Chapter 3: Marketing Environment, Social Responsibility, & Ethics
Chapter 3: Marketing Environment, Social Responsibility, & Ethics examines the forces
of the marketing environment, including social and ethical issues, which can have a
profound influence on marketing strategy decisions. First we define and discuss the
importance of environmental scanning and environmental analysis, and consider two
general approaches companies use to respond to environmental forces. Then we take a
closer look at the impact of competitive, economic, political, legal and regulatory,
technological, and sociocultural forces in the marketing environment. We then turn our
attention to the role of social responsibility and ethics in marketing decision making. This
discussion includes an exploration of social issues such as the natural environment and
consumerism. Finally, we focus on incorporating social responsibility and ethics into
I. THE MARKETING ENVIRONMENT
The marketing environment consists of external forces that directly or indirectly
influence an organization’s acquisition of inputs (human, financial, and natural resources
and raw materials, and information) and creation of outputs (goods, services, or ideas).
These influences can create opportunities and threats for marketers.
A. To monitor changes in the marketing environment, marketers engage in
environmental scanning and analysis.
1. Environmental scanning is the process of collecting information about forces in
the marketing environment. Scanning involves observation, secondary sources such as
business, trade, government, and Internet sources, and marketing research.
2. Environmental analysis is the process of assessing and interpreting the
information gathered through scanning.
a. Marketers evaluate the information for accuracy, try to resolve inconsistencies in
the data, and assign significance to the findings.
b. Environmental analysis enables marketers to identify potential threats and
opportunities linked to environmental changes.
B. Responding to the Marketing Environment
Marketing managers take two general approaches to environmental forces.
1. Some marketers view environmental forces as uncontrollable and remain passive
and reactive to the environment.
2. Other marketers believe that environmental forces can be shaped (through
economic, psychological, political, or promotional skills), and these marketers are, to a
certain extent, proactive.
C. Competitive Forces
1. The number of firms that supply a product may affect the strength of competition.
2. Marketers need to monitor the actions of major competitors to determine what
specific strategies competitors are using and how those strategies affect their own.
3. It is not enough to analyze available information; the firm must develop a system
for gathering ongoing information about competitors.
D. Economic Forces
Economic forces in the marketing environment influence both marketers’ and customers’
decisions and activities.
1. Buying Power and Willingness to Spend
a. The strength of a person’s buying power depends on economic conditions and the
size of the resources—money, goods, and services that can be traded in an exchange—
that enable the individual to make purchases. Major sources of buying power are income,
credit, and wealth.
1) Income is money received through wages, rents, investments, pensions, and
subsidy payments for a given period.
a) Marketers are interested in the amount of money left after payment of taxes
because this disposable income is used for spending and saving.
b) Discretionary income is disposable income available for spending and saving after
an individual has purchased the basic necessities of food, clothing, and shelter.
2) Credit enables people to spend future income now or in the near future, but it
increases current buying power at the expense of future buying power.
3) Wealth is the accumulation of past income, natural resources, and financial
b. People’s willingness to spend (their inclination to buy because of expected
satisfaction from a product) is, to some degree, related to their ability to buy. Willingness
to spend is affected by several factors:
1) Buying power
2) A product’s price and its value
3) The amount of satisfaction received from a product already owned
4) Expectations about future employment, income levels, prices, family size, and
general economic conditions
2. Economic Conditions
a. Changes in general economic conditions affect (and are affected by) supply and
demand, buying power, willingness to spend, consumer expenditure levels, and the
intensity of competitive behavior.
b. Fluctuations in the economy follow a general patter often referred to as the
business cycle, which traditionally consists of four stages:
1) During prosperity, unemployment is low and total income is relatively high, a
combination that generally ensures high buying power.
2) During a recession, unemployment rises while total buying power declines, the
associated pessimism often stifles consumer and business spending.
3) A prolonged recession may become a depression, a period in which
unemployment is extremely high, wages are very low, total disposable income is at a
minimum, and consumers lack confidence in the economy.
4) During recovery, the economy moves from depression or recession to prosperity.
c. The business cycle can influence the success of marketing strategies.
1) During prosperity, marketers may expand their product offerings, or intensify
distribution and promotional efforts.
