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Archive for the ‘Marketing’ Category

Exam survival kit: revision posters

In Management, Marketing on May 1, 2013 at 2:24 pm

Books_01

Revision is a bore. But knowing where to begin brings you a long way towards exam success. HBR has thrown together 4 examples of how to separate the main themes and topics of a module, while developing your overall view of the marketing and management disciplines.

HBS revision 001

HBS revision 003

HBS revision 002

HBS revision 004

Why we buy (2/2): social spending

In Management, Marketing on April 10, 2013 at 3:40 pm

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Psychological models provided much-needed insight into non-rational motivations. Sociologists became active in this field, recognising the social nature of purchase decisions. When we buy shoes, we may consciously emulate our peers, weigh their symbolic value and their suitability against the ‘habitus’ of the social ‘world’ we occupy, even before questioning their durability and comfort. Snowden (2009) found, for instance, that SUV drivers strongly identified with their ownership in-group.

The contribution of sociologists

Maslow established a hierarchy of rational and non-rational needs in 1945, unwittingly setting the model for marketer’s understanding of consumer needs, wants and desires. A need complies with the bottom of Maslow’s hierarchy, something required for physiological comfort, health or survival.  The higher levels needs of a sense of belonging, esteem and self-actualising activity represent a spectrum of intangible desires which goods can fulfil.

A woman might need to carry her diary, purse and spectacles, but she wants a Gucci handbag because of the status gained from owning it. Hirsch (1979) would describe the Gucci bag as a ‘positional good’, because it places its owner in a particular social role by association.

The importance of being ‘seen’ as owning representational goods is at the heart of conspicuous consumption, a theory established by Veblen in 1899. Veblen and Hirsch have been criticised for assuming that every consumer purchase in emulation of higher social groups. In doing so, they do not account for peer pressure to reject the behaviours of other groups. The bitterness towards middle class grocers Waitrose was publically revealed when its ‘#WaitroseReasons’ Twitter promotion was hijacked by tweets such as ‘I shop at Waitrose because … I don’t like being surrounded by poor people.’

Human capital

Bourdieu (1979) helped to set purchase decisions into their social context in his writing on human capital. In his theory, consumers can be grouped by their economic capital (material/financial wealth), cultural capital (education/aesthetic tastes) and social capital (network of friends/influencers/family). An individual’s human capital, therefore, places them in a distinct social ‘world’.

These worlds come with their own fashions, ‘habitus’ (social norms and habits) and sanctions. For example, members inclined to the mod subculture by economic, cultural and social conditions are more likely to buy into a nexus of goods, including the iconic motor-scooter, suit and shades.

Bourdieu’s understanding is flawed, more representative of the separate class cultures of France, than the Western world as a whole. Moreover, he neglects Galbraith’s (1950) ideas of external factors, such as marketing, imposing wants on social groups.

Conclusion

So, are we left with merely a handful of imperfect theories? Yes, but theories which can build upon each other to bring us nearer to the truth. Reflect on our economic, psychological and behavioural explanations next time you are scanning the shelves.

Why we buy (1/2): understanding consumer purchase decisions

In Management, Marketing on April 10, 2013 at 3:36 pm

ishop

We live in a mass consumption society. The majority of citizens have access to a range of standardised and mass-produced goods. We can all relate to models describing the stages of consumer decision-making: need recognition, information search, evaluation of alternatives, purchase and post-purchase behaviour.

When a large proportion of our daily purchase decisions are routine and almost reflexive, it is easy to forget the complexity of the transactions occurring over tills and online shopping baskets. In fact, experts remain divided between 3 ways of thinking about consumer purchase decisions.

Model Economic Psychological Consumer behaviour
Basis Rationality Cognitive processes Mixed economic and psychological
Evidence Quantitative Qualitative Mixed
Used by Economists Sociologists Marketers

(To view click article heading for full display)

Neoclassical economics

Over time, business has taken to each type of model and is currently enamoured by hybrid explanations of consumer behaviour drawing on economic and psychological models. The most famous of these describes demand as being based on price. This idea stems from neoclassical economics which regard the consumer as a rational actor who should demonstrate consistent preferences between goods based on value. Logically, therefore, consumer demand will increase as price decreases, with products being substituted because of a change in income or the relative price of goods.

s and d

Neoclassical Supply and Demand Curve

This curve persists as the foundation of many business decisions. For example, the prices at which Nestlé can procure coffee are determined by supply and demand calculations in world commodity markets. Setting prices according to demand affects Nestlé’s fair trading commitments. The multinational protects against this by advising producers in how to increase payment (take on processing stages, sell directly) and reduce costs (share processing/transport facilities).

