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Consumer and Industry Reaction to the Market and Economy

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  • 0:05 Marketing Environment
  • 0:27 Consumer Incomes
  • 1:25 Financial Power of Women
  • 2:23 Purchasing Power
  • 3:33 Inflation
  • 4:37 Recession
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Lesson Transcript
Instructor: Jennifer Lombardo
Marketers have to understand the environmental factors that can affect a marketing plan. The economy has a dramatic impact on a marketer's overall strategy for pricing, product development, promotion and logistics.

Marketing Environment

Companies need to understand the total marketing environment when developing a plan of action. Let's look at the economic section of the marketing environment and how consumers and industry react to the economy. The five parts of the economic environment that are important to marketers are consumer incomes, financial power of women, purchasing power, inflation and recessions.

Consumer Incomes

The Testa family of Lancaster, Pennsylvania, has to pay bills, mortgages and car payments every month. The result is that much of their money is gone before the month's end. Marketers are most interested in consumers' disposable income. This is the amount of money left after taxes. Education is the biggest indicator of the amount of disposable income a consumer will accumulate. It will determine their earning potential. US incomes have not increased much, and this has resulted in steep competition for marketers to acquire a consumer's disposable income.

Level of education is the top indicator of how much disposable income a consumer will have.
Disposable Income Factors

The Testa family likes to spend money on technology, clothing and travel. Unfortunately, due to the poor economy, they have had to eliminate their vacation. Since the family is feeling financial pressure, Mrs. Testa has decided to go back to work. This leads us to our second piece of the economic landscape that is important to marketers.

Financial Power of Women

Mrs. Testa has an MBA and worked full-time before she had her three children. With her husband unsure of his job stability, she has decided to go back to work. Recent statistics show that women bring in half or more of the income in most homes within the United States. This is a very important economic trend for marketers to be aware of, as women have more purchasing and decision-making power. In addition, women have become the primary purchasers of a number of items, including computers, new cars and consumer electronics.

Mrs. Testa actually handles all of the financial investment and home improvement decisions for the family. Smart marketers have already reached out to Mrs. Testa through direct email on investing and promotions for upgrading her kitchen appliances. Mrs. Testa did find a very lucrative job offer, but unfortunately, it is in the New York City area. The family now must determine if it's worth moving.

Purchasing Power

Purchasing power is the comparison of income to cost on specific items from different geographical areas. It is also known as income minus the cost of living. The Testa family is currently comparing what it would cost to move to New York City or stay put in Lancaster, Pennsylvania. Unfortunately, New York City is known to be on average three times more expensive than most of the country. Even with the higher salary offer, Mrs. Testa has decided to turn down the offer, since the cost of living would be too high. For example, their mortgage would increase from $2,000 a month to $4,000 a month, and they would be living in an apartment.

Marketers are interested in targeting those consumers who have a large amount of purchasing power. These types of consumers have extra money to spend on products and services and still make their monthly budget. They also have the ability to buy more expensive homes, cars and clothing. If the Testa family had moved to New York City, they would have had to cut their spending back even more. The companies that sold products to the family would have noticed a decrease in their bottom line.

Inflation

One of the main reasons Mrs. Testa is looking for work is due to inflation. This is when there is a decrease in the value of money. For example, $2.96 used to buy a gallon of milk for the family. Now, a gallon of milk costs $4.96. The inflation is occurring with all categories, including food, gasoline, clothing, etcetera. Since the Testa's income is not increasing, it also is causing them to decrease their purchases.

Companies adapt to inflation by decreasing product size while maintaining the same price.
Product Size Changes Inflation

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