2) During economic downturns, marketers should focus their efforts on determining
the precise functions desired by customers and promoting their products’ value and
3) During recovery periods, marketers should be flexible in their marketing
E. Political Forces
1. Political, legal, and regulatory forces of the marketing environment are closely
2. Although some marketers view political forces as beyond their control and simply
react to conditions arising from those forces, other firms are more proactive and seek to
influence political forces through public protests or campaign contributions.
a. Although laws limit corporate contributions to campaign funds for specific
candidates, it is legal for businesses and other organizations to contribute to political
b. Marketers can also make “soft money” donations to political parties.
c. Companies can also participate in the political process through lobbying to
persuade public and/or government officials to favor a particular position in decision
F. Legal and Regulatory Forces
1. A number of federal laws influence marketing decisions and activities.
2. Regulatory Agencies
a. Federal regulatory agencies influence many marketing activities, including
product development, pricing, packaging, advertising, personal selling, and distribution,
and they often have the power to enforce specific laws.
1) The Federal Trade Commission (FTC) influences marketing activities the most.
a) It regulates a variety of business practices and focuses in particular on curbing
false advertising, misleading pricing, and deceptive packaging and labeling.
b) It can issue complaints and cease-and-desist orders, and can require companies to
run corrective advertising.
c) It also assists businesses in complying with laws.
2) Other regulatory units are limited to dealing with specific products, services, or
b. All states, as well as many cities and towns, have regulatory agencies that enforce
laws and regulations regarding marketing practices within their states or municipalities.
a. In an attempt to be good corporate citizens and to prevent government
intervention, some businesses try to regulate themselves. A number of trade associations
have developed self-regulatory programs.
b. The best-known nongovernmental regulatory group is the Better Business Bureau,
a local agency supported by local businesses that aids in settling problems between
specific business firms and customers.
1) The Council of Better Business Bureaus is a national organization composed of
all local Better Business Bureaus.
2) The National Advertising Division of the Council of Better Business Bureaus
operates a self-regulatory program that investigates claims of alleged deceptive
c. The National Advertising Review Board (NARB) is a self-regulatory entity that
considers cases in which an advertiser challenges issues raised by the National
Advertising Division about an advertisement. Though it has no official enforcement
powers, the NARB can publicize questionable practices and file complaints with the
d. Self-regulatory programs have both advantages and disadvantages over laws and
1) Self-regulatory programs have the advantage of being less expensive to establish
and implement, having more realistic and operational guidelines, and reducing the need
to expand government bureaucracy.
2) Self-regulatory programs are limited because they are not mandatory for
nonmembers, may lack the tools or authority to enforce guidelines, and may be less strict
than those established by government agencies.
G. Technological Forces
1. Technology is the application of knowledge and tools to solve problems and
perform tasks more efficiently.
2. Technology determines how society satisfies its physiological needs, such as
3. Technology can help marketers and consumers become more productive, but it
also raises controversial issues.
4. The effects of technology relate to such characteristics as dynamics, reach, and
the self-sustaining nature of technological progress.
a. The dynamics of technology involve the constant change that often challenges the
structures of social institutions.
b. Reach refers to the broad nature of technology as it moves through society.
c. The self-sustaining nature of technology relates to the fact that technology acts as
a catalyst to spur even faster development.
5. It is important for firms to determine when a technology is changing an industry
and to define the strategic influence of the new technology.
6. Through “technology assessment,” managers try to foresee the effects of new
products and processes on the firm’s operations, on other business organizations, and on
society in general.
H. Sociocultural Forces
Sociocultural forces are the influences in a society and its culture(s) that bring about
changes in attitudes, beliefs, norms, customs, and lifestyles.
1. Changes in a population’s demographic characteristics—age, gender, race,
ethnicity, marital and parental status, income, and education—have a significant bearing
on relationships and individual behavior because they lead to changes in how people live
and consume products.
a. One demographic change affecting the U.S. marketplace is the increasing
proportion of older consumers.
b. The United States is about to enter another baby boom, and these children are
more diverse than previous generations.
c. Immigration is increasing the multicultural nature of U.S. society.
d. These and other changes bring unique problems and opportunities for marketers.
2. Changes in social and cultural values have dramatically influenced people’s needs
and desires for products; these values change at varying speeds.
a. Issues of health, nutrition, and exercise have increased in importance, affecting
behavior, lifestyles, and product choices.
b. The concept of family is changing, though children remain important.
II. SOCIAL RESPONSIBILITY AND ETHICS IN MARKETING
A. Social Responsibility refers to an organization’s obligations to maximize its
positive impact and minimize its negative impact on society.
1. Social responsibility deals with the total effects of all marketing decisions on
a. Ample evidence demonstrates that ignoring society’s demands for responsible
marketing can destroy customers’ trust and even prompt government regulations.
b. Socially responsible activities can generate positive publicity and boost sales.
c. Socially responsible efforts have a positive effect on local communities and
indirectly help the sponsoring organization by attracting goodwill, publicity, and potential
customers and employees.
