Collecting Information and Forecasting Demand PDF

3 Collecting Information and Forecasting Demand Making marketing decisions in a fast-changing world is both an art and a science.! Holistic marketers recognize that the marketing environment is constantly presenting new opportun...

3 Collecting Information and Forecasting Demand Making marketing decisions in a fast-changing world is both an art and a science.! Holistic marketers recognize that the marketing environment is constantly presenting new opportunities and threats, and they understand the importance of continuously monitoring, forecasting, and adapting to that environment. Campbell is one of many companies trying to come to grips with the younger Millennial consumer.1 Campbell Soup Company’s iconic red-and-white soup cans represent one of the most famous U.S. brands and were even the subject of an Andy Warhol portrait. Recently, though, the 143-year old com- pany has suffered a double whammy: Overall consumption of canned soup has declined 13 percent, and Campbell’s market share has dropped from 67% to 53% due to the popularity of fresh and premium soups. To stop the sales slide, Campbell set out to better understand the 18-to-34-year-olds who make up 25% of the U.S. population and will profoundly affect the company’s future. Adopting an!anthropological research approach, they sent executives to study Millennial consumers face-to-face in “hipster market hubs” such as London; Austin, TX; Portland, OR; and Washington D.C. They engaged in “live-alongs,” where they shopped and ate at home with young consumers, and “eat-alongs” where they dined with them in restaurants. The key insight? Millennials loved spices and ate more exotic food than their parents—they just couldn’t cook it at home! Campbell’s solution was a new line, Campbell’s Go! Soup ready-to-eat meals in six flavor varieties such as Moroccan Style Chicken with Chickpeas, Spicy Chorizo and Pulled Chicken with Black Beans, and Coconut Curry and Chicken with Shiitake Mushrooms. Sold in pouches rather than cans to convey freshness and at a price ($3) more than three times the basic red-and-white line, the product line was promoted entirely Virtually every industry has been!touched by dramatic online, including music and humor sites, gaming platforms, and social shifts in the economic, sociocultural, natural, technological, and media. Campbell also sells Pepperidge Farms baked goods, V8 vegetable political-legal environments. In this chapter, we consider how juices, and Prego pasta sauce, but soups account for half its revenue, so firms can identify and track relevant macroenvironment trends marketing success for the new line was crucial. and develop good sales forecasts. Components of a Modern Marketing Information System The major responsibility for identifying significant marketplace changes falls to the company’s marketers. Marketers have two advantages for the task: (1) disciplined methods for collecting information and (2) time spent interacting with customers and observing competitors and other outside groups. Some firms have marketing information systems that provide rich detail about buyer wants, preferences, and behavior. DuPOnt DuPont commissioned marketing studies to uncover personal pillow behavior for its Dacron Polyester unit, which supplies filling to pillow makers and sells its own Comforel brand. One challenge is that people don’t give up their old pillows: 37 percent of one sample described their relationship with their pillow as being like that of “an old 89 M03_KOTL2621_15_GE_C03.indd 89 03/03/15 2:02 PM  90 PART 2 | CAPTURING MARKETING INSIGHTS married couple,” and an additional 13 percent said their pillow was like “a childhood friend.” Respondents fell into distinct groups in terms of pillow behavior: stackers (23 percent), plumpers (20 percent), rollers or folders (16 percent), cuddlers (16!percent), and smashers, who pound their pillows into a more comfy shape (10 percent). Women were more likely to plump, men to fold. The prevalence of stackers led the company to sell more pillows packaged as pairs and at different levels of softness or firmness.2 Marketers also have extensive information about how consumption patterns vary across and within countries. On a per capita annual basis, for example, the Irish consume the most chocolate (24.7 lbs.), Czechs the most beer (131.7 liters), the French the most wine (45.7 liters), and Greeks the most cigarettes (4,313).3 Table 3.1 summa- rizes other comparisons across countries. Consider regional differences: Seattle’s residents buy more sunglasses per person than in any other U.S. city; people in Salt Lake City (and Utah) eat the most Jell-O; Long Beach, CA, residents eat the most ice cream; and New York City dwellers buy the most country music CDs.4 Every firm must organize and distribute a continuous flow of information to its marketing managers. A! marketing information system (MIS) consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers. It relies on inter- nal company records, marketing intelligence activities, and marketing research. The company’s marketing information system should combine what managers think they need, what they really need, and what is economically feasible. An internal MIS committee can interview a cross-section of marketing managers to discover their information needs. Table 3.2 displays some useful questions to ask them. TABLE 3.1 A Global Profile of Extremes Highest fertility rate Niger 47.7 births per 1,000 population Highest education expenditure as percent of GDP Timor-Leste 14.0% of GDP Highest number of mobile phone subscribers Macau 206.4 subscribers per 100 people Largest number of airports United States 15,079 airports Highest military expenditure as percent of GDP Saudi Arabia 10.1% of GDP Highest divorce rate South Korea 4.6 divorces per 1,000 population Telephone lines per capita Bermuda 89.0 lines per 100 people Highest cinema attendance India 4,432,700,000 cinema visits Highest GDP per person Liechtenstein $105,190 Largest aid donors as % of GDP Norway 1.10% of GDP Most economically dependent on agriculture Liberia 61.3% of GDP Highest population in workforce Qatar 74.7% Highest percent of women in workforce Mozambique 53.5% Most crowded road networks Hong Kong 286.7 vehicles per km of road Most deaths in road accidents Namibia 53.4 killed per 100,000 population Most tourist arrivals France 77,526,000 Highest life expectancy Japan 83.7 years Highest obesity rate United States 35.7% of adults Source: CIA World Factbook, www.cia.gov/library/publications/the-world-factbook, accessed July 24, 2012; The Economist’s Pocket World in Figures, 2013 edition (London: Profile Books, 2012). M03_KOTL2621_15_GE_C03.indd 90 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 91 TABLE 3.2 Information Needs Probes 1. What decisions do you regularly make? 2. What information do you need to make these decisions? 3. What information do you regularly get? 4. What special studies do you periodically request? 5. What information would you want that you are not getting now? 6. What information would you want daily? Weekly? Monthly? Yearly? 7. What online or offline newsletters, briefings, blogs, reports, or magazines would you like to see on a regular basis? 8. What topics would you like to be kept informed of? 9. What data analysis and reporting programs would you want? 10. What are the four most helpful improvements that could be made in the present marketing information system? Internal Records To spot important opportunities and potential problems, marketing managers rely on internal reports of orders, sales, prices, costs, inventory levels, receivables, and payables. The Order-TO-PaYmenT CYCle The heart of the internal records system is the order-to-payment cycle. Sales representatives, dealers, and customers send orders to the firm. The sales department prepares invoices, transmits copies to various depart- ments, and back-orders out-of-stock items. Shipped items generate shipping and billing documents that go to various departments. Because customers favor firms that can promise timely delivery, companies need to perform these steps quickly and accurately. SaleS InfOrmaTIOn SYSTemS Marketing managers need timely and accurate reports on current sales. Walmart operates a sales and inven- tory data warehouse that captures data on every item for every customer, every store, every day and refreshes it every!hour. Companies that make good use of “cookies,” records of Web site usage stored on personal browsers, are smart users of targeted marketing. Many consumers are happy to cooperate: Not only do they not delete cookies, but they also expect customized marketing appeals and deals once they