Foundations of Marketing

by Jonathan Groucutt

Chapter 2: The Marketing Environment

The Seminar Room

General

Macro Factors: Societal - Taking Breakfast!

Many of us probably take the concept of the breakfast meal for granted. However, there are cultural perspectives that hotels and restaurants need to consider depending on locations and the type of guests.

For example, consider the following that provide a broad view of breakfast in different cultural groups (or segments). However, not everyone will ‘fit’ into these cultural segments.

American
Perhaps individually or combinations of:

Ham and eggs, hash brownies, waffles, pancakes, coffee and fruit juices

Chinese
Perhaps individually or combinations of:

Congee, fried noodles, dim sum, fresh fruit, tea (Jasmine or Po Li)

Japanese
Perhaps individually or a combination of:

Miso soup (generally a vegetable soup, although fish can also be used), rice with seaweed, salty plums and pickles, salmon fillet, vegetables, white beans with beaten egg, Japanese green tea, health drinks (such as Yakult®).

French
Perhaps individually or a combination of:

A choice of bakery products: croissant, rolls, toasted bread and coffee (often served with a free glass of water).

German
Perhaps individually or a combination of:

A choice of cooked meats, cheeses and coffee.

British
Perhaps individually or a combination of:

Fruit juices, cereals, eggs (fried, scrambled, poached, boiled), bacon, sausages, fried bread, baked beans, poached haddock, smoked salmon, toasted bread (with marmalade, honey and jams), coffee, tea.

General Points
Of course, with growing international concern over obesity many people are seeking healthier options such as yoghurts and cereals.

[This section links into Chapter 3: Segmentation, Targeting and Positioning and Chapter 9: Products (especially in relation to adaptation and standardisation).]

Environmental – Ecology

Avian Flu or Bird Flu as it is most commonly known can jump to an individual and be lethal, especially the H5N1 strain of the disease. However, it cannot spread from one person to another in the form of a ‘normal’ flu epidemic. Nevertheless it does pose a risk. The British government, for example, ordered 14.6 million doses of he antiviral drug Tamiflu.

You may want to consider the links to other macro issues:

  • Technology – Pharmaceutical companies developing vaccines for the various strains of Avian Flu benefit in terms of marketing their products to governments and medical facilities worldwide.
  • Societal - The concerns of the population. These may be real or perceived. For example, the fear that eating a chicken increases the risk of the consumer contracting Avian Flu. There is no evidence that this is the case. However, such fears will drive consumers away from particular products. Therefore providers of chicken products have to ally the fears of the consumer. While the providers of such chicken products may suffer from a reduced market, other food providers may actually benefit from the situation.
  • Political – How governments (local, national and regional) react to events and the types of laws that they impose. For example, the culling of birds who may have become infected with Avian Flu.
  • What is the potential economic impact upon a region? As was noted with the SARS epidemic, travel and tourism were, for example, severely affected. Again, you may want to consider the impact upon marketing activity of an Avian Flu epidemic.

Technology

Increasingly cars are being fitted with a range of sensors to improve overall engine performance and fuel efficiency. Satellite navigation equipment once the domain of shipping and aircraft manufacturers is now relatively inexpensive to purchase for cars.

Japanese technologists are going a step further though. They are combining the latest in satellite technology, radar, radio frequency devices and computer systems and applying them to automotives. The automotive technologists have combined disparate external technologies to focus on accident prevention. Already there are systems available that can warn a driver of a potential collision and in a few vehicle brands can actually apply the brakes. Future systems will monitor the driver’s alertness via on-board cameras. If a driver is distracted with the potential consequence of a collision then an alarm will sound. If the driver falls asleep (a common cause of accidents) the onboard monitoring system would not only sound an alarm but would tighten the driver’s seatbelt and prepare to apply the brakes safely to slow the vehicle. Moreover, if a pedestrian walks in front of the car on a darkened night, infra-red systems project the image of the pedestrian on a screen above the dashboard. Again, this night-vision system originates from other industries such as defence.

This is, however, is only the tip of the iceberg.

The point here is that technologies developed for different separate industries are often combined for another industry. But nonetheless these external technologies can have a profound affect upon an industry. While some companies are combining these technologies perhaps others are not. So in the future could the marketing of some cars focus more on safety than design? Imagine a car company that has embraced different technologies and creates a vehicle that delivers high performance with fuel efficiency and enhanced safety features.

You may want to consider the following thought.

Will the companies that combine such technologies thus gain the marketing advantage over the others within the marketplace?

