Chapter 3

The Marketing Environment,

Social Responsibility, and Ethics

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 Learning Objectives
By the end of this chapter, you should be able to:
3-1 Summarize why it is important to examine and respond to the marketing environment.
3-2 Explain how competitive factors affect an organization’s ability to compete.
3-3 Articulate how economic factors influence a customer’s ability and willingness to buy
products.
3-4 Identify the types of political forces in the marketing environment.
3-5 Explain how laws, government regulations, and self-regulatory agencies affect marketing
activities.
3-6 Describe how new technology impacts marketing and society.
3-7 Outline the sociocultural issues marketers must deal with as they make decisions.
3-8 Define the four dimensions of social responsibility.
3-9 Examine how social responsibility and ethics can be incorporated into strategic planning.
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 3-1
The Marketing Environment

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 3-1 The Marketing Environment (1 of 2)

• Several forces constitute the marketing environment:

Legal and
Competitive Economic Political Technological Sociocultural
Regulatory

• Environmental scanning – The process of collecting information about forces

in the marketing environment
Observation Secondary Sources Marketing Research
– The internet has become a popular scanning tool because it makes data more accessible
and allows companies to gather needed information quickly.
• Environmental analysis – The process of accessing and interpreting the
information gathered through environmental scanning
– A manager evaluates the information for accuracy, tries to resolve inconsistencies in the
data, and, if warranted, assigns significance to the findings.
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 3-1 The Marketing Environment (2 of 2)

Responding to the Marketing Environment

• Marketers take two general approaches to environmental forces:
– Passive/reactive – Accepting them as uncontrollable
– Proactive – Attempting to influence and shape them

• There is no best way to react.

– Decisions depend on the organization’s managerial philosophies, objectives, financial
resources, customers, and human resources skills, as well as the environment within
which the organization operates.

• Political action is another way to affect environmental forces.

• Although an organization may be able to influence legislation through lobbying, a single
organization is unlikely to significantly change major economic factors.
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 3-2
Competitive Forces

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 3-2 Competitive Forces (1 of 3)

• Competition – Other firms that market products that are similar to or can be
substituted for a firm’s products in the same geographic area
• Competitors can be classified into one of four types:
– Brand competitors – Firms that market products with similar features and benefits to the
same customers at similar prices
– Product competitors – Firms that compete in the same product class but market
products with different features, benefits, and prices
– Generic competitors – Firms that provide very different products that solve the same
problem or satisfy the same basic customer need
– Total budget competitors – Firms that compete for the limited financial resources of the
same customers

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 3-2 Competitive Forces (2 of 3)

• Competitive structure types include:

– Monopoly – A competitive structure in which an organization offers a product that has no
close substitutes, making that organization the sole source of supply
o Because the organization has no competitors, it controls the supply of the product completely
and, as a single seller, can erect barriers to potential competitors.
– Oligopoly – A competitive structure in which a few sellers control the supply of a large
proportion of a product
o Usually, barriers of some sort make it difficult to enter the market and compete with oligopolies.
– Monopolistic competition – A competitive structure in which a firm has many potential
competitors and tries to develop a marketing strategy to differentiate its product
– Pure competition – A market structure characterized by an extremely large number of
sellers, none strong enough to significantly influence price or supply
o Products would be homogeneous, and entry into the market would be easy.
o It does not exist in the real world.

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 Table 3.1 Selected Characteristics of
Competitive Structures
Ease of Entry
Number of
Type of Structure Competitors into Market Product Examples
Monopoly One Many barriers Almost no substitutes Water utilities

Oligopoly Few Some barriers Homogeneous or UPS, FedEx, U.S. Postal

differentiated (with real Service (package delivery)
or perceived differences)
Monopolistic Many Few barriers Product differentiation, Wrangler, Levi Strauss,
competition with many substitutes Diesel, Lee Jeans (jeans)
Pure competition Unlimited No barriers Homogeneous products Vegetable farm (sweet corn)

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 3-2 Competitive Forces (3 of 3)

• Marketers need to monitor the actions of major competitors to determine what

specific strategies competitors are using and how these strategies affect their
own.
• The firm must develop a system for gathering ongoing information about
competitors and potential competitors.
– Information about competitors allows marketing managers to assess the performance of
their own marketing efforts and to recognize the strengths and weaknesses in their own
marketing strategies.

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 3-3
Economic Forces

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 3-3 Economic Forces (1 of 3)

Buying Power and Willingness to Spend

• Buying power – Resources—such as money, goods, and services—that can be
traded in an exchange
– The major financial sources of buying power are income, credit, and wealth.

