ASSIGNMENT OF SPECIALIZATION RETAIL

MANAGEMENT SAM - 4

MBA 536 (GROUP DYNAMICS)

Qus-1. What are the Characteristics of a Healthy work Culture?

Ans- No employer wants to end up with a toxic workplace culture. Negativity spreads,
and it can drive employees away quickly. A positive workplace culture, on the other hand,
is associated with higher productivity and reduced turnover—a real win-win. Changing
the workplace culture takes time and effort, but the payoff can be enormous.

Here are some characteristics of positive workplace cultures:

There’s frequent and appropriate communication from management and

HR.Transparency tells employees they’re trusted and reduces the chances of rumors
taking over for real communication. When the upper levels of the organization are open
with employees, it can help foster good communication throughout the organization.

Real teamwork is encouraged. Employees work well together and don’t often fight among
themselves.

The organizational goals are known, and employees know how their role fits into the big
picture. They understand how they are helping the organization achieve its goals. This
comes down to communication, in many cases.

The organization has values, communicates those values to employees, and acts in ways
that are consistent with those values.

Employee morale is high. This can be gauged through employee engagement surveys.

Workload expectations are appropriate, minimizing employee burnout. (Employee

burnout can lead to stress, negativity, and reduced morale.)

Consideration is given to work/life balance, and steps are taken to help employees
achieve it.
Employees are treated fairly, and there is consistency in how employees are treated
across groups and teams. There’s no sense of unfairness or favoritism.

Harassment, disrespect, discrimination, bullying, unsafe behaviors, and violence are not
tolerated in any way. Policies and actions reflect this.

Problem employees are dealt with appropriately and promptly. Other employees want to
know the employer can be trusted to protect them and not foster a workplace that has
problems.

The employer finds ways to show employees appreciation. Employee efforts are
recognized. Recognition is frequent.

The organization does not tolerate (let alone encourage) unethical or dishonest
behavior. If this behavior is discovered in the organization, steps are taken to eliminate it.
Employees are more likely to stay with a company they respect.

Employee development programs have been implemented, and employees know where
they are in relation to their long-term development plans. This usually includes an
employee training program to augment employee development plans. Employees should
see that the organization is invested in their future.

Employees are given the tools they need to succeed. Goals are clear, and employees have
the confidence they will be able to achieve what is expected of them.

The workplace is not overly rigid. Things change, and circumstances change. Employer
rules cannot be so rigid that they do not allow any flexibility for changing situations.
Flexibility can come in many forms, but it’s important the employer shows it.

Employees are given feedback frequently and in an appropriate way. Employees want to
know how they’re doing—tell them.

Choosing items on this list to improve upon can be a first step toward improving a
negative organizational culture. What has your experience been with trying to attain
cultural shifts?

The Top 10 Characteristics of a Healthy Organization

1. Effective Sharing of Goals

A healthy organization shares its business goals with employees at every level of the
organization. Management shares goals with employees and gets them on board with the
mission and vision of the organization. Employees and managers understand what is
required to reach these shared goals and make every effort to achieve them.

2. Great Teamwork

Another characteristic is teamwork. Healthy companies know how to develop teams that
collaborate to achieve common goals. Employees and managers readily offer their
assistance to each other to meet corporate objectives.

3. High Employee Morale

Healthy organizations possess high employee morale. Employees value their positions in
the organizations and desire to work there for a long time. Productivity is high and
organizational events are enjoyable and successful.

4. Offers Training Opportunities

Companies provide on-the-job training and opportunities for employees to enhance their
work-related skills. Organizations bring in other individuals to provide necessary
departmental and corporate-wide training. Companies also offer opportunities to pursue
certification and continual education.

5. Strong Leadership

Good leadership is one of the main characteristics of a healthy organization. Employees

have good relationships with management that are based on trust. Managers know how
to get employees to function together. When correction is needed, employees readily
accept the constructive criticism offered by leaders.

6. Handles Poor Performance

Companies confront poor performance instead of ignoring it. Organizations take

corrective actions to improve performance. Upper-level management values the input of
employees who make suggestions on how to improve productivity and achieve high
performance rates. Companies may even bring in specialists to detect problems and offer
solutions.

7. Understands Risks
Healthy organizations understand the risks they are open to and take the necessary steps
to protect themselves against them. When an event happens due to organizational risks, a
healthy organization learns from the event. Companies use precaution but understand
that risks are necessary to facilitate growth.

8. Adapts to Opportunities and Changes

Healthy organizations know how to recognize and seize good opportunities. Healthy
organizations always look for opportunities to grow. They also know how to adapt to
technological or operational changes. They try to stay ahead or inline with changes in the
industry and business environment.

9. Clearly Defined Structure

Companies possess a sense of order and organizational structure. The structure and
order of the organization does not limit innovation and growth. Employees do not mind
complying to the company's order because they understand it and see the benefits of its
implementation.

10. Well-Known Company Policies

Organizations create and implement company policies that are readily available to their
employees. Healthy organizations follow the policies and regulations of local, state and
federal governments. When employees or managers break policies, the issue is dealt with
immediately and in a professional manner.

Qus-2. What is group cohesiveness?

Ans- Group cohesiveness (also called group cohesion and social cohesion) arises when
bonds link members of a social group to one another and to the group as a whole.
Although cohesion is a multi-faceted process, it can be broken down into four main
components: social relations, task relations, perceived unity, and emotions.[1] Members of
strongly cohesive groups are more inclined to participate readily and to stay with the
group

Definition
From Neo-Latin "cohaesio" and French "cohésion", in physics, cohesion means "the force
that unites the molecules of a liquid or of a solid". Thereby, there are different ways to
define group cohesion, depending on how researchers conceptualize this concept.
However, most researchers define cohesion to be task commitment and interpersonal
attraction to the group.[3][4]

Cohesion can be more specifically defined as the tendency for a group to be in unity while
working towards a goal or to satisfy the emotional needs of its members.[4] This definition
includes important aspects of cohesiveness, including its multidimensionality, dynamic
nature, instrumental basis, and emotional dimension.[4] Its multidimensionality refers to
how cohesion is based on many factors. Its dynamic nature refers to how it gradually
changes over time in its strength and form from the time a group is formed to when a
group is disbanded. Its instrumental basis refers to how people cohere for some purpose,
whether it be for a task or for social reasons. Its emotional dimension refers to how
cohesion is pleasing to its group members. This definition can be generalized to most
groups characterized by the group definition discussed above. These groups include
sports teams, work groups, military units, fraternity groups, and social
groups.[4] However, it is important to note that other researchers claim that cohesion
cannot be generalized across many groups.

Causes

The bonds that link group members to one another and to their group as a whole are not
believed to develop spontaneously. Over the years, social scientists have explained the
phenomenon of group cohesiveness in different ways. Some have suggested that
cohesiveness among group members develops from a heightened sense of
belonging, teamwork, interpersonal and group-level attraction.

Attraction, task commitment and group pride are also said to cause group cohesion. Each
cause is expanded upon below.

Attraction

Festinger and colleagues (1951) proposed the theory of group cohesiveness as

attractiveness to people which have the best care within the group and attractiveness to
the group as a whole.[7] Lott and Lott (1965) argued that interpersonal attraction within
the group is sufficient to account for group cohesion.[8] In other words, group cohesion
exists when its members have mutual positive feelings towards one another.
Later theorists (1992) wrote that attraction to the group as a whole causes group
cohesion, a concept reminiscent of the social identity theory.[9][10] According to Hogg,
group cohesiveness is based on social attraction, which refers to "attraction among
members of a salient social group".[9]:100 Hogg explains how group cohesiveness develops
from social attraction with self-categorization theory according to which individuals
when looking at others' similarities and differences, mentally categorize themselves and
others as part of a group, in-group members, or as not part of a group, out-group
members. From this type of categorizing, the stereotypes of the group becomes more
prominent in the individual's mind. This leads the individual to think and behave
according to group norms, thus resulting in attraction to the group as a whole. This
process is known as depersonalization of self-perception. In Hogg's theory social
attraction refers to the liking of depersonalized characteristics, the prototype of the
group, which is distinct from interpersonal attraction among individuals within the
group. It is also important to note that group cohesiveness is more associated with group
attraction than with attraction to individual members.

Group pride

Theorists believe that group cohesion results from a deep sense of "we-ness", or
belonging to a group as a whole.[11][12] By becoming enthusiastically involved in the efforts
of the group and by recognizing the similarities among group members, a group becomes
more cohesive. Group pride creates a sense of community which strengthens the bonds of
unity.

Task commitment

Sport (1984) and organizational theorists (1995) have pointed out that group members'
commitment to work together to complete their shared tasks and accomplish their
collective goals creates cohesion.[13][14] Members of task-oriented groups typically exhibit
great interdependence and often possess feelings of responsibility for the group's
outcomes. The bonds of unity which develop from members' concerted effort to achieve
their common goals are considered indicative of group cohesion. The commitment to the
task had a significant and positive relationship with performance, while group
attractiveness and group pride were not significantly related to performance.
Factors

The forces that push group members together can be positive (group-based rewards) or
negative (things lost upon leaving the group). The main factors that influence group
cohesiveness are: members' similarity,[15][16] group size,[17] entry difficulty,[18] group
success[19][20] and external competition and threats.[21][22] Often, these factors work
through enhancing the identification of individuals with the group they belong to as well
as their beliefs of how the group can fulfill their personal needs.

Similarity of group members

Similarity of group members has different influences on group cohesiveness depending

on how to define this concept. Lott and Lott (1965) who refer to interpersonal attraction
as group cohesiveness conducted an extensive review on the literature and found that
individuals' similarities in background (e.g., race, ethnicity, occupation, age), attitudes,
values and personality traits have generally positive association with group cohesiveness.

On the other hand, from the perspective of social attraction as the basis of group
cohesiveness, similarity among group members is the cue for individuals to categorize
themselves and others into either an ingroup or outgroup.[10] In this perspective, the
more prototypical similarity individuals feel between themselves and other ingroup
members, the stronger the group cohesiveness will be.[10]

In addition, similar background makes it more likely that members share similar views
on various issues, including group objectives, communication methods and the type of
desired leadership. In general, higher agreement among members on group rules and
norms results in greater trust and less dysfunctional conflict. This, in turn, strengthens
both emotional and task cohesiveness.

Entry difficulty

Difficult entry criteria or procedures to a group tend to present it in more exclusive light.
The more elite the group is perceived to be, the more prestigious it is to be a member in
that group[citation needed]. As shown in dissonance studies conducted by Aronson and Mills
(1959) and confirmed by Gerard and Mathewson (1966), this effect can be due to
dissonance reduction (see cognitive dissonance). Dissonance reduction can occur when a
person has endured arduous initiation into a group; if some aspects of the group are
unpleasant, the person may distort their perception of the group because of the difficulty
of entry.[18] Thus, the value of the group increases in the group member's mind.
Group size[edit]

Small groups are more cohesive than large groups. This is often caused by social loafing, a
theory that says individual members of a group will actually put in less effort, because
they believe other members will make up for the slack. It has been found that social
loafing is eliminated when group members believe their individual performances are
identifiable – much more the case in smaller groups.[23]

In primatology and anthropology, the limits to group size are theorized to accord
with Dunbar's number.

Consequences[edit]

Group cohesion has been linked to a range of positive and negative consequences. Its
consequences on motivation, performance, member satisfaction, member emotional
adjustment, and the pressures felt by the member will be examined in the sections below.

Motivation[edit]

Cohesion and motivation of team members are key factors that contribute to a company's
performance. By adaptability development, self-worth, personal motivation growth, each
member becomes able to feel confident and to progress in the team. Social loafing is less
frequent when there is cohesion in a team, the motivation of each team member is
considerably greater.[3]

Performance[edit]

Studies have shown that cohesion can cause performance and that performance can
cause cohesion.[24][25] Most meta-analyses (studies that have summarized the results of
many studies) have shown that there is a relationship between cohesion and
performance.[3][4][26][27] This is the case even when cohesion is defined in different
ways.[3] When cohesion is defined as attraction, it is better correlated with
performance.[3] When it is defined as task commitment, it is also correlated with
performance, though to a lesser degree than cohesion as attraction.[3] Not enough studies
were performed with cohesion defined as group pride. In general, cohesion defined in all
these ways was positively related with performance.[3]
However, some groups may have a stronger cohesion-performance relationship than
others. Smaller groups have a better cohesion-performance relationship than larger
groups.[25]Carron (2002) found cohesion-performance relationships to be strongest in
sports teams and ranked the strength of the relationship in this order (from strongest to
weakest): sports teams, military squads, groups that form for a purpose, groups in
experimental settings. There is some evidence that cohesion may be more strongly
related to performance for groups that have highly interdependent roles than for groups
in which members are independent.[27]

In regards to group productivity, having attraction and group pride may not be
enough.[3][27] It is necessary to have task commitment in order to be productive.
Furthermore, groups with high performance goals were extremely
productive.[4][28][29][30][31]

However, it is important to note that the link between cohesion and performance can
differ depending on the nature of the group that is studied. Some studies that have
focused on this relationship have led to divergent results. For example, a study conducted
on the link between cohesion and performance in a governmental social service
department found a low positive association between these two variables, while a
separate study on groups in a Danish military unit found a high negative association
between these two variables.[32]

Member satisfaction[edit]

Studies have shown that people in cohesive groups have reported more satisfaction than
members of a noncohesive group.[9][33][34] This is the case across many settings, including
industrial, athletic, and educational settings. Members in cohesive groups also are more
optimistic and suffer less from social problems than those in non-cohesive groups.[35]

One study involved a team of masons and carpenters working on a housing

development.[36] For the first five months, their supervisor formed the groups they were
to work in. These groups changed over the course of five months. This was to help the
men get to know everyone working on this development project and naturally, likes and
dislikes for the people around them emerged. The experimenter then formed cohesive
groups by grouping people who liked each other. It was found that the masons and
carpenters were more satisfied when they worked in cohesive groups. As quoted from
one of the workers "the work is more interesting when you've got a buddy working with
you. You certainly like it a lot better anyway."[36]:183
Emotional adjustment[edit]

People in cohesive groups experience better emotional adjustment. In particular, people

experience less anxiety and tension.[37][38] It was also found that people cope better with
stress when they belong to a cohesive group.[39][40]

One study showed that cohesion as task commitment can improve group decision making
when the group is under stress, more than when it is not under stress.[40] The study
studied forty-six three-person teams, all of whom were faced with the task of selecting
the best oil drilling sites based on information given to them. The study manipulated
whether or not the teams had high cohesion or low cohesion and how urgent the task was
to be done. The study found that teams with low cohesion and high urgency performed
worse than teams with high cohesion and high urgency. This indicates that cohesion can
improve group decision-making in times of stress.

