Page 92 - Foundations of Marketing

The Marketing Environment, Social Responsibility, and Ethics | Chapter 3 59

current buying power at the expense of future buying power. Several factors determine
whether people acquire, use, or forgo credit. After the last recession, obtaining credit loans for
homes has been more difficult for consumers due to the number of consumers who defaulted
on their loans. Banks have tightened the requirements for loans. Interest rates affect buyers’
decisions to use credit, especially for expensive purchases such as homes, appliances, and
automobiles. When interest rates are low, the total cost of automobiles and houses becomes
more affordable. In contrast, when interest rates are high, consumers are more likely to delay
buying such expensive items. Use of credit is also affected by credit terms, such as size of the
down payment and amount and number of monthly payments.
Wealth is the accumulation of past income, natural resources, and financial resources.
It exists in many forms, including cash, securities, savings accounts, gold, jewelry, and real
estate. The significance of wealth to marketers is that as people become wealthier, they gain
buying power in three ways: they can use their wealth to make current purchases, to generate
income, and to acquire large amounts of credit.
People’s willingness to spend —their inclination to buy because of expected satisfac-
tion from a product—is related, to some degree, to their ability to buy. That is, people are
sometimes more willing to buy if they have the buying power. However, several other ele-
ments also influence willingness to spend. Some elements affect specific products; others
influence spending in general. A product’s price and value influence almost all of us. Cross
pens, for example, appeal to customers who are willing to spend more for fine writing instru-
ments even when lower-priced pens are readily available. The amount of satisfaction received
from a product already owned also may influence customers’ desires to buy other products.
Satisfaction depends not only on the quality of the currently owned product but also on numer-
ous psychological and social forces. The American Customer Satisfaction Index, computed by
the National Quality Research Center at the University of Michigan (see Figure 3.1 ), offers an
indicator of customer satisfaction with a wide variety of businesses. The American Customer
Satisfaction Index helps marketers understand how consumers perceive their industries and
businesses. By understanding how satisfied (or dissatisfied) customers are with their busi-
ness or industry, marketers can take this information and adapt their marketing strategies
accordingly.

Economic Conditions
The overall state of the economy fluctuates in all countries. Changes in general economic con-
ditions affect (and are affected by) supply and demand, buying power, willingness to spend,
consumer expenditure levels, and the intensity of competitive behavior. Therefore, current
economic conditions and changes in the economy have a broad impact on the success of orga-
nizations’ marketing strategies.
Fluctuations in the economy follow a general pattern, often referred to as the business
cycle . In the traditional view, the business cycle consists of four stages: prosperity, reces-
sion, depression, and recovery. During prosperity, unemployment is low, and total income
is relatively high. Assuming a low inflation rate, this combination ensures high buying
power. During a recession, however, unemployment rises, while total buying power declines.
Pessimism accompanying a recession often stifles both consumer and business spending. A
willingness to spend
prolonged recession may become a depression, a period in which unemployment is extremely
An inclination to buy because
high, wages are very low, total disposable income is at a minimum, and consumers lack con-
of expected satisfaction from
fidence in the economy. During recovery, the economy moves from depression or recession to
a product, influenced by the
prosperity. During this period, high unemployment begins to decline, total disposable income ability to buy and numerous
increases, and the economic gloom that reduced consumers’ willingness to buy subsides. Both psychological and social forces
the ability and willingness to buy increase.
business cycle A pattern of
The business cycle can enhance the success of marketing strategies. In the prosperity stage, economic fluctuations that has
for example, marketers may expand their product offerings to take advantage of increased four stages: prosperity, reces-
buying power. They may be able to capture a larger market share by intensifying distribution sion, depression, and recovery

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