Page 312 - Introduction to Business

286 PART 3 Marketing

Firms need to monitor the technology environment to keep abreast of new
products and processes that are being developed. Significant new product break-
throughs can severely hurt the sales of companies, so the sooner this information
is available, the quicker the threatened firm can adjust. The argument applies to
new processes. It is important for companies to remember that new technology fre-
quently originates in another industry or even in another country and is then
adopted by the threatened firm’s industry.
How should firms adjust to a new technology? Three courses of action are pos-
sible. First, the company can do nothing. Second, it can try to improve its existing
product or process. Third, it can adopt the new technology. The existing evidence
suggests that the third option is preferable. Not doing anything will result in the
firm’s product or process being rapidly outdated. Piecemeal efforts to improve
existing technology usually are time-consuming and ineffective. Companies that
quickly adopt a new technology typically do very well; they realize that all products
and processes have performance limits and that all technology eventually has to be
replaced.

The Economy
It is important for marketers to be knowledgeable about the status of the economy.
The size of a country’s gross domestic product (GDP) is often viewed as a key meas-
ure. In 2000, the ten countries with the largest GDPs were

United States $ 9.6 trillion
Japan $ 4.5 trillion
Germany $ 2.1 trillion
United Kingdom $ 1.5 trillion
France $ 1.4 trillion
Italy $ 1.2 trillion
China $ 1.1 trillion
Canada $700 billion
Brazil $600 billion
Spain $600 billion 13

Marketers are also interested in what is happening to GDPs. Are they increasing or
decreasing; that is, is the size of an economy growing, flat, or shrinking?
What is happening to prices is also important. If prices are increasing, inflation
is occurring. If inflation is steep enough—say 20, 40, even 100 percent annually—
the purchasing power of people is reduced if their incomes have not kept pace and
they will probably purchase less. Some countries like Brazil, Argentina, and Israel
have, unfortunately, experienced rampant inflation in recent times. Turkey’s high
rate of inflation has been one of the factors explaining why it has not been granted
membership in the European Union.
Deflation occurs when prices are falling. Too much deflation brings its own set
of problems. Companies have to keep cutting their prices in order to sell their prod-
ucts. Sometimes this will not be successful, and companies’ revenues will decrease,
along with their profits, causing them to reduce output and lay off workers. It was
believed by many economists that, in the fall of 2002, the United States was in a
deflationary period. Companies with lower costs than competitors would be able to
absorb price cuts. For example, Southwest Airlines’ expenses are 29 percent below
the industry average, so it would continue to be successful with its low-fare strat-
egy. Other companies, in order to cope, put more stress on higher-priced products
directed to more affluent markets. General Electric began pushing high-end

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