Attachment theory has also asserted that adolescents with behavioral problems do not
have close interpersonal relationships or have superficial ones.[41] Many studies have
found that an individual without close peer relationships are at a higher risk for
emotional adjustment problems currently and later in life.[42]

While people may experience better emotional in cohesive groups, they may also face
many demands on their emotions, such as those that result from scapegoating and
hostility.[43][44]

Conformity pressures[edit]

People in cohesive groups have greater pressure to conform than people in non-cohesive
groups. The theory of groupthink suggests that the pressures hinder the group from
critically thinking about the decisions it is making. Giordano (2003) has suggested that
this is because people within a group frequently interact with one another and create
many opportunities for influence. It is also because a person within a group perceive
other members as similar to themselves and are thus, more willing to give into
conformity pressures. Another reason is because people value the group and are thus,
more willing to give into conformity pressures to maintain or enhance their relationships.
Illegal activities have been stemmed from conformity pressures within a group. Haynie
(2001) found that the degree to which a group of friends engaged in illegal activities was
a predictor of an individual's participation in the illegal activity. This was even after the
individual's prior behavior was controlled for and other controls were set in place.
Furthermore, those with friends who all engaged in illegal activities were most likely to
engage in illegal activities themselves. Another study found that adolescents with no
friends did not engage in as many illegal activities as those with at least one
friend.[45] Other studies have found similar results.[46][47][48][49][50]

Learning[edit]

Albert Lott and Bernice Lott investigated how group cohesiveness influenced individual
learning. They wanted to test whether learning would be better if children studied with
peers they liked than peers they didn't.[51] The degree of member liking was presumed to
indicate group cohesiveness. They found that children with high IQ performed better on
learning tests when they learnt in high cohesive groups than low cohesive groups. For
low IQ children, however, the cohesiveness factor made little difference. Still, there was a
slight tendency for low IQ children to perform better in high cohesive groups. The
researchers believed that if children worked with other students whom they liked, they
would more likely have a greater drive to learn than if they had neutral or negative
attitudes towards the group.

Public policy[edit]

Social cohesion has become an important theme in British social policy in the period
since the disturbances in Britain's Northern mill towns (Oldham, Bradford and Burnley)
in the summer of 2001 (see Oldham riots, Bradford riots, Burnley riots). In investigating
these, academic Ted Cantle drew heavily on the concept of social cohesion, and the New
Labourgovernment (particularly then Home Secretary David Blunkett) in turn widely
promoted the notion. As the Runnymede Trust noted in their "The Year of Cohesion" in
2003:

"If there has been a key word added to the Runnymede lexicon in 2002, it is cohesion. A
year from publication of the report of the Commission on the Future of Multi-Ethnic
Britain, the Cantle, Denham, Clarke, Ouseley and Ritchie reports moved cohesion to the
forefront of the UK race debate."[52]
According to the government-commissioned, State of the English Cities thematic reports,
there are five different dimensions of social cohesion: material conditions, passive
relationships, active relationships, solidarity, inclusion and equality.

The report shows that material conditions are fundamental to social cohesion,
particularly employment, income, health, education and housing. Relations between and
within communities suffer when people lack work and endure hardship, debt, anxiety,
low self-esteem, ill-health, poor skills and bad living conditions. These basic necessities of
life are the foundations of a strong social fabric and important indicators of social
progress.

The second basic tenet of cohesion is social order, safety and freedom from fear, or
"passive social relationships". Tolerance and respect for other people, along with peace
and security, are hallmarks of a stable and harmonious urban society.

The third dimension refers to the positive interactions, exchanges and networks between
individuals and communities, or "active social relationships". Such contacts and
connections are potential resources for places since they offer people and organisations
mutual support, information, trust and credit of various kinds.

The fourth dimension is about the extent of social inclusion or integration of people into
the mainstream institutions of civil society. It also includes people's sense of belonging to
a city and the strength of shared experiences, identities and values between those from
different backgrounds.

Lastly, social equality refers to the level of fairness or disparity in access to opportunities
or material circumstances, such as income, health or quality of life, or in future life
chances. In pursuit of social equality amidst the changing nature of work and future
uncertainty, the World Bank's 2019 World Development Report calls for governments to
increase human capital investments and expand social protection.

On a societal level Albrekt Larsen defines social cohesion 'as the belief—held by citizens
in a given nation state—that they share a moral community, which enables them to trust
each other'. In a comparative study of the US, UK, Sweden and Denmark he shows that the
perceived trustworthiness of fellow citizens is strongly influenced by the level of social
inequality and how 'poor' and 'middle classes' are represented in the mass media.[53]

Analysts at the credit rating agency Moody's have also introduced the possibility of
adding social cohesion as a formal rating into their sovereign debt indices.
Q-3. What are the relationships between job satisfaction and employee work
performance.

Ans- 1. Introduction

Employee performance has always been a major challenge in organizational

management. Adopting effective ways to motivate

employees to achieve and deliver higher job performance as well as increase the
organizational competitiveness is the main objective

of every business organization (Lee & Wu, 2011). Employee performance is instrumental
to organizational growth and profitability.

The employees are regarded as the major business resources that facilitate the daily
activities and operations of an organization

(Mudah, Rafiki & harahap, 2014). Similarly, Omolayo, &Oluwafemi, (2012) asserted that
organizational effectiveness and efficiency

depends on how effective and efficient the employees in the organization are. In order to
achieve higher The research project is based on the investigation and evaluation of the
effect of job satisfaction on the employee’s work performance, case study of Grange
Hotels, UK. The researcher is self-motivated and self-initiated to complete this research
project in relation to academic, organizational and personal perspective. Based on the
critical review of the literature, it is clear that job satisfaction is an important and crucial
aspect to work performance of the employees. The job satisfaction can be influenced by
several factors, including organizational structure & culture, organizational commitment,
salary structure, empowerment and power delegation, financial and non-financial reward
systems, and so on.
The author has used three most common and effective research methods, such as
questionnaire survey, semi-structured interview and document review & analysis etc. for
the purpose of collecting and gathering data and information in accordance with research
aims, objectives and research questions. The research findings reveal that most of the
general employees within the case studied organization; Grange Hotels, UK are satisfy in
some cases with the job itself, organizational commitment, and working environment but
there may need some improve within the organizational structure, leadership styles,
reward systems etc. to improve job satisfaction and thus work performance of the
employees. Thus, finally, the researcher would like to mention that this research report
is a standard research report with having cost-effective and constructive conclusions and
recommendations both the academic and organizational perspective.

Chapter 1: Introduction and Background

Introduction

Job satisfaction and work performance of the employees within an organization is

becoming vital concern for the organizational management and thus to achieve goals and
objectives. In recent times, due to changes in organizational management approaches
such as changes in organizational structures and cultures because of competitiveness in
the market in which they are operating its business, leading to focus on the job
satisfaction and performance of the employees within the organization.

Job satisfaction is quite highly correlated with overall happiness of the employees within
an organization, and can be looked at as one of its main components for the work
performance of those employees (Argyle, 1989).

Based on the information derived from review of literature and from the case studied
organization, it is clear that the determination of the effect of job satisfaction on the work
performance of the employees is very relevant and important. On the other hand, the
researcher thinks that there is no research on the effects of overall happiness or life-
satisfaction on productivity or work performance within an organization, particularly
within the hospitality industry, like Grange Hotels, UK. However, there is a lot of research
on the relationship between job satisfaction and work performance.
The case studied organization, Grange Hotels, UK is one the famous and prominent hotels
within the UK. They have several branches within the UK, located in most busy and
tourist places. For example, they have branch in Grange St. Paul’s Hotel, London; Grange
Tower Bridge Hotel, London; Grange Holborn Hotel, London; The Buckingham, London
and others in busiest and tourist visited locations within the UK (Grange Hotels, 2011).

The researcher has been working for nearly 2 years within the hotel, so she knows
information and knowledge about the effect of job satisfaction and work performance of
the employees within the Grange Hotels, UK. She will be able to cover all of the research
issues and concepts that arrived from the case studied organization and from the review
of literature.

Thus, it can say that this research project is most relevant and appropriate both from
organizational and academic purposes in relation to investigate and analyse the effect of
the job satisfaction on the work performance of the employees within an organization,
such as Grange Hotels, UK.

Research Background

This research project is based on the investigation and analysis of the effect of job
satisfaction on the employee’s work performance within an organization, such as Grange
Hotels, UK. The case studied organization is a hotel group located in the most exciting and
excellent city of the world, London, UK. This is the London’s leading independent hotel
group. Grange Hotels provide a wide choice of accommodation and venues all across
London, designed to meet your corporate and company requirements (Grange Hotels,
2011).

Many researchers identify in several ways in definition of job satisfaction. Job satisfaction
is one of the most widely studies work-related attitudes in the fields of industrial and
organizational psychology, and organizational behaviour (Spector, 1997).
Herzberg et al. (1959) have examined the relationships between job satisfaction and
performance and formulized a theory base on their results. They defined job satisfaction
as an attempt by management to design tasks in such a way to build in the opportunity
for personal achievement, recognition, challenge and individual growth. In addition,
Furnham (2005) stated that job satisfaction provides workers with more responsibility
and autonomy in carrying out a complete task, and with timely feedback on their
performance. In similar way, many researchers and authors have described that job
satisfaction has great impact on the work performance of the employees within an
organization.

The excellence and quality in customer services is the prime aspect for the organization.
In this case, employee’s job satisfaction and work performance is major concern for the
organization (Grange Hotels, 2011). So, this research in relation to investigate and
analyse the effect of job satisfaction on the employee’s work performance within the
organization is most appropriate and relevant from the organizational perspective. While
during the review of literature, the researcher has identified some gaps and lacking in
relation to job satisfaction and work performance of the employees within an
organization, particularly hospitality industry. So, in relation to fulfil existing gaps and
lacking in literatures this research is most effective and appropriate from point of
academic perspective.

Thus, the researcher would like to opine that this research project is most appropriate
and perfect both from organizational and academic perspective in accordance with the
investigation and analysis of the effect of job satisfaction on the employee’s work
performance within an organization, such as Grange Hotels, UK.

A. Overview of the case studied organization (Grange Hotels, UK)

A collection of private luxury hotels all superbly located in the heart of the world’s most
exciting city London. The opportunities range from royal banquets to the pampered
luxury enjoyed in our private health clubs. The organization believes that the Grange
Hotels can satisfy every requirement of the customers and visitors (Grange Hotels, 2011).

The organization has following important aspects in relation to employee management

and work performance that derived from Corporate Social Responsibility, Grange Hotels,
UK section (Grange Hotels Corporate Responsibility 2011)-

Recruit, promote and retain all talented individuals by offering benefits;

Provide equal opportunities and value within the workplace;

Provide safe and secure workplace for all employees;

Provide training to employees to develop skills and competencies;

Provide different reward systems based on the performance of the employees; and

System of behaving of all employees on corporate responsibly way that will make
positive social, economic and environmental contribution.

Based on the management approach and attitudes towards the employees within the
Grange Hotels, UK, the researcher would like to mention that the investigation and
analysis of the effect of job satisfaction on employees’ work performance is appropriate
and relevant both from organizational and academic perspective.

B. Theoretical framework associated with the research

To formulate the theoretical framework associated with this research is important and
vital in accordance with research background. This research project is based on the
investigation and analysis of the effect of job satisfaction on the employee’s work
performance within Grange Hotels, UK. So, there should be clear link and citation of the
previous work in relation to the effect of job satisfaction on the employee’s work
performance within an organization, such as Grange Hotels, UK. The following theoretical
framework can be used in relation to investigate and analyse the effect of job satisfaction
on the employee’s work performance-

Table: 1.1. Theoretical framework associated with this research project (the effect of job
satisfaction on the employee’s work performance)

Theory and/or main research Author of the Relevant to this research

issue/concept/problem/opportunity original work project (job satisfaction and
work performance)

Nature of organizational structure Grange Hotels, This work will be able to

and commitment to equality and
fairness for the employees within
the organization.
(2011). compare and contrast the
relevant theories and practices
available into the literatures
and thus to make suggestions
and recommendations for the
case studied organization.

