Despite low unemployment levels and rising wages, the average Amer-
ican household's spending has been cautious, if not downright
miserly, in the last decade. The average household spent 13% less on
food away from home in 1997 than
1987, after adjusting for mfla-
tion. It spent 25% less on major
24% less on alcoholic
beverages; 18% less on newspapers. books, and magazines;
15%
less on clothing.
The most
predictor of spending is lifecycle stage. Typi-
cally, households headed by twenty-somethings spend less
aver-
age on most products and services because their households are
small and their incomes are low. Spending hits a maximum in
age as family
increases and incomes peak, then
again in
older age as household size and income decline.
These stages. combined with the
booms
of past
decades, have made consumer marketing a complex endeavor. Add a
fundamental change in the lifecycle
of spending. and mar-
keters are discovering that doing business today is a 101. like building
a house in an earthquake zone.
Sources: "The New Consumer Paradigm," American Demographics. April 1999,
pp. 50-58; Edwin S. Rubenstein, "Inequality," Forbes. January 2000, pp.
"Cutting a Pie," Forbes,
4 . 2000, p. 86; Susan Jacoby,
"Money," Modern Maturity, July-August 2000, pp . 36-41.
The Business Cycle
in our economy follow a
pattern known as the business cycle. The fluc-
tuations in economic conditions affect supply and demand, consumer buying power, con-
sumer willingness to spend, and the intensity of competitive behavior. The four stages in
the business cycle are
recession, depression,
recovery.
Prosperity
Prosperity represents a period of time during which the economy is grow-
ing. Unemployment is low. consumers' buying power is high, and the
products
is strong. During
consumer disposable incomes are high
they try to improve
their quality of life by purchasing products and services that are high in quality and
The U.S. economy was in a period of prosperity from 1991 to 2000. For marketers ; oppor-
tunities were plentiful during prosperity, and they attempted to expand prodJct lines to take
advantage of consumers' increased
to buy.
Recession
Recession is characterized by a decrease in the rate of growth of the econ-
omy. Unemployment rises and consumer buying power declines. Recession tends to occur after
periods of prosperity and
During a recession, consumers' spending power is low, as
they are busy paying off debts incurred through credit purchases during more prosperous
During recessions, marketing opportunities
reduced. Because of reduced buying power, con-
sumers become more cautions,
more basic and functional.
Depression
Depression represents the most serious economic downturn. Unem-
ployment increases, buying power decreases , and ail other economic indicators move down-
EXTERNAL
THAT AFFECT PLANNING
113
ward. Consequently, consumers are unable or reluctant to purchase products, particularly
big-ticket items . Also, consumers tend to delay replacement purchases. Although many mar-
keters fail during this period, insightful marketers can gain market share.
Recovery is a complicated economic pattern, in that some economic indi-
cators increase while others may stay low or even decrease. Much of what happens during
a recovery may be a result of intangibles, such as
confidence or the perception
of businesses that things will get better. Tentative marketers take serious risks. Premature
marketers may face dire consequences.
For marketers, an important task is to attempt to determine how quickly the econ-
omy will move into a situation of prosperity. Improper forecasting can lead some
to
overextend themselves, as consumers may be slow to change purchase habits they have been
accustomed to in the more difficult economic times.
economy is cyclical in nature. 'Ne know that the cycles will occur. We just can-
not predict exactly when, or how severe the cycles
be. Assumptions must be made about
money, people, and
For example, many organizations become less aggressive
when they believe the economy is not going to grow. If they are right, they may do well.
But if they are wrong, those organizations that are more aggressive can perform very well-
often at the expense of the conservative organizations. Assumptions must also be made about
such economic factors as interest rates, inflation, the nature and size of the workforce, and
the availability of resources such as energy and raw materials.
Technology
Is
of the future the electric car? They're called zero-emission vehicles by their advo-
cates, but they do not have zero emissions
to some experts. While an electric car
does not emit
the technology required to charge their batteries does, according to
Environmental Protection Agency.6Critics argue that the more electric cars that are driven,
the more pollution from smokestacks at the plants that provide the electric power. You are
familiar with the complaints about gas-driven automobiles, but, if the electric-powered auto
is no different in terms of its impact on the env:ronment, than there could be some inter-
esting battles ahead between proponents of the electric car and environmental groups. In
fact, some auto industry executives felt tha[ the EPA
did not go far enough in dis-
crediting the electric car.
Technology is the knowledge of how to accomplish
and goals. Technology affects
marketers in several ways. First, aggressively
technology is spawning new prod-
ucts and processes at an accelerating rate that threatens almost every existing product. Sec-
ond, competition continues to intensify from broad and new organizations and many substitute
technologies compete with established products. Third, product innovations that result in
superior performance or cost advantages are the best means of protecting or building mar-
ket position without sacrificing profit margins. This is especially true in today's world, when
many markets are experiencing flat or slow growth and excess capacity is commonplace.
History provides many examples of companies that have lost their competitive
advantage- and perhaps even their entire business-because a competitor came into the
market with a product that had superior cost advantage or performance characteristics. These
examples are not limited
small or weak companies; even industrial giants like IBM, Gen-
eral Electric, and AT&T have seen certain parts of their markets eroded by competition that
surprised them with a distinctly superior product. IBM. despite its dominant position in the
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