However, neoclassical economics have become part of a wider picture as experts have realised that few markets exist with the perfect information required for consumers to be so logical. A more complicated picture of consumer motivations has emerged.

Consumer information-gathering process

One criticism of neoclassical readings of purchase decisions is that they assign a minimal role to marketing. Our current understanding is based on a more contextual view. Namely, the influence of marketing on a purchase decision is determined by the nature of the good in question. Phillip Nelson distinguished 3 types of consumer good.

Type Search goods Experience goods Credence goods
Definition Characteristics identifiable through inspection Features revealed by consumption Value hard to measure even after consumption
Examples Glassware, camera Wine, cosmetics Vitamins, maintenance
Impact of marketing Positive relationship between advertising and product quality Advertising plays an important signalling role Advertising plays an important signalling role

Technology can turn experience goods into search goods. Klein (1998) argues that the internet has had this effect by lowering the search costs of certain product attributes (for example, accessing a rotational view of a car without being at a showroom) and providing ways of experiencing products virtually without direct inspection (e.g. software).

CONTINUED IN PART 2 …

The value of marketing

In Marketing on April 9, 2013 at 2:45 pm

marketing

Marketing is the activity of creating, communicating, delivering or exchanging offerings with customers.  As one of the functional areas of business, the end-goal of marketing must be aligned with the purpose of companies more generally.

Profit (buying low and selling high) is often cited as the purpose of business. While profit is a necessity, profit maximisation is damaging to businesses’ long-term prospects. Iceland posting record results in June by not chasing short-term profit targets (Retail Week, 2012).

Drucker (1986) proposes different priorities: “Businesses exist to supply goods and services to customers, rather than to supply goods to workers and managers, or even dividends to the business enterprise.”

Exxon connects its responsibilities: “Our mission is to provide quality petrochemical products and services in the most efficient and responsible manner to generate outstanding shareholder and customer value.” (Exxon, 2012)

Economic profit validates actions which create customers. Only by meeting customer needs and building customer relationships can an organisation achieve profitable growth (Doyle, 2000). By these means, marketing creates value for customers in order to capture value for the business and its shareholders.

Consequently, the value created by marketing can be considered from the buyer perspective (competitive offer), the seller perspective (customer equity) and the buyer-seller perspective (relationships, partnerships and alliances).

Buyer value (the worth of an object or condition, relative to competing offerings) has been measured in various ways.[1] Today, relativism dominates the discourse on customer value. Marketing’s definition of customer value accounts for this:

Customer perceived value = perceived benefits / perceived costs

According to theory of wealth maximisation, a consumer will choose the good or service which they believe provides the most favourable benefit to costs ratio (Kronman, 1980). Perceived benefits include physical attributes, service attributes, associated prestige and technical support. Costs consist of purchase price, opportunity costs, risk of failure and other sacrifices made in the exchange. Companies create differential advantage based on superior benefits and/or costs.

Conclusion

Marketing has great potential to create value for firms and customers. In contrast to previous business philosophies, the marketing concept focusses on building profitable buyer-seller relationships based on competitively satisfying customer needs. Marketing’s assured philosophical foundations are attractive in the uncertain context of the global integration of markets, rising consumer expectations and transformative technologies.

By managing long-term relationships and responding to customers’ needs, rather than encouraging short-term profit, marketing has become a driver of competitive growth with benefits to all business stakeholders reflected in increases in share value.


[1] Neoclassical economics posits value is determined by the market. In classical economics, value describes the amount of labour saved through the consumption of an object or service. ‘Real value’ measures the utility of market offerings (Peter and Olson, 1993).

Global Marketing Management: One world, one voice? (part 6)

In Management, Marketing on March 24, 2013 at 5:35 pm

External conditions required for standardised advertising

country life

Integration of consumer habits

It seems as though we are far from living in a global village: nations retain individual economic and cultural norms. Computer-mediated and networked communications specialists, Van Alstyne and Brynjolfsson propose ‘Balkanisation’ as an alternative effect of the globalising technologies which have connected 25% of the world to the internet (2005). ‘Cyber-Balkanisation’ describes the groups which form through the internet, based on interest rather than geography. Balkanisation is a useful concept for advertisers seeking an international audience bound by consumer behaviour. Standardised advertising has been successfully used to appeal to wealthy elites and cosmopolitans of all nationalities.