accept them. Marketers must carefully interpret sales data, however, to avoid drawing wrong conclusions. Michael Dell illustrates: “If you have three yellow Mustangs sitting on a dealer’s lot and a customer wants a red one, the salesman may be really good at figuring out how to sell the yellow Mustang. So the yellow Mustang gets sold, and a signal gets sent back to the factory that, hey, people want yellow Mustangs.”5 daTabaSeS, daTa WarehOuSInG, and daTa mInInG The explosion of data brought by the maturation of the Internet and mobile technology gives companies unprecedented opportunities to engage their customers. It also threatens to overwhelm decision makers. “Marketing Insight: Digging into Big Data” describes opportunities and challenges in managing massive data!sets.6 M03_KOTL2621_15_GE_C03.indd 91 03/03/15 2:02 PM  92 PART 2 | CAPTURING MARKETING INSIGHTS marketing signals, readings from sensors); and Volatility (with hundreds of new insight data sources in apps, Web services, and social networks). Some companies are harnessing Big Data. UK supermarket giant Digging Into Big Data Tesco collects 1.5 billion pieces of data every month to set prices and promotions; U.S. kitchenware retailer Williams-Sonoma uses its cus- Although unverified, one popular estimate says 90 percent of the data tomer knowledge to customize versions of its catalog. Amazon reports that has ever existed was created in the past two years. In one year, generating 30 percent of its sales through its recommendation engine people stored enough data to fill 60,000 Libraries of Congress. YouTube (“You may also like”). receives 24 hours of video every minute. The world’s 4 billion mobile Many financial brands are putting more emphasis on Big Data. phone users provide a steady source of data. Manufacturers are putting Bank of America is tracking spending and demographic data and sensors and chips into appliances and products, generating even more tailoring promotions—for example, offering back-to-school deals to data. cardholders with children. JPMorgan Chase has improved com- The danger, of course, is information overload. More data are not munications to new cardholders to gain more engagement. On the better unless they can be correctly processed, analyzed, and inter- production side, GE set up a team of developers in Silicon Valley to preted. In one poll of North American senior business executives, more improve the efficiency of the jet engines, generators, locomotives, and than 90! percent reported collecting more information—86 percent CT scanners it sells. Even a 1 percent improvement in the operation more on average—than in years past. Unfortunately, roughly as many of commercial aircraft would save $2 billion for GE’s customers in the said they were missing out on new revenue growth because they could airline industry. not gather the appropriate insights from those data. Sources: Schumpter, “Building with Big Data,” The Economist, May 28, 2011; And therein lies the opportunity and challenge of Big Data. Jessica Twentyman, “Big Data Is the ‘Next Frontier’” Financial Times, November Although a universally agreed-upon definition does not exist, Big Data 14, 2011; Jacques Bughin, John Livingston, and Sam Marwaha, “Seizing the describes data sets that cannot be effectively managed with traditional Potential of Big Data,” McKinsey Quarterly 4 (October 2011); “Mining the Big Data Goldmine,” Special Advertising Section, Fortune, 2012; “Financial Brands Tap Big database and business intelligence tools. One industry expert, James Data,” www.warc.com, September 13, 2012; Thomas H. Davenport, Paul Barth, Kobielus, sees Big Data as distinctive because of: Volume (from hun- and Randy Bean, “How ‘Big Data’ Is Different,” MIT Sloan Management Review dreds of terabytes to petabytes and beyond); Velocity (up to and includ- 54 (Fall 2012), pp. 43–46; Andrew McAfee and Erik Brynjolfsson, “Big Data: The Management Revolution,” Harvard Business Review, October 2012, pp. 60–68; ing real-time, sub-second delivery); Variety (encompassing structured, Ashlee Vance, “GE Tries to Make Its Machines Cool and Connected,” Bloomberg unstructured, and semi-structured formats: messages, images, GPS Businessweek, December 10, 2012, pp. 44–46. Marketing Intelligence The markeTInG InTellIGenCe SYSTem A marketing intelligence system is a set of procedures and sources that managers use to obtain everyday infor- mation about developments in the marketing environment. The internal records system supplies results data, but the marketing intelligence system supplies happenings data. Marketing managers collect marketing intelligence by reading books, newspapers, and trade publications; talking to customers, suppliers, distributors, and other company managers; and monitoring online social media. Before the Internet, sometimes you just had to go out in the field and watch the competition. Describing how he learned about a rival’s drilling activity, oil and gas entrepreneur T. Boone Pickens recalls, “We would have someone who would watch [the rival’s] drilling floor from a half mile away with field glasses. Our competitor didn’t like it but there wasn’t anything they could do about it. Our spotters would watch the joints and drill pipe. They would count them; each [drill] joint was 30 feet long. By adding up all the joints, you would be able to tally the depth of the well.” Pickens knew that the deeper the well, the more costly for his rival to get the oil or gas up to the surface, information that gave him an immediate competitive advantage.7 Marketing intelligence gathering must be legal and ethical. The private intelligence firm Diligence paid auditor KPMG a fine of $1.7 million after its cofounder posed as a British intelligence officer and convinced a member of the audit team to share confidential documents about a Bermuda-based investment firm for a Russian conglomerate.8 A company can take eight possible actions to improve the quantity and quality of its marketing intelligence. After describing the first seven, we devote special attention to the eighth: collecting marketing intelligence on the Internet. Train and motivate the sales force to spot and report new developments. The company must “sell” its sales force on their importance as intelligence gatherers. Grace Performance Chemicals, a division of W. R. M03_KOTL2621_15_GE_C03.indd 92 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 93 Grace, instructed its sales reps to observe the innovative ways customers used its products and suggest possible new prod- ucts. Some customers used Grace! waterproofing materials to soundproof their cars and patch boots and tents. Seven new- product ideas emerged, worth millions in sales.9 Motivate distributors, retailers, and other intermediaries to pass along important intelligence. Marketing intermediaries are often closer to the customer and competition and can of- fer helpful insights. Combining data from its retailers Safeway, Kroger, and Walmart with its own qualitative insights, food producer ConAgra learned that many mothers switched to time-saving meals and snacks when school started. It launched its “Seasons of Mom” campaign to help grocers adjust to sea- sonal shifts in household needs.10 Hire external experts to collect intelligence. Many compa- nies hire specialists to gather marketing intelligence.11 SavOn Convenience Stores, an enterprise of the Oneida Indian Nation, conducts 52 “mystery shopper” visits a month across its 13 stores. Stores are graded on employee responsive- ness to customers, product quality, food freshness, restroom Source: © Jeff Greenberg 2 of 6/Alamy cleanliness, and stock levels. SavOn gives awards to winning stores.12 Network internally and externally. The firm can purchase competitors’ products, attend open houses and trade shows, read competitors’ published reports, attend stockhold- ers’ meetings, talk to employees, collect competitors’ ads, consult with suppliers, and look up news stories about competitors. Set up a customer advisory panel. Members of advisory panels might include the company’s largest, most outspoken, most sophisticated, or most representative cus- Williams Sonoma tomers. GlaxoSmithKline sponsored an online community devoted to weight loss, where marketers felt they uses information it has learned far more than they could have gleaned from focus groups on topics from packaging its weight-loss pill learned about its to where to place in-store marketing.13 customers to customize Take advantage of government-related data resources. The U.S. Census Bureau provides an in-depth look at its catalogs. the population swings, demographic groups, regional migrations, and changing family structure of the more than 