Week 3.2 Economic and Technological Forces

Economic Forces

There are five forces that produce the environmental trends: Social , Economic, Technological, Competitive, Regulatory. You have seen the social forces in the previous lesson. In this lesson, we will first consider economic forces followed by the technological forces.

GDP-plot
Gross Domestic Product (GDP) Per Capita (1990 Int. GK$) USA.

The graph above shows the GDP growth in the USA from 1884 to 2010. The dips you see correspond to recessions. The most prominant of these are the Great Depression between 1929-1939, and the slow economic activity after the end of the Second World War in the late 1940s. The latest dip marks the recent recession of 2008-2009. The peaks mark periods of acceleration and growth. For example, the Second World War had a positive impact on the US economy as a result of a huge demand for defense products.  

Economic forces play an important role in the earnings and expenditures that affect running a business as well as a household. The state of the economy whether it is a recession period or boom period has implications on businesses. In general, macroeconomic conditions are concerned with the state of the economy (inflationary or recessionary).

Inflation refers to the rate of increase of the general level of prices. In the case of an inflationary economy, the increase in prices leads to higher costs to produce and buy products and services. When prices rise faster than consumer incomes do, consumers tend to decrease or postpone their purchases of non-necessity goods. Marketing activities under these circumstances would have limited impact on sales.  

Recession refers to a time of slow economic activity. Most businesses decrease production and employ conservative business practices during a recession period. Unemployment rises, and many consumers have less money to spend. Marketers try to assess the trends created by the state of the economy by performing an environmental scan, as we defined in this week’s lessons. 

Marketers are interested in the factors that are affecting consumer spending. One important factor is the consumers’ expectations of the future. Consumer confidence or consumer sentiment index is developed to measure the future buying intentions of consumers. It is done through a survey. Surveyors ask some questions to consumers such as: “Do you expect to be better off or worse off financially a year from now?” 

The answers are recorded and the consumer confidence index is developed based on consumers’ future financial expectations. The index helps businesses when setting their future sales goals.  

Consumers' income plays an important role on purchase decisions. There are three components in consumer income: gross income, disposable income, and discretionary income. 

tall stack of dollar bills

Gross income is the total amount of money made in one year by one person, household, or family unit. 

medium stack of dollar bills

Disposable income is the money a consumer has left after paying taxes; to use for such necessities as food, shelter, clothing, and transportation. 

short stack of dollar bills

Discretionary income is the money that remains after paying taxes and paying for necessities. It is used for luxury items, such as all-inclusive vacations at resorts.

Companies selling necessities are concerned with the changes in disposable income. On the other hand, discretionary income matters for luxury items. 

Technological Forces

 Global communication network concept.

Technological change is developed as a result of research and it is unpredictable for that reason. It would not be possible to think about wireless internet connectivity in the early 1900s. Technology transforms markets and businesses world-wide. The impact of technological change on marketing may be illustrated by the use of information and communication technologies (ICTs).

ICTs include internet, intranet, and extranet. Intranet and extranet are slightly different than internet.

Internet is the world-wide public connectivity. 

Intranet is a private internet within the firm that may or may not be connected to the public internet. 

Extranet is an internet-based technology that permits communication between a company and its suppliers, distributors, and other partners such as advertising agencies.

 

 

Concept Check Question: 

Environmental scanning refers to:

 

Smart phone receiving signal from Smart fridge.

Now let us consider the impact of technology on commerce.  

E-commerce includes the activities that use electronic communication in the inventory, promotion, distribution, purchase, and exchange of products and services. 

The role of technology in commerce is remarkable. For example, computer chips are placed in almost any product. They allow the products to be connected to a network almost anywhere. Smart products such as smart TVs and cars are a reality. Your smart fridge can connect to your grocery store to place an order when your milk runs out!

It is possible to control the products wirelessly when they are connected to a network. Self-driving smart cars are being developed and their functions are being improved for public use. The network of products embedded with connectivity-enabled electronics is known as the Internet of Things (IoT)

IoT is generating data from the smart devices which would revolutionize marketing activities. Marketers are applying advanced analytics to IoT data in order to analyze and predict consumer behaviour. Products are being modified and marketed in the ways that are the most aligned with consumers’ expectations. IoT is enabling the marketers to have access to reliable data collected from smart devices.    

The use of electronic marketing platforms has been expanding globally. Marketers are utilizing e-mail, search engine marketing, gaming platforms, mobile marketing, and social media marketing.

Search engine marketing (SEM) is a very popular method which enables marketers to bring their products/services forward compared to their competition. Many marketers use search engine optimization (SEO). In the case of SEO, when a consumer searches for items online, the resultant listings are in order based on certain keywords. SEO enables marketers to put their products/services on the top of the list. Most consumers do not scroll down to the second page on these listings, rather they prefer to pick from the ones they see first.