In
such as steel, automobiles, ana computers, the power ofbuyers and sup-
pliers can be very high .
buyers exist when they are few in number, there are low
switching costs, or the product represents a significant share of the buyer's total costs. This
is common for large retailers such as Wal-Mart and Home Depot. A supplier gains power
when the product is critical to the buyer and when it has built up the switching costs. Exam-
ples include Microsoft and BMW.
Existing competitors and possible substitutes also influence the dynamics of the competition. For example, in slow-growth markets, competition is more severe for any possi-
ble gains in market share. High fixed costs also create competitive
for firms to
fill production capacity. For
hospitals are increasing their advertising in a battle
to fill beds, which
a high fixed cost.
Legal/Ethical Fact ors
Every marketing organization's activities are influenced by ethical and legal factors that
establish the rules of the game. These laws, agencies, policies, and behavioral norms are
established to ensure that marketers compete legally and ethically in their efforts to pro-
vide want and need satisfying products and services. The various legal issues with whiCh
marketers must be knowledgeable include the following:
1. Monetary and fiscal policy-Marketing decisions are affected by factors like tax
legislation, the money supply, and the level of government spendiag. The tendency
of a Republican Congress to spend on defense materials and not on the environ-
ment is an example.
2. Federal legislation-Federal legislation exists to ensure such things as fair com-
petition, fair pricing practices, and honesty in marketing communications. Anti-
tobacco legislation affects the tobacco and related industries.
3. Government/industry relationships-Agriculture, railroads, shipbuilding, and other
industries are subsidized by government. Tariffs and import quotas imposed by
government affect certain industries (e.g., automobile). Other industries are reg-
ulated (or no longer regulated) by government (e.g., rail, trucking, and airlines).
Deregulating the utilities industry had a tremendous negative
on the Cali-
fornia power industry in 2001.
4. Social legislation-Marketers' activities are affected by broad social legislation
like the civil rights laws, programs to reduce unemployment, and legislation that
affects the environment (e.g., water and
pollution). The meat processing indus-
try has spent billions of dollars trying to comply with water pollution legislation .
5. State laws-State legislation affects marketers in different ways. For example, util-
ities in Oregon can spend only
of their net income on advertising. California
has enacted legislation to reduce the energy consumption of refrigerators and air
conditioners. And in New Jersey, nine
have paid the state over $2 million
dollars to settle a price-fixing lawsuit.
6. Regulatory
regulatory agencies (e.g., the Attorney General's Office)
actively pursue marketing violations of the law. But federal agencies
the Fed-
eral Trade Commission and the Consumer P:'oduct Safety concern themselves with
all facets of business.
Literally every facet of business is affected by one or more laws. It would be impos-
sible to adequately cover them all in the space allotted. However, we will briefly discuss
EXTERNAL FACTORS THAT AFFECT PLANNING
107
the three areas receiving
no tice in marketing: product
deregulation, and
consumer protection.
Product Liability
The courts are increasingly holding
responsible for the safety of their products. The
courts general1y hold that
producer of a product is
for any
defect that
causes injury in the course of normal use. Liability can even result if a court or a jury decides that a product's design, construction, or operating instructions and safety warnings
the product unreasonably dangerous to use.2
Two Maryland men decided to dry their hot air balloon in
commercial laundry
dryer. The dryer exploded, injuring them. They sued the manufacturer and won.
A two-yea.;ยท-old child being
bronchial spasms suffered brain damage
fro m a drug ove rdose. The hospital staff had clearly exceeded the dosage level pre-
scribed by the
manufacturer. The child's paren.ts successfully sued the
manufacturer.
In Australia, about 20,000 kangaroos are killed or injured by motor vehicles
each year. Vehicles are equipped with bullbars to limit damage to kangaroos. The
problem is that the bullbars often confuse computer sensors, causing airbags to
deploy unnecessarily. To solve the problem, General Motors-Holden's Automotive is
experimenting with Robo-roo, a crash dummy that is made ill the image of
60-kg.
kangaroo. Robo -roo is used to test various bullbars in. an effo(t to find one that prevents injury to the kangaroos and is often safe with regard to airbags. 3
While examples such as these are devastating, many feel that product liability law is
now as it should be-in favor of the injured product user. Consumer advocates
Nader argue that for too long, product liability favored producers at the expense of the prod-
uct user. They claim that the threat of lawsuits and huge settlements
restitutions force
companies to make safe products . While a discussion of all aspects of ')roducts liability is
beyond the scope of this text, it is clear that liability has and wil1 continue to have tremen-
dous impact on consumers and manufacturers alike. And these two groups are not the only
ones affected. Retailers, franchises, wholesalers, sel1ers of mass-produced homes, and build-
ing site developers and engineers are all subject to liability legislation.
Deregulation
Deregulation means the relaxation or removal
government controls over industries that
were thought to be either "natu ral monopolies," such as telephones, or essential public services like airlines and trucking. When regulated, industries got protection against renegade
competition. For 40 years, the Civil
barred the creation of any major
new airline. And carriers could fly only over routes awarded them by the CAB.
With time, the bargain grew increasingly
Insulated from competition, regulated
industries had little reason to lower costs. They concentrated on influencing the regulators
to make favorable decisions. There was an unhealthy tension and costs rose, industries sought
price increases, and regulators resisted, often depressing industry profits . That, in turn, reduced new investment and perpetuated high costs and poor service.
Industries such as the airlines, banking railroads, communications, and trucking have
long been subject to government regulation. A marketplace shockwave hit
industries
as they were deregulated. Each of these industries saw the birth of many new competitors
to take advantage of market opportunities uncovered by deregulation. For exam-
ple, US
Midway, People Express, AirCal, Golden West, Muse Air and Texas Air
al1 started after the airline industry was deregulated . Not all of them survived. The resull
108