Elites’ interaction with global fashion, food and entertainment can be explained as status positioning (Domzal and Kernan, 1993). The wealthiest members of a geographic community seek membership of a global ‘club’ through ownership of Cartier jewellery, Vuitton luggage and Hermes suits. This segment is being nurtured in developing economies. Efforts to encourage Asian middle classes to embrace LVMH’s European sophistication have taken off in recent years. In 2011, they accounted for 27% of total sales (Economist, 2011).

Additionally, a younger generation is maturing within a relatively globalised world, familiar with the postmodern dissolution of cultural values and indigenous ‘truths’. ‘Digital natives’ can freely explore and be influenced by global trends (BBC, 2009).

lego

Adverts which successfully translated across cultures to appeal to postmodern shoppers are more reliant on fantasy and lifestyle formats than cultural references, used the evocation of emotion rather than precise messages and used concrete representations of the product rather than metaphor (Domzal and Kernan, 1993). John Lyndon’s TV spot for Country Life is constructed from English stereotypes and requires knowledge of his Sex Pistols past. Alternately, the Lego advert requires no translation.

Conclusion

Standardising advertising across cultures reduces costs and has the potential to add value if multinationals are willing to adapt strategically and structurally. However, neither standardised advertising nor neat definitions of local taste can be universally applied.

While regional trade has grouped national economies providing opportunities for ads to ‘travel’, cultural barriers remain. Successful advertising targets audiences capable of appropriately decoding communications: different histories, associations and values interfere with this. However, market segments can be defined by qualities apart from nationally-specific traits. Elite and postmodern audiences engage with global trends.

The world is not a global village. It is divided by stages of economic development, cultural notions, local tastes and consumer behaviours. However, people simultaneously occupy several cultures and though national norms might close one ear, cosmopolitanism may open the other. With careful targeting, advertising may be standardised across cultures.

Global Marketing Management: One world, one voice? (part 5)

In Management, Marketing on March 24, 2013 at 5:32 pm

External conditions required for standardised advertising

mccafe

Figure 5 French McDonald’s ad

Cultural integration

There are fears that globalisation will cause a homogenous world standard by ‘cultural imperialism’. Yet, we are protective of the ‘imagined communities’ we live in and can be resistant to change (Benedict Anderson, 1991). James Cantalupo, President of MacDonald’s International undermines the concept of cultural influence as a zero-sum game:

You don’t have two thousand stores in Japan by being seen as an American company. Look, McDonald’s serves meat, bread and potatoes. They eat meat, bread and potatoes in most areas of the world. It’s how you package it and the experience you offer that counts. [3]

With this ethos, McDonalds balances standardisation and local adaption. The below advertisement illustrates the brand associating itself with the ‘café culture’ in France.

Differences in moral and religious beliefs and even colour associations can make for wildly divergent interpretations of ads. For instance, the French associate red with danger, passion and revolution, while the Chinese think of good fortune and prosperity. Some transnational companies borrow national associations to increase the cultural capital of their brands (see figure 5). Language is a major barrier to standardised advertising. In a study of 400 agencies, only 11% of brands use the same language in all international markets (Duncan and Ramaprasad, 1995).

cafe rougechinese

Figure 6 Red in corporate websites

A study of more than 70,000 ads across cultures found few ‘travelled well’ and that the cost savings of standardisation were offset by a lack of local resonance (Millward Brown, 2007). Cluster analyses of countries, considering factors including media availability and economic development, support these conclusions leading Siriam and Gopalakrishna to argue:

[Advertisers] should view standardisation not as the transferability of an entire campaign across countries, but as a strategy that makes unified themes, images and even brand names, possible. (1999, p.146)

Standardised ads often draw on ‘universal values’, such as the desire to live long and comfortable lives or nurture the next generation. Johnnie Walker whiskey has capitalised on the theme of personal progress. Diageo’s ‘Keep on Walking’ campaign, which spread this message using local landscapes, increased sales by 48% in eight years (Hollis, 2007).

 jhonny walker

Figure 7 Johnnie Walker: Same theme, different location

As standardisation establishes products as global, multinationals leave themselves vulnerable to ‘out-localisation’. Greater expertise enables local firms to target underrepresented consumer segments. India’s Tata Motors developed its financial services to support rural Indians who had no access to loans and support.