311,591,917 people in the United States. Census marketer Nielsen Claritas SiteReports cross-references census figures with consumer surveys and its own grassroots research for clients such as The Weather Firms such as NPD provide detailed audits on how American consumers use their kitchens. Source: David Sacks/Getty Images M03_KOTL2621_15_GE_C03.indd 93 03/03/15 2:02 PM  94 PART 2 | CAPTURING MARKETING INSIGHTS Channel, BMW, and Sovereign Bank. SiteReports offers more than 50 reports and maps that help companies analyze markets, select site locations, and target customers effectively.14 Purchase information from outside research firms and vendors. Well-known data suppliers like A.C. Nielsen Company and Information Resources Inc. collect information about product sales and consumer exposure to media; they also gather consumer-panel data. Attensity offers a suite of products to monitor customer conver- sations from a variety of social, online, and internal sources.15 NPD conducts its Kitchen Audit study every three years to determine what food ingredients U.S. households have on hand and what appliances, cookware, and utensils they own and to assess usage and sources of recipes.16 COlleCTInG markeTInG InTellIGenCe On The InTerneT Online customer review boards, discussion forums, chat rooms, and blogs can distribute one customer’s expe- riences or evaluation to other potential buyers and, of course, to marketers seeking information. Here are five places to find competitors’ product strengths and weaknesses online. Independent customer goods and service review forums. Independent forums include Web sites such as Epinions.com, RateItAll.com, ConsumerReview.com, and Bizrate.com. Bizrate.com collects millions of con- sumer reviews of stores and products each year from two sources: its 1.3 million volunteer members and feed- back from stores that allow Bizrate.com to collect it directly from customers as they buy. Distributor or sales agent feedback sites. Feedback sites offer positive and negative product or service re- views, but the stores or distributors have built the sites themselves. Amazon.com offers an interactive feedback opportunity through which buyers, readers, editors, and others can review all products on the site, especially books. Elance.com is an online professional services provider that allows contractors to describe their experi- ence and level of satisfaction with subcontractors. Combo sites offering customer reviews and expert opinions. Combination sites are concentrated in financial services and high-tech products that require professional knowledge. ZDNet.com offers customer and expert evaluations of technology products based on ease of use, features, and stability. Customer complaint sites. Customer complaint forums are designed mainly for dissatisfied customers. PlanetFeedback.com allows customers to voice unfavorable experiences with specific companies. Public blogs. Tens of millions of blogs and social networks offer personal opinions, reviews, ratings, and recom- mendations on virtually any topic—and their numbers continue to grow. Nielsen’s BuzzMetrics analyzes blogs and social networks for insights into consumer sentiment and threats to the brand that may emerge online.17 Of course, companies can use many of these sources to monitor their own customers, products, services, and brands. Customer-service forums linked on a company’s home page are a very useful tool. Customers often respond faster and provide better answers to other customers than a company could. COmmunICaTInG and aCTInG On markeTInG InTellIGenCe The competitive intelligence function works best when it is closely coordinated with the decision-making pro- cess. Given the speed of the Internet, it is important to act quickly on information gleaned online, as StubHub and Coca-Cola found:18 When ticket broker StubHub detected criticism of its brand after confusion arose about refunds for a rain- delayed Yankees–Red Sox game, it quickly offered appropriate discounts and credits. The director of customer service observed, “This [episode] is a canary in a coal mine for us.” When its monitoring software spotted a Twitter post that went to 10,000 followers from an upset consumer who couldn’t redeem a prize from a MyCoke rewards program, Coke quickly posted an apology on his Twitter profile and offered to help resolve the situation. After the consumer got the prize, he changed his Twitter avatar to a photo of himself holding a Coke bottle. Analyzing the Macroenvironment Successful companies recognize and respond profitably to unmet needs and trends. M03_KOTL2621_15_GE_C03.indd 94 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 95 Macaroni Grill revamped its menu to include more offerings to appeal to health-conscious consumers. Source: © Kristoffer Tripplaar/Alamy needS and TrendS Dockers was created to meet the needs of baby boomers who could no longer fit into their jeans and wanted a physically and psychologically comfortable pair of pants. Enterprising individuals and companies create new solutions to similarly unmet needs. Let’s distinguish among fads, trends, and megatrends. A fad is “unpredictable, short-lived, and without social, economic, and political significance.” A company can cash in on a fad such as Crocs clogs, Elmo TMX dolls, and Pokémon gifts and toys, but getting it right requires luck and good timing.19 A direction or sequence of events with momentum and durability, a trend is more predictable and durable than a fad; trends reveal the shape of the future and can provide strategic direction. A trend toward health and nutrition awareness has brought increased government regulation and negative publicity for firms seen as peddling unhealthy food. Macaroni Grill revamped its menu to include more low-calorie and low-fat offer- ings after The Today Show called its chicken and artichoke sandwich “the calorie equivalent of 16 Fudgesicles” and Men’s Health declared its 1,630-calorie dessert ravioli the “worst dessert in America.”20 A megatrend is a “large social, economic, political, and technological change [that] is slow to form, and once in place, influences us for some time—between seven and ten years, or longer.”21 Several firms offer social-cultural forecasts. The Yankelovich Monitor has tracked 35 social value and lifestyle trends since 1971, such as “anti-bigness,” “mysticism,” and “living for today.” A!new market opportunity doesn’t guarantee success, of course. Even if the new product is technically feasible, market research is necessary to deter- mine profit potential. IdenTIfYInG The majOr fOrCeS The new century brought new challenges: the steep decline of the stock market, which affected savings, invest- ment, and retirement funds; rising and long-lasting unemployment; corporate scandals; stronger indications of global warming and other signs of deterioration in the environment; and continued terrorism. Firms must monitor six major forces in the broad environment: demographic, economic, social-cultural, natu- ral, technological, and political-legal. We’ll describe them separately, but remember their interactions will lead to new opportunities and threats. For example, explosive population growth (demographic) leads to more resource depletion and pollution (natural), which leads consumers to call for more laws (political-legal), which stimulate new technological solutions and products (technological) that, if they are affordable (economic), may actually change attitudes and behavior (social-cultural). M03_KOTL2621_15_GE_C03.indd 95 03/03/15 2:02 PM  96 PART 2 | CAPTURING MARKETING INSIGHTS The demOGraPhIC envIrOnmenT The main demographic factor marketers monitor is population, including the size and growth rate of population in cities, regions, and nations; age distribution and ethnic mix; educational levels; and household patterns. WORLDWIDE POPULATION GROWTH World population growth is explosive: The world’s population on July 1, 2012, was estimated at 7,027,349,193, forecasted to rise to 8.82 billion by 2040 and exceed 9 billion by 2045.22 Table 3.3 offers an interesting perspective.23 Population growth is highest in countries and communities that can least afford it. Developing regions of the world house 84 percent of the world’s population and are growing at 1 percent to 2 percent per year; developed countries’ populations are growing at only 0.3 percent.24 In developing countries, modern medicine is lowering the death rate, but birthrates remain fairly stable. A growing population does not mean growing markets unless there is sufficient purchasing power. Education can raise the standard of living but is difficult to accomplish in most developing countries. Nonetheless, companies that carefully