How economic environment affects the marketing?
Economic conditions can have a marked impact on all aspects of business, including marketing, so it is important for any senior marketer to have a basic understanding of the workings of the economy.
The role of any government is to keep tight monetary control of the economy to ensure that inflation stays at a manageable, low rate, that levels of employment are high and that companies prosper and hopefully sell their products overseas to create a trade surplus. The government will use whatever measures it sees fit to keep the economy stable, and a good marketing team will always keep an eye on the economy to see what if anything they need to do to adjust their strategy in the light of economic changes.
One of the most basic pieces of economic theory is that of supply and demand. These two factors interact to influence the price that can be achieved for a product or service. If a product is very sought after, but there are very few available to buy, the price will be high as there is said to be an excess of demand relative to the supply. For more mundane products however, which are in abundant supply, maybe through a number of suppliers, there could be an excess of supply over demand, meaning that suppliers may need to drop their prices to achieve more sales.
A company should constantly assess the level of supply and demand in their marketplace in case of increased competition, or a sudden surge in demand for their product. In extreme cases, in markets such as financial services, suppliers might re-price their products from day to day, to get to the top of the "best buy" tables in a bid to stimulate demand.
The economic environment affects the demand structure of any industry/product .In order to assess the impact of these forces, it is necessary that a marketer examines the following factors in a greater detail:
1. Gross national product
2. Per Capita income.
3. Balance of payments position.
4. Industry life cycle and current phase through which the industry is passing .The different phases of this life cycle could be classified as recovery, boom, recession and depression.
5. Trends in the prices of goods and services specifically, whether the inflationary or deflationary trends are visible.
6. Fiscal policies and prime rate of interest charged by commercial banks.
Each of these factors can be an opportunity or a threat to a firm.
For example, if the prices of raw material , labor, and utilities like electricity are showing inflationary trends, the firm may have little option but to pass on this hike to the consumer in the form of increased prices .If the firm happens to be a in a monopolistic or an oligopolistic market, it might not face consumer resistance .But, if the firm is in a competitive industry, the consumer may resist or even shift his choice to the competing product. Inflationary trends in prices could pose a serious threat to a firm's survival. However, a market driven company may use this as an opportunity to analyse all its cost drivers and plan their minimization or elimination. Cost drivers are all those activities that affect the cost structure of a firm. Michael Porter in his classical work on Competitive Advantage and Competitive Strategy spells out cost drivers as:
- Economies of scale
- Learning and spillover costs.
- Coordination among different activities.
- Pattern of capacity utilization
- Linkages with suppliers and channels,
- Inter-relationships with other business units within a firm.
- Vertical integration in a value activity.
- Timing of an activity
- Discretionary policies independent of other drivers like product policy, level of customer service provided, expenses on technology and marketing development activities , delivery time, served markets , channels used etc.,
- Location of the firm,
- Institutional factors like government regulation , tax holiday/rebates, tariffs, etc.
A marketer needs to understand the impact of these economic forces on his company's products and services.
The economy always has an impact on marketing--whether it is weak or strong. Interestingly, marketers may be affected positively or negatively by a strong or weak economy. Making lemons out of lemonade can benefit certain types of businesses in a weak economy - a strong economy can be negative for others. The bottom line: it pays to understand the market and the effect the economy will have on them.
Sell Straw Hats in Winter
Savvy marketers will continually monitor the external environment to determining how it might impact demand for their products and services, says Lin Grensing-Pophal, author of Marketing With the End in Mind; The tight economy in late 2009 and 2010 meant bad news for the travel industry, but good news for creative retailers who popularized the term staycation; and saw increased sales of outdoor furniture, grills and other items that families could enjoy in their own backyards.
Changing Media Impacts Media Buys
Even Good Times Can Be Bad
Oddly enough, even a very strong economy can hurt some types of businesses. Discount stores and fast food restaurants do well in a down economy, but may not do as well in a healthy economy as consumers turn to higher-end food providers. The bottom line in marketing in terms of economic impact is it all depends. It depends on who the market is and what the marketer is selling.
The effect of this on marketing can be that budgets may have to be cut, focusing on more cost effective marketing techniques and maybe promoting different, maybe cheaper products. It may also have an impact on the messages used. As people become more cautious, their tastes change and it may be necessary to appeal to their need for value. A car company for example may focus their ads less on the design and image of a car to focus more on fuel economy or value.
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