Multimedia Marketing/Marketing.iso/market/chapter2.8p

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SECTION  2.8  Economic Considerations

INSTRUCTIONS Answer this question: "How does the behavior of the economy affect
             marketing strategy?"

EXAMPLE

During the mid 1990's, the Federal Reserve Board held interest rates
at reasonably low levels. The rationale of the board was to keep
inflationary threats in check. This policy was valuable to numerous
marketers, especially those who sold expensive durable goods. Most
of these are purchased on credit and low interest rates make their
products less costly.

The low interest rates were very useful to a manufacturer of swimming
pools. Most buyers must borrow to finance these purchases and interest
rates are an important consideration. Despite the fact that some of
its costs rose during the mid-1990's, the interest rate situation
allowed the manufacturer to maintain reasonably low net prices. The
result was a positive sales picture.

DETAILS

Obviously, the demand for goods and services can be greatly affected
by economic conditions. Fluctuating prices for home fuel, for instance,
have altered the market for products such as home insulation, storm
windows, solar water heaters, and solar space heaters.

Astute managers carefully follow economic trends and shape their
decisions accordingly. Recent cutbacks in national defense have
led a number of large high-tech firms to shift from producing weapons
systems to civilian goods--both industrial and consumer products.
More casual dress patterns at the workplace have led producers of
clothing to shift from formal to informal attire in offices. Changes
in food preferences have led fast food operators to offer more chicken
and fish and fewer beef entrees.

The United States has the largest gross domestic product of any
country. It is about four times that of Germany or Japan--making
the U.S. the world's largest market for goods and services. American
per-capita gross domestic product is about 28 times greater than
that of the African country of Tanzania. Significant differences,
though not so dramatic, exist within each region, state, and city
of the U.S. Marketers should take these differences into account
when assessing opportunities.

Economic fluctuations are just as important to decision making as the
levels themselves. Change patterns affect future demand. U.S. economic
expansion has been running between 3 and 6 percent per year.

All managers should be aware of the relationships between the growth
rate of the nation or a particular region and trends within their
own companies. Sales in the forest products industry, for instance,
typically follow overall patterns in gross domestic product. Other
industries, such as those providing home entertainment and motion
pictures, find the reverse to be true, with booms during economic
slowdowns and declines during periods of expansion.

Knowledge of the relationship between company sales and economic
fluctuations can help management plan marketing actions. Even
otherwise sound strategies can fail if a firm launches them at the
wrong time.

PROBLEM 1

Which of the following firms would likely experience increases in
revenues during periods when gross domestic product is declining:

A. A lumber yard.
B. A producer of corrugated cardboard boxes.
C. A cable television network.
D. A producer of redwood shingles.

WORKED

It is naive to assume that all industries will prosper when the
economy is advancing. Rather, management should analyze historical
patterns to determine the relationship between GDP and company
revenues. The cable television network is an example of an industry
whose revenues are inversely relatated to economic growth.

Home entertainment industries often do well during times when the
economy is stagnating. Consumers, finding that their incomes do not
streach as far, avoid expenditures on categories such as eating
out, travel, and attending professional sporting events. They divert
their descretionary income to entertainment at home.

One of the larger cable networks has analyzed viewing patterns and
has found that its audiences expand considerably during economic
downturns. Consumers simply stay at home more, and many tune into
cable programming. Larger audiences, of course, translate into larger
revenues, as advertisers take advantage of the situation and increase
their use of cable advertising to reach target customers.

ANSWER  C

INSTRUCTIONS Answer this question: "How does the behavior of the economy affect
             marketing strategy?"

EXAMPLE

During the mid 1990's, the Federal Reserve Board held interest rates
at reasonably low levels. The rationale of the board was to keep
inflationary threats in check. This policy was valuable to numerous
marketers, especially those who sold expensive durable goods. Most
of these are purchased on credit and low interest rates make their
products less costly.