Nature of corporate responsibilities Grange Hotels, The identification of corporate

 in relation to job satisfaction and
performance of the employees
within the organization.
Definition and factors of job
satisfaction and job performance
and thus role of job satisfaction on
employee’s work performance
within an organization.
Measuring the level of job
satisfaction and work performance
of the employees within an
organization.
(2011). responsibilities can help the
researcher to analyse and
evaluate the current practices
and conditions in relation to
job satisfaction and work
performance within the
organization and make valid
conclusions and
recommendations both to
academic and organizational
perspective.
Pinks et al. This will help the researcher to
(2006); set the definitions of the job
Hertzberg satisfaction and work
(1959); Tsai et performance as well as to
al. (2010); and identify the relevant factors.
Hodgetts This will also help to identify
(1991). and evaluate the role and
significances of job satisfaction
on the employee’s work
performance within an
organization.
McKenna To explore and identify some
(2000); key job satisfaction and work
Archnahr performance measurement
(2006); tools and techniques available
Hakala in the existing literatures and
(2008); and how the case studied
Gillikin organization is measuring the
(2011). level of job satisfaction and
work performance of the
employees.
Source: Author’s analysis based on chapter 1: Introduction and Background and chapter
2: Critical review of Literature.

C. Reasons for selection of research topic

The selection of research topic plays significant role to apply and implement knowledge
and understanding about a particular research area. It determines the research scopes
and limitations with the selection of relevant research topic. The researcher has been
studying business and administration management, focusing on human resource
management. Thus, the selection of this research topic i.e. the investigation and analysis
of the effect of job satisfaction on the employee’s work performance within an
organization, such as Grange Hotels, UK is appropriate and relevant.

Table: 1.2. Reasons for the selection of research topic (job satisfaction and work
performance of employees within an organization)

Rationale in Explanation of the rationale for selection

relation to-

Individual The researcher will be able to apply and implement

perspective knowledge and understanding about the business and
administration management, focusing on human
resource management into practical life in future. This
research will also help her to develop future career
aspect through improving skills and competencies.

Academic With this research report having valid conclusions and

perspective recommendations, some gaps and lacking can be
reduce and eliminate as well as there are several issues
and concepts that can be regard as future research
initiatives.

Organizational The researcher has been working within the case

perspective studied organization, so she will be able to explore and
identify the real situation and conditions in relation to
job satisfaction and work performance of the
employees within the organization. Based on the
findings, the author will make valid conclusions and
recommendations for the organization that can help
the organization to improve current situations and
 conditions to achieve organizational goals and
objectives.

Source: Author’s analysis based on personal experience on research project

Research issue/problem statement

This research project is based on the investigation and analysis of the effect of job
satisfaction on the employee’s work performance within an organization, such as Grange
Hotels, UK. Based on the case studied organization’s current situations and conditions, it
is clear that the organization is commitment to provide excellent and quality services to
their clients, customers, visitors and tourists from different parts of the world. So, there is
need for the identification and analysis of the employee’s job satisfaction and how does
this affecting the work performance within the organization in relation to achieve goals
and objectives of the organization.

Research questions

The primary query of the research is the investigation and analysis of the effect of job
satisfaction on the employees’ work performance. Based on the main research question,
following research questions can be construct in relation to research aims and objectives-

What are the factors that can influence the satisfaction and dissatisfaction of employees
in their workplace, such as Grange Hotels, UK?

How the level of performance of employees can be measured based on their job
description and job satisfaction?

How the organization/company, such as Grange Hotels, UK can motivates the employees
that will enhance work performance by increasing job satisfaction?

What are the positive and negative impacts within the organization/company?

How the job satisfaction can increase work performance of the employees within the
organization/company, such as Grange Hotels, UK?

Research aims and objectives

The primary aim of this research is to investigate and analyse the effect of job satisfaction
on the employee’s work performance. The sub aims in accordance with primary aim
include- to identify the factors that influence satisfaction and dissatisfaction of
employees; to evaluate the productivity and efficiency of employees’ based on their job
satisfaction; and to identify and evaluate how the job satisfaction influence the
performance of the employees.

The key objectives of this research are as follows-

To identify and analyse the factors based on existing theories and empirical evidences
that influence the satisfaction and dissatisfaction of employees within an organization,
such as Grange Hotels, UK;

To measure the level of work performance of the employees in accordance with their job
satisfaction and dissatisfaction with the collection and gathering of primary and
secondary data and information within an organization, such as Grange Hotels, UK;

To identify and analyse the current scenarios of the job satisfaction and dissatisfaction of
the employees as well as the level of work performance and efficiency of them within the
Grange Hotels, UK; and

To establish valid conclusions and recommendations with the identification of impacts,

both positive and negative of job satisfaction and dissatisfaction on employees’ work
performance within an organization, such as Grange Hotels, UK.

Study of the research scope

This research project will investigate and analyse the effect of the job satisfaction on the
employee’s work performance within an organization, such as Grange Hotels, UK. Data
both primary and secondary has been collected through semi-structured interviews,
questionnaire survey and document analysis etc. The researcher has made valid
conclusions and recommendations base on the research findings where there are several
issues and concepts that need further investigation and analysis that can lead future
research initiatives. Thus, the researcher would like to opine that this research has
created several research scopes in the field of job satisfaction and work performance of
the employees within an organization.

Overall research limitations

Every research project has some limitations that can affect the overall research activities
and research report. Throughout the research project, there were following limitations-
i. Lack of available time: The researcher has limited time to complete the research
project. This lack of available time has affected the collection and gathering of relevant
data and information from the different sources- primary, secondary and tertiary etc.

ii. Lack of financial resources: The researcher has limited financial resources that in some
cases affected the overall completion of the research project. For example, due to lack of
available money, she carried out limited number of questionnaire surveys and interviews
within the case studied organization, as she needs to travel more to carry out more
surveys and interviews that cost more money. The researcher has overcome this
limitation, because she has been working within the organization that helped her to make
appointment in most convenient ways with the management personnel and general
employees of the organization.

iii. Lack of skills and competencies in relation to interview and survey completion: The
researcher has lack of skills and competencies in relation to conduct and complete survey
and interview. This thus affected the collection of primary data from the surveys and
interviews. But the researcher has carried out document review and analysis that helped
her to support data and information that derived from the surveys and interviews as well
as she had carried out pilot study that increased confidence and ability to complete
survey and interview.

iv. Small sample size and fewer amounts of data and information: The researcher has to
set small sample size because of limited time and financial resources and thus this
affected the collection of data and information.

Conclusion

In this chapter some of the major issues and concepts such as research background,
research aims, research objectives, research questions, theoretical framework, reasons
for selecting research topic, overall limitations within the research project etc. have been
covered in most convenient ways to highlight the research subject and research areas in
relation to the effect of job satisfaction on the employee’s work performance within an
organization, case of Grange Hotels, UK.

Chapter 2: Critical Review of Literature

Introduction
Critical review of literature is the vital and important part within the research project for
the purpose of exploring, identifying and analysing existing theories and practices into
the literature about the research topic or research area (Saunders et al. 2009). They
described that the critical review of literature builds the backbone of the research project
and thus shape out the research tasks and activities with setting out and creating
standard research questions, aims and objectives in accordance with research
issues/problems/opportunities/concepts. Thus, it can said that the critical review of
literature plays significant role to conduct the research project in most effective and
appropriately.

The researcher was more motivated and self-esteemed regarding the research title as she
has been working for nearly 2 years within the case studied organization. Thus, the
researcher believes she will be able to explore and evaluate the real situation in relation
to job satisfaction and work performance of the employees within the organization. This
chapter has discussed and explained some major issues and concepts regarding the
critical review of literature such as literature review sources and strategies; theoretical
framework for references; concluding remarks on critical review of literature and
limitations on critical review of literature etc. Thus, it can be said that the critical review
of literature was very effective to investigate existing theories and practices in relation to
the effect of job satisfaction on employee’s work performance within an organization,
case of Grange Hotels, UK.

Literature review sources and strategy

It is vital to establish the strategies for the critical review of literature, because it helps
the research to understand the scopes and dimensions of the research areas as well as to
explore the real key themes and thus available theories and practices done by previous
prominent researchers and other scholars. For example, according to Fink (2009),
research literature review has many uses and thus it requires setting appropriate
strategy to achieve following goals and objectives within the research project- to identify
inclusion or exclusion criteria; to establish data extraction methods; to evaluate study
quality; and to apply and implement techniques for synthesizing and analysing research
findings etc. The researcher will use relevant books, articles, journals and other
publications in relation to read the relevant data and information in accordance with
research aims and objectives.
The researcher would like to mention that there were four sections such as i. Factors that
influence job satisfaction and dissatisfaction; ii. Measuring job satisfaction; iii. Measuring
work performance; iv. Relationship between job satisfaction and work performance; and
v. Role of job satisfaction on work performance. There were particular sources and
strategies to collect and gather relevant data and information for each of those sections.
For example, to read and search relevant books to collect and gather data and
information about the factors that influences job satisfaction and dissatisfaction has been
applied in relation to section one. Like this, several sources and strategies have been used
to explore and investigate all relevant research works in accordance with this research
project. Thus, the author wants to say that the searching of relevant sources and
implementation of appropriate strategies helped to collect and gather relevant things in
respect to the effect of job satisfaction on the employee’s work performance: a case study
of Grange Hotels, UK. The literature review sources and strategies can be represent as
follows-
Table: 2.1. Literature review sources and strategies

Main issue Smaller view Wider view

Focus Especially focusing on the job Job satisfaction and employee

satisfaction and employee work work performance in different
performance in hospitality (hotel) business industry, focusing on
industry within the UK. hospitality industry.

Subject area Job satisfaction and dissatisfaction; Employee attitude to job;

employee’s work performance; and employee performance; and
organizational performance etc. achievement of organizational
goals and objectives etc.

Business sector Hospitality industry Services to guests and visitors

from around the world,
particularly from Europe.

Publication Last 10 years. Last 25 years, in some cases older.

period

Literature type Referred books and articles, Academic books; scientific

scientific journals, magazines and journals and articles; and
other relevant sources etc. organizational (e.g. hotels) news
publications etc.
In this research project, all the secondary and tertiary sources that have been used not
older than 10 years in relation to research title- the effect of job satisfaction on the
employee’s work performance: a case study of Grange Hotels, UK. The researcher has
used most appropriate and authentic sources for the purpose of critical review of
literature in relation to research topic. There was uses of some internet sources those
were most appropriate and relevant with the research aims, objectives and research
questions. All of these sources were appropriate and effective to complete research
project.

Critical literature review structure

The researcher has used some books, recent articles, journals, publications and other
electronic sources to collect secondary and tertiary data from the critical review of the
literature. The key themes that has investigated and explored from the review of
literature can be shown as follows-

Factors that influence job satisfaction and dissatisfaction of employees within workplace;

How to measure level of job satisfaction;

How to measure work performance;

Relationship between job satisfaction and work performance; and

Role of job satisfaction on work performance.

i. Factors that influences job satisfaction and dissatisfaction of employees within

workplace

According to Pinks et al. (2006), job satisfaction can be influenced by a variety of factors
e.g. the relationships with the supervisor; the working environment and its quality;
degree of fulfilment in the working place etc. They also mentioned that personal traits
such as age, education level, tenure, positions, marital status, year of services and hours
of work per week. They have developed following figure in relation to factors that
influences job satisfaction and that has impact on the work performance of the employees
within an organization. The researcher will try to identify and investigate any one of the
above mentioned factors within the case studied organization, Grange Hotels, UK for the
purpose of comparing and contrasting the effectiveness and efficiency of those factors in
real life or practical field.
Maslow’s theory of need, developed in 1970 that depicts the need of the hierarchy of
needs including physiological, security, social, esteem and self-actualization etc. of an
employee can also affect the job satisfaction and dissatisfaction of that employee.
According to Maslow’s theory if an employee fulfils his or her needs of hierarchy, then he
or she is satisfied with the job and vice-versa (Maslow, 1970). Does the Maslow’s theory
of need is applicable within the case studied organization, Grange Hotels, UK in relation
to job satisfaction and work performance of the employees, will be important concern for
the researcher in this research project.

Self-actualization – morality, creativity, problem solving, etc.

Esteem – includes confidence, self-esteem, achievement, respect, etc.

Belongingness – includes love, friendship, intimacy, family, etc.

Safety – includes security of environment, employment, resources, health, property, etc.

Physiological – includes air, food, water, sex, sleep, other factors towards homeostasis,
etc.

Evans (1998) mentions that factors such as low salaries and low status causes job
dissatisfaction within employees’ profession. There are several factors that affect the
individual needs, values and expectations within the organization can be used to evaluate
the level of satisfaction of that employee (Sempane et al., 2002). What is the current
salary and status structure within the case studied organization and how this structure is
affecting the level of job satisfaction and thus performance of the employees will be
analysed and evaluated by the researcher.

In 1959, Hertzberg has developed theory of motivation-hygiene. According to Hertzberg

(Schultz et al., 2003) employees who are satisfied at work attribute their satisfaction to
internal factors (e.g. responsibility, recognition, promotion and achievement etc.), while
dissatisfied employees ascribe their behaviour to external factors (e.g. supervision,
salary, work environment and relations with other employees etc). Based on the
Herzberg’s theory it is clear that workers are most satisfied and most productive when
their jobs are rich in the motivator factor. When the work is interesting, he suggests can
be accomplished by the job enrichment. So, job enrichment is become another factors
that have influences on the job satisfaction and dissatisfaction and thus on the work
performance of the employees within an organization.
Hackman and Oldham’s (1976) model of job enrichment propose that jobs can be made
more motivating by increasing the following: skill variety (the number of different skills
required by the job), task identity (the degree to which the job produces something
meaningful), task significance (the importance of the work), autonomy (the degree to
which the individual has freedom in deciding how to perform the job), and feedback (the
degree to which the individual obtains ongoing. There will be great efforts by the
researcher to investigate and evaluate the existing motivational techniques applied and
implemented by the managers and/or leaders as well as what is the model of job design
and job enrichment within the case studied organization, Grange Hotels, UK.

