The social context - Business Environment

Since organisations exist and operate in society, they are subject to a variety of societal influences that operate at both a general and specific level. In this section we consider some of the key factors within an organisation’s social environment, starting with the concept of ‘social class’. The notion that organisations also have responsibilities to society is examined.

Social class
Throughout history, all societies have normally exhibited a certain degree of social and economic inequality that has given rise to the tendency to classify individuals into different social categories. For example, in India the ‘caste system’ has been an important source of social differentiation and one which has exerted a key influence over the life and opportunities available to members of the different castes. In other countries, including the United Kingdom, the categorization of individuals has often been based around notions of ‘social class’, the idea of grouping people together who share a similar social status which is related to certain common features such a seducational background, income and occupation. Whereas in some types of social system, movement between groups is either very difficult or impossible (e.g. the caste system), in others ‘social mobility’ is frequently observed, with some individuals able to move relatively quickly between the different social strata (e.g. upper class, middle class, working class) as their personal circumstances change.

In practice, the process of allocating individuals to a particular class category has generally been based on socio-economic criteria such as income, wealth and occupational status. Advertisers and market researchers including the Institute ofPractitioners in Advertising have tended to favour a scheme known as ‘ABC1’ which uses an individual’s occupation as a basis for allocation, the assumption being that a person’s job is closely linked to key aspects of her/his attitudes and behaviour, including their choice of car, clothes, home furnishings,holidays, reading material and so on. There is even evidence to suggest that class might be influential in an individual’s choice of retail outlets (e.g. different UK supermarket chains appear to attract customers from different socio-economic groups).


Similar systems of classification have also been/are used for official purposes (e.g. the UK 10-year census of population). In the 1990s in the UK, government statistics used what was called the Registrar General’s Social Scale subsequently renamed ‘Social Class based on Occupation’ to group the UK population into seven different categories according to their occupation (e.g. Group I was professional; Group II was managerial and technical; Group V was unskilled occupations). This system has now been replaced by NS-SEC (the National Statistics Socio-Economic Classifications) which again focuses on occupation as the key criterion for class allocation. NS-SEC is shown in Table. The figures in the right-hand column represent the socio-economic classification of the UK population of working age in the summer of 2003.

national-statics socio economic classifications

While it would be unwise to assume that a factor such as a person’s social class will invariably affect their choice of goods and services, empirical evidence reveals some interesting variations in the levels of expenditure on particular products among different groups in the UK population, a fact not lost on marketing organisations which often use socio-economic criteria as one way to segment a market (see below). According to data produced in the annual survey of ‘Social Trends’ in the UK, total expenditure was highest among the managerial and professional group and was almost double that of people in the never worked/unemployed category. Within this overall pattern of expenditure some interesting data emerges, particularly with regards to priorities, as indicated by expenditure on different items by the different social groupings. For instance, expenditure on housing, fuel and power was highest among the never worked/long-term unemployed group while spending on health was highest among the managerial group. Note that some of the high levels of spending among the former group, in areas such as education and communication, are probably largely to do with the fact that this category also contains students.

house hold expenditure

Another factor that can clearly affect people’s attitudes and behaviour is the lifestyle that they choose to adopt. Lifestyles are basically concerned with the way in which people live and how they spend their money, decisions which are not necessarily always linked to their socio-economic position. Two individuals with the same occupation and nominally in the same social class may have entirely different lifestyles, a point well illustrated by examining two university lecturers. My own lifestyle is highly sophisticated, environmentally sensitive, artistic and cosmopolitan; that of a colleague who happens to teach marketing is narrow, parochial, philistine and consumption-driven. Then, what would one expect?!

Joking apart, lifestyle analysis provides another way of seeking to categorize and explain human behaviour, based on factors such as an individual’s interests, activities and opinions as well as on their demographic characteristics. In essence, the proposition is that by examining distinctive patterns of consumer response, a marketing organisation can build up a clearer picture of an individual’s habits, preferences and behaviour and by doing so can design more effective and appealing products, marketing program and/or communications that can be aimed at specific lifestyle groups.

While we should be cautious of over-generalizing, the evidence suggests that in many countries the way in which people spend their time and money has changed considerably in recent decades as a result of changes in demography, working patterns, technology, income and a range of other factors. Once again we can illustrate this by looking at longitudinal data collected through the annual survey of social trends in the UK. These data show, for example, that:

_ Cinema attendance in 2004 was the second highest figure in 30 years.
_ In 2002/3 around 45 per cent of homes in the UK could access the Internet; this was four times the number in 1998/9.
_ UK residents took over 41 million holidays abroad in 2003, six times the number in 1971.
_ Household spending on communications (including mobile phones) trebled in value between 1991 and 2003.
_ In 1993 80 per cent of men and 73 per cent of women held at least one plastic card (e.g. credit/debit/store card); by 2003 this had risen to 91 per cent and 90 per cent respectively.
_ The number of licensed cars on Britain’s roads more than doubled in the period
1971–2003. The number of households with two or more cars almost quadrupled from 8 per cent to 29 per cent over the same period.
_ In 1996/7 16 per cent of households had a mobile phone; by 2002/3 the figure was 70 per cent.
_ About 60 per cent of homes had a CD player in 1996/7; by 2002/3 this had topped 80 per cent. During the same period sales of home computers grew from under 30 per cent to more than 50 per cent.
_ Since 1974 UK consumers have halved their consumption of red meat and sales of butter, margarine and cooking fats have also fallen.
_ During the period 1997–2003 the amount of household waste collected for recycling more than doubled while the amount of land dedicated to organic food production grew more than sevenfold.