Market Challengers

In the textbook chapter it was discussed how Islamic-originated Cola (and other soft drinks) were challenging the major brands. One of the market challengers was the British-based Qibla-Cola. This company had grown rapidly since its launch in 2003, citing expansion deals into North Africa, Europe and Canada. However on 14 th September 2005 the company filed for bankruptcy. Bottling and distribution problems are cited by some sources as the possible reason for its collapse. Of course, that does not necessarily mean the end for Qibla-Cola. Another company could buy the assets from the company’s receivers and re-build the brand. Watch this space!

[This links to Chapter 6: Strategy in Marketing, Chapter 7: The Branding of Products and Services, and Chapter 12: Place and Placement.]


Pan European

The Macro Environment

Law and the end of tobacco sponsorship (Europe)

In 2005 a European union-wide directive came into effect banning tobacco advertising in the print media, on the radio, over the Internet and the sponsorship of sporting events. Concurrent to this action, the UK extended the ban to include tobacco companies using T-shirts, hats or umbrellas for the advertising of tobacco products.

A major beneficiary of tobacco sponsorship has been Formula 1 motor racing. The 2005 Hungarian Grand Prix was the last race in the EU to feature tobacco advertising. Of course, such advertising is not banned in other countries and thus tobacco companies may still sponsor sporting events within those countries. However, more countries are seeking to impose bans on both tobacco advertising/sponsorship. Therefore it is increasingly likely that tobacco sponsorship will be severely restricted in the coming years.

Clearly the avenues for marketing this product have been narrowed through these restrictions. The difficulty for the brand owners is the future of the brands themselves. While there is still a market for cigarettes, due mainly through regular repeat purchasers, there is an increasing trend against tobacco. This trend is driven by both government and individual concerns over health. Indeed, in some countries tobacco consumption is falling as smokers give up on both health and cost grounds.

Several brand owners, perhaps aware of the potential declining future of tobacco, have increased their portfolio of non-tobacco companies. For example, by acquiring food companies.

Legal Move to Ban Caviar Trade

[This links to the chapters on Products, Pricing, Consumer lifestyles and Macro factors – legal and environmental.]

Chapter 9 on Products highlighted the fact that caviar, the roe or eggs of sturgeon fish are a luxury product or good. Furthermore this luxury was reflected in the section on economic value in Chapter 11: Price.

The reason for the high price of genuine caviar (Beluga and Sevruga) is its intrinsic luxury status and economic value through scarcity. Caviar retails at between e2,600 to e6,000 (US$2,400 to US$7,132) per kg (2.2lbs). In a London store wild Beluga caviar (considered the best by connoisseurs) is sold at around UK£95 to UK£150 for 30 grams (that is roughly two tablespoons). The global legal trade in caviar is estimated to be worth US$100 million (UK£57 million) annually with Christmas being the peak season. However, some experts suggest that the illegal market for caviar could be worth over US$500 million.

The highest demand for caviar is in the European Union, Switzerland, the US and Japan. Together they account for some 95% of total imports. Russia and Iran are the world’s largest exporters of wild caviar.

However, caviar was not always the luxury food that it is considered in many countries. Until around the 19 th century caviar (similarly oysters) was considered a peasant food eaten by poor farmers and fishermen as a substitute for meat. It was the Russian tsars and the European aristocracy that transformed caviar into the expensive delicacy that is today considered a symbol of wealth.

In Chapter 9 it was stated that since 2000 restrictions had been in place to limit the amount fished in order to replenish depleting fish stocks. Since the collapse of the former Soviet Union there has been general over fishing exacerbated by poaching.

This poaching is a result of three factors:

  • The high levels of unemployment around the Caspian Sea. Here fishermen perhaps have no option but to poach in order to feed their families. They can receive significantly higher amounts for the illegal trade in sturgeon.
  • With the collapse of the former Soviet Union came the breakdown of aspects of law enforcement and thus control. This has lead to …
  • The involvement of the Russian Mafia in poaching.

Concern for this endangered fish species has resulted in a ban on global trade in caviar. The Secretariat of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) imposed the ban for both scientific reasons and to end the illegal poaching in the Caspian Sea. In September 2005 the US government also imposed an import ban on Beluga caviar because the various Caspian States had not submitted a management plan for the protection of sturgeon.

According to CITES:

‘The 169 member countries of CITES have set strict conditions for permitting caviar exports….As caviar stocks continued to decline through the 1990s, the Parties to CITES decided to place all sturgeon species that remained unlisted on its Appendix II (an endangered species listing), effective from 1 April 1998. Since then, all exports of caviar and other sturgeon products have had to comply with strict CITES provisions, including the use of permits and specific labelling requirements (this links to issues highlighted in Chapter 18: Packages and Packing). To have its proposed quota published, a government must show that trade is not detrimental to the long-term survival of the species.