analyze these markets can find major opportunities and sometimes lessons they can apply at home. See “Marketing Memo: Finding Gold at the Bottom of the Pyramid.”25 POPULATION AGE MIX Mexico has a very young population and rapid population growth. Italy, at the other extreme, has one of the world’s oldest populations. Milk, diapers, school supplies, and toys will be more important products in Mexico than in Italy. There is a global trend toward an aging population. In 1950, there were only 131 million people 65 and older; in 1995, their number had almost tripled to 371 million. By 2050, one of 10 people worldwide will be 65 or older. In the United States, baby boomers—those born between 1946 and 1964—represent a market of some 36 million, about 12 percent of the population. By 2011, the 65-and-over population was growing faster than the population as a whole in each of the 50 states.26 TABLE 3.3 The World as a Village If the world were a village of 100 people: Sixty-one villagers would be Asian (of those, 20 would be Chinese and 17 would be Indian), 14 would be African, 11 would be European, nine would be Latin or South American, five would be North American, and none of the villagers would be from Australia, Oceania, or Antarctica. At least 18 villagers would be unable to read or write, but 33 would have cellular phones and 16 would be online on the Internet. Twenty-seven villagers would be under 15, and seven would be over 64. There would be an equal number of males and females. There would be 18 cars in the village. Sixty-three villagers would have inadequate sanitation. Thirty-three villagers would be Christians, 20 would be Muslims, 13 would be Hindus, six would be Buddhists, 14 would be nonreligious, and the remaining 14 would be members of other religions. Thirty villagers would be unemployed or underemployed, while of those 70 who would work, 28 would work in agriculture (primary sector), 14 would work in industry (secondary sector), and the remaining 28 would work in the service sector (tertiary sector). Fifty-three villagers would live on less than two U.S. dollars a day. One villager would have AIDS, 26 villagers would smoke, and 14 villagers would be obese. By the end of a year, one villager would die and two new villagers would be born so the population would climb to 101. Source: David J. Smith and Shelagh Armstrong, If the World Were a Village: A Book about the World’s People, 2nd ed. (Tonawanda, NY: Kids Can Press, 2002). M03_KOTL2621_15_GE_C03.indd 96 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 97 marketing Finding Gold at the Bottom of the Pyramid memo Business writer C. K. Prahalad believes much innovation can come from developments in emerging markets such as China and India. He estimates 5 billion unserved and underserved people make up the “bottom of the pyramid.” One study showed that 4 billion people live on $2 or less a day. Firms operating in those markets must learn how to do more with less. In Bangalore, India, Narayana Hrudayalaya Hospital charges a flat fee of $1,500 for heart bypass surgery that costs 50 times as much in the United States. The hospital has low labor and operating expenses and an assembly-line view of care. The approach works—the hospital’s mortality rates are half!those of!U.S. hospitals. Narayana also operates on hundreds of infants for free and profitably insures 2.5 million poor Indians against serious illness for 11 cents a!month. Similarly, Arvind Eye Care System, established by Govindappa Venkatswamy in 1976 in India, has performed 4 million operations using an approach lik- ened to “McDonald’s-style” high-volume assembly. Aravind also developed an intra-ocular lens, manufactured by its subsidiary, Aurolab, at a fraction of the cost of imports. SalaUno, a for-profit social enterprise based in San Francisco, replicated the Aravind model in Mexico, carrying out 133 cataract operations a month for a year—free of charge for those who could not afford the treatment. The transfer of innovations from developing to developed markets is what Dartmouth professor Vijay Govindrajan calls reverse innovation. He sees opportunity in focusing on the needs and constraints of a developing market to create an inexpensive product that can succeed there and then introducing it as a cheaper alternative in developed markets. He also sees reverse innovation’s public policy benefits, which can transform industries through the successful development of ultra-low-cost transportation, renewable energy, clean water, micro finance, affordable heath care, and low-cost housing. Among successful reverse innovators, Nestlé repositioned its low-fat Maggi brand dried noodles—a popular, low-priced meal for rural Pakistan and India—as a budget-friendly health food in Australia and New Zealand. U.S.-based Harman International, known for high-end dashboard audio systems designed by German engineers, developed a radically simpler and cheaper way to create products for China, India, and emerging markets and is applying that method to its product-development centers in the West. It now can sell a range of products priced from low to high and is looking into infotainment systems for motorbikes, a popular form of transportation in emerging markets and around the world. Sources: C. K. Prahalad, The Fortune at the Bottom of the Pyramid (Upper Saddle River, NJ: Wharton School Publishing, 2010); Bill Breen, “C. K. Prahalad: Pyramid Schemer,” Fast Company, March 2007, p. 79; Reena Jane, “Inspiration from Emerging Economies,” BusinessWeek, March 23, 2009, pp. 38–41; Vijay Govindarajan and Chris Trimble, Reverse Innovation: Create Far from Home, Win Everywhere (Boston, MA: Harvard Business School Publishing, 2012); Jeffrey R. Immelt, Vijay Govindarajan, and Chris Trimble, “How GE Is Disrupting Itself,” Harvard Business Review, October 2009, pp. 56–65; Vijay Govindrajan, “A Reverse-Innovation Playbook,” Harvard Business Review, April 2012, pp.120–23; Felicity Carus, “Reverse Innovation Brings Social Solutions to Developed Countries,” The Guardian, August 29, 2012; Constantinos C. Markides, “How Disruptive Will Innovations from Emerging Markets Be?,” MIT Sloan Management Review, 54 (Fall 2012), pp. 23–25. Marketers generally divide the population into six age groups: preschool children, school-age children, teens, young adults age 20 to 40, middle-aged adults 40 to 65, and older adults 65 and older. Some marketers focus on cohorts, groups of individuals born during the same time period who travel through life together. The defining moments they experience as they come of age and become adults (roughly ages 17 through 24) can stay with them for a lifetime and influence their values, preferences, and buying behaviors. ETHNIC AND OTHER MARKETS Ethnic and racial diversity varies across countries. At one extreme is Japan, where almost everyone is native Japanese; at the other extreme is the United States, 12 percent of whose people were born in another country. As of the 2010 Census, the U.S. population was: White (72 percent), Black or African American (13 percent), American Indian and Alaskan Native (0.9 percent), Asian (5 percent), Hispanic (16 percent). More than half the growth between 2000 and 2010 came from the increase in the Hispanic population, which grew by 43 percent, from 35.3 million to 50.5 million, representing a major shift in the nation’s ethnic center of gravity. Geographically, the 2010 Census revealed that Hispanics were moving to states like North Carolina where they had not been concentrated before and that they increasingly live in suburbs.27 From the food U.S. consumers eat to the clothing, music, and cars they buy, Hispanics are having a huge impact. Companies are refining their products and marketing to reach this fastest-growing and most influential consumer group: Research by Hispanic media giant Univision suggests 70 percent of Spanish-language viewers are more likely to buy a product when it’s advertised in Spanish. Fisher-Price, recognizing that many Hispanic mothers did not grow up with its brand, shifted away from appeals to their heritage. Instead, its ads emphasized the joy of mother and child playing together with Fisher-Price toys.28 Hispanics are not the only fast-growing minority segment.29 M03_KOTL2621_15_GE_C03.indd 97 03/03/15 2:02 PM  98 PART 2 | CAPTURING MARKETING INSIGHTS InDIan-aMerIcans The U.S. Indian-American population has exploded over the past decade, according to the 2010 Census, surpassing Filipinos as the nation’s second-largest Asian population after Chinese. Affluent, well-educated, and consumer-oriented, Indian-Americans are attractive to marketers. Nationwide Insurance developed print and TV ads for them and other South Asians