According to Valencia (2011), motivation by the leaders and/or managers plays crucial
role to influence the job satisfaction and dissatisfaction that ultimately affect the level of
work performance by the employees within an organization. She has mentioned that
there are several ways in which job can be design and enrich within the organization to
enhance employees’ satisfaction and thus work performance of them and these include-
a. Combining tasks that influences skills variety and task identity; b. Forming natural
work units that enhances task identity and task significance; c. Establishing client
relationships that increases skill variety, autonomy and feedback; d. Vertical loading
where the worker has more authority, responsibility and control over the work and that
increases autonomy, skills variety, task identity and task significance etc.; and e. Opening
feedback channels that increases feedback. So, it is clear that if the employees are
motivated by their managers and/or leaders in their work place, in most cases they
become satisfied with their jobs and it helps to improve the efficiency and productivity of
those employees within the organization. Is there any implementation of particular way
or combination of way as mentioned by Valencia (2011) within the case studied
organization for the purpose of job design and job enrich that affects the job satisfaction
and work performance of the employees will be identified and discussed by the
researcher.
Tsai, et al. (2010) has identified another dimension regarding the factors that influences
job satisfaction and dissatisfaction and thus affects the work performance of the
employees within an organization. They have found that organizational commitment is
vital for the job satisfaction as well as work performance of the employees within an
organization, particularly in hospitality industry. According to them employees’ job
satisfaction enhances job performance only through organizational commitment. They
also mentioned that internal marketing, empowerment and leadership also positively
influence job satisfaction. While Heskett et al. (1994) proposed the framework of service
profit chain in relation to job satisfaction and job performance within the hospitality
industry. In the service profit chain, there are critical linkages among internal service
quality, employee satisfaction/productivity, the value of services provided to the
customers, customers satisfaction and company’s profits. Thus, they opined that internal
service quality can enhance employee satisfaction, which will enhance employee
productivity and further result in external service value and enhanced customers’
satisfaction.

Based on previous research works completed by several researchers such as Babin and
Boles, 1998; Bernhardt et al. 2000; Scotter, 2003; Koys, 2003 and Testa, 2001 etc. have
validated that employees’ job satisfaction positively influences job performance and
organizational commitment within an organization. What are the organizational
commitments and what is the service chain model within the case studied organization,
Grange Hotels, UK and how these are affecting the job satisfaction and work performance
will be explored and analysed by the researcher. According to Chen and Silverthorne
(2005), job stress is a critical issue in relation to job satisfaction and work performance of
employees within an organization. For example, Jamal (1990) and Jex (1998) have stated
that reducing employees’ job stress could enhance employees’ job satisfaction and job
performance. Moreover, Williams and Cooper (2000) and Ouyang (2009) indicated that
proper job stress would enhance employees’ job performance.

The researcher will try to find out the real conditions regarding the internal marketing,
leadership, empowerment and job stress within the case studied organization for the
purpose of investigating and analysing the effect of job satisfaction on the employees’
work performance. Hodgetts (1991) has identified some organizational factors that
influence job satisfaction and/or job dissatisfaction. These include-

Pay and benefits: The importance of equitable reward is a factor to consider here. One
could add fair promotion policies and practices to fair pay (Witt and Nye, 1992).
Promotion: The level of satisfaction will depend on the acceptability of the system in
operation, be it a system based on merit, or seniority, or whatever combination of the two
(Hodgetts, 1991).

Job itself: This would embrace (a) Skills variety- the extent to which the job allows a
worker to use a number of different skills and abilities in executing his or her duties
(Glisson and Durick, 1988); (b) interest and challenge derived in the job, particular
moderate challenge (Katzell, et al. 1992); and (c) lack of role ambiguity- how clearly the
individuals understand the job (Glisson and Durick, 1988).

Leadership: There has been endorsement of people-centred or participative leadership as

a determinant of job satisfaction (Miller and Monge, 1986).

Work group: It would appear that good intra-group working and supportive colleagues
have value in not permitting job dissatisfaction to surface, rather than in promoting job
satisfaction (Hodgetts, 1991).

Working conditions: Where working conditions are good, comfortable, and safe, the
setting appears to be appropriate for reasonable job satisfaction and the situation with
respect to job satisfaction would be bleaker if working conditions were poor (Hodgetts,
1991).

It seems to be a common assumption that employees, who are happy with their job,
should also be more productive at work (Spector, 1997). It has been hypothesized that if
above average performance is rewarded on the job, and then the correlation between job
satisfaction and job performance would be higher (Jacobs and Solomon, 1977). There will
be great effort by the researcher to identify and evaluate any one of the above mentioned
organizational factors are applicable within the case studied organization, Grange Hotels,
UK in relation to the effect of job satisfaction on employee’s work performance.
ii. How to measure the level of job satisfaction The researcher thinks that to measure the
level of job satisfaction, it is require to provide some appropriate definitions of job
satisfaction because it is very complex issue to measure the level of job satisfaction within
an organization. As cited by Rashid (1983) shows that there is no simple definition of the
job satisfaction because it means different things to different people. He described that
job satisfaction varies in fact according to what a person seeks in a job, how he or she
ranks the items sought in order to priority, and how well the job permits the person to
achieve the various personal goals. Job satisfaction is simply how people feel about their
jobs and different aspects of their jobs. It is the extent to which people like (satisfaction)
or dislike (dissatisfaction) their jobs (Spector, 1997).

According to McKenna (2000), the most frequently adopted approach to measuring job
satisfaction involves the use of rating scales that are standard instrument that are
designated to provide feedback on specific examples of employee satisfaction and
dissatisfaction. He also mentioned that there are other techniques for measuring job
satisfaction such as critical incidents and interviews. The technique in which the
employees are requested to focus on some situation or incident that is related to job
satisfaction is known as critical incident technique where the employees experience
greater freedom to express themselves, unlike the situation with rating scales. Another
technique interview that is regarded as more open-ended approach than critical incidents
and where interviews offer interviewee wider scope in terms of response (McKenna,
2000 p.280). Moreover, Archnahr, et al., (2006) have stated that to measure level of job
satisfaction is very subjective approach. The psychometric tools are the most effective
and efficient to measure level of job satisfaction. Other tools that can be used to measure
job satisfaction include- global measure that measures the overall satisfaction of the job;
facet measure where satisfaction is measured on each aspect of the job.

According to Stanton et al. (2001), job description index (JDI) items is one the best
methods that can be used to measure level of job satisfaction of the employees within the
organization. This JDI items include- working environment, payment, promotion,
supervision and relations with co-workers etc. However, other researchers have used JDI
in relation to measure level of job satisfaction. For instance, the JDI is an instrument that
is used to assess job satisfaction more than any other inventory (Kinicki, 2002). Balzer et
al. (1997) describes the purpose of the JDI as well as the validity and reliability
conducted. The basis for the Job Descriptive Index is that job satisfaction is important for
three different reasons: humanitarian concerns, economic concerns, and theoretical
concerns.
Humanitarian concerns: Humanitarian concerns are of interest because employers want
people to be satisfied with their jobs. Job satisfaction has been related to various factors,
like physical and mental health, as well as overall life satisfaction, so it is important for
people to be satisfied at work (Balzer et al., 1997).

Economic concerns: Economic concerns are of interest to employers because they want
to get the most from their employees. If happier employees lead to increased
productivity, then it is worth the employer’s time to make the employees satisfied. Job
satisfaction can also lead to various factors like decreased absenteeism, reduced
turnover, and fewer on the job injuries (Balzer et al., 1997).

Theoretical concerns: Theoretical concerns are of interest because many people view
satisfaction as the cause of work-related behaviours, such as maintaining good working
relationships, coming to work, and doing the job well (Balzer et al., 1997).

Other researchers (e.g. MacDonald, 1996; O’Toole, 1980) argue in favour of the control of
job satisfaction by factors intrinsic to the workers. Their arguments are based on the idea
that workers deliberately decide to find satisfaction in their jobs and perceive them as
worthwhile. Several authors and researcher have revealed that job satisfaction is an
important aspect within the organizational performance, particularly in the hospitality
and hotel industry as the business is concern with services through the employees. For
example, according to Nguyen, et al. (2003), job satisfaction is an issue of substantial
important both for employers and employees. They suggest that employers benefit from
satisfied employees as they are more likely to profit from lower staff turnover and higher
productivity if their employees experience a high level of job satisfaction. However,
employees should also ‘be happy in their work, given the amount of time they have to
devote to it throughout their working lives’. Thus, the researcher will adopt and
implement some common and appropriate tools and techniques for the purpose of
measuring level of job satisfaction in relation to investigate and analyse the effect of job
satisfaction on the employee’s work performance at the Grange Hotels, UK.

iii. How to measure the work performance

Work performance measurement is an integral and crucial part within the organization. If
the organization does not establish proper and appropriate performance measurement
system, they cannot measure and evaluate the organizational performance itself. So, it is
vital to measure work performance of employees by adopting and implementing some
tools and techniques through setting some criteria.
For example, Hakala (2008) has proposed following ways to measure employee
performance (work performance)-

Quantity: The number of units produced, processed or sold is a good objective indicator
of performance (Hakala, 2008).

Quality: An organization can measure work of the employees through measuring the
quality of the person in terms of efficiency and productivity.

Timeliness: The time required to complete a particular task can be regard as measuring
tool of work performance of that employee within the organization (Hakala, 2008).

Absenteeism: The level absenteeism can be used to measure work performance of an

employee (Hakala, 2008).

Creativity: Creativity can be used as measuring work performance but it is very difficult
to measure performance based on creativity (Hakala, 2008).

Personal Appearance/Grooming: Most people know how to dress for work, but in many
organizations, there is at least one employee who needs to be told (Hakala, 2008).

Management appraisal system: To measure the performance of the employee, there can
be appraisal system by the management of the organization (Hakala, 2008).

Personal appraisal system: To measure how the person is performing in his or her job
place, can be measured by self-appraisal system (Hakala, 2008).

Peer appraisal system: The colleagues and other employees can help to measure the
efficiency and productivity of an employee within an organization (Hakala, 2008).

Assess by external body: There can be use of external body to measure the work
performance within an organization (Hakala, 2008).

The measurement of efficiency and productivity regard as the vital tools and techniques
for the purpose of measurement of work performance (Gillikin, 2011). Efficiency is the
ratio of an employee’s actual time to perform a particular task against the theoretical
time needed to complete it (Gillikin, 2011). He also mentioned that a time study approach
can be used to measure the efficiency of an employee. Productivity is simply the amount
of units of a product or service that an employee handles in a defined time frame (Gillikin,
2011). He also mentioned that the measure of employee work output can be used to
measure the productivity that employee. Abilla (2007) has developed equations that can
be used to measure efficiency and productivity of employees within the organization.
He has developed following equation for the purpose of measuring worker efficiency-
Efficiency = [100% * (actual output/standard output)].

He has developed following equation for the purpose of measuring worker productivity-
Productivity = Outputs/ Inputs.

Kaplan and Norton (1996) have proposed a balanced scorecard or a balanced set of
measures in relation to measure work performance within an organization, particularly
by the top managers of the organization. They mentioned that there are major four
perspectives that are important for the measuring of work performance and these
include- the customer’s perspective; the internal business perspective; the innovation
and learning perspective; and the financial perspective. The United States Office of
Personnel Management (2001) has proposed that there are 5 key components in relation
to performance measurement that include- planning, monitoring, developing, rating and
rewarding etc.

iv. Relationship between job satisfaction and work performance

This is an important area of research because job satisfaction is correlated to enhanced

job performance, positive work values, high levels of employee motivation, and lower
rates of absenteeism, turnover and burnout (Begley and Czajka, 1993; and Tharenou,
1993). Several authors have described that there is close and vital relations with the job
satisfaction and work performance within an organization. The most prominent
researchers and authors who have worked on it include- Judge et al. (2001); Schwab and
Cummings (1970); Locke (1976); and Iaffaldano and Muchinsky (1985) and all them have
agreed that the job satisfaction can influence work performance of the employees within
an organization. There are also stronger relationships depending on specific
circumstances such as mood and employee level within the company (Morrison, 1997).
Organ (1988) also found that the job performance and job satisfaction relationship
follows the social exchange theory; employees’ performance is giving back to the
organization from which they get their satisfaction.
Judge et al. (2001) argued that there are seven different models that can be used to
describe the job satisfaction and job performance relationship. Some of these models
view the relationship between job satisfaction and job performance to be unidirectional,
that either job satisfaction causes job performance or vice versa. Another model stated
that the relationship is a reciprocal one; this has been supported by the research of
Wanous (1974). The underlying theory of this reciprocal model is that if the satisfaction
is extrinsic, then satisfaction leads to performance, but if the satisfaction is intrinsic, then
the performance leads to satisfaction.

Other models suggest there is either an outside factor that causes a seemingly
relationship between the factors or that there is no relationship at all, however, neither of
these models have much research. George and Brief (1996) and Isen and Baron (1991)
both founded that job satisfaction can lead better work performance of the employees
within an organization. Bishay (1996) postulates that if employees are satisfied with their
work they will show greater commitment and thus more better performances within the
organization. Conversely, dissatisfied workers with negative attitudes will ultimately
leave the organisation. The researcher will try to find the application and implementation
any models for the purpose of identifying relationships of job satisfaction with work
performance within the case studied organization, Grange Hotels, UK.

v. Role of job satisfaction on work performance

According to Yousef (2000), job satisfaction and organizational performance is closely

related because if the employees are satisfied then there will be no tardiness,
absenteeism and turnover that will improve the work performance and organizational
productivity. Moreover, factors that are associated with job satisfaction linked to increase
productivity and organizational effectiveness that affect the work performance of the
employees (Buitendach and de Witte, 2005). According to Nimalathasan (2010), the
employees who are satisfied with their job can create more effort that will create better
organizational performances as well as he or she can provide better performance from
him or her. He also described that job satisfaction has two types of role- from
organizational perspective and employees’ perspective. The organization has to ensure
job satisfaction to achieve organizational goals and objectives. On the other hand, job
satisfaction can provides mental refreshment, good relations with co-workers, good
relations with supervisor etc. to the employees within the organization.
Job satisfaction has both positive and negative consequences within the organization. For
instance, Hodgetts (1991) has described that the outcomes or consequences of job
satisfaction in relation to performance, employee turnover and absenteeism.