Countries sharing sturgeon stocks must agree amongst themselves on catch and export quotas based on scientific surveys of stocks. They must adopt a regional conservation strategy. With the agreement of the sturgeon range States, the rules on how to set quotas were made even more rigorous in 2004’.

However, information from the shared fishing grounds (the Caspian Sea, the Black Sea/lower Danube River and the Heilongjiang/Amur River on the Sino-Russian border) suggested that there remains a serious decline in sturgeon stocks.

In 2001, CITES responded to high levels of poaching and illegal trade in the Caspian Sea – which accounts for some 90% of world caviar trade – by agreeing a temporary ban. Extensive discussions and stronger actions by the range States were required before annual quotas could be agreed for 2002 to 2005.

To ensure the long-term health of the sturgeon fisheries, many of the range States are taking action. For example, every year Iran releases 24 million sturgeon fingerlings into the Caspian Sea. However, this is an expensive operation and only between 1 and 3% survive in the wild. Moreover it takes 20 years for a sturgeon to mature and produce eggs. Yet this may not be enough to save the sturgeon. According to Dr Mohammed Poukazemo, the Director of the Sturgeon International Research Centre in Iran, if the year-on- year decline of 20% - 30% continues then Caspian Sea sturgeon could be extinct within 15 years (Harrison, 2005).

There are, of course, alternatives to caviar from sturgeon – Lump Fish roe from Scandinavia, for example, is available in many supermarkets and restaurants in Europe and Australasia at a fraction of the cost of either Beluga or Sevruga.

Points to consider:

  • The impact that we as consumers have upon our natural environment.
  • A product may not have always been purchased by a particular segment of the population. This segment may change over time as the value of the product changes. Moreover, segments may be different in different regions of the world.
  • The marketing of a product has an impact far beyond the scope of what we call ‘marketing’. It links into other areas of study and influence.

Sources: Harrison, F. (2005) Lean Times for Iran Caviar Fishermen. NNC News Online 14 November. BBC (2005) Russians Told to Stay off Caviar. BBC News Online 23 December. CITIES (2006) Exporters to Strengthen Controls and Promote Sustainable Fishing Before CITES Can Publish 2006 Export Quotas. Press Advisory. The Secretariat of the Convention on International Trade in Endangered Species of Wild Fauna and Flora, 3 January, Geneva. BBC (2006) International Caviar Trade Banned. BBC News Online 3 January. Waddington, R. (2006) UN Moves to Block 2006 Caspian Sea Caviar Exports. Reuters 3 January. Clover, C. (2006) Caviar Banned as Poachers Threaten Sturgeon’s Survival. Telegraph Online 4 January. Vidal, J (2006) Ban on Trade in Wild Caviar as Sturgeon Stocks Plunge. The Guardian Online 4 January.


Africa

The Macro Environment: Geophysical

The geophysical aspects of the macro environment are often considered in terms of the destructive force of nature, for instance Tsunami. However, we must also recognise that the force of nature has created some of the most beautiful and diverse landscapes imaginable. Consider the contrasting landscapes that dominate Africa from the savannahs to the gorges and wild rivers. These landscapes and areas of natural beauty are not only homes to peoples and wildlife but are also places to visit. Governments in many African nations have realised the income-generating potential of marketing their landscapes to visitors from other regions of Africa and also other nations as well.

Of course, the potential downside is over-tourism that can result in destruction of a fragile wilderness.

Economic and Political Impact on Air Zimbabwe

It is important to recognise that several macro factors can act in concert with each other to impact upon a company’s operations. An example occurred in November 2005 with the grounding of all Air Zimbabwe flights. The national airline serves routes within the country and flies to Southern Africa, London, China, Singapore and Dubai.

The grounding of the company’s flights was the result of several factors:

(1) Zimbabwe is in both economic and political turmoil. There is growing disquiet both internally and externally regarding, amongst many other issues, the government’s land reforms. These land reforms have lead to severe poverty and the virtual collapse of the country’s agricultural system thus impacting upon its economy. Zimbabwe is dependant upon agriculture not only to feed its people but also to build its foreign exchange reserves. Furthermore the country is being ravaged by hyperinflation. According to the International Monetary Fund (See table below) there is deep concern of the prospect of continued hyperinflation that could (with associated poverty and declining outputs) lead to further economic and social decline. The IMF contends that the country is ‘vulnerable to external shocks’.