in the New York tristate area and San Francisco and Silicon Valley. Cadillac has run newspaper ads and local TV spots in Chicago and New York after seeing many Indian-Americans and South Asians in its showrooms. Zee TV was the first Hindi satellite channel and is the leading network serving the South Asian audience. Yet marketers must not overgeneralize—within each group are consumers quite different from each other.30 Diversity also goes beyond ethnic and racial markets. More than 51 million U.S. consumers have disabilities, and they constitute a market for home delivery companies such as Internet grocer Peapod. EDUCATIONAL GROUPS The population in any society falls into five educational groups: illiterates, high school dropouts, high school diplomas, college degrees, and professional degrees. More than two-thirds of the world’s 793 million illiterate adults are found in only eight countries (Bangladesh, China, Egypt, Ethiopia, India, Indonesia, Nigeria, and Pakistan); of all illiterate adults in the world, two-thirds are women; extremely low literacy rates are concentrated in three regions—the Arab states, South and West Asia, and Sub-Saharan Africa—where around one-third of the men and half of all women are illiterate (2005 est.).31 The United States has one of the world’s highest percentages of college-educated citizens.32 As of March 2011, just over 30 percent of U.S. adults held at least a bachelor’s degree, and 10.9 percent held a graduate degree, up from 26.2 percent and 8.7 percent 10 years earlier. Half of 18- and 19-year-olds were enrolled in college in 2009, but not all college students are young. About 16 percent are 35 and older; they also make up 37 percent of part-time students. The large number of educated people in the United States drives strong demand for high-quality books, magazines, and travel and creates a supply of skills. HOUSEHOLD PATTERNS The traditional U.S. household included a husband, wife, and children under 18 (sometimes with grandparents). By 2010, only 20 percent of U.S. households met this definition, down from about 25 percent a decade before and 43 percent in 1950. Married couples have dropped below half of all U.S. households for the first time (48 percent), far below the 78 percent of 1950. The median age at first marriage has also never been higher: 26.5 for brides and 28.7 for grooms.33 The U.S. family has been steadily evolving toward less traditional forms. More people are divorcing, separating, choosing not to marry, or marrying later. Other types of households are single live-alones (27 percent), single- parent families (8 percent), childless married couples and empty nesters (32 percent), living with nonrelatives only (5 percent), and other family structures (8!percent). Indian-Americans are a fast growing minority segment with much appeal to marketers. Source: Ashok Sinha/Taxi M03_KOTL2621_15_GE_C03.indd 98 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 99 The biggest change for the decade was the jump in households headed by women without husbands—up 18!percent. Nontraditional households are growing more rapidly than traditional households. Academics and mar- keting experts estimate the gay and lesbian population at 4 percent to 8 percent of the total U.S. population, higher in urban areas.34 Each type of household has distinctive needs and buying habits. The single, separated, widowed, and divorced may need smaller apartments; inexpensive and smaller appliances, furniture, and furnishings; and smaller-size food packages. Many non-traditional households feel advertising ignores families like theirs, suggesting an oppor- tunity for advertisers.35 Even traditional households have changed. Boomer dads marry later than their fathers and grandfathers did, shop more, and are much more active in raising their kids. Bugaboo makes innovative baby strollers that speaks to modern parents. Bugaboo’s iconic functional strollers have unique designs and functionalities such as adjustable suspension and an extendable handle bar perfect for taller dads. And before Dyson, the high-end vacuum company, appealed to U.S.! dads’ inner geek by focusing on the machine’s revolutionary technology, men weren’t even on the radar for vacuum cleaner sales. Now they make up 40 percent of Dyson’s customers.36 The eCOnOmIC envIrOnmenT Purchasing power depends on consumers’ income, savings, debt, and credit availability as well as the price level. As the recent economic downturn vividly demonstrated, fluctuating purchasing power strongly affects business, especially for products geared to high-income and price-sensitive consumers. Marketers must understand con- sumer psychology and levels and distribution of income, savings, debt, and credit. CONSUMER PSYCHOLOGY The recession that began in 2008 initiated new consumer spending patterns. Were these temporary adjustments or permanent changes?37 The middle class—the bread and butter of many firms—was hit hard by record declines in both wages and net worth. Some experts believed the recession had fundamentally shaken consumers’ faith in the economy and their personal financial situations. “Mindless” spending would be out; willingness to comparison shop, haggle, and use discounts would become the norm.38 The unique design of Consumers at the time certainly seemed to believe so. In one survey, almost two-thirds said the recession’s eco- Bugaboo baby strollers nomic changes would be permanent; nearly one-third said they would spend less than before the recession. Others are especially appeal- believed tighter spending was a short-term constraint and not a fundamental behavioral change; they predicted ing to modern parents. their spending would resume when the economy improved.39 Identifying the more likely long-term scenario—especially for the coveted 18- to 34-year-old group—would help market- ers decide how to spend their money. Executives at Sainsbury, the third-largest UK chain of supermarkets, concluded that the recession had created a more risk-averse British consumer, sav- ing more, paying off debts instead of borrowing, and shopping in more cost-conscious ways. Even wealthy UK consumers traded down some to lower-cost items. As one retail executive said, “There’s nobody who can afford not to try to save.”40 INCOME DISTRIBUTION There are four types of industrial structures: subsistence economies like Papua New Guinea, with few opportunities for marketers; raw-material- exporting economies like Democratic Republic of Congo (copper) and Saudi Arabia (oil), with good markets for equipment, tools, supplies, and luxury goods for the rich; industrializing economies like India, Egypt, and the Philippines, where a new rich class and a growing middle class demand new types of goods; and industrial economies like Western Europe, Source: Bugaboo International B.V. with rich markets for all sorts of goods. Marketers often distinguish countries using five income-dis- tribution patterns: (1) very low incomes; (2) mostly low incomes; (3) very low, very high incomes; (4) low, medium, high incomes; and (5) mostly medium incomes. Consider the market for the Lamborghini, an automobile costing more than $150,000. The market would be very small in countries with type 1 or 2 income patterns. One of the largest single markets for the ultra-expensive M03_KOTL2621_15_GE_C03.indd 99 03/03/15 2:02 PM  100 PART 2 | CAPTURING MARKETING INSIGHTS High-priced Lamborghini sports cars have found success in relatively poorer countries by appealing to enough affluent buyers. Source: © Paul Best/Alamy sports car Lamborghinis is Portugal (income pattern 3), one of the poorer countries in Western Europe, but with high enough income inequality that there are also wealthy families who can afford expensive cars.41 INCOME, SAVINGS, DEBT, AND CREDIT U.S. consumers have a high debt-to-income ratio, which slows expenditures on housing and large-ticket items. When credit became scarcer in the recession, especially for lower- income borrowers, consumer borrowing dropped for the first time in two decades. The financial meltdown that led to this contraction was due to overly liberal credit policies that allowed consumers to buy homes and other items they could not really afford. Marketers wanted every possible sale, banks wanted to earn interest on loans, and near financial ruin resulted. An economic issue of increasing importance is the migration of manufacturers and service jobs offshore. From India, Infosys provides outsourcing services for Cisco, Nordstrom, Microsoft, and others. The 35,000 employees the fast-growing $4.2 billion company hires every year receive technical, team, and communication training in Infosys’s $120 million facility outside Bangalore.42 The