• Income – For an individual, the amount of money received through wages, rents,
investments, pensions, and subsidy payments for a given period
– Disposable income – After-tax income
– Discretionary income – Disposable income available for spending and saving after an
individual has purchased the basic necessities of food, clothing, and shelter

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 3-3 Economic Forces (2 of 3)

• Credit enables people to spend future income now or in the near future.
• Wealth – The accumulation of past income, natural resources, and financial
resources
• As people become wealthier, they gain buying power in three ways:
– To make current purchases
– To generate income
– To acquire large amounts of credit

• Willingness to spend – An inclination to buy because of expected satisfaction

from a product, influenced by the ability to buy and numerous psychological and
social forces

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Figure 3.1 National Customer Satisfaction Index

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 3-3 Economic Forces (3 of 3)

Economic Conditions
Consumer Intensity of
Supply and Buying Willingness
Expenditure Competitive
Demand Power to Spend
Levels Behavior

• Business cycle – A pattern of economic fluctuations that has four stages:

– Prosperity – A stage of the business cycle characterized by low unemployment and relatively high
total income, which together ensure high buying power (provided the inflation rate stays low)
– Recession – A stage of the business cycle during which unemployment rises and total buying power
declines, stifling both consumer and business spending
– Depression – 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 – A stage of the business cycle in which the economy moves from depression or recession
to prosperity

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 3-4
Political Forces

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 3-4 Political Forces

• Political, legal, and regulatory forces of the marketing environment are closely
interrelated.
– Legislation is enacted.
– Legal decisions are interpreted by courts.
– Regulatory agencies are created and operated, for the most part, by elected or appointed
officials.

• Marketers may:
– View political forces as beyond their control and simply adjust to conditions that arise from
those forces
– Influence the process through contributions and lobbying

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 3-5
Legal and Regulatory Forces

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 Table 3.2 Major Federal Laws Affecting Marketing
Decisions (1 of 5)
Act (Date Enacted) Purpose
Procompetitive Legislation
Sherman Antitrust Act (1890) Prohibits contracts, combinations, or conspiracies to restrain trade; calls
monopolizing or attempting to monopolize a misdemeanor offense.
Clayton Act (1914) Prohibits specific practices such as price discrimination, exclusive dealer
arrangements, and stock acquisitions in which the effect may notably lessen
competition or tend to create a monopoly.
Federal Trade Commission Created the Federal Trade Commission; also gives the FTC investigatory
Act (1914) powers to be used in preventing unfair methods of competition.
Robinson-Patman Act (1936) Prohibits price discrimination that lessens competition among wholesalers or
retailers; prohibits producers from giving disproportionate services or facilities

to large buyers.
Wheeler-Lea Act (1938) Prohibits unfair and deceptive acts and practices, regardless of whether
competition is injured; places advertising of foods and drugs under the
jurisdiction of the FTC.
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 Table 3.2 Major Federal Laws Affecting Marketing
Decisions (2 of 5)
Act (Date Enacted) Purpose
Procompetitive Legislation
Celler-Kefauver Act (1950) Prohibits any corporation engaged in commerce from acquiring the whole or
any part of the stock or other share of the capital assets of another corporation
when the effect substantially lessens competition or tends to create a
monopoly.
Consumer Goods Prohibits the use of price-maintenance agreements among manufacturers and
Pricing Act (1975) resellers in interstate commerce.
Antitrust Improvements Act Requires large corporations to inform federal regulators of prospective
(1976) mergers or acquisitions so that they can be studied for possible violations of
the law.

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 Table 3.2 Major Federal Laws Affecting Marketing
Decisions (3 of 5)
Act (Date Enacted) Purpose
Consumer Protection Legislation
Pure Food and Drug Act (1906) Prohibits the adulteration and mislabeling of food and drug products;
established the Food and Drug Administration.
Fair Packaging and Labeling Act Makes illegal the unfair or deceptive packaging or labeling of
(1966) consumer products.
Consumer Product Safety Act Established the Consumer Product Safety Commission; protects the
(1972) public against unreasonable risk of injury and death associated with
products.
Magnuson-Moss Warranty (FTC) Provides for minimum disclosure standards for written consumer
Act (1975) product warranties; defines minimum consent standards for written
warranties; allows the FTC to prescribe interpretive rules in policy
statements regarding unfair or deceptive practices.
Nutrition Labeling and Prohibits exaggerated health claims; requires all processed foods to
Education Act (1990) contain labels showing nutritional information.