Economic Indicator

2004

2005 (projected)

Consumer price Inflation (annual average)

350%

219.2%

Consumer price inflation (end of period)

132.7%

404.6%

Source: IMF Executive Board Concludes 2005 Article IV Consultation with Zimbabwe. Public Information Notice 05/139 October 4, 2005.

(2). The resultant foreign exchange crisis has resulted in a severe fuel crisis in the country. Simply there are insufficient funds to purchase the necessary petroleum products, whether for cars or aircraft.

While the country’s economy and political system is such a precarious situation it is most likely that Air Zimbabwe will suffer further fuel shortages over the medium and longer term. This could have a devastating effect upon the long-term viability of the airline. How can it, for instance, market itself if there is a perceived risk (if not a real risk) that the airline will again be grounded. This is a very real example of how the combination of a country’s faltering political and economic systems can devastate a business. Where another company may be able to relocate to a neighbouring country a national airline cannot.

You may want to consider what you think is the potential future for the airline under these developing circumstances. Check out the websites for both Air Zimbabwe and the Zimbabwean government.

Sources: Air Zimbabwe, BBC (2205) Zimbabwe’s economy – still on the brink BBC News Online 9 September, BBC (2005) Fuel crisis disrupts Air Zimbabwe BBC News Online 25 November. The International Monetary Fund’s website, www.imf.org.

Libya – Changing Relations with the Rest of the World

The North African country Libya is an interesting example of how external political relations influences the success or otherwise of businesses at home. For over 25 years Libya has been lead by Colonel Muammar Khaddhafi (Gaddafi). During this time political relations have been strained with several other countries – namely the United States and countries throughout Europe.

The strained relationships focus on Libya’s

(1) Support for terrorists, actual terrorist acts (for example, the bombings of Pan Am Flight 103 over Scotland and UTA Flight 772 over Niger; the siege of the Libyan embassy in London in which the British police officer Yvonne Fletcher was murdered).

(2) Endeavours to obtain weapons of mass destruction (chemical, biological and nuclear).

Libya’s political activities, especially related to neighbouring Chad during the early 1980s, caused increasing concern in the capitals of the US and Europe. In April 1986 this resulted in President Ronald Reagan supported by British Prime Minister Margaret Thatcher ordering a military air strike against Tripoli and Benghazi targeting key military installations.

In 1992 when Libya failed to extradite the suspects for both the Pan Am and UTA bombings the international community imposed sanctions lead by the United Nations. Libya became both politically and economically isolated. Such pressure eventually led to extradition of the suspects, however the Libyan government refused to accept any responsibility for the Pan Am and UTA bombings. The sanctions remained.

In 2003 the US and its allies invaded Iraq on the premise of removing weapons of mass destruction and overthrowing the regime of Saddam Hussein. The US government sent a clear signal to other nations that it might use force if weapons of mass destruction were stockpiled. In 2004 Libya declared to the United Nations that it had a stockpile of mustard gas and the facilities to make nerve agents. This declaration by Libya was the first move in an attempt to end its international isolation. The declaration was followed by supervised destruction (by UN inspectors) of the weapons, components and nerve agents. This would be the end of their attempt to gain weapons of mass destruction.

Yet, this was only one part of a changing attitude within the Libyan Government. Colonel Khaddhafi and his government further accepted responsibility for the bombing of Pan Am Flight 103 and agreed to pay US $2.7 billion in compensation to the victims’ families.

The behind-the-scenes political negotiations that resulted in these actions lead to the ‘warming’ of relations between Libya and the rest of the world. In mid 2004 diplomatic relations were resumed between Libya and the US. Thus allowing US citizens to visit the country. By the end of 2004 both the US and Europe had removed trade embargoes on Libya. Within a year there were clear signs of improved opportunities for Libyan businesses. The Libyan government further improved economic activity with reform of custom tariffs that strengthened the purchasing power of the consumer and the stabilisation of prices. These micro economic reforms are aimed to turn Libya into a regional trading hub like Hong Kong.

With the removal of sanctions, embargoes and travel bans, Libya can now develop its international tourism market. For example, Libya is rich in Roman ruins (such as the preserved Roman cities of Leptis Magna and Sabratha) as well as the medina of Tripoli and the potential tourist development of its Mediterranean coastline. By 2005 British Airways, along with Lufthansa, Austrian Airlines, Alitalia and KLM, were once more opening up routes to Libya.

What this example illustrates is how political relations between countries can and do influence/impact upon businesses within a particular country. Normally, this may be in the form of import and export tariffs. The case of Libya shows that even extreme environments can undergo change. Libya still retains the same political regime and leadership that was once considered ‘evil’ by successive US administrations. Yet, today there are significant opportunities to develop international commercial links with Libya.

