketers in a certain environment and a threat/challenge is to be expected? How could this happen? If it happens, what would you do, assuming that you were one of such marketers? Should the various components/variables of the marketing environment be considered as being uncontrollable? Why? Can a marketer influence such an environment? If yes, then how and if no, then why not?

6. 7.

8.

9.

Application Questions
1. Select a certain industry in your country. Then answer the following questions: a. What type of competitive structures does this industry operate within? Why ? b. Who are the brand competitors in this industry? c. How can one of these brand competitors differentiate him/herself from other competitors? 2. Suppose that a personal computer producing company has conducted an environmental scanning and analysis, and has identified a number of trends in various components of the marketing environment. These trends are listed below. Examine each of these trends, then determine whether it can be considered an opportunity or a threat to that company and list the reasons behind that. a. b. c. Entry of a number of new personal computer producing companies. Economic indicators lead to the conclusion that the economy is passing through a prosperity stage of its business cycle. There is a number of laws expected to pass which aim at protecting consumers from malpractice by personal computer producing companies. Technological advances in the personal computers industry occur continuously and rapidly.

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e.

People in the society, view the person who does not know how to use a computer and/or who does not have a computer at home as an illiterate person.

3.

Going back to question no. 2 show how the computer producing company can benefit from the trend that represents an opportunity or face a trend which is considered-according to your answer to question 2- as a threat to the company. Is there a consumer protection association in your country? If, yes, do you think that it plays an effective role in protecting consumers? Why? If the answer is no, what should be done to form such an association? Contact a marketing manager of one of the industrial companies in your country to arrange for an interview with him/her. The purpose of the interview is to collect data about how the company deals with and responds to its marketing environment. Based on the data acquired from this chapter, do you think that the company is successful in this respect or not? Why? (Note: you may write a brief report to answer this question).

4.

5.

< <Cases

Case 3.1 The Public Company for Leather Products and Industries* The Public Company for Leather Products and Industries is a pubic-sector Libyan company. The manufacturing of shoes represents a large portion of the companys manufacturing activities. About 83% of the factories (20 out of 24) manufactures shoes, with forty six production lines out of fifty. On December 31, 2000, value of inventory of shoes was about L.D. 34 million, whereas the value of production during that year was about L.D. 27 million. The value of companys sales of shoes was about L.D. 14 million. Sales decline started in year 1999 (sales declining reaching 34%) and the decline reached about 57% in 2000. The decline in the companys sales of shoes was attributed to the intense competition from the imported shoes. A research study was done to measure the extent to which the imported shoe products competed with the companys shoe products, as well as the competitive advantages of the imported products. The study revealed that the

< Extracted from :

Hasan Ali Haman, Foreign Competition and Its Impact on Sales of Domestic Industries in the Libyan Market, Proceedings of the Second Arab Conference, Marketing in the Arab World: Opportunities and Challenges, Arab Administrative Development Organization, Doha, Qatar (October 6-8, 2003), pp. 145-180.

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majority of consumers preferred imported shoes over the companys shoes. The reasons for their preference of imported shoes were as follows: (a) quality of materials (about 47%), (b) good style/design (40%), (c) good packaging (about 10%), and (d) low prices (about 6%). In addition, 25% of the consumers indicated that all these reasons were behind their preference of imported shoes. The study also revealed that the majority of consumers were not satisfied with the companys shoes in general. The research study has concluded that the intense competition from imported products caused the companys sales to go down. In addition, the company should improve and enhance its shoes in order to be able to compete with foreign shoes which were marketed to the Libyan market. It is worthwhile to indicate that the companys sales were increasing before 1999. For example, in 1996, the companys sales value increased by 8% as compared to the sales value in 1995, and in 1997, the sales also increased by about 8%, whereas the increase was about 13% in 1998. It is logical to conclude that unless the company takes some actions to face competition from imported/foreign shoes products, its sales value will continue to decline. Questions for Discussion 1. Why was the company successful in the marketing of its shoes in the Libyan market before the year 1999? 2. 3. Can the company change the environment within which it is operating or not? Why? If the answer to question number (2) above is yes, explain how the company can do that. If the answer to this question is no, what should the company do in order to adapt to its competitive environment?

Case 3.2 Sainsburys Sainsburys, a British supermarket chain stores, entered the Egyptian market for the first time in the late 1990's. It started up with one store in the AlHaram district in Cairo. It is very well known that Sainsburys target market is middle class, or below middle class, consumers. Therefore, low price-along with other elements such as product assortment and good service- is considered the key element in its marketing strategies, especially in a market like Egypt, where most consumers are price-sensitive. In order to be able to sell at low prices, compared to other supermarkets in Egypt, Sainsburys had to use all possible approaches to reduce its costs. Among these approaches were : choosing factories which were operating at a low capacity