volume of household expenditure

If we take changing expenditure patterns in the UK as an indication of changes in lifestyles then there has been a discernible shift in emphasis from essential products such as food, housing, water and fuel to the less essential items such as communications, foreign travel, recreation and culture. For example, after allowing for inflation, UK household expenditure on food and drink rose by only 41 per cent between 1971 and 2003 whereas spending on communication rose by over eight times. Interestingly spending on alcohol and tobacco actually fell over the same period while spending on healthcare doubled, suggesting a shift in public concern towards a healthier lifestyle (see Mini case: Fit for purpose).

In light of the discussion on inflation in Chapter, it is worth noting that such changes in spending patterns over time are reflected in changes in the official ‘basket of goods and services’ used to calculate the Retail Prices Index in the UK. The 1980s saw CDs, CD players and condoms added to the basket, with computers, camcorders and mobile phone charges added in the next decade. More recently (2004 and 2005) dishwater tablets have replaced dishwasher powder, wooden garden furniture sets have replaced plastic sets and leather sofas have replaced ordinary ones. More bizarrely, hamsters and popcorn bought in cinemas have beenadded to the index while baguettes, corned beef and writing paper have been dropped. What does this tell us about the changing spending habits and lifestyles of UK citizens in the new millennium?

Many of the trends referred to above are, of course, mirrored in consumer aspirations and behaviour in other countries, particularly in respect of issues such as healthier lifestyles, increased foreign travel, greater access to communications technology and more environmentally friendly products (though not necessarily rodent purchases!). As the following examples illustrate, changes in consumer lifestyles can represent both an opportunity and a threat to trading organisations and can have important implications for businesses and countries alike.

_ Coca-Cola has seen a decline in profits as consumers have switched to bottled water, fruit juice and other non-fizzy drinks as part of a healthier diet.
_ GlaxoSmithkline has targeted the Italian market with its non-smoking products in the wake of the ban by the Italian government on smoking in public places.
_ Beer consumption in Germany has dropped dramatically as young Germans reject a product that they evidently regard as ‘uncool’ and less healthy than some alternatives.
China has overtaken the USA in sales of televisions and mobile phones and Chinese consumers are increasingly buying a wide range of western consumer goods from luxury confectionery and designer clothes to expensive cars and foreign beers.
_ With a rapidly expanding economy and growing liberalization in many areas of private life, the sex industry in China is booming (see e.g. the Guardian, 25 June
2005, p. 20). The country now provides 70 per cent of the world’s sex toys and there is growing (sic) domestic market.
_ Sales of organic food are growing significantly across Europe and beyond. The global market for organic food in 2005 was worth about £15 billion, with Europe responsible for just under half.
_ With the immense popularity of the iPod and iTunes (its online record store), Apple has become the world’s fastest-growing brand.

_ Other brands in the technology/lifestyle field that are increasing in value include BlackBerry, Google, Amazon, Yahoo and eBay.

Other social influences
While it is important to consider the influence of broad social factors such as class and lifestyles, it is also worth remembering that consumers are individuals and that they are subject to influences that operate at a personal level. Such influences include the wide variety of individuals and groups with whom we come into contact during our lifetime and who may influence our attitudes, values, opinions and/or behaviour. Primary among these are our interactions within the family, with friends or work colleagues and through our involvement with sports and social clubs, religious organisations, trade unions and so on. Such groups are sometimes referred to as ‘reference groups’.

Groups that have a regular or direct (i.e. face-to-face) influence on us are known as ‘primary reference groups’ while those whose influence tends to be more indirect and formal are known as ‘secondary reference groups’. The former, in particular, can be very influential in shaping our attitudes and behaviour including our decisions on consumption.

The importance of reference groups, especially family and friends, is recognized by both economists and marketers. Economists, for example, use the notion of ‘households’ to indicate that the consumption of goods and services often takes place within a collective family framework, as in the case of groceries, holidays, vehicles and many other everyday products. Marketers use concepts such as the ‘family life cycle’ to show changing patterns of consumption as the individual moves from being a child in a family to being a parent with different needs and responsibilities.

While it is difficult to be precise about when and how far an individual’s demand is shaped by the family and other reference groups, it is not difficult to think of particular examples when this is likely to be the case. For many services such as builders, restaurants, hotels, hairdressers and car repairs, consumers often rely on the advice of a trusted friend or colleague and many firms can gain new business through such word-of-mouth recommendations. Equally, through membership and/or support of a particular group or club, individuals may be tempted to purchase particular goods and/or services (e.g. football kit, trainers, a CD, tickets), especially those with a desirable ‘brand name’ and endorsed by a well-known personality (e.g. sports person, musician, singer, film star). In such cases, the demand for the product is often less price sensitive since it is a ‘must have’ product.

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