Performance: The employees who are satisfied with the job they do better work than the
employees who are not satisfied with their job, a research study carried out by (Ostroff,
1992). As an example (West, 1998) has mentioned in UK job satisfaction has great
influence on the work performance of the employees within an organization, such as in
retail organization.

Employee turnover: Job satisfaction is closely related with employee turnover that can
be used to measure the level of efficiency and productivity of the employees and thus the
work performance of those employees and Lee and Mowday (1987) stated that the
employee who is satisfied he or she wants to stay within the organization compare to
employee who is not satisfied with the job.

Absenteeism: There is said to be an inverse relationship between job satisfaction and

level of absenteeism- that is, when job satisfaction is low, absenteeism tends to be high
(Steel and Rentsch, 1995). There is opposite argument as well in respect to job
satisfaction and level of absenteeism, such as Clegg (1983) has mentioned that there is no
guarantee in low levels of absenteeism despite of having high levels of job satisfaction.

Heskett et al. 1997 and Weaver, 1994 have stated that the people who are satisified with
the job, they are very productive than those are not satisfied with the job within an
organization. According to Reichheld (1996), there are mainly three features by which an
organization can explore the role of job satisfaction on the work performance of the
employees that include- the feel proud of their jobs, they find very much interests and
meanings by doing jobs and after receiving recognition from the colleagues and/or other
employees within the organization. All of the features can be termed as to assess the roles
of job satisfaction on the work performance of the employees within an
organization. Moreover, some other prominent researchers have mentioned that job
satisfaction has role to work performance in several ways. For instance, satisfied
employees provide a higher level of external service quality, the service experience that
customers receive and evaluate, which leads to increased customer satisfaction, stated by
Heskett et al. 1997 and Spinelli and Canavos, 2000.
Job satisfaction has one most crucial role within the organization in relation to human
resource management (HRM). The issue of turnover is an important concern for the
purpose of human resources management. Several authors have revealed that there is
closely a relationship with the job satisfaction and turnover that affect human resources
management and thus work performance of the employees within an organization. As an
example, Hackman and Oldham (1975) have described that job satisfaction is generally
believed a higher job satisfaction is associated with increased productivity, lower
absenteeism, and lower employee turnover. Glance et al. (1997) described that employee
turnover is positively related with the productivity of the employee. Amah (2009) noted
that employee turnover can be reduced through increasing job satisfaction. The satisfied
employees are willing to involve in more volunteering within the organization that
increase more productivity of them and thus reduce turnover of them.

According to Mudor and Tooksoon (2011), HRM practices in specific internal fit as an
ideal set of practices which identify three variables; supervision, job training, and pay
practices believed to influence job satisfaction and toward turnover of the employees, as
some of the practices of high the performance working system practices by previous HRM
researchers such as Bradley et al. (2004). From the review, it is clear that the job
satisfaction has impact on the several issues and concepts such as organizational
performance, employee performance, turnover and absenteeism, employee productivity,
service quality of employees and human resources management etc. So, there should be
initiatives by the researcher to explore and evaluate about the impact of job satisfaction
on the above mentioned issues and concepts.

Theoretical framework of references

During the critical review of the literature, the researcher has identified several issues
and concepts that are closely related with the job satisfaction and work performance of
employees within an organization, particularly in hospitality industry (Hotels). The
theoretical framework of references can be represent as follows-

Table: 2.2. Theoretical framework of references with key themes and year of publication

Name of Main focus in relation to job satisfaction and Year of

author(s) work performance of employee within an publication
organization

Pinks et al. Factors that influence job satisfaction 2006

Maslow Theory of Hierarchy of Needs that leads to 1970

 job satisfaction

Evans Organizational and personal factors in 1998

relation to job satisfaction and
dissatisfaction

Hertzberg Theory of Motivation-Hygiene factors in 1959

relation to job satisfaction and/or
dissatisfaction

Hackman and Job enrichment and job satisfaction and job 1976
Oldham’s satisfaction

Valencia Motivation by leaders and/or managers in 2011

respect to job satisfaction and/or
dissatisfaction

Tsai et al. Organizational commitment, job satisfaction 2010

and work performance

Heskett et al. Service profit chain in relation to job 1994

satisfaction and job performance

Chen and Job stress in relation to satisfaction and

Silverthorne work performance of employees

2005Tsai et al.Internal marketing, leadership, empowerment and job stress etc. are
possible factors of employees’ job satisfaction, organizational commitment and work
performance

2010HodgettsOrganizational factors that influence job satisfaction and/or

dissatisfaction1991RashidDefinition of job satisfaction1983
McKennaApproaches such as rating scales, critical incidents, interviews etc. to measure
job satisfaction2000ArchnahrMeasuring job satisfaction is subjective approach and there
are some tools- psychometric tools, global measure and facet measure
etc.2006LuthanThree important dimensions to job satisfaction1998Nguyen et
al.Importance of job satisfaction both for employers and employees2003HakalaDifferent
ways to measure employee performance2008GillikinEfficiency and productivity in
relation to measure work performance2011Kaplan and NortonA balanced scorecard in
relation to measure work performance within an organization1996YousefJob satisfaction
and organizational performance2000NimalathasanRole of job satisfaction both from
organizational and employees’ perspective2010

Source: Author’s analysis based on critical review of literature

Conclusion on critical review of literature

According to Saunders et al. (2009), critical review of literature explores and identifies
some key themes and issues relevant to the research topic. This research project is based
on the effect of job satisfaction and work performance of employees within an
organization such as Grange Hotels, UK. The key issues and concepts that have been
explored and identified from the critical review of literature in accordance with research
aims and objectives can be shown as follows-

There are several factors that influences the job satisfaction and these include-
organizational factors, e.g. organizational commitment, structure of wages and salary,
human resource management policies and regulations, job design and description etc.
and employees’ personal factors- attitudes towards job, self-motivation, age, wages and
salaries according to level of experiences, willingness and innovative in working
approach etc.

The theory of hierarchy of needs plays significant role to increase job satisfaction and
thus increase work productivity and performance.

The theory of motivation-hygiene factors has great influence on the job satisfaction and
work performance of the employees within an organization.

There are several approaches such as rating scales, global measures, facet measure,
interviews, psychometric tools, balanced scorecard etc. to measure the level of job
satisfaction.
The measure of efficiency and productivity is vital for the purpose of measuring job
performance of employees within an organization.

The job satisfaction plays great role within the organization in relation to improve and
increase the job performance of the employees, for example, in respect to organizational
perspective including more customer satisfaction and loyalty to organization and in
respect to employee perspective including efficient and productive outputs in relation to
service.

Limitation on critical review of literature

There may have some lacking with the collection of data and information in relation to
research aims and objectives from the critical review of literature for several reasons. For
example, time constraints are the most vital limiting factor that affects the data and
information from the literature review. The lack of available financial resources is also
another limiting factor that affects the review of literature activities in relation to collect
and gather data and information in relation to research aims and objectives. Thus, the
researcher would like to mention that due to shortage of time and less financial resources
can affect the collection and gathering of data and information from the critical review of
literature.

Chapter 3: Research Methodology

Introduction

The discussion of research methodology is an important part within the research project,
because it has great influences on the overall research activities and thus to make good
piece of research work with valid conclusion and recommendation in accordance with
research aims, objectives and research questions. For example, Kothari (2004 p.05-06)
has described that depending on the type of research, the research methodology helps
the researcher to identify and explore key tools and techniques for the purpose of
collecting different data and information. Thus, whatever the research type, there should
be appropriate discussion about the research methodology to complete the research
work and thus to make standard research report through collecting and gathering
primary, secondary and/or tertiary data and information from various sources. Thus, it
can say that research methodology is vital to set out appropriate ways and guidance by
which the research will be complete in a most effectively and efficiently.
In this chapter, there have been discussed and explained some major issues and concepts
within the research methodology. These include- research philosophy, research
approach, data collection methods, alternative research methods, data analysis tools and
techniques, consideration of ethical issues in research methods, advantages of used
research methods, limitations associated with used research methods and how to
minimize those limitations, and overall reflection on the research methodology etc. Thus,
the author would like to mention that this chapter has covered all of the relevant issues
and concepts within the research methodology in relation to this research project- an
investigation and analysis of the

Research philosophy

The consideration of research philosophy is important and vital part within the research
project in relation to make good piece of research report (Saunders et al. 2009). This
research project is based on the cause-effect relationships, so the researcher believes that
positivism research philosophy was most appropriate and relevant in relation to this
research project. The reasons were as follows-

To identify the real scenarios from the case studied organization as either qualitative or
quantitative or both; and

To enable and assist to evaluate different methodologies and methods and to avoid
inappropriate use and unnecessary work by identifying the limitations of the particular
approaches at an early stage.

Research approach

According to Tobin (2006), there are several elements on the research that are based
either on the empirical or non-empirical or combination of the two research approach. In
relation to empirical research approach, there are following sub research approach-

Qualitative vs quantitative research approach;

Deductive vs inductive research approach; and

Subjective vs objective research approach (Tobin, 2006)

Among those research approaches, deductive vs inductive research approach is mostly
used in the business and management research, particularly in the field of cause-and-
effect relationships research. So, it is clear that either deductive or inductive will be
applicable to complete research work through using appropriate research methods to
collect primary and secondary data and information from several sources. The reasons
for using inductive research approach were as follows-

To develop conceptual and theoretical structure and to test by empirical observation in

relation to job satisfaction and work performance of the employees within the Grange
Hotels, UK; and

To establish a particular thing from the general points regarding the job satisfaction and
work performance of the employees within an organization, such as Grange Hotels, UK.

Data collection methods

Data collection both primary and secondary is an important part of the research project.
If the researcher does not collect and gather appropriate and relevant data, he or she
cannot make good piece of research report in accordance with research aims, objectives
and questions. In this case, the researcher needs to consider some things within the data
collection. The researcher has covered all of the relevant issues in the data collection
methods within this chapter of research methodology.

i. Questionnaire design: The researcher has conducted semi-structured interviews and

questionnaire survey for the purpose of collecting primary data and document review &
analysis for the purpose of collecting secondary data from the case studied organization,
such as Grange Hotels, UK. All of the research questions have been designated in such as
way that reflected the overall research aims, objectives and research questions. For
example, the interview questions were designated with both open-ended and closed-
ended, mostly using Likert scale questions. The survey questions has been designated
through focusing research aims, objectives and research questions by putting both open-
ended and closed-ended questions, mostly using Likert scale. The researcher believes
that the questionnaire design was perfect and appropriate in relation to collect and
gathers real data and information about the job satisfaction and work performance of the
employees within the case studied organization, Grange Hotels, UK.
ii. Sample size and sampling techniques: To determine sample size is an important
concern for the researcher to collect relevant data from the right people or respondents
within the case studied organization. In case study, research approach, there may require
small sample of the respondents because of particular research area. In relation to semi-
structured interviews, there were 3 interviewees to collect the real data and information
about the case studied organization. There were 20 employees questionnaire survey out
off 35 full-time and part-time employees within the Holborn branch to collect primary
data from them about the job satisfaction and work performance within the organization,
Grange Hotels, UK. Simple random sampling technique has been used both in semi-
structured interviews and questionnaire survey for the purpose of collecting primary
data in relation to job satisfaction and work performance of the employees within the
case studied organization, Grange Hotels, UK. iii. Primary data collection: The researcher
has collected primary data through conducting semi-structured interviews of the
management personnel and by carrying put questionnaire survey of the general
employees of the case studied organization, Grange Hotels, UK. The researcher thought
that these two methods were appropriate and effective collect relevant data in
accordance with job satisfaction and work performance of the employees within an
organization, such as Grange Hotels, UK. iv. Secondary data collection: In case study
research strategy, document review & analysis is perfect for the purpose of collecting
secondary data in respect to research aims, objectives and research questions (Myers,
2007). The researcher has used this method to collect secondary data in accordance with
job satisfaction and work performance of the employees within an organization, such as
Grange Hotels, UK v. Pilot study and pilot testing: According to Maxwell (2005), pilot
study and testing helps a student to design the dissertation research thorough improving
skills and competencies in conducting interviews, survey and to improve knowledge and
understanding about the research topic. In addition, Saunders et al. (2009) have stated
that the pilot study and testing helps the student to revise and refinement of the research
questions. The researcher has conducted pilot study and testing with peers for the
purpose of getting maximum response from the respondents and interview personnel
within the case studied organization, Grange Hotels, UK. After completing pilot study and
testing, the researcher did some modifications within the research questions that helped
her to collect more appropriate and relevant data and information during the final semi-
structured interviews and questionnaire survey. Thus, the researcher would like to
mention that the pilot study and testing helped her to collect appropriate data and
information through conducting and carrying out semi-structured interviews and
questionnaire survey in most effective and efficient ways within the case studied
organization, Grange Hotels, UK.
vi. Validity, reliability and generalisability: Muijs (2011) has stated that validity,
reliability and generalisability are the three key concepts in quantitative research
methods to measure something within the research. This research project is based on the
investigation and analysis of the effect of job satisfaction on the employees’ work
performance, so there should be consideration of validity, reliability and generalisability
within the research methodology.