SOCIOCulTural envIrOnmenT From our sociocultural environment we absorb, almost unconsciously, a world view that defines our relationships to ourselves, others, organizations, society, nature, and the universe. Views of ourselves. Some “pleasure seekers” chase fun, change, and escape; others seek “self-realization.” Some adopt more conservative behaviors and ambitions (see Table 3.4 for favorite consumer leisure-time activities and how they have changed, or not, in recent years). Views of others. People are concerned about the homeless, crime and victims, and other social problems. At the same time, they seek those like themselves for long-lasting relationships, suggesting a growing market for social-support products and services such as health clubs, cruises, and religious activity as well as “social sur- rogates” like television, video games, and social networking sites. Views of organizations. After a wave of layoffs and corporate scandals, organizational loyalty has declined. Companies need new ways to win back consumer and employee confidence. They need to ensure they are good corporate citizens and that their consumer messages are!honest. Views of society. Some people defend society (preservers), some run it (makers), some take what they can from it (takers), some want to change it (changers), some are looking for something deeper (seekers), and still others want to leave it (escapers).43 Consumption patterns often reflect these social attitudes. Makers are high achievers who eat, dress, and live well. Changers usually live more frugally, drive smaller cars, and wear sim- pler clothes. Escapers and seekers are a major market for movies, music, surfing, and camping. Views of nature. Business has responded to increased awareness of nature’s fragility and finiteness by making more green products, seeking their own new energy sources, and reducing their environmental footprint. Companies are also literally tapping into nature more by producing wider varieties of camping, hiking, boat- ing, and fishing gear such as boots, tents, backpacks, and accessories. Views of the universe. Most U.S. citizens are monotheistic, although religious conviction and practice have waned through the years or been redirected into an interest in evangelical movements or Eastern religions, mysticism, the occult, and the human potential movement. Other cultural characteristics of interest to marketers are core cultural values and subcultures. Let’s look at both. M03_KOTL2621_15_GE_C03.indd 100 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 101 TABLE 3.4 Favorite Leisure-Time Activities 1995 2013 (via phone) (via online) % % Reading 28 Watch TV 42 TV watching 25 Reading 37 Spending time with 12 Spending time with families 18 family/kids and friends Fishing 10 Watching/Going to movies 11 Gardening 9 Exercise/working out 10 Playing team sports 9 Playing video games and computer/ 10 Internet games Going to movies 8 Walking/running/jogging 8 Walking 8 Gardening 7 Entertaining 7 Concerts/listening to/playing music 7 Golf 6 Hobby related activities 5 Sources: Harris Poll, “Favorite Leisure Activities” (via online), http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/1345/ctl/ ReadCustom%20Default/Default.aspx, Table 4, accessed July 2014; and Harris Poll, “Favorite Leisure-Time Activities” (Spontaneous, Unaided Responses, via phone), http://www.harrisinteractive.com/vault/Harris-Interactive-Poll-Research-Time-and-Leisure-2008-12.pdf, Table 1, accessed July 2014. CORE CULTURAL VALUES Most people in the United States still believe in working, getting married, giving to charity, and being honest. Core beliefs and values are passed from parents to children and reinforced by social institutions—schools, churches, businesses, and governments. Secondary beliefs and values are more open to change. Believing in the institution of marriage is a core belief; believing people should marry early is a secondary belief. Marketers have some chance of changing secondary values but little chance of changing core values. The nonprofit organization Mothers Against Drunk Drivers (MADD) does not try to stop the sale of alcohol but promotes lower legal blood-alcohol levels for driving and limited operating hours for businesses that sell alcohol. Although core values are fairly persistent, cultural swings do take place. In the 1960s, hippies, the Beatles, Elvis Presley, and other cultural phenomena had a major impact on hairstyles, clothing, sexual norms, and life goals. Today’s young people are influenced by new heroes and activities: music entertainer and mogul Jay-Z, singer Lady Gaga, and snowboarder and skateboarder Shaun White. SUBCULTURES Each society contains subcultures, groups with shared values, beliefs, preferences, and behaviors emerging from their special life experiences or circumstances. Marketers have always loved teenagers because they are trendsetters in fashion, music, entertainment, ideas, and attitudes. Attract someone as a teen, and you will likely keep the person as a customer later in life. Frito-Lay, which draws 15 percent of its sales from teens, noted a rise in chip snacking by grown-ups. “We think it’s because we brought them in as teenagers,” said Frito-Lay’s marketing director.44 The naTural envIrOnmenT In Western Europe, “green” parties have pressed for public action to reduce industrial pollution. In the United States, experts have documented ecological deterioration, and watchdog groups such as the Sierra Club and Friends of the Earth commit to political and social action. M03_KOTL2621_15_GE_C03.indd 101 03/03/15 2:02 PM  102 PART 2 | CAPTURING MARKETING INSIGHTS Source: Associated Press Source: Associated Press Today’s youth are more likely to be influenced by contemporary music icons such as Jay-Z and Lady Gaga. Steel companies and public utilities have invested billions of dollars in pollution-control equipment and environ- mentally friendly fuels, making hybrid cars, low-flow toilets and showers, organic foods, and green office buildings everyday realities. Opportunities await those who can reconcile prosperity with environmental protection. Consider these solutions to concerns about air quality:45 Nearly a quarter of the carbon dioxide that makes up about 80 percent of all greenhouse gases comes from electrical power plants. Dublin-based Airtricity operates wind farms in the United States and the United Kingdom that offer cheaper and greener electricity. Transportation is second only to electricity generation as a contributor to global warming, accounting for roughly a fifth of carbon emissions. Vancouver-based Westport Innovations developed a conversion technol- ogy—high-pressure direct injection—that allows diesel engines to run on cleaner-burning liquid natural gas, reducing greenhouse emissions by a fourth. Due to millions of rural cooking fires, parts of Southern Asia suffer extremely poor air quality. A person cook- ing over an open wood or kerosene fire inhales the equivalent of two packs of cigarettes a day. Illinois-based Sun Ovens International makes family-sized and institutional solar ovens that use mirrors to redirect the sun’s rays into an insulated box. Used in 130 countries, the oven both saves money and reduces greenhouse gas emissions. Irish firm Airtricity is developing new wind farms as an alterna- tive energy source. Source: © David Cairns/Alamy M03_KOTL2621_15_GE_C03.indd 102 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 103 Corporate environmentalism recognizes the need to integrate environmental issues into the firm’s strategic plans. Trends for marketers to be aware of include the shortage of raw materials, especially water; the increased cost of energy; increased pollution levels; and the changing role of governments.46 (See also “Marketing Insight: The Green Marketing Revolution.”) marketing however, paying significantly more to be environmentally friendly insight was becoming a barrier for many consumers. Interestingly, although some marketers assume younger people The Green Marketing Revolution are more concerned about the environment, some research suggests older consumers actually take their eco-responsibilities more seriously. Both consumers and companies are changing the way they view envi- ronmental issues, as the following descriptions illustrate. Company Perspectives In the past, “green marketing” programs were not always entirely suc- Consumer Perspective cessful. Those that were persuaded consumers they were acting in Consumers have put their very real environmental concerns into words their own and society’s long-run interest at the same time by buying, and actions, focusing on green products, corporate sustainability, and for instance, organic foods that were