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utilization rate (about 35%) and buying large quantities of products in such a way that these factories were able to utilize, almost, all their capacity (i.e., about 100% capacity utilization rate). These factories produced under Sainsburys name and sold the products to it at a very low price, since their costs were low. As a result, Sainsburys costs were very low, and, consequently, it was able to sell to consumers at low prices too. In addition, it did not own its stores, it rented them. Therefore, it made no capital investments in such stores, and the rent was not high. This contributed to reducing its costs. It also used specialized transportation companies, rather than owning its own transportation envoy, guaranteeing them continuous operations. As a result, its transportation costs were low as well. Sainsburys effectively used promotion. It widely advertised especially in newspapers, its store staff was very helpful to consumers, it used special offers frequently, and particularly on special occasions, such as Mothers Day and Valentines Day. In order to make it easy for consumers to pay for their purchases and reduce their waiting time, a relatively large number of cashiers were available. Sainsburys was highly successful in the Egyptian market. As a result, it started to open a number of stores in other locations such as Mohandseen, Zamalek, and Nasr City. The number of Egyptians who were employed by it was about 4500 persons. It was a strong competitor in the market. It was so strong that a number of Egyptian businessmen, who owned and/or managed similar supermarkets, asked the Egyptian Government to do something about Sainsburys prices namely to put pressure, or to persuade its management to raise the prices a little. They claimed that if Sainsburys continued to sell at those very low prices, some Egyptian supermarkets would not be able to compete and might go out of business. Sainsburys continued to succeed day after day. Consumers were satisfied, and everything was going in the right direction. After a while, a rumor rapidly spread over the market and was believed by almost every Egyptian. The essence of the rumor was that Sainsburys is owned by businessmen who belong to a state that is considered an enemy not only to Egypt, but also to the Arab countries. As such, Sainsburys owners objective was to hurt Egyptian businessmen and drive them out of business. Consequently, it would be able to manipulate the market and would also cause harm to consumers as well as the economy. Despite the fact that these notions were un-true, and the attempts by Sainsburys management to counter such a rumor, it was accepted, believed, and reflected on consumer buying behavior concerning that supermarket. More and more consumers boycotted the stores and they used the word-of-mouth to persuade others to do the same. Being unable to handle such a rumor, as well as the radical decline in its sales, Sainsburys supermarkets were not able to continue in the Egyptian market. The business was terminated, and it got out of the Egyptian market.

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Questions for Discussion 1. When entering the Egyptian market, was Sainsburys management able to understand and appreciate the environmental forces in this market and why? 2. In your opinion, what was (were) the source(s) of the rumor in question and why? 3. What were the reasons behind Sainsburys failure to face the rumor? 4. If you were in the position of Sainsburys management, what would you have done to handle that situation?

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Chapter (3) Notes

1. 2. 3. For more details about various sources of data and the marketing research process, see Chapter (6) of this book on marketing research. William M. Pride and O.C. Ferrell, op., cit. p. 55. For more information about using environmental scanning and analysis in planning, especially, strategic planning, see: 4. Ibid., Chapter (2) Strategic Planning. Chapter (15) Marketing Planning.

For more details about the proactive approach to the marketing environment, see: P. Varadarajan, Terry Clark, and William M. Pride, Controlling the Uncontrollable: Managing Your Market Environment, Sloan Management Review (Winter 1992), pp. 39-47.

5.

The main reference for both types of competition and competitive structures which are theoretically presented in this section is : - William M. Pride and O.C. Ferrell, op., cit., pp. 57-59. Ibid., p. 57. Ibid., pp. 57-58. Ibid., pp. 58-59. Ibid., pp. 60-61. Ibid., p. 61. It is important to note that in some Arab Countries such as Kuwait, U.A.E., and K.S.A., no income taxes are deducted from peoples income. William M. Pride and O.C. Ferrell, op., cit, p. 61. Ibid., p. 61. For more information about inflation rates as well as other information related to economic indicators (e.g., GDP and unemployment rate) in the Arab World in the year 2002, the reader can refer to the following internet sites : - www.unicef.org. - www.emro.who.int. - www.earthtrend.wri.org. - www.prcdc.org. - For more information about these indicators in the late Nineties of the 20th Century, see :

6. 7. 8. 9. 10. 11.

12. 13. 14.

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15. 16.

Statistical Abstract for Arab Countries (Cairo, Egypt : The Arab League, 1999).

William M. Pride and O.C. Ferrell, op., cit., p.62. For more details about these criteria, see : for instance : D. Cohen, The Concept of Unfairness as Relates to Advertising Legislation, Journal of Marketing, (July, 1974), pp. 8-13. R.E. Wilkes and J.B. Wilcox, Recent FTC Actions : Implications for Advertising Strategies, Journal of Marketing (January, 1974), pp. 55-61.

17. 18. 19. 20. 21.

William M. Pride and O.C. Ferrell, op., cit., p. 67. Ibid. Ibid., p. 74. Better Child-Resistant Packages on the Way, Consumer Reports (June 1992), p. 567. This conclusion was reached by the author of this book after reviewing literature related to consumer protection from marketing malpractices in the Arab world, as well as his experience gained through living in countries like Egypt, Kuwait and U.A.E or visiting other countries such as Jordan and Bahrain for short periods of time. This definition is adapted from the definition used in : - William M. Pride and O.C. Ferrell, op., cit., p. 68. Some marketing academicians (see-for instance-Ibid., p. 71) deal with the population demographic characteristics as one of the sociocultural components. However, other academicians, one of whom is the author of this book, prefer to discuss it as a separate marketing environment. Bureau of Census, Statistical Abstract of the United States 1997 (Washington, D.C.: Government Printing Office, 1997). The socio-cultural variables are discussed in more detail in Chapter (4) of this book entitled : Studying and Analyzing Consumer Behavior.

22. 23.

24. 25.