2. Socially responsible organizations strive for marketing citizenship by adopting a
strategic focus for fulfilling the economic, legal, ethical, and philanthropic social
responsibilities that their stakeholders expect of them.
3. Stakeholders include those constituents who have a claim in some aspect of a
firm’s products, operations, markets, industry, and outcomes; these include customers,
employees, investors and shareholders, suppliers, governments, communities, and many
4. The economic, legal, ethical, and philanthropic dimensions of social responsibility
can be viewed as a pyramid, as shown in Figure 3.3.
B. Economic Dimension
1. At the most basic level, all companies have an economic responsibility to be
profitable so they can provide a return on investment to their owners, create jobs for the
community, and contribute goods and services to the economy.
2. Marketers also have an economic responsibility to compete fairly.
C. Legal Dimension
Marketers are also expected to obey laws and regulations.
1. The efforts of elected representatives and special-interest groups to promote
responsible corporate behavior have resulted in laws and regulations.
2. When customers, interest groups, or businesses become outraged over what they
perceive as irresponsibility on the part of a marketing organization, they may demand
new legislation to regulate marketing behavior or they may engage in litigation to force
the firm to “play by the rules.”
D. Ethical Dimension
Marketing ethics refers to principles and standards that define acceptable conduct in
marketing as determined by various stakeholders, including the public, government
regulators, private-interest groups, consumers, industry, and the organization itself.
1. The most basic of these principles have been codified as laws and regulations to
encourage marketers to conform to society’s expectations of conduct.
2. Marketing ethics goes beyond legal issues to help foster trust, which helps to
build long-term marketing relationships.
3. When marketing activities deviate from accepted standards, the exchange process
can break down, resulting in customer dissatisfaction, lack of trust, and lawsuits.
4. An ethical issue is an identifiable problem, situation, or opportunity requiring an
individual or organization to choose from among several actions that must be evaluated
as right or wrong, ethical or unethical.
a. Any time an activity causes marketing managers or customers in their target
market to feel manipulated or cheated, an ethical issues exists, regardless of the legality
of that activity.
b. Marketers must be able to identify ethical issues and decide how to resolve them.
E. Philanthropic Dimension
Philanthropic responsibilities, which go beyond marketing ethics, are not required of a
company, but they promote human welfare or goodwill, as do the economic, legal, and
ethical dimensions of social responsibility.
1. Many firms demonstrate philanthropic responsibility through corporate
contributions to environmental and social causes.
2. Many companies adopt a strategic approach to corporate philanthropy.
a. Cause-related marketing is the practice of linking products to a particular social
cause on an ongoing or short-term basis.
b. Strategic philanthropy is the synergistic use of organizational core competencies
and resources to address key stakeholders’ interests and achieve both organizational and
3. Two major categories of social responsibility issues are the natural environment
a. The Natural Environment
One of the more common ways marketers demonstrate social responsibility is through
programs designed to protect and preserve the natural environment.
1) Many firms make contributions to environmental protection organizations,
sponsor and participate in clean-up events, promote recycling, retool manufacturing
processes to minimize waste and pollution, and generally reevaluate the effects of their
products on the natural environment.
2) Green marketing refers to the specific development, pricing, distribution, and
promotion of products that do not harm the natural environment.
1) Consumerism refers to organized efforts by a varied array of individuals, groups,
and organizations to protect consumers’ rights.
2) To achieve their objectives, consumers and their advocates write letters or send e-
mail to companies, lobby government agencies, broadcast public service announcements,
and boycott companies whose activities they deem irresponsible.
F. Incorporating Social Responsibility and Ethics into Strategic Planning
1. Although the concepts of marketing ethics and social responsibility are often used
interchangeably, it is important to distinguish between the two terms.
a. Ethics relates to judgments about what is right or wrong in a particular decision-
b. Social responsibility deals with the total effect of marketing decisions on society.
2. Because ethics and social responsibility programs can be profitable, many
companies are incorporating them into strategic market planning.
a. To improve ethics, many organizations have developed codes of conduct (also
called codes of ethics), which consist of formalized rules and standards that describe what
each firm expects of its employees.
1) Codes promote ethical behavior by reducing opportunities for unethical behavior
because employees know both what is expected of them and what punishment they face if
they violate the rules.
2) Codes help marketers deal with ethical issues that develop in daily operations by
prescribing or limiting specific activities.
b. It is important that companies consistently enforce these standards and impose
penalties or punishments on those who violate codes of conduct.
c. To succeed, a compliance program must be viewed as part of the overall
marketing strategy implementation.
3. Increasing evidence indicates that being socially responsible and ethical pays off,
and recognition is growing that the long-term value of conducting business in a socially
responsible and ethical manner far outweighs the short-term costs.