This is not to say that products tied to a local culture cannot move between countries. Americans enjoy a dazzling array of cultural imports including Vietnamese restaurants, Reggae music, Egyptian novels, Chinese films, Indian clothes and Afghan jewellery. Yet, some product categories are easier to export, e.g. technology over local delicacies. Further, even countries with radically different cultures may have similar consumer segments which possess the same needs. Tata has leveraged its expertise in marketing to Africa and ASEAN countries with consumers closely resembling those within the firm’s home nation.

The emergence of consumer segments which can be found in all the principal regions of the world is explored in the penultimate section of this essay.

Global Marketing Management: One world, one voice? (part 4)

In Management, Marketing on March 24, 2013 at 5:25 pm

External conditions required for standardised advertising

currencies

Advertisers can only speak effectively with ‘one voice’ if we live in ‘one world’. Market connections and advanced communication technologies are creating a single marketplace. Yet, in 2012, we are finding that business remains relatively concentrated.[1] The following sections investigate the integration of national economies, cultures and consumer habits across the world to determine whether the age of standardised advertising has come.

Economic integration

Friedman’s ‘Golden Arches Theory of Conflict Prevention’ amusingly demonstrates the interdependence between multinationals and the development of nation-states, observing that no two countries with McDonald’s franchises had fought against one another (1999).[2]

Figure 4, shows international trade increasing into the 21st century, albeit at different regional rates. The most important drivers of the global economy are the triad nations – Japan, the EU15 and the USA. In 2008, they accounted for 73.6% of foreign direct investment (FDI) around the world (Rugman and Collinson, 2012).

In the same year, UNCTAD found upwards of half of the investment in developing countries goes to Brazil, China and India suggesting that investment is global and national economies with the greatest potential are rewarded. With these exceptions, however, recipients of FDI tend to be found in clusters around triad members. The USA invests in Latin America.  The EU15 seek markets in Eastern Europe.  Japan invests in Singapore, China and Thailand. FDI clusters often share financial practices and trading agreements, examples being NAFTA and ASEAN.

world exportsFigure 4 Source: Bureau for Economic Policy Analysis

National economies are grouped through trade with the world’s leading investors and traders. This suggests that businesses based in the triad nations might profitably standardise advertising across a FDI cluster as these markets will already be exposed to the values and consumer habits that pervade the region. HSBC has embraced local practise, positioning itself as ‘the world’s local bank’. The extent of cultural integration between countries is examined in the next section.

Global Marketing Management: One world, one voice? (part 3)

In Management, Marketing on March 24, 2013 at 5:15 pm

office

Internal conditions required for standardised advertising

Corporate structure

When MNEs hire several agencies for their regional knowledge, costs rise rapidly as effort is duplicated. Standardising advertising can reduce costs and simplify campaign management and corporate structure.

Highly centralised MNEs are more likely to produce consistent global advertising programmes. In Hill and James’s (1990) study of 175 promotional messages, both strategy and executives are more likely to be changed where business units were more independent, i.e. affluent, high-sales markets.

Management orientation

The attitudes of business leaders are important in determining the structure, strategy and outlook of an organisation. Highly centralised organisations, eager to extend advertising campaigns across regions are frequently governed according to an ethnocentric orientation – the belief that your practices are superior. However, Keegan and Green (2013) oppose the idea that an ethnocentric company can succeed globally, instead advocating a geocentric viewpoint which takes the best of extension and adaptive advertising strategies.

It is possible to cluster countries by the typical management orientation of their MNEs. Significantly, western corporations standardise more than non-western firms. Head of DMB&B’s Japan office explains that the distance and economic heterogeneity across Asia makes a pan-continental campaign less likely to succeed than in Europe (Duncan and Ramaprasad, 1995, p.59). This leads us to the external factors required before standardisation can be considered a sensible business decision.

Global Marketing Management: One world, one voice? (part 2)

In Management, Marketing on March 24, 2013 at 5:09 pm

coke

Advantages of standardised advertising

Advertising consists of communications aiming to persuade an audience to take or continue an action, ideally entering into a value-laden relationship with an organisation (Kotler and Armstrong, 2012). MNEs are increasingly standardising advertising in strategy, execution or language when marketing products in multiple regions.