healthier, tastier, and safer and other environmental issues. Here are highlights of some notable studies. energy-efficient appliances that cost less to run. WPP Green Brands Study. The WPP Green Brands Study surveys Some green products have emphasized their natural benefits for 9,000 people in eight countries and evaluates 370 brands. In 2011 years, like Tom’s of Maine, Burt’s Bees, Stonyfield Farm, and Seventh it found consumer interest in green products had expanded to auto, Generation. Products offering environmental benefits are becoming energy, and technology sectors in addition to personal care, food, and more mainstream. Part of the initial success of Clorox Green Works household products. Sixty percent of consumers stated they wanted household cleaning products, launched in January 2008, was that it to buy products from environmentally responsible companies. In found the sweet spot where a target market wanting to take smaller developed countries such as the United States and United Kingdom, steps toward a greener lifestyle met a green product with a very modest 20 percent were willing to spend more than 10 percent extra on a price premium and sold through a grassroots marketing program. green product. Consumers in developing countries put even more The recession took its toll on some newly launched green prod- value on green products: Ninety-five percent of Chinese consumers, ucts, however, and Green Works and similar products from Arm & for example, said they were willing to pay more for a green product. Hammer, Windex, Palmolive, and Hefty found sales stalling. Some con- Greendex. A collaboration between National Geographic and sumers have also become more skeptical of green claims that are hard environmental research consultants GlobeScan, Greendex is a to verify. One challenge is the difficulty consumers have in experiencing sustainable consumption index of actual consumer behavior and or observing the environmental benefits of products, leading to accu- material lifestyles across 17 countries. It defines environmentally sations of “greenwashing” where products are not nearly so green or friendly consumer behavior in terms of people’s transportation environmentally beneficial as their marketing might suggest. patterns, household energy, resource use, and consumption of Some experts recommend avoiding “green marketing myopia” by food and everyday goods and how well consumers minimize their focusing on consumer value positioning, understanding what consum- environmental impact. The 2012 survey found the top-scoring ers know and should know, and credible product claims. During tough consumers in developing countries: India, China, and Brazil in de- economic times especially, having the right value proposition and mak- scending order. Developed countries scored lower, with U.S. con- ing sure green products are seen as effective and affordable are critical. sumers lowest, followed by Canadians, Japanese, and the French. Gallup. Gallup has consistently found U.S. consumers are most Sources: Jacquelyn A. Ottman, Edwin R. Stafford, and Cathy L. Hartman, “Avoiding Green Marketing Myopia,” Environment (June 2006), pp. 22–36; Jill Meredith concerned about pollution of drinking water, rivers, lakes, and reser- Ginsberg and Paul N. Bloom, “Choosing the Right Green Marketing Strategy,” voirs and maintenance of fresh water for household needs and least MIT Sloan Management Review (Fall 2004), pp. 79–84; Jacquelyn Ottman, Green concerned about global warming. Overall, the 2012 survey showed Marketing: Opportunity for Innovation, 2nd ed. (New York: BookSurge Publishing, 2004); Jacquelyn Ottman, The New Rules of Green Marketing (San Francisco: all ratings at lower levels than their 2000 peak as more U.S. adults Berrett-Koehler, 2012); Mark Dolliver, “Deflating a Myth,” Brandweek, May 12, 2008, feel environmental conditions in the United States are improving. pp. 30–31; Jeffrey M. Jones, “Worry about U.S. Water, Air Pollution at Historic Lows,” www.gallup.com, April 13, 2012; “The 2011 Green Brands Survey,” www GfK Roper. The 2012 GfK Roper Green Gauge Study showed.cohenwolfe.com, June 8, 2011; “Greendex 2012: Consumer Choice and the key aspects of “green” culture—from organic purchase to Environment—A Worldwide Tracking Survey,” www.nationalgeographic.com, July recyclability—have gone mainstream. U.S. consumers increas- 2012; “Green Gets Real,” www.gfkamerica.com, accessed November 12, 2012; Stephanie Clifford and Andrew Martin, “As Consumers Cut Spending, ‘Green’ ingly turn to digital devices to learn about the environment and Products Lose Allure,” New York Times, April 21, 2011; Tiffany Hsu, “Skepticism share their green experiences. During slow economic recovery, Grows over Products Touted as Eco-Friendly,” Los Angeles Times, May 21, 2011. M03_KOTL2621_15_GE_C03.indd 103 03/03/15 2:02 PM  104 PART 2 | CAPTURING MARKETING INSIGHTS Seventh Generation offers a range of household products for environmentally conscious consumers. Source: Andrew H. Walker/Getty Images The earth’s raw materials consist of the infinite, the finite renewable, and the finite nonrenewable. Firms whose products require finite nonrenewable resources—oil, coal, platinum, zinc, silver—face substan- tial cost increases as depletion approaches. Firms that can develop substitute materials have an excellent opportunity. One finite nonrenewable resource, oil, has created serious problems for the world economy. As oil prices soar, companies search for practical means to harness solar, nuclear, wind, and other alternative energies. Some industrial activity will inevitably damage the natural environment, creating a large market for pollution- control solutions such as scrubbers, recycling centers, and landfill systems as well as for alternative ways to produce and package goods. Many poor nations are doing little about pollution, lacking the funds or the political will. It is in the richer! nations’ interest to help them control their pollution, but even richer nations today lack the necessary!funds. The TeChnOlOGICal envIrOnmenT The essence of market capitalism is a dynamism that tolerates the creative destructiveness of technology as the price of progress. Transistors hurt the vacuum-tube industry; autos hurt the!railroads. Television hurt newspa- pers; the Internet hurt them both. When old industries fight or ignore new technologies, they decline. Tower Records, Borders, and others had ample warning they would be hurt by Internet downloads; their failure to respond led to their liquidation. In some cases, innovation’s long-run consequences are not fully foreseeable. Cell phones, video games, and the Internet allow people to stay in touch with each other and plugged in with current events but also reduce attention to traditional media as well as face-to-face social interaction as people listen to music or watch a movie on their cell phones. Marketers should monitor the following technology trends: the accelerating pace of change, unlimited opportu- nities for innovation, varying R&D budgets, and increased regulation of technological change. ACCELERATING PACE OF CHANGE More ideas than ever are in the works, and the time between idea and implementation is shrinking. In the first two-and-a-half years of the iPad’s existence, Apple sold a staggering 97 million units worldwide.47 In many markets, the next technological breakthrough seems right around the corner, UNLIMITED OPPORTUNITIES FOR INNOVATION Consider just a few remarkable openings. Medical researchers hope to use stem cells for organ generation and hybrid positron emission tomography (PET) and magnetic resonance imaging (MRI) to dramatically improve diagnosis. Environmental researchers are exploring plasma arc waste disposal to harness lightning and turn garbage into glass or a gaseous energy source. They are M03_KOTL2621_15_GE_C03.indd 104 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 105 developing desalination methods to safely and economically remove salt from ocean water and make it drinkable. Neuroscientists are studying how to harness brain signals via electroencephalography (EEG) as well as how to construct a “thinking” DNA neural network that can answer questions correctly.48 VARYING R&D BUDGETS The United States is the world leader in R&D, spending $436 billion in 2012. Its advantage in innovation comes from all sectors—government-funded research from the National Aeronautics and Space Administration (NASA) and National Institutes of Health (NIH); top academic institutions such as Johns Hopkins University, University of Michigan, and the University of Wisconsin; and corporations such as Merck, Pfizer, Intel, and Microsoft. A growing portion of U.S. R&D, however, goes