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 Table 3.2 Major Federal Laws Affecting Marketing
Decisions (4 of 5)
Act (Date Enacted) Purpose
Consumer Protection Legislation
Telephone Consumer Protection Act Establishes procedures to avoid unwanted telephone solicitations; limits
(1991) marketers from using an automated telephone dialing system or an artificial
or prerecorded voice.
Children’s Online Privacy Protection Regulates the online collection of personally identifiable information (name,
Act (2000) mailing address, e-mail address, hobbies, interests, or information collected
through cookies) from children under age 13.
Do Not Call Implementation Act Directs the FCC and FTC to coordinate so their rules are consistent
(2003) regarding telemarketing call practices including the Do Not Call Registry
and other lists, as well as call abandonment; in 2008, the FTC amended its
rules and banned prerecorded sales pitches for all but a few cases
Credit Card Act (2009) Implements strict rules on credit card companies regarding areas such as
issuing credit to youths, terms disclosure, interest rates, and fees.

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 Table 3.2 Major Federal Laws Affecting Marketing
Decisions (5 of 5)
Act (Date Enacted) Purpose
Consumer Protection Legislation
Dodd-Frank Wall Street Reform and Promotes financial reform to increase accountability and transparency in
Consumer Protection Act (2010) the financial industry, protects consumers from deceptive financial
practices, and establishes the Bureau of Consumer Financial Protection.
Trademark and Copyright
Protection Legislation
Lanham Act (1946) Provides protection and regulation of brand names, brand marks, trade
names, and trademarks.
Trademark Law Revision Act (1988) Amends the Lanham Act to allow brands not yet introduced to be protected
through registration with the Patent and Trademark Office.
Federal Trademark Dilution Act Gives trademark owners the right to protect trademarks and requires
(1995) relinquishment of names that match or parallel existing trademarks.
Digital Millennium Copyright Act Refines copyright laws to protect digital versions of copyrighted materials,
(1998) including music and movies.

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 3-5 Legal and Regulatory Forces (1 of 2)

Regulatory Agencies
• Regulatory agencies monitor many marketing activities and usually have the power to enforce
specific laws as well as some discretion in establishing rules and regulations to guide industry
practices.
• Federal Trade Commission (FTC) – An agency that regulates a variety of business practices
and curbs false advertising, misleading pricing, and deceptive packaging and labeling
• The Food and Drug Administration (FDA) enforces regulations prohibiting the sale and
distribution of adulterated, misbranded, or hazardous food and drug products.
• The Consumer Product Safety Act protects the public from unreasonable risk of injury from any
consumer product not covered by other regulatory agencies.
• Laws have also been created to prevent businesses from gaining an unfair advantage through
bribery.

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 3-5 Legal and Regulatory Forces (2 of 2)
Self-Regulation
• Better Business Bureau (BBB) – A system of nongovernmental, independent, local regulatory
agencies supported by local businesses that helps settle problems between customers and
specific business firms
• National Advertising Review Board (NARB) – A self-regulatory unit that considers challenges
to issues raised by the National Advertising Division (an arm of the Council of Better Business
Bureaus) about an advertisement
Advantages Disadvantages
• Establishment and implementation are usually • When a trade association creates a set of
less expensive. industry guidelines for its members, nonmember
• Guidelines are generally more realistic and firms do not have to abide by them.
operational. • Many self-regulatory programs lack the tools or
• Effective self-regulatory programs reduce the authority to enforce guidelines.
need to expand government bureaucracy. • Guidelines in self-regulatory programs are often
less strict than those established by government
agencies.
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 3-6
Technological Forces

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 3-6 Technological Forces (1 of 2)

• Technology – The application of knowledge and tools to solve problems and

perform tasks more efficiently
• Information technology (IT) is changing the lives of consumers across the globe.
– Offers lucrative career opportunities
– Provides business opportunities for entrepreneurs
– Improves supply-chain management

• Robotics, self-driving cars, artificial intelligence (AI), and marketing analytics are
rapidly evolving the state of technology.
• It is estimated that more than 50 billion things, including cars, refrigerators,
medical devices, and more, will be hooked up to the internet infrastructure within
the next few years; this phenomenon—known as the Internet of Things—will
greatly impact how we do business and live our daily lives.
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 3-6 Technological Forces (2 of 2)

• The effects of technology relate to such characteristics as dynamics, reach, and

the self-sustaining nature of technological progress.
– The dynamics of technology involve the constant change that often challenges the
structures of social institutions.
– Reach refers to the broad nature of technology as it moves through society.
– The self-sustaining nature of technology relates to the fact that technology acts as a
catalyst to spur even faster development.