The low interest rates were very useful to a manufacturer of swimming
pools. Most buyers must borrow to finance these purchases and interest
rates are an important consideration. Despite the fact that some of
its costs rose during the mid-1990's, the interest rate situation
allowed the manufacturer to maintain reasonably low net prices. The
result was a positive sales picture.

DETAILS

The importance of government's policies to the economy cannot be
understated. The federal government is the largest single buyer of
goods and services in the world. Further, this body controls the
money supply. Decisions over both of these variables can greatly
affect market opportunities. Accordingly, marketers of all sizes
moniter the activities of Washington very carefully.

In some cases, marketers are involved in lobbying for legislation
which can promote their welfare. They may do this as individual
companies or through their trade associations. This can be a valuable
tool, provided that seasoned lobbyists are retained. Effective
lobbyists can convince governmental policy makers to construct dams,
build roads, adopt new weapons systems, change laws that restrict
certain industries, and a host of other actions. The more
successful lobbyists often draw very attractive fees for their
services.

Fiscal policy includes all government taxing and spending actions,
both to buy operating items and to bring about economic stability.
Changes in fiscal policy directly affect specific marketing
opportunities. To illustrate, if congress allocates increased funding
to urban renewal, construction firms in major cities benefit
considerably. Likewise, oil depletion tax credits affect the
profitability of industries related to oil exploration and regions
where these activities take place. Gasoline tax changes can heavily
impact on the trucking industry. Postal rate changes have a major
effect on catalog retailers.

For some time, under the auspices of both political parties, fiscal
policy has stimulated business. The federal government has operated
with a defecit--spending more than it receives. Recent periods have
brought outcries against this policy. If the government reverses
its policies this could have a strong effect on specific industries
and companies.

PROBLEM 2

Assume that the federal government plans to spend more on welfare.
Which of the following marketers will this generally help?

A. Television producers.
B. Automobile producers.
C. Frozen low calorie dinner producers.
D. Jewelery producers.

WORDED

A move by the federal government to spend more on welfare will
assist television producers significantly. Consumers at all income
levels are purchasers of television sets. The low income consumers
(many of whom are welfare recipients) allocate substantial portions
of their incomes to buying television sets. They are not heavy
consumers of new automobiles, frozen low calorie dinners, and
jewelry.

ANSWER  A

INSTRUCTIONS Answer this question: "How does the behavior of the economy affect
             marketing strategy?"

EXAMPLE

During the mid 1990's, the Federal Reserve Board held interest rates
at reasonably low levels. The rationale of the board was to keep
inflationary threats in check. This policy was valuable to numerous
marketers, especially those who sold expensive durable goods. Most
of these are purchased on credit and low interest rates make their
products less costly.

The low interest rates were very useful to a manufacturer of swimming
pools. Most buyers must borrow to finance these purchases and interest
rates are an important consideration. Despite the fact that some of
its costs rose during the mid-1990's, the interest rate situation
allowed the manufacturer to maintain reasonably low net prices. The
result was a positive sales picture.

DETAILS
In contrast, monetary policy is the deliberate exercise of the
government's power to expand or contract the money supply. In the
U.S. this authority rests primarily in the hands of the Federal
Reserve Board, a separate federal agency.

While fiscal policies directly affect specific marketing opportunities,
monetary policy's impact tends to be more widespread and indirect.
When the Federal Reserve Board tightens the money supply, for instance,
this tends to raise interest rates. Higher interest rates, in turn,
produce higher borrowing costs, which affects business and consumers
alike. As a consequence, practically all industries may experience
a slowdown. Generally, marketers should remain alert to patterns
of fiscal spending and proposed changes in the money supply so that
they may be in a  position to make appropriate changes in the
marketing mix.

If the Federal Reserve Board increases the money supply, this can
stimulate the economy. Demand for goods and services increases,
as consumers have more income. Eventually, however, this policy can
create inflation which, when carried to extreme, can have a negative
effect on both consumers and businesses as they see their purchasing
power fall. One positive effect of inflation and a falling value of
the dollar is that United States exports become more competitive with
exports from other countries and this can assist American exporters.