to the development side, not research, raising concerns about whether the United States can maintain its lead in basic science. Too many companies seem to be putting their money into copying competitors’ products with minor improvements. Other countries are not standing still either. China, Israel, and Finland all are beginning to spend a larger percentage of their GDP on R&D than the United!States.49 INCREASED REGULATION OF TECHNOLOGICAL CHANGE Government has expanded its agencies’ powers to investigate and ban potentially unsafe products. Safety and health regulations have increased for! food, automobiles, clothing, electrical appliances, and construction. Consider the Food and Drug Administration (FDA).50 the FDa The FDA plays a critical public health role, overseeing a wide range of products. Here is its specific charge: FDA is responsible for protecting the public health by assuring the safety, efficacy and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation. FDA is also responsible for advancing the public health by helping to speed innovations that make medicines more effective, safer, and more affordable and by helping the public get the accurate, science-based informa- tion they need to use medicines and foods to maintain and improve their health. FDA also has responsibility for regulating the manufacturing, marketing and distribution of tobacco products to protect the public health and to reduce tobacco use by minors. Finally, FDA plays a significant role in the Nation’s counterterrorism capability. FDA fulfills this responsibil- ity by ensuring the security of the food supply and by fostering development of medical products to respond to deliberate and naturally emerging public health threats. The FDA’s level of enforcement has varied some through the years, in part depending on the political administration. It can also vary by product or industry. Congress recently empowered the FDA to place new restrictions on the prescrib- ing, distribution, sale, and advertising of proposed new drugs. The FDA looks at the safety and efficacy of any proposed new drug, but also additional considerations such as the integrity of the global manufacturing chain that makes it, post- marketing studies as a condition of approval, and demonstrable superiority over existing therapies. The POlITICal-leGal envIrOnmenT The political and legal environment consists of laws, government agencies, and pressure groups that influence organizations and individuals. Sometimes these create new business opportunities. Mandatory recycling laws boosted the recycling industry and launched dozens of new companies making products from recycled materials. On the other hand, overseas governments can impose laws or take actions that create uncertainty and even con- fusion for companies. Political instability in certain Middle Eastern and African nations has created much risk for oil firms and others. Two major trends are increased business legislation and the growth of special-interest groups.51 INCREASED BUSINESS LEGISLATION Business legislation is intended to protect companies from unfair competition, protect consumers from unfair business practices, protect society from unbridled business behavior, M03_KOTL2621_15_GE_C03.indd 105 03/03/15 2:02 PM  106 PART 2 | CAPTURING MARKETING INSIGHTS Political unrest in the Middle East was a major cause for concern for many large multinational firms Source: © George Henton/Alamy and charge businesses with the social costs of their products or production processes. Each new law may also have the unintended effect of sapping initiative and slowing growth. The European Commission has established new laws covering competitive behavior, product standards, prod- uct liability, and commercial transactions for the 28 member nations of the European Union. The United States has many consumer protection laws covering competition, product safety and liability, fair trade and credit practices, and packaging and labeling, but many countries’ laws are stronger.52 Norway bans several forms of sales promotion—trading stamps, contests, and premiums—as inappropriate or unfair. Many countries throughout the world ban or severely restrict comparative advertising. Thailand requires food processors selling national brands to also market low-price brands so low-income consumers will be served. In India, food companies need special approval to launch duplicate brands, such as another cola drink or brand of rice. GROWTH OF SPECIAL-INTEREST GROUPS Political action committees (PACs) lobby government officials and pressure business executives to respect the rights of consumers, women, senior citizens, minorities, and gays and lesbians. Insurance companies directly or indirectly influence the design of smoke detectors; scientific groups affect the design of spray products. Many companies have established public affairs departments to deal with such special-interest groups. The consumerist movement organized citizens and government to strengthen the rights and powers of buy- ers in relationship to sellers. Consumerists have won the right to know the real cost of a loan, the true cost per standard unit of competing brands (unit pricing), the basic ingredients and true benefits of a product, and the nutritional quality and freshness of food. Privacy issues and identity theft will remain public policy hot buttons as long as consumers are willing to swap personal information for customized products—from marketers they trust.53 Consumers worry that they will be robbed or cheated; that private information will be used against them; that they will be bombarded by solicita- tions; and that children will be targeted by ads. Online privacy greatly concerns consumers and regulators alike. Technology now enables firms to collect all kinds of information.54 Make no mistake, your personal data isn’t your own. When you update your Facebook page, “Like” some- thing on a website, apply for a credit card, click on an ad, listen to an MP3, or comment on a YouTube video, you are feeding a huge and growing beast with an insatiable appetite for your personal data, a beast that always craves more. Virtually every piece of personal information that you provide online (and much that you provide offline) will end up being bought and sold, segmented, packaged, analyzed, repackaged, and sold again. “Marketing Insight: Watching Out for Big Brother” describes some of the data collection practices and privacy concerns that have arisen with widespread Internet adoption and use. M03_KOTL2621_15_GE_C03.indd 106 03/03/15 2:02 PM  COLLECTING INFORMATION AND FORECASTING DEMAND | CHAPTER 3 107 marketing Can online data profiling go too far? New parents are highly lucra- insight tive customers, but with birth records public, a slew of companies all discover them at the same time. To beat them to the punch, Target Watching Out for Big Brother studied the buying histories of women who signed up for new-baby registries at the store and found many bought large amounts of vitamin The explosion of digital data created by individuals online can nearly supplements during their first trimester and unscented lotion around all be collected, bought, and sold by the personal data economy, the start of their second trimester. Target then used these purchase including “advertisers, marketers, ad networks, data brokers, web- markers to identify women of child-bearing age who were likely to be site publishers, social networks, and online tracking and targeting pregnant and sent them offers and coupons for baby products timed companies.” Companies know or can find your age, race, gender, to the stages of pregnancy and later baby needs. When the practice height, weight, marital status, education level, political affiliation, became known, however, some criticized the company’s tactics, which buying habits, hobbies, health, financial concerns, vacation dreams, had occasionally been the means of letting family members know and more. someone in the house was expecting. Target responded by including The thought of such widespread transparency worries con- the offers with others unrelated to pregnancy, and sales in the pro- sumers. Research shows more people, especially older consumers, moted pregnancy-related categories soared. are refusing to reveal private information online. At the same time, This episode vividly illustrates the power of database management consumers are accepting more privacy intrusions every day, perhaps in an Internet era, as well as the worries it can create among consum- because they don’t realize what information they are giving out, don’t ers. Politicians and government officials are discussing a “Do Not Track” feel they have a choice, or