5.3: The Marketing Environment

During the past decade, numerous changes have had an impact on the restaurant industry. The industry has confronted and adapted to such diverse situations as economic recession, overbuilding, increased competition, increased emphasis on technology, newer forms of distribution and sale using technology, increased foreign restaurant ownership, changes in dining habits, changes in food consumption patterns, and the ever-increasing globalization of the hospitality industry in general. Figure 3.8 illustrates areas of concern for our industry. Each of these external forces has brought with it changes that restaurant operations have had to make to remain competitive in a global marketplace.

When operations' consider changes in marketing strategy or tactics, they often examine the changes in five major marketing environments: competitive, economic, political and legal, social, and technological. Firms cannot directly influence their external environments, but they can monitor changes and be somewhat proactive. It is critical for organizations to engage in some form of 'environmental scanning' so they can take advantage of marketing opportunities while at the same time anticipating any treats to their business. Environmental scanning can be a formal mechanism within an organization, or merely the result of managers or salespeople consciously monitoring changes in the environment. The larger the operation, the more likely it will have a structured approach to scanning the environment and documenting trends (Lewis, Chambers, and Chacko, 1994).

Economic environment

Consumers' 'purchasing power' or ability to purchase ‘products and services’, is directly related to the economic health of the city, sate, and country. As marketers study the economic environment, they are concerned about such things as inflation, recession, unemployment, resource availability, interest rate trends, personal income growth, business growth and performance, and consumers' confidence in the economy. Other key economic terms include the consumer price index (CPI) is a measure of the relative level of prices for consumer goods in the economy. As this measure rises, there are more concerns about inflation and a poor economy. The term disposable income refers to the portion of an individual's income that available for spending after required deductions such as taxes. Discretionary income is probably a more important measure for most marketers because it refers to the income that is available for spending after deducting taxes and necessary expenditures on housing, food, and basic clothing.

Social environment

The social environment is under the effect of all of the other environments to come into play. Changes in the economy, advances in technology, competitive actions, and government regulations all shape the way consumers view the world. These changes may be sudden, or they may take place over a number of years or even decades. First, there have been changes in demographics’ or characteristics that describe the population, such as age, income, education, occupation, family size, marital status, and gender.

Second, there have been changes in consumers' attitudes, interests, and opinions that determine their lifestyles. Examples of social issues include the proportion of two-income families and the impact that the increased discretionary income and time pressures have on their lodging, dining and travel behaviors. The proportion of older Americans and their purchasing power are continually increasing. The dietary habits of the American people have also changed. In some ways they are bipolar in that the percentage of individuals characterized as overweight or obese is at an all-time high, yet many individuals are showing an increased concern for their health.

Competitive environment

Within all markets, competitors seek to win the business of consumers by offering what they believe to be the best combination of products and services designed to result in maximum consumer satisfaction. The competitive structure in an industry can range from a monopoly, with one seller and many buyers, to perfect competition, with many buyers and sellers of homogeneous products that are almost the same. In between there is the oligopoly, with a few sellers and many buyers, and the most common form of competitive structure, monopolistic competition, where there are many buyers and sellers with differentiated products. The price elasticity of demand is a measure of the percentage change in demand for a product resulting from a percentage change in price. The price elasticity of demand normally increases as the competitive structure changes from monopoly to oligopoly to monopolistic competition and ends with perfect competition.

As companies examine the competitive environment, three important questions need to center this discussion. Should we compete? If we compete, in what markets should we compete? What should our competitive strategy be? While the questions may seem straightforward, the answers are often difficult to determine, and many organizations do not make the correct decisions.

Political and legal environment

Understanding the political and legal environment means understanding the rules and regulations from which competitive actions stem. At all levels of government - local, state, national, or international - there are laws and regulations that businesses must follow. To compete successfully, an organization must understand not only the current laws and regulations, but also any new ones that might come into play in the future. Most professional restaurant operators belong to one or more professional associations. One of the goals of these associations is to help members not only understand developing laws and regulations but have influence in how they come about through lobbying efforts with politicians and government officials. An example of a nation-wide restaurant association would be the National Restaurant Association (NRA). Branches of this association exist at the state and local levels. Issues relating to the political and legal environment that might affect the restaurant industry would include changes in the federal tax codes in terms of investment feasibility by passive owners who are not active in the business operation on a daily basis. Increased taxes on restaurant meals and the reduction in tax credit for business meals are other examples of political and legal issues that have an impact on restaurants.

Technological environment

Society is constantly becoming more and more technology oriented and interconnected. Through the pervasive access to the Internet via both wired and wireless connections, our lives have changed in ways we perhaps could not have even dreamed about twenty years ago. The power of computers doubles roughly every 18 to 24 months, with prices constantly dropping. Computers are now available for more and more applications in business. Although the hospitality industry remains a highly labor-intensive and personal-contact-oriented industry, computers and technology have had and will continue to have an impact. The area in which technology will have the greatest impact in the next ten year is in direct marketing and mass customization, where a product-service provider can customize the experience for each individual customer. Using data base software, marketers have improved their ability to target their customers, track their behavior and preference, and then provide exactly what the customers desire when they want it. Through the careful use of technology, marketers can monitor guests' purchasing behavior and then tailor service offerings to meet their needs.