PROBLEM 3

Which of the following governmental actions would likely bring about
a  significant increase in the demand for a large soft-drink company:

A. Increased expenditures on weapons systems.
B. Increased expenditures on welfare.
C. An increase in interest rates.
D. A decrease in income axes.

WORKED
The federal government would likely bring about a significant
increase in the demand for a large soft-drink company through
a decrease in income taxes.

Government can increase the demand for most goods and services by
a reduction in income taxes. Even producers of such products as
soft drinks and clothing benefit. Consumers have more money and
this leads them to increase consumption, especially for items that
are not necessities. They are more inclined to indulge themselves
with increased expenditures on durable goods, nondurables, and
services. They may feel free to drink as many soft drinks as they
desire with their enhanced take home income.

ANSWER D

INSTRUCTIONS Answer this question: "How does the behavior of the economy affect
             marketing strategy?"

EXAMPLE

During the mid 1990's, the Federal Reserve Board held interest rates
at reasonably low levels. The rationale of the board was to keep
inflationary threats in check. This policy was valuable to numerous
marketers, especially those who sold expensive durable goods. Most
of these are purchased on credit and low interest rates make their
products less costly.

The low interest rates were very useful to a manufacturer of swimming
pools. Most buyers must borrow to finance these purchases and interest
rates are an important consideration. Despite the fact that some of
its costs rose during the mid-1990's, the interest rate situation
allowed the manufacturer to maintain reasonably low net prices. The
result was a positive sales picture.

DETAILS

Of course, considerable technical training is required to be able
to fully assess fiscal and monetary policies, but managers do not
need to be formally trained economists in order to make all of the
required assessments. Some companies do employ professional economists
who are experts in analyzing the outcomes of of anticipated policies.
These companies make their predictions and suggestions available
to managers for only a nominal fee. Major banks provide projections
to their commercial customers. Likewise, some trade associations
and universities, as well as the Federal Reserve banks themselves,
also provide profesional forecasts.

But this does not mean that managers can afford to sit idly by and
wait for economics experts to tell them what the future holds.
Managers can combine easy-to-acquire information inputs with their
own judgments. Business magazines and newletters print anticipated
governmental policy changes. Past experience and a basic understanding
of federal policy and what its effects can be expected to be should
enable managers to better prepare for influences on their target
market and marketing mix.

In recent years both major political parties have favored monetary
and fiscal policies that assist business firms. Public pressure for
more jobs and higher paying jobs has prompted these parties to assume
a pro-business stance--one that has not always been in existence. It
is probable that the politicians will continue to pursue this goal.

PROBLEM 4

The president of a small construction company wants to keep abreast
of fiscal and monetary policy changes that might affect the prospects
of the company. Which of the following actions would you not recommend?

A. Analyze trade association publications.
B. Contact universities for their views.
C. Review publications produced by major banks.
D. Employ a professional economist

WORKED

The president of a small construction company who wants to keep
abreast of fiscal and monetary policy changes that might affect
the prospects of the company could do several things. These include
analyzing trade association publications, contacting universities,
and reviewing bank publications.

Marketers can avail themselves of a vast amount of information on the
economy and anticipated changes brought about by changing monetary
and fiscal policy by taking advantage of free or low-cost information
sources. These are produced by banks, trade associations, universities,
foundations, newsletter producers,  consultants, magazines,
and the federal government itself.

A manufacturer of overhead room fans utilizes most of these sources.
Management realizes that it could not analyze the data as well as
the experts employed by the organizations mentioned above. Many
employ highly-educated and experienced specialists who devote the
bulk of their efforts to making projections, often aided by
sophisticated computer models. Consequently, their work is state of
the art. Few if any individual companies can match such expertise.

ANSWER  D