Standardised advertsing

Figure 1  Duncan and Ramaprasad (1995)

The value created by marketing can be considered from the buyer, seller and buyer-seller perspective. Standardised advertising is expected to create value for the seller by increasing the willingness of consumers to pay, opportunities for licensing, efficiency of communications and increased demand at reduced costs, by using advertising concepts (which can take years to develop) in several countries. P&G has institutionalised this logic in a ‘search and reapply’ practice.

This would be a false economy if standardisation did not support the brand’s value to the buyer. In fact, studies find that global brands enjoy customer perceptions of superiority even when this is not objectively the case (Steenkamp et al, 2003). Questioning 1800 consumers from 12 countries revealed preference is based in the quality signalled by the brand’s global presence, the power of the ‘global myth’ and brand implications of social responsibility (Holt et al, 2004).

Standardised advertsing

Figure 2 Source: Holt et al, 2004

Quality signal

Establishing a single brand image is the most important advantage of standardised advertising. Globally-recognised brands have consistent visual, verbal, auditory or tactile identity across regions. Consistency contributes to the brand’s utility as a promise of quality. As advertising connects markets across cultures, the desirability of a product is evidenced by its widespread availability.

Additionally, connections with a particular market can increase quality perceptions. Ishal Ismail, owner of Malaysian KFC, reveals that, “Anything Western, especially American, people here love. It makes them feel modern when they eat it.” (Friedman, p.293-4, 1999) The veneration of foreign goods is prevalent among developing consumer segments. The Chinese say “Heaven is abroad.” (Ger, 1999, p.67)

Global myths

Thompson (2004) argued that myths, understood in this context as narratives (often based in binary oppositions and archetypes) which order buyer experience and position social groups within society, could be harnessed.

Mythologies often fixate on globally recognised company figures. Steve Jobs became the basis of creation, satanic, hero and resurrection myths respectively based in the company’s foundation, rivals IBM and Microsoft and Job’s dismissal and subsequent return to Apple (Belk and Tumbat, 2005). Myths give audiences a personification of the company while drawing upon familiar narrative dynamics. Engaging with these shared myths, advertisements and brands allows buyers to create an imagined global identity, shared with communities bound by consumption (Holt et al, 2004).

Social responsibility

Standardised advertising makes the reach of MNEs apparent. This places global brands under consumer pressure to be responsible in their business – interestingly, a criterion which does not affect preferences between local brands (Duncan and Ramaprasad, 1995). However, the cosmopolitanism of global advertising’s target audience means that assisting a community in one region will increase brand prestige worldwide.

pampers

Figure 3 Pampers’ vaccination campaign is widely publicised

Preconditions for standardised advertising

The value standardised advertising adds to the buyer-seller relationships can be significant. However, businesses will not automatically benefit. MNEs can only achieve this scale of advertising with appropriate corporate structure, consumer segments and concessions to local conditions. These preconditions are explored in the next section.

Global Marketing Management: One world, one voice? (part 1)

In Management, Marketing on March 24, 2013 at 3:52 pm

mcdglob

Introduction

Today, individuals, corporations and nation-states are able to reach around the world further, faster, deeper and more cheaply than ever before (Friedman, 1999).  Globalising processes have accelerated since the turn of the millennium, increasing trade, capital and investment movements, migration and knowledge exchange across geographic borders (IMF, 2000). These trends have led some to predict that the world is on the cusp of becoming a ‘global village’, a single cultural and economic community.

Certainly, the integration of national economies and advanced communication technologies have propelled us towards a single marketplace and given multinational enterprises (MNEs) an influence comparable to that of nation-states.[1] Advertising has evolved as businesses expanded their offer to domestic, export, international, multinational and global markets.

Practitioners and theorists disagree over whether advertising should be extended across markets or adapted to local conditions. This series of articles will investigate the advisability of standardising advertising across cultures. We will examine the advantages of this strategy, before investigating the conditions which preclude successful communication.

Definitions

  • Brand: A name, design, symbol, phrase or combination that identifies and differentiates
  • Global advertising: Advertising which meets global objectives by marketing on a worldwide scale
  • Global brand: A brand with appeal which transcends regional differences. Widespread availability and consistency across local and foreign markets
  • Globalisation: The integration of national economies and cultures
  • Global village: An expression of the idea that globalisation will integrate the world’s population to such a degree that interactions will be freed from geographic constraint

[1] In 1990, there were 60 countries with Gross National Product below US $10bn, while there were more than 235 MNEs with revenues in excess of this amount