Validity: According to Muijs (2011), validity determines the answer what the researcher
wants to measure. He mentioned that there are mainly three types of validity such as
content validity, criterion validity and construct validity. The researcher has ensured the
validity of the research findings through presenting real data and information about the
case studied organization, Grange Hotels, UK. The research report was able to satisfy to
the management personnel of the case studied organization by providing cost-effective
and constructive conclusions and recommendations in relation to job satisfaction and
work performance of the employees within the organization.

Reliability: Another most concern for the researcher within the research methodology is
the reliability of the research itself and the research findings (Babbie, 2010). He also
described that the researcher may face several problems within the research project in
terms of reliability of data collection and research report. In this research project, the
researcher has conducted pilot study and then final study in relation to semi-structured
interviews and questionnaire survey. Then the researcher has carried out document
review & analysis of the case studied organization for the purpose of validating data and
information collected and gathered from the management personnel and general
employees of the case studied organization. So, the researcher would like to opine that
the real carrying out of questionnaire survey, conducting of semi-structured interviews
and then document review & analysis determines the reliability of the research findings
and thus the research itself.
Generalisability: The third important aspect within the research methodology is the
generalisability of the research findings and the overall research works. Veal (2006) has
defined the generalisability as to the probability that the results of the research findings
apply to other subjects, other groups, and other conditions. This research project is based
on the job satisfaction and work performance of the employees within an organization, so
the research findings are easily applicable to other organization. For example, during the
review of literature, the researcher had identified that motivation by managers and/or
leaders is an important to ensure job satisfaction and thus work performance of the
employees. This concept of motivation is applicable within hospitality as well as other
organization. Like this, the primary data also reflect the general aspects regarding job
satisfaction and work performance of the employees within an organization, such as
Grange Hotels, UK. Thus, the researcher would like to say that the research findings are
applicable to other organization in relation job satisfaction and work performance of the
employees within the organization.

vii. Research analysis procedure

This research project is based on the investigation and analysis of the effect of job
satisfaction on the employee’s work performance within an organization, such as Grange
Hotels, UK. Thus, the research questions, both semi-structured and survey questionnaire
based on the evidence and empirical knowledge existing in the literature and case studied
organization. Both qualitative and quantitative data have been collected and gathered
during the review of literature and conducting interviews and questionnaire survey
within the case studied organization. The researcher has analysed both qualitative and
quantitative data by using relevant tools and theories to make valid conclusions and
recommendations in accordance with the investigation and analysis of the effect of job
satisfaction on the employee’s work performance within an organization, such as Grange
Hotels, UK.

Alternative research methods

The researcher has used three most common and effective research methods that
include- semi-structured interviews, questionnaire survey and document review &
analysis within the case studied organization. There may use of some alternative research
methods to investigate and analyse job satisfaction and work performance of the
employees within an organization. These include- field experiment, observation, and
other related research methods. These research methods are time consuming and cost-
extensive as well. The author want to say that all the used research methods were
relevant and appropriate to collect and gather all required data and information in
relation to research aims, objectives and research questions.

Data analysis tools and techniques

The researcher has collected and gathered both primary and secondary data that came
both in the form of qualitative and quantitative through conducting semi-structured
interviews, questionnaire survey and document review & analysis. The qualitative data
have been analysed through transcribing the interview results that derived from the 3
management personnel and results obtained from document review & analysis of the
cases studied organization. The quantitative data have been analysed through using
tables, graphs, charts, and other related tools and techniques. The chapter 4 has been
designated to present analysed data both of qualitative and quantitative data.

Consideration of ethical issues

The consideration of some ethical issues is vital for the completion of research project as
well as to make good piece of research report. For instance, Saunders et al. (2009) have
described that to ensure the validity, reliability and quality of the research report, the
researcher must follow and maintain relevant ethical issues during the completion of
research project. The researcher has to follow and maintain some relevant ethical issues
to ensure access to the case studied organization as well as maintain honesty and
integrity during the execution of research project. The most common ethical issues that
should be followed and maintained by the researcher include- honesty, integrity,
acknowledgment, confidentiality, objectivity, fairness, etc. The researcher has
acknowledged all previous works that have been used in this research report. The
researcher has ensured proper access to the case studied organization through the
sending letter of informed consent. In similar ways, she has followed and maintained
some relevant ethical issues such as confidentiality, privacy, honesty, integrity and
fairness etc. during the collection of primary and secondary data and information from
the case studied organization, Grange Hotels, UK.
Advantages of used research methods

The advantages of the used research methods can be shown as follows-

Table: 3.1. Relevant advantages of used research methods, such as semi-structured

interview, questionnaire survey and document review & analysis

Name of research Relevant advantages to this research project

method

Semi-structured To collect real scenario about the organizational job

interview satisfaction and work performance of the employees
from the management personnel of the case studied
organization; and

To collect data and information about some organizational aspects such as structure &
culture, leadership, salary & work structure, organizational commitment etc. from the
management personnel of the case studied organization.Questionnaire surveyTo collect
data about the perception of the job satisfaction and work performance of the employees
from the general employees within the case studied organization; and

To collect data on level of job satisfaction and how this affect does the performance of the
general employees within the case studied organization.Document review & analysis To
compare the data and information that derived from the interviews and surveys; and

To verify and evaluate the current situation and scenario about the effect of job
satisfaction on the employee’s work performance within the case studied organization.

Source: Author’s analysis based on used research methods

Self-reflection on used research methods

This research project is based on the case study approach in relation to investigate and
analyse the effect of job satisfaction on the employee’s work performance within an
organization, such as Grange Hotels, UK. Based on the research methods, the researcher
has collected and gathered most relevant and appropriate data and information to
prepare standard research report with valid conclusions and recommendations. Thus, the
researcher would like to opine that she was satisfied with the collection and gathering of
data and information in relation to investigate and analyse the effect of job satisfaction on
the employee’s work performance within an organization, such as Grange Hotels, UK.

Chapter summary
In conclusion, the researcher would like to mention that the chapter 3: research
methodology has covered and discussed all relevant issues and concepts within the
execution of research project and thus to make good research report with valid
conclusions and recommendations both to academic and organizational perspective in
relation to investigation and analysis of the effect of job satisfaction on the employee’s
work performance within an organization, such as Grange Hotels, UK.

Chapter 4: Research Findings and Analysis

Introduction

Research findings and their analysis is one the most important chapter within the
research report. For example, Saunders et al. (2009) have described that the research
findings and analysis plays crucial role to represent data, either primary or secondary or
both data that was collected and gathered by the researcher for the purpose of making
good research report. In this chapter, the researchers has presented primary research
findings in such way that was very appropriate to cover all of the issues and concepts in
relation to research findings and analysis. Thus, the researcher would like to mention
that this chapter will be able to represent both primary and secondary data and
information that was collected and gathered in accordance with research aims, objectives
and research questions etc. in relation to an investigation and evaluation of the effect of
job satisfaction on the employee’s work performance, case study of Grange Hotels,
Holborn branch, UK.

Primary data and their analysis

The researcher has conducted only 3 interviews with the management personnel, such as
with Branch Manager, General Manager and Assistant Manager. The questionnaire survey
was carried out among 20 employees out off 35 full-time and part-time employees within
the Holborn branch of the Grange Hotels, UK.

The presentation and analysis of the primary data has been divided into two parts- Part
1: Semi-structured interview results and their analysis; and Part 2: Questionnaire survey
results and their analysis.

Part 1: Semi-structured interview results and their analysis

The semi-structured interviews were conducted with 3 management personnel, such as
Branch Manager, General Manager and Assistant Manager by using same interview
questions to get their own views and perceptions about the particular issue and matter in
relation to research topic- the effect of job satisfaction on the employee’s work
performance within the organization, case study of Grange Hotels, Holborn Branch, UK.
There were nearly 15-18 questions within the interview questionnaire that were based
on the issues arrived during the critical review of literature as well as on the research
aims and objectives and the duration of each interview was nearly 25-30 minutes.

The findings from the semi-structured interviews can be represent and analysis in
following ways-

What are the major issues and matters that needs to consider by the organization in
relation to job satisfaction and work performance of the employees [Interview Q-06]

Based on the interview results, the author would like to opine that organizational
structure, organizational culture, style & approach of leadership, human resources
management policies & regulations, nature of job design & job description etc. are vital
issue and matter that should consider by the organization in relation to job satisfaction
and work performance of the employees within the organization, like Grange Hotels, UK.

What are the major techniques to motivate employees that lead to job satisfaction and
thus better work performance of the employees [Interview Q-07]

Thus, the author would like to mention that to motivate employees that can lead to the
job satisfaction and thus better work performance within an organization, following
major techniques can be applied and implemented-

Financial reward system;

Non-financial reward system;

Empowerment and power delegation to employees; and

Involvement of employees in decision making process, in most cases within the

organization.

How the organization is measuring work performance of employees of the Grange Hotels,
UK? [Interview Q-09]
All of the interviewee has agreed that there is no particular system for the purpose of
measuring work performance of the employees within the Grange Hotels, UK. But they
have mentioned that in some cases, the organization is using following tools and
techniques to measure the work performance of the employees-

Application of balanced scorecard;

Conducting survey on employee performance;

Carry out customer survey on their satisfaction on employee performance; and

Conducting interviews with employees etc.

As the case studied organization, Grange Hotels, UK in most cases, is not applying or
implementing tools and techniques to measure the work performance of the employees,
so the author would like to say that the organization having some problem in relation to
job satisfaction and work performance of the employees.

Do you think motivation by leaders and/or managers plays important and crucial role to
increase job satisfaction and work performance of the employees within an organization,
such as Grange Hotels, UK? [Interview Q-11]

The researcher would like to mention that the General and Assistant Manager are right,
because they have been working within the general employees all the time and they feels
that leader and/or manager has vital role to motivate the employees that can increase job
satisfaction and thus better work performance of them within the organization, like
Grange Hotels, UK.

Do you think better organizational structure and culture plays important and crucial role
to increase job satisfaction and work performance of the employees within an
organization, such as Grange Hotels, UK? [Interview Q-12]

The researcher has find that all interviewees (3 people) are agreed and strongly agreed
with the role of better organizational structure and culture to increase job satisfaction
and thus work performance of the employees within an organization, such as Grange
Hotels, UK. Thus, the researcher would like to opine that the management personnel are
agreed with the role of better organizational structure and culture for the purpose of
ensuring better job design, job description and job enrichment that will increase job
satisfaction and thus ultimately the work performance of the employees within the
organization, like Grange Hotels, UK.
Please provide some recommendations on how the organization (Grange Hotels, UK) can
improve job satisfaction that lead to increased and enhanced work performance of the
employees? [Interview Q-17]

The interview results derived from the all interviewees (3 people) in relation to
recommendations on how the organization can improve job satisfaction that will lead
better work performance of the employees can be represent as follows-

The organization should establish both financial and non-financial reward systems to
increase job satisfaction and thus improve work performance of the employees;

The organization should provide some incentives to the employees that can increase job
satisfaction and better work performance of them within the organization;

There should be system of celebrating both short-term and long-term achievements in

together within the organization;

There should be appropriate empowerment and power delegation to employees as well

as involve them in decision making process within the organization;

The organization should establish better human resources management policies and
regulations, for example, recruiting self-motivated and dedicated people for the purpose
of creating better managing of employees within the organization;

The organization should conduct interviews and carry out survey on the employee’s
performance measurement and thus provide proper guidance and support to improve
efficiency and productivity of them within the organization; and

The organization should collect feedback and suggestions from the customers in relation
to assess and evaluate their satisfaction on employees’ performance.

Part 2: Questionnaire survey results and their analysis

The researcher has carried out 20 questionnaire survey among the 35 employees both
full-time and part-time within the Grange Hotels, Holborn Branch, UK. There were 18-20
questions within the survey and the same questionnaire has been used to collect primary
data from the general employees within the case studied organization in relation to
investigate and evaluate the effect of job satisfaction on the employee’s work
performance. The researcher believed that she was able to collect all relevant data from
the 20 respondents as all the employees were very co-operative and they took part
through voluntarily in the questionnaire survey.
The questionnaire survey results and their analysis can be represent as follows-

What are the main factors and aspects that are favourable for job satisfaction within the
Hotel? [Survey Q-07]

The researcher, thus, would like to opine that there should be proper wages and/or
salaries and working environment for the general employees as main factor in relation to
increase job satisfaction, along with other things such as co-operation & support, better
organizational structure & culture, job design & job description within the organization.

How do you feel about the relationships with other people at work within the Grange
Hotels, UK? [Survey Q-09]

The survey results showed that the majority (40%) of the general employees are satisfied
in some cases with the relationships with other employee within the organization. The
survey results depicts that the majority of the general employees are satisfied, either in
some cases or overall satisfied with the relationships with other employees within the
organization. Thus, it can be said that there is greater chance to increase job satisfactions
and thus improve work performance of the employees within the case studied
organization, such as Grange Hotels, UK.

How do you feel about the actual job itself within the Grange Hotels, UK? [Survey Q-10]

The job itself plays significant role to determine the job satisfaction and thus work
performance of the general employees within an organization. The survey results
represent that half of the respondents (50%) people are satisfied in some cases, where
20% people are overall satisfied with the job itself within the Grange Hotels, UK. From the
questionnaire survey results, in relation to feelings about the actual job itself among the
general employees within the case studied organization shows that 50% of the people are
satisfied in some cases, followed by 20% with overall satisfaction. On the other hand,
15% people have mentioned that they are dissatisfied in some cases with the actual job
itself. So, it can be said that the job itself has influence on the job satisfaction and thus
work performance of the employees within an organization, such as Grange Hotels, UK.