Sources: BBC (2004) Washington lifts Libya travel ban, BBC News Online 26 February. BBC (2004) Libya declares chemical weapons, BBC News Online 5 March. BBC (2004) US resumes relations with Libya, BBC News Online 28 June. BBC (2004) EU agrees to lift Libya sanctions, BBC News Online 22 September. BBC (2005) Libyan entrepreneurs enjoy boom, BBC News Online 18 November.


Asia

The Macro Environment: Political – Terrorism

In September 2005 terrorism returned to the beautiful island of Bali. Three suicide bombers murdered 23 people and injured over 150. The island had only recovered from the terrorist act of 2002.

Impact has been felt throughout the travel and tourism supply chain from the airlines, hoteliers and to the Balinese themselves whose very livelihood depends upon visitors to the island.

Legal: Demolition Plans Affect Major Fashion Brands

In November 2005 two High Court judges ruled that Delhi’s city officials must remove a staggering 18,000 illegal constructions across the city. Reports filed by the officials of the Municipal Corporation of Delhi (MCD), indicated that almost 80% of constructions in the city were in breach, to a greater or lesser degree, of the city’s building bylaws. The explosion in illegal buildings has been the combined result of rapid population growth (six million in 20 years), poor planning, pressure on available land, mercenary officials and the need for economic development.

The High Court further instructed that even buildings occupied by the wealthy and influential which are deemed illegal constructions are to be demolished. Moreover, employees of the MCD have been accused of corruption by aiding and abetting the construction of such illegal buildings. Thus tarnishing the image of the organisation.

The demolition has not been limited to homes – but also the commercial district. For instance, a six-year old shopping mall on Delhi’s fashionable Mehrauli-Gurgaon road that housed some 60 shops has been demolished. However, very little notice of the impeding demolition appears to have been given with shop owners hurriedly trying to remove goods from their stores. What makes this incident particularly interesting and widely publicised is that some of the stores within the mall were rented by leading Indian fashion designers. Various designers made attempts to the High Court – but to no avail.

Here is a clear example of how legal macro factors can have a sweeping, immediate and dramatic impact upon a business. In terms of marketing alone you may want to consider whether such immediacy is damaging to both the marketing of a company’s products/services and the long-term economic development of Delhi.

Sources: Shyam, S. (2006) Delhi told to hasten demolitions. BBC News Online 18 January. Biswas, S. (2006) Delhi – should most of it be demolished? BBC News Online 26 January. Sen, A (2006) Delhi fashion shops demolished. BBC News Online, 2 February. Biswas, S. (2006) Why so much of Delhi is illegal. BBC News Online 4 February. BBC (2006) Delhi court rejects mall petition. BBC News Online 7 February.


North America

The Macro Environment - Ecological: The Weather

Mini Case: Hurricane – New Orleans and Texas

This follows on from Mini Case 2.11, Storms Batter US Economy, page 36.

In September 2005 Hurricane Wilma struck the Gulf States of North America. Its relentless force devastated the city of New Orleans and its surrounding districts. The result was dead, injured and homeless. This was followed by Hurricane Rita.

The mighty skyscrapers of Dallas were transformed into a ’ghost town’ such was the predicted power of Hurricane Rita. In the end it was scaled down but still she wrecked havoc across various States.


The Café

This is a thought for discussion that also links into Mini Case 2.12, The Impact of SARS, and other issues raised within Chapter 2.The mini case considered the real impact of the SARs virus on business, especially the tourism industry. Since then there has been increasing concern of the potential of avian flu (commonly known as bird flu) to mutate across species. Research findings published in October 2005 suggest that the devastating Spanish flu epidemic of 1918 (referred to in the textbook) that killed an estimated 50 million people may have been an avian flu variant. With global trade and travel the risk of such a disease spreading is greatly enhanced. You may want to consider the impact upon business and society if such a destructive virus spread globally.


The Library

Useful websites

  • Bloomberg: www.bloomberg.com
    For the state of the world’s economy, company information and specific activities (such as mergers and acquisitions) you may find it useful to check out this media resource.
  • Travel Daily News: www.traveldailynews.com
  • The World Bank: www.worldbank.org
  • The World Economic Forum: www.weforum.org
    This Forum describes itself as ‘is the foremost global community of business, political, intellectual and other leaders of society who are committed to improving the state of the world. The Forum is an independent, not-for-profit organization that brings these leaders together to work on projects that improve people’s lives.’ This website contains a wealth of information on different aspects of business, including marketing issues. These range from global competitiveness through to branding and packaging.
  • The World Tourism Organization: www.world-tourism.org