Evaluating a Firm's External Environment - Illinois State University

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Chapter 2: Evaluating a Firm’s External Environment 31
have been most obvious for technologies that build on digital information—
computers, the Internet, cell phones, and so forth. Many of us routinely use digital
products or services that did not exist just a few years ago—including TiVo.
However, rapid technological innovation has not been restricted to digital technologies.
Biotechnology has also made rapid progress over the past 10 years. New
kinds of medicines are now being created. As important, biotechnology holds
the promise of developing entirely new ways of both preventing and treating
disease. 5
Technological change creates both opportunity, as firms begin to explore
how to use technology to create new products and services, and threats, as technological
change forces firms to rethink their technological strategies. Indeed, in
Chapter 1, we saw how one technological innovation—downloading digital
music from the Internet—has changed competition in the music industry. 6
A second element of the general environment facing firms is demographic
trends. Demographics is the distribution of individuals in a society in terms of age,
sex, marital status, income, ethnicity, and other personal attributes that may determine
buying patterns. Understanding this basic information about a population
can help a firm determine whether its products or services will appeal to customers
and how many potential customers for these products or services it might have.
Some demographic trends are very well known. For example, everyone has
heard of the “baby boomers”—those who were born shortly after World War II.
This large population has had an impact on the strategies of many firms, especially
as the boomers have grown older and have had more disposable income.
However, other demographic groups have also had an impact on firm strategies.
This is especially true in the automobile industry. For example, minivans were
invented to meet the demands of “soccer moms”—women who live in the suburbs
and have young children. The 3-series BMW seems to have been designed for
“Yuppies”—the young, urban, and upwardly mobile adults of the 1970s and
1980s—whereas the Jeep Liberty and Nissan Xterra seem to have been designed
for the so-called Generation Y—young men and women currently in their twenties
and either just out of college or anticipating graduation shortly.
In the United States, an important demographic trend over the past 20 years
has been the growth of the Hispanic population. In 1990, the percentage of the U.S.
population that was African American was greater than the percentage that was
Hispanic. However, by 2000, people of Latin descent outnumbered African
Americans. By 2010, it is expected that Hispanics will constitute almost 15 percent
of the U.S. population, whereas the percentage of African Americans will remain
constant at less than 8 percent. These trends are particularly notable in the South
and Southwest. For example, 36 percent of children under 18 in Houston are
Hispanic, 39 percent in Miami and San Diego, 53 percent in Los Angeles, and 61
percent in San Antonio. 7
Of course, firms are aware of this growing population and its buying power.
Indeed, Hispanic disposable income in the United States jumped 29 percent, to
$652 billion, from 2001 to 2003. In response, firms have begun marketing directly
to the U.S. Hispanic population. In one year, Procter & Gamble spent $90 million
marketing directly to Spanish-speaking customers. Procter & Gamble has also
formed a 65-person bilingual team to manage the marketing of products to
Hispanics. Indeed, Procter & Gamble expects that the Hispanic population will be
the cornerstone of its sales growth in North America. 8
Firms can try to exploit their understanding of a particular demographic
segment of the population to create a competitive advantage—as Procter &