How do you feel about the current career opportunities within the Grange Hotels, UK?
[Survey Q-11]
From the results, it can be concluded that the general employees are not satisfied at all
with the career opportunities within the organization. For example, in combination of
very much dissatisfaction, dissatisfaction, dissatisfaction in some cases and no comments
(10% + 45% + 5% + 30% = 90%), represent that about 90% people are not satisfied with
the career opportunities within the organization and remaining 10% people are satisfied
in some cases with the career opportunities within the organization. Thus, it is clear that
all general employees are not satisfied with job satisfaction in relation to career
opportunities within the organization.

How do you feel about level of salary relative to your experience within the Grange
Hotels, UK? [Survey Q-12]

From the results, it can be said that more than half (55%) people are dissatisfied either in
some cases or very much dissatisfied where remain 45% people are satisfied either in
overall satisfaction or satisfied in some cases. So, the organization should focus on the
salary structure accordion to experience of the employees in order to increase job
satisfaction that will lead better work performance of the employees within the
organization, such as Grange Hotels, UK.

How do you feel about the style of supervision by your leaders/managers within the
Grange Hotels, UK? [Survey Q-14]

The supervision by the leader and/or manager plays significant role to ensure better job
design as well as appropriate support and guidance from them that can increase job
satisfaction and thus work performance of the employees. The survey results denoted
that majority (40%) people are satisfied in some cases with the style of supervision by
their leader and/or manager, however, 20% people did not mention either they are
satisfied or dissatisfied in the same aspect. From the results, it can be concluded that
about 60% people are satisfied either in overall or in some cases, where 20% people are
dissatisfied and remain 20% people have no comments on the style of supervision by
leader and/or manager to general employees within the organization. Thus, it can say
that the existing leading and/or managing style are vital to increase job satisfaction and
thus improve work performance of the employees within the organization, such as
Grange Hotels, UK.

How do you feel about the level of participation in decision making within the Grange
Hotels, UK?
The involvement and level of employee participation in decision making process within
the organization can play vital role to increase job satisfaction and thus work
performance of the employees. The survey results represent that 30% people are
dissatisfied in some cases, 15% people are dissatisfied and 25% people are very much
dissatisfied with the level of participation of employees in decision making within the
organization. On the other hand, only 15 % people are satisfied in some cases and 10%
people are satisfied with the level of participation of the general employees in decision
making process. From the results, it is clear that about 70% (25% very much dissatisfied,
15% dissatisfied and 30% dissatisfied in some cases) people are dissatisfied with the
current approach in the involvement and participation of general employees in decision
making within the organization. On contrast, only 25% (15% satisfied in some cases and
10% satisfied) people are satisfied in the level of participation by general employees in
decision making within the organization. Thus, it can be concluded that the organization
should focus on the level of participation of general employees in decision making to
increase job satisfaction and thus work performance of the employees within the
organization, Grange Hotels, UK.

How the organization (Grange Hotels, UK) can improve practices and structures to
improve job satisfaction leading to increased and enhanced work performance by the
employees? [Survey Q-18]

Based on the survey results, the author would like to mention following points in relation
to improve practices and structures to increase job satisfaction that leading work
performance within the organization-

To establish better organizational structure and culture;

To establish better leadership;

To provide financial and non-financial reward system;

To create better job design, job description and job enrichment;

To create better policies and regulations in relation to manage human resources in most
effective and efficient ways; and

To provide more space for the employees to complete tasks and activities by ensuring
proper empowerment and power delegation system within the organization.

Secondary data and their analysis

The purpose of analysing secondary data is to overcome limitations within the data and
information that collected and gathered from the interviews and surveys within the case
studied organization. The secondary data has been collected in the following major
aspects of the case studied organization that has influence on the job satisfaction and
work performance of the employees-

i. Organizational structure: The organizational structure of the Grange Hotels, UK shows

that this structure most likely vertical type of structure. There is power hierarchy within
the structure where the general employees have limited power to make particular
decisions for the organization. From the organizational structure of the case studied
organization, it can be said that there was very much power distance among the
employees and the management personnel of the organization. There was only limited
communication and information share among the employees and the management
personnel within the organization. So, it is clear that the employees would not able to
provide any self-initiative and creativity within the completion of particular tasks and
activities. Thus, the researcher would like to opine that the current organizational
structure is not appropriate and effective to increase job satisfaction and thus work
performance of the employees within the organization, such as Grange Hotels, UK.

ii. Organizational workplace (diversity and equal opportunities): The available document
showed that the case studied organization is committed to ensure better workplace
through diversity and equal opportunities. From the document, the researcher has
collected and gathered following major issues and aspects that has impact on the job
satisfaction and thus work performance of the employees within the organization-

To employ most talented and skilled employees who will be able to deliver quality service
to the customers;

To ensure proper involvement of the employees in the change management of the

organization;

To create better working environment for the employees where they can share
knowledge and information as necessary to provide quality products and services;

To provide relevant training to the employees to increase skills and competencies; and

To ensure equality of opportunity and fairness in all areas of employment and to valuing
the diversity of our colleagues, clients, suppliers and people living within our local
communities.
Thus, from the organizational workplace (diversity and opportunities) within the case
studied organization, it can be concluded that this aspect is very appropriate and effective
to ensure better job satisfaction and thus work performance of the employees.

Chapter summary

In this chapter, the researcher has represented the findings from the primary and
secondary data and information that collected and gathered based on the research aims
and objectives in relation to the investigation and evaluation of the effect of job
satisfaction on the employee’s work performance within an organization, case study of
Grange Hotels, UK. Thus, this chapter covered all things associated and involved in the
research findings and analysis, including the introduction, presentation of primary data
and its analysis, presentation of secondary data and its analysis and conclusion.

Qus-4. Discuss about various Stages of Team Development.

Ans- Organizations have used teams for years with some more successful than others. In
a quest to determine why so many teams failed to achieve their goals, team development
became a hot topic. The differences between successful and unsuccessful teams were
studied, and organizations gradually learned to manage teams more effectively through
all of their stages of development and contribution.

Successful Team Development

Traditionally, a team goes through five stages of development, with each stage presenting
its own challenges. The goal is for a cohesive team of people to produce a positive
outcome that contributes to the success of the organization.

Proper Team Support

The team and the organization take specific actions at each stage to support the team's
success in accomplishing its mission. Supporting the team at each stage of development
will help it accomplish its goal.

With a thoughtful look at each stage of team development, you can solve problems before
they derail the team. You cannot treat a team the same at each stage of its development
because the stages dictate different support actions. These support actions, taken at the
right time, will allow your teams to develop and successfully meet their challenges.

Leadership Is Key
Most importantly, at each stage, the behavior of the leader must adapt to the changing
and developing needs of the group. An effective leader who other members of the team
want to follow is indispensable when the group is trying to progress through the stages of
development.

Generally, the leader reports to a manager. The manager, as the team sponsor, must
understand how to support the team at each stage of development. This understanding
by company leadership is critical to the team’s success.

Stages of Team Development

Dr. Bruce W. Tuckman, a professor of educational psychology at the Ohio State University,
who researched the theory of group dynamics, published one of his theories in 1965
called "Tuckman's Stages of Group Development." Thus, emerged a four-stage team
development model, "Forming, Storming, Norming, and Performing," with a fifth stage,
"Adjourning," added in 1977.

The five stages of team development include suggested actions to best support the team:

Forming: A group of people comes together to accomplish a shared purpose. Their initial
success will depend on their familiarity with each other's work style, their experience on
prior teams, and the clarity of their assigned mission. As a sponsor, your role is to help
the team members get to know each other whether you offer team building activities or
just a listening ear.

Storming: Disagreement about mission, vision, and ways to approach the problem or
assignment are constant at this stage of development. This struggle is combined with the
fact that team members are still getting to know each other, learning to work with each
other, and growing familiar with the interaction and communication of group members.
As a sponsor, once again, your role is to help the team get to know each other whether
you offer team building activities or just a listening ear. Help your team leader clarify
each of these assignments so that the team succeeds.

Norming: The team has consciously or unconsciously formed working relationships that
are enabling progress on the team’s objectives. The members have consciously or
unconsciously agreed to abide by certain group norms and they are becoming functional
at working together. As a sponsor, ask for periodic updates from the team. Regularly
check the team's progress at agreed-upon intervals and critical steps on the path to a
successful conclusion.
Performing: Relationships, team processes, and the team’s effectiveness in working on its
objectives are syncing to bring about a successfully functioning team. This is the stage at
which the real work of the team is progressing. As a sponsor, ask for periodic updates
from the team. Help solve problems and provide input as needed. Make sure that team
members are communicating with all of the other appropriate parties in your workplace.

Adjourning: The team has completed its mission or purpose and it is time for team
members to pursue other goals or projects. As a sponsor, make sure that the team
schedules an ending ceremony. Whether they debrief the project and discuss how the
team could have been more successful or they just order pizza, you will want to mark a
clear ending to the team or project.

These stages can be applied to all teams. However, in the case of ongoing teams, such as a
department team, social media team, a customer service team, the "Ending" stage is not
applicable.

The length of time necessary for progressing through these stages depends on the
experience, knowledge, and skills of the members and the support they receive. In
addition, teams may work at varying rates based on issues and obstacles they may
encounter, such as changing team members, tasks, and goals.

Closing Thoughts

The purpose of creating teams is to provide a framework that will increase the ability of
employees to participate in planning, problem-solving, and decision making to better
serve customers. Increased participation promotes:

A better understanding of decisions

More support for and participation in implementation plans

Increased contribution to problem-solving and decision making

More ownership of decisions, processes, and changes

In order for teams to fulfill their intended role of improving organizational effectiveness,
it is critical that they develop into working units that are focused on their goal, mission,
or reason for existing. They do this by effectively progressing through the stages of
development.
Our discussion so far has focused mostly on a team as an entity, not on the individuals
inside the team. This is like describing a car by its model and color without considering
what is under the hood. External characteristics are what we see and interact with, but
internal characteristics are what make it work. In teams, the internal characteristics are
the people in the team and how they interact with each other.

For teams to be effective, the people in the team must be able to work together to
contribute collectively to team outcomes. But this does not happen automatically: it
develops as the team works together. You have probably had an experience when you
have been put on a team to work on a school assignment or project. When your team first
gets together, you likely sit around and look at each other, not knowing how to begin.
Initially you are not a team; you are just individuals assigned to work together. Over time
you get to know each other, to know what to expect from each other, to know how to
divide the labor and assign tasks, and to know how you will coordinate your work.
Through this process, you begin to operate as a team instead of a collection of individuals.

Stages of Team Development

This process of learning to work together effectively is known as team development.

Research has shown that teams go through definitive stages during development. Bruce
Tuckman, an educational psychologist, identified a five-stage development process that
most teams follow to become high performing. He called the stages: forming, storming,
norming, performing, and adjourning. Team progress through the stages is shown in the
following diagram.

Most high-performing teams go through five stages of team development.

Forming stage

The forming stage involves a period of orientation and getting acquainted. Uncertainty is
high during this stage, and people are looking for leadership and authority. A member
who asserts authority or is knowledgeable may be looked to take control. Team members
are asking such questions as “What does the team offer me?” “What is expected of me?”
“Will I fit in?” Most interactions are social as members get to know each other.

Storming stage

The storming stage is the most difficult and critical stage to pass through. It is a period
marked by conflict and competition as individual personalities emerge. Team
performance may actually decrease in this stage because energy is put into unproductive
activities. Members may disagree on team goals, and subgroups and cliques may form
around strong personalities or areas of agreement. To get through this stage, members
must work to overcome obstacles, to accept individual differences, and to work through
conflicting ideas on team tasks and goals. Teams can get bogged down in this stage.
Failure to address conflicts may result in long-term problems.

Norming stage

If teams get through the storming stage, conflict is resolved and some degree of unity
emerges. In the norming stage, consensus develops around who the leader or leaders are,
and individual member’s roles. Interpersonal differences begin to be resolved, and a
sense of cohesion and unity emerges. Team performance increases during this stage as
members learn to cooperate and begin to focus on team goals. However, the harmony is
precarious, and if disagreements re-emerge the team can slide back into storming.

Performing stage

In the performing stage, consensus and cooperation have been well-established and the
team is mature, organized, and well-functioning. There is a clear and stable structure, and
members are committed to the team’s mission. Problems and conflicts still emerge, but
they are dealt with constructively. (We will discuss the role of conflict and conflict
resolution in the next section). The team is focused on problem solving and meeting team
goals.

Adjourning stage
In the adjourning stage, most of the team’s goals have been accomplished. The emphasis
is on wrapping up final tasks and documenting the effort and results. As the work load is
diminished, individual members may be reassigned to other teams, and the team
disbands. There may be regret as the team ends, so a ceremonial acknowledgement of the
work and success of the team can be helpful. If the team is a standing committee with
ongoing responsibility, members may be replaced by new people and the team can go
back to a forming or storming stage and repeat the development process.

Team Norms and Cohesiveness

When you have been on a team, how did you know how to act? How did you know what
behaviors were acceptable or what level of performance was required? Teams usually
develop norms that guide the activities of team members. Team norms set a standard for
behavior, attitude, and performance that all team members are expected to follow. Norms
are like rules but they are not written down. Instead, all the team members implicitly
understand them. Norms are effective because team members want to support the team
and preserve relationships in the team, and when norms are violated, there is peer
pressure or sanctions to enforce compliance.

Norms result from the interaction of team members during the development process.
Initially, during the forming and storming stages, norms focus on expectations for
attendance and commitment. Later, during the norming and performing stages, norms
focus on relationships and levels of performance. Performance norms are very important
because they define the level of work effort and standards that determine the success of
the team. As you might expect, leaders play an important part in establishing productive
norms by acting as role models and by rewarding desired behaviors.

Norms are only effective in controlling behaviors when they are accepted by team
members. The level of cohesiveness on the team primarily determines whether team
members accept and conform to norms. Team cohesiveness is the extent that members
are attracted to the team and are motivated to remain in the team. Members of highly
cohesive teams value their membership, are committed to team activities, and gain
satisfaction from team success. They try to conform to norms because they want to
maintain their relationships in the team and they want to meet team expectations. Teams
with strong performance norms and high cohesiveness are high performing.
For example, the seven-member executive team at Whole Foods spends time together
outside of work. Its members frequently socialize and even take group vacations.
According to co-CEO John Mackey, they have developed a high degree of trust that results
in better communication and a willingness to work out problems and disagreements
when they occur.

Q-5. What is Work Culture? How communications is important in enhancing work

culture?

Ans- Work Culture

Work culture is a combination of qualities in an organization and its employees that arise
from what is generally regarded as appropriate ways to think and act

The "work culture" of an organization is a product of its history, traditions, values, and
vision. "a pattern of basic group assumptions that has worked well enough to be
considered valid, and, therefore, is taught to new members as the correct way to perceive,
think and feel."Desirable work culture includes shared institutional values, priorities,
rewards and other practices which foster inclusion, high performance, and commitment,
while still allowing diversity in thought and action.

The work culture can be improved in a number of ways by, for example:

Improving communications between management and staff in both directions.

Consulting employees and their representatives about their jobs and any changes to
them.

Ensuring that jobs which pose a risk and which cannot be completely eliminated are
rotated so that no individual spends long on that task.

Ensuring that all employees have sufficient variety of tasks to enable them to use
different muscles and postures and to make their job more satisfying.

Office culture
Office culture is the prevailing norm and way of life in an office setting. a desirable office
culture is the type wherein each elements in the office developed relationships and way
of life that are aimed towards the common good.

What’s the culture of the organisation like? This is one of the first questions I’m asked by
many candidates when talking to them about a new role. A positive workplace culture is
very important. It can engender a real team spirit, will result in a more engaged
workforce and it helps teams become more productive.

With the right workplace culture, your staff want to come to work each day – and they’re
less likely to quit. Given that it can cost thousands of dollars to recruit and train a new
staff member, keeping staff engaged makes solid business sense.

Creating a positive workplace culture is often seen as time consuming, and a drain on
company resources. It doesn’t have to be. The first step is to identify and evaluate existing
patterns to see what needs changing.

For example, if staff members always need to check their ideas with managers, the
predominant culture is one in which people are either reluctant to have their own
opinion or the leadership are too controlling. Innovation is stymied. Or, if people are
frustrated by the mindset, “My manager is always working late, so I can’t leave until they
do”, you’ll want to remind managers to lead by example and leave at a decent hour.

Cultural change can happen quickly with effective initiatives from leaders that instil trust
and confidence in their staff. The speed of cultural change is directly related to the speed
at which company leaders demonstrably get on board and support the change in their
own and their team’s daily behaviours.

In some cases organisational cultural change can be immediate. Small changes can occur
immediately through increased discussion and demonstration of the new cultural
behaviours. Great leadership is the key to sustained positive cultural change. Leaders
who build trusting environments, communicate effectively, are consistent in their
behaviours, and role-model desired behaviours, create sustained positive cultural change.

The Benefits of Creating A Positive Culture In Your Workplace

Employees can get on with their jobs, improving productivity, rather than focus on what
is going wrong with the organisation, and the leadership team
Employees are proud to work for positive organisations and share their experience with
their social networks, enhancing the company brand

Knowledge and experience is shared between employees which improves efficiency,

productivity and performance

People enjoy coming to work and are more committed to the organisation, reducing the
huge costs of turnover

Employees go home happier and more satisfied, and this impacts their families and
friends.

Building a positive workplace culture is highly beneficial for organisations. When

organisations employ initiatives that focus on people and meeting essential human needs,
they build positive workplace cultures that thrive in challenging times.

10 Ways to Create a Culture of Open Communication

Creating a culture of open communication can be one of the best ways to inspire excellent
performance, improve employee morale, and foster a warmer corporate culture.

It was a silly argument with my wife about leaving dirty dishes in the sink that my 9-year-
old son, Oliver, overheard. I was satisfied with my side, but when I put Oliver to bed that
night, he rehashed the heated exchange, point by point, explaining how I didn’t see things
from my wife’s perspective.

He explained how my wife’s frustration had been growing for months and no matter how
many times she told me to clean up, I never did. Taking a step back, I could see that the
feedback my son was giving me was absolutely right and I needed to change my ways
(still a work in progress) and improve the way I listen and communicate with my wife on
matters that are of concern to her. While our kitchen conversation was of little
consequence, companies around the world can face major setbacks when they don’t have
standard processes and channels in place for employees to give and receive feedback.

Creating a culture of open communication can be one of the best ways to inspire excellent
performance, improve employee morale, and foster a warmer corporate culture. Here are
10 simple ways to integrate feedback into your company.

1. Around-the-Clock Clear Communication Channels

Ask your direct reports how you are doing as a manager and what they like — and don’t
like. In the meantime, stay vigilant about continuously reinforcing their strengths and
flagging weaknesses. Prompt feedback means that issues are resolved immediately. Avoid
e-mail: messages can be misunderstood, misguided, or missed altogether. Communicate
in person or, if necessary, over the phone.

2. Weekly One-on-One Meetings

Keep a standing date with each direct report. These informal chats will allow concerns to
be addressed without interrupting the rest of your week. Don’t stand your date up: you’ll
be seen as inaccessible or direct reports will feel like less of a priority, which can muddy
the feedback process.

3. Monthly or Quarterly Staff Meetings

This is a chance to share key information like board decisions and new initiatives with all
employees. Time these meetings when you have information to share, such as several
days after a board meeting. Be sure to make the gatherings enjoyable. For example, you
might begin with a relevant story or by recognizing an employee’s recent
accomplishment. Boredom or bossiness will alienate your audience. Allow time for a Q&A
session. By the end of each meeting, your team should be in-the-know and have their key
concerns or questions addressed.

4. Annual Reviews

These should be formal one-on-one sit-downs, with consistent standards measuring each
employee’s performance. If your organization has had poor feedback strategies in the
past, be prepared for some resistance on annual reviews — and reassure staff members
that the goal is positive outcomes, not negative reprimands. I have experienced this
firsthand when a teary-eyed employee asked to discontinue annual reviews because they
made everyone nervous, angry, or sad. Turning that around by opening up more ongoing
channels for employee feedback means that everyone will know where they stand before
annual reviews take place, making the process a less anxious experience for everyone.

5. Anonymous Surveys
Surveys make it possible to regularly assess your firm’s culture and employees’ overall
happiness. I also use them to measure employee engagement, and I share results and
trends with the entire organization. Anonymity is important — employees need to feel
comfortable speaking their minds — as is closing the loop: you should be prepared to
respond to employees’ feedback. Our company Intranet allows surveys and voting to be
completely transparent, which helps create a culture of trust while driving home the
message that everyone is invited to identify opportunities for improvement.

6. 360-Degree Reviews

In March, I underwent a 360-degree review and realized that my own progress as a

leader was hampered because I was not addressing the most critical opportunities for
growth. It was a bit painful — as 360-degree reviews can be — but showed me how to
correct my course. A licensed professional should conduct 360-degree reviews, discuss
feedback, and offer positive advice for improvement.

7. Post-Mortem Debriefs

These are meetings focused on internal assessment of major projects or deals — both
what was successful and what can be done better the next time around. These check-ins
allow the firm to capture key learnings for the next big deal or project and to turn
challenging issues into opportunities for improvement. Remember to accentuate the good
along with the bad.

8. Informal Social Outings

Whether it’s a trip to the local bowling alley or a picnic lunch in Central Park, get-
togethers outside the office are a chance to loosen up. To avoid getting too informal, lay
off the booze.

9. State-of-the-Union E-mail Communications

Every so often, say once a quarter, I send an e-mail to all staff members on the strategic
direction of the organization or company values. These messages are an important way to
keep everyone at the firm in touch with the bigger picture beyond individual functions or
teams.

10. Employee Exit Interviews

Regardless of your organization's size, make sure that departing employees are
interviewed about their experiences and reasons for leaving. People are often very open
in these interviews, which provide incredibly valuable feedback. Take employees'
comments seriously and ask your HR team to present trends and takeaways from exit
interviews to management annually so that actions can be taken to help retain valuable
employees and increase overall morale.

Creating a culture of open communication takes work, like any relationship, and is easily
overlooked when business is humming along. Any one of these tools is a start and is well
worth the effort to drive a company to new levels of productivity and employee
happiness.

MBA 537 (RETAIL MARKETING MANAGEMENT)

Qus-1. Explain the importance of retailing and its contribution from the consumers,
manufacturers and the nation’s perspective.

Ans- Importance of Retailing - Retailing has a tremendous impact on the economy. It

involves high annual sales and employment. As a major source of employment retailing
offers a wide range of career opportunities including; store management, merchandising
and owning a retail business.

Consumers benefit from retailing is that, retailers perform marketing functions that
makes it possible for customers to have access to a broad variety of products and
services. Retailing also helps to create place, time and possession utilities. A retailer’s
service also helps to enhance a product’s image.

Retailers participate in the sorting process by collecting an assortment of goods and

services from a wide variety of suppliers and offering them for sale. The width and depth
of assortment depend upon the individual retailer’s strategy.

They provide information to consumers through advertising, displays and signs and sales
personnel. Marketing research support is given to other channels, members.

They store merchandise, mark prices on it, place items on the selling floor and otherwise
handle products; usually they pay suppliers for items before selling ,,them to final
customers. They complete transactions by using appropriate locations, and timings,
credit policies, and other services e.g. delivery.
Retailing in a way, is the final stage in marketing channels for consumer products.
Retailers provide the vital link between producers and ultimate consumers.

Retailers create value in below ways

Providing Assortments

Supermarkets typically carry 20,000 to 30,000 different items made by more than 500
companies. Offering an assortment enables their customers to choose from a wide
selection of products, brands, sizes, and prices at one location. Manufacturers specialize
in producing specific types of products. If each of these manufacturers had its own stores
that sold only its own products, consumers would have to go to many different stores to
buy the groceries needed to prepare a single meal.

Breaking Bulk

To reduce transportation costs, manufacturers and wholesalers typically ship cases of

frozen dinners or cartons of blouses to retailers. Retailers then offer the products in
smaller quantities tailored to individual consumers’ and households’ consumption
patterns—an activity called breaking bulk. Breaking bulk is important to both
manufacturers and consumers. It enables manufacturers to efficiently make and ship
merchandise in larger quantities and enables consumers to purchase merchandise in
smaller, more useful quantities.

Holding Inventory
A major value-providing activity performed by retailers is holding inventory so that the
products will be available when consumers want them. Thus, consumers can keep a
smaller inventory of products at home because they know local retailers will have the
products available when they need more. This activity is particularly important to
consumers with limited storage space.

Providing Services

Retailers provide services that make it easier for customers to buy and use products. For
example, retailers offer credit so that consumers can have a product now and pay for it
later. They display products so that consumers can see and test them before buying. Some
retailers employ salespeople in stores or maintain Web sites to answer questions and
provide additional information about products.

Introduction

The Indian retail industry has emerged as one of the most dynamic and fast-paced
industries due to the entry of several new players. Total consumption expenditure is
expected to reach nearly US$ 3,600 billion by 2020 from US$ 1,824 billion in 2017. It
accounts for over 10 per cent of the country’s Gross Domestic Product (GDP) and around
8 per cent of the employment. India is the world’s fifth-largest global destination in the
retail space.

Market Size

India's retail market is expected to increase by 60 per cent to reach US$ 1.1 trillion by
2020, on the back of factors like rising incomes and lifestyle changes by middle class and
increased digital connectivity. Online retail sales are forecasted to grow at the rate of 31
per cent year-on-year to reach US$ 32.70 billion in 2018.

India is expected to become the world’s fastest growing e-commerce market, driven by
robust investment in the sector and rapid increase in the number of internet users.
Various agencies have high expectations about growth of Indian e-commerce markets.

Luxury market of India is expected to grow to US$ 30 billion by the end of 2018 from US$
23.8 billion 2017 supported by growing exposure of international brands amongst Indian
youth and higher purchasing power of the upper class in tier 2 and 3 cities, according to
Assocham.

Investment Scenario
The Indian retail trading has received Foreign Direct Investment (FDI) equity inflows
totalling US$ 1.59 billion during April 2000–December 2018, according to the
Department for Promotion of Industry and Internal Trade (DPIIT).

With the rising need for consumer goods in different sectors including consumer
electronics and home appliances, many companies have invested in the Indian retail
space in the past few months.

Beccos, a South Korean designer brand is set to enter the Indian market with an
investment of about Rs 1.00 billion (US$ 14.25 million) and open 50 stores by June 2019.

Walmart Investments Cooperative U.A has invested Rs 2.75 billion (US$ 37.68 million) in
Wal-Mart India Pvt Ltd.

Government Initiatives

The Government of India has taken various initiatives to improve the retail industry in
India. Some of them are listed below:

The Government of India may change the Foreign Direct Investment (FDI) rules in food
processing, in a bid to permit e-commerce companies and foreign retailers to sell Made in
India consumer products.

Government of India has allowed 100 per cent Foreign Direct Investment (FDI) in online
retail of goods and services through the automatic route, thereby providing clarity on the
existing businesses of e-commerce companies operating in India.

Road Ahead

