Marketing campaigns rarely happen in a silo. They are often affected by external economic factors such as consumer confidence and unemployment rates. When developing a marketing strategy, businesses need to factor in the economy of their target market to ensure they prepare for the ramifications of an economic downturn.
Demand and Supply Shape the Market
Some of the biggest economic factors that affect marketing are demand and supply. Often, the goal of a marketing campaign is to drive up demand. When demand is high, the price of a product can also be high, increasing profitability for a business. When demand is low, the price lowers too. When there is a limited supply of materials, either due to manufacturing or environmental issues, the demand increases due to the availability.
Consider the latest technology gadgets that are usually released in limited quantities. The demand is high due to comprehensive marketing campaigns that make it known that only a limited quantity of products will be available at the launch. This marketing strategy can also be applied to small businesses. When releasing a new product or service, consider marketing it as "limited availability" to drive up demand and price.
However, marketers need to be sensitive when promoting products that are deemed necessary, like food, during a shortage. It can be seen as unethical for a produce company to market limited supplies of a certain fruit while raising prices to astronomical levels, for example.
Consumer Confidence Affects Purchasing Patterns
Consumers are more likely to make purchases when they feel confident in the economy of their country and in their own financial situation. In addition to a logical factor, consumer confidence has an emotional component that is beneficial to marketers. When consumer confidence is high, marketing campaigns can focus on the internal elements that affect purchasing decisions and include messaging that uses highly emotional language.
Businesses benefit as a result of customers who have more spending power during periods of high consumer confidence. In order to survive a low consumer-confidence period, businesses need to develop marketing strategies to engage consumers who do not feel they have money to spend on unnecessary products and services. Careful product positioning and messaging is critical during this time to convince consumers they can spend their money on these products.
Employment and Wages Drive Demand
Directly tied to consumer confidence, employment rates affect how businesses market their products and services. When the majority of consumers are making a stable income, and continue to expect that stable income, they are more likely to drive up demand with their purchasing power. This enables businesses, especially those that sell luxury products, to succeed in selling their goods.
The amount of wages that consumers make relates to how much they can spend. When wages are rising to meet the increase in expenses, consumers have more discretionary income. However, if wages don’t rise accordingly, or if they fall unexpectedly, businesses that market high-end products like jewelry or luxury vehicles may struggle to convince consumers to buy. When employment and wages are low, businesses may need to create lower price-point products to entice customers.
Recessions Reduce Budgets
An economic recession affects everyone from large corporations to small businesses to individual consumers. Businesses often cut costs to remain profitable during a recession, and may lay off staff or curb spending on marketing or research and development activities. Consumers have less money to spend and face an uncertain financial future, and they respond by reducing impulse purchases.
Marketing during a recession is challenging as businesses generally have a smaller budget and fewer resources. Plus, consumer confidence is low and people generally don’t want to purchase anything they deem unnecessary. Therefore, it’s critical to position products and services as integral to a consumer’s lifestyle, showing them how their lives will truly benefit from that purchase.
FAQs
Economic Factors
Factors include – economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on. These factors can be further broken down into macro-economical and micro-economical factors.
How does the economy affect marketing? ›
Economic factors play a huge role in terms of a company's prospects in a market. For example, economic factors affect pricing and can even influence the supply/demand curve for a product or service. For example, high inflation causes consumers to have less spending power, which translates into lower sales and revenue.
What are the four main economic factors that influence marketers? ›
The economic factors that most affect the demand for consumer goods are employment, wages, prices/inflation, interest rates, and consumer confidence.
What are the economic factors affecting business? ›
Economic factors include economic growth, percentage of unemployment, inflation, interest and exchange rates, and commodity (oil, steel, gold, etc) prices. These affect the discretionary income and purchasing power of households and organisations alike.
What are examples of economic factors? ›
Some of the most notable economic forces include inflation, interest rates, government spending, tax rates, and the unemployment rate. Inflation and interest rates have already been discussed, but government spending, tax rates, and the unemployment rate are also important economic forces.
What is an example of economic impact? ›
Economic impact studies estimate the total dollars, jobs, and household income generated in an economy due to a new activity; for example, a business coming to or growing in the region, a festival, construction of an event center.
Why is economics important in marketing? ›
While economics provides the theoretical framework to understand how resources are allocated, markets function, and consumers behave, marketing is the practical application of these principles to create, promote, and distribute products and services.
What are the factors affecting the marketing environment? ›
There are six critical environmental marketing factors. These comprise the socio-cultural, legal, economic, political, and technological factors. The external factors are significant forces affecting an organization, its competitors, and the elements of the internal marketing environment.
What are the economic factors influencing consumer behavior? ›
Economic factors include income, purchasing power, inflation, exchange rates, and taxation. They affect how much people can afford to spend, what they prioritize, and how they perceive value. Different regions have different levels of economic development, income distribution, and market conditions.
What are three 3 economic areas of greatest concern for marketers? ›
The four economic areas of greatest concern to marketers are consumers' incomes, purchasing power, inflation, and recession.
incomes, inflation, and recession. Here's the best way to solve it. The three economic areas of greatest concern for marketers are incomes, inflation, and recession. ...
How does economic growth affect businesses? ›
Economic growth usually means more opportunities for businesses and their workforces, but they are not always distributed evenly for all industries and firms. Typically, these increases come from higher employment, greater spending, and more investments.
What is economic influence? ›
Economic influence is any kind of outside pressure on a business drawn from normal economic cycles.
How do economic factors affect development? ›
Economic factors have an important influence on the capacity, or the ability of the country to develop. These factors include: Natural resources: The available but limited physical resources naturally existing within a country, such as water, trees, gas, oil, soil, and minerals.
What are the economic factors of a product? ›
Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship. This episode of our Economic Lowdown Podcast Series explains the four factors of production with examples. Listen to the audio or read more in the transcript below.
What are economic factors in pestle? ›
ECONOMIC: Economic factors will include exchange rates, economic growth or decline, globalisation, inflation, interest rates and the cost of living, labour costs and consumer spending.
What is economic factors definition in consumer Behaviour? ›
Economic factors include income, purchasing power, inflation, exchange rates, and taxation. They affect how much people can afford to spend, what they prioritize, and how they perceive value. Different regions have different levels of economic development, income distribution, and market conditions.