• It is important for organizations to determine when a technology is changing an

industry and to define the strategic influence of the new technology.
• Through a procedure known as technology assessment, managers try to foresee
the effects of new products and processes on their firm’s operations, on other
business organizations, and on society in general.
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 3-7
Sociocultural Forces

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 3-7 Sociocultural Forces (1 of 2)

• Sociocultural forces – The influences in a society and its culture(s) that change
people’s:

Attitudes Beliefs Norms Customs Lifestyles

• Changes in a population’s demographic characteristics have a significant

bearing on relationship and individual behavior.
– Increasing proportion of older consumers and singles
– Declining birth rate
– Increasing multicultural nature of society

• A more diverse customer base means marketing practices must be modified and
diversified to meet its changing needs.
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 3-7 Sociocultural Forces (2 of 2)

• Changes in social and cultural values dramatically influence people’s needs and
desires for products.
– Gender stereotypes have changes leading to more equality in marketing.
– Health, nutrition, and exercise are growing in importance (sales of organic foods, herbs
and herbal remedies, vitamins, and dietary supplements have escalated).
– There is a trend toward eat-out and take-out meals and grocery delivery services.
– Values regarding the permanence of marriage are changing.
– Children continue to be very important.

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Figure 3.2 Employers Are the Most Trusted
Among Institutions

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 3-8
Social Responsibility and Ethics in Marketing

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 3-8 Social Responsibility and Ethics in Marketing
(1 of 8)
• Social responsibility – An organization’s obligation to maximize its positive
impact and minimize its negative impact on society
• Socially responsible activities can:

Improve Improve Generate

Employee Customer Positive
Performance Loyalty Publicity

Attract Goodwill, Generate

Boost Publicity, Indirect
Sales Customers, Long-Term
and Employees Benefits
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 3-8 Social Responsibility and Ethics in Marketing
(2 of 8)

• Marketing citizenship – The adoption of a strategic focus for fulfilling the

economic, legal, ethical, and philanthropic social responsibilities expected by
stakeholders
• A stakeholder orientation involves understanding and addressing the needs of all
stakeholders, including communities and special-interest groups
Economic Dimension
• How organizations relate to stockholders, employees, competitors, customers,
the community, and the natural environment affects the economy.

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Figure 3.3 The Pyramid of Corporate
Social Responsibility

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 3-8 Social Responsibility and Ethics in Marketing
(3 of 8)

Legal Dimension
• Marketers are expected to follow all laws and regulations designed to keep U.S.
companies’ actions within the range of acceptable conduct and fair competition.
• Not all legal cases are violations of the law; sometimes they are an attempt to
interpret the law.
• When marketers engage in deceptive practices to advance their own interests
over those of others, charges of fraud may result.
• Deceptive advertising in particular causes consumers to become defensive
toward all promotional messages, and to become distrustful of all advertising,
thus harming both consumers and marketers.
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 3-8 Social Responsibility and Ethics in Marketing
(4 of 8)
Ethical Dimension
• Economic and legal responsibilities are the most basic aspects of social
responsibility; failure to consider them may mean that a marketer does not
operate long enough to engage in ethical or philanthropic activities.
• Ethical marketing decisions foster trust, which helps build long-term marketing
relationships.
• Ethical issue – An identifiable problem, situation, or opportunity requiring a
choice among several actions that must be evaluated as right or wrong, ethical
or unethical
– Any time an activity causes marketing managers or customers in their target market to feel
manipulated or cheated, a marketing ethical issue exists, regardless of its legality.
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Figure 3.4 Industry Sector Trust

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 Table 3.3 Ethical Issues in Marketing
Issue Category Examples
Product • Failing to disclose risks associated with a product
• Failing to disclose information about a product’s function, value, or use
• Failing to disclose information about changes in the nature, quality, or
size of a product
Pricing • Price fixing
• Predatory pricing
• Failing to disclose the full price of a purchase
Distribution • Failing to live up to the rights and responsibilities associated with
supply-chain member roles (e.g., manufacturers, wholesalers,
distributors, retailers)
• Manipulating product availability
• Using coercion to force other intermediaries to behave in a certain way
Promotion • False or misleading advertising
• Using manipulative or deceptive sales promotions, tactics, and publicity
• Offering or accepting bribes in personal selling situations

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 3-8 Social Responsibility and Ethics in Marketing
(5 of 8)

Philanthropic Dimension
• Philanthropic responsibilities are not required of a company, but they promote
human welfare or goodwill.
• Cause-related marketing – The practice of linking products to a particular
social cause on an ongoing or short-term basis
• Strategic philanthropy approach – The synergistic use of organizational core
competencies and resources to address key stakeholders’ interests and achieve
both organizational and social benefits
• A business must determine what customers, regulators, competitors, and society
in general want or expect in terms of social responsibility.
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 3-8 Social Responsibility and Ethics in Marketing
(6 of 8)
SUSTAINABILITY
• Many companies are adopting eco-friendly business practices and/or supporting
environmental initiatives.
• The consumption of green products can be promoted by emphasizing the shared
responsibility between the firm and consumers in protecting the environment.
• Consumers are becoming skeptical of greenwashing, which occurs when firms
claim to protect the environment but fail to demonstrate their commitment.

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 3-8 Social Responsibility and Ethics in Marketing
(7 of 8)

CONSUMERISM
• Consumerism – Organized efforts by individuals, groups, and organizations to
protect consumers’ rights
• The movement’s major forces are:
– Individual consumer advocates
– Consumer organizations and other interest groups
– Consumer education
– Consumer laws

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 3-8 Social Responsibility and Ethics in Marketing
(8 of 8)

• Of great importance to the consumer movement are four basic rights spelled out
in a consumer “bill of rights” that was drafted by President John F. Kennedy.

The Right The Right The Right The Right

to Safety to Be Informed to Choose to Be Heard

• Marketers are • Consumers should • Consumers should • Consumers’ interests

obligated not to have access to and have access to a will receive full and
market a product the opportunity to variety of products at sympathetic
that they know could review all relevant competitive prices. consideration in the
harm consumers. information about a formulation of
product before government policy.
buying it.

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 3-9
Incorporating Social Responsibility and Ethics
into Strategic Planning

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 3-9 Incorporating Social Responsibility and Ethics
into Strategic Planning (1 of 2)
• It is important to distinguish between marketing ethics and social responsibility.
– Ethics relates to individual and group decisions—judgments about what is right and wrong
in a particular decision-making situation.
– Social responsibility deals with the total effect of marketing decisions on society.

• Codes of conduct – Formalized rules and standards that describe what a

company expects of its employees
– Codes of conduct promote ethical behavior by reducing opportunities for unethical
behavior.
– Codes help marketers deal with ethical issues or dilemmas that develop in daily
operations.
– Companies should consistently enforce standards and correct or impose negative
consequences on those who violate codes of conduct.
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 Table 3.4 Observed Interpersonal Misconduct
in the U.S. Workforce

Type of Interpersonal Misconduct Observation Rate

Abusive or intimidating behavior 21%
Verbal: 88%; Physical: 24%; Online: 21%
Sexual Harassment 12%
Unwelcome sexual comments: 70%; Intentional physical contact: 56%;
Unwelcome sexual advances or propositions: 55%;
Pressure to engage in sexual activity: 32%;
Preferential treatment for submitting to sexual conduct: 28%
Discrimination 12%
Race: 58%; Gender: 49%; Ethnicity: 47%; Age: 42%;
Sexual Orientation: 34%; Disability: 29%; Religion: 26%

Pride/Ferrell, Foundations of Marketing, 9th Edition. © 2022 Cengage. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
 3-9 Incorporating Social Responsibility and Ethics
into Strategic Planning (2 of 2)
• Firms have a responsibility to treat customers ethically.
• More firms are moving beyond a market orientation and are adopting a stakeholder orientation
that focuses on all constituents.
• By encouraging employees to understand their markets, companies can help them respond to
stakeholder demands.
• AI systems that can think like humans will need to make ethical decisions, requiring effective
ethics and compliance systems to be programmed into AI devices.
• There is a direct association between corporate social responsibility and customer satisfaction,
profits, and market value.
• Companies that fail to develop strategies and programs to incorporate ethics and social
responsibility into their organizational culture—a set of values, beliefs, goals, norms, and rituals
that members of an organization share—may pay the price with poor marketing performance,
the potential costs of legal violations, civil litigation, and damaging publicity.

Pride/Ferrell, Foundations of Marketing, 9th Edition. © 2022 Cengage. All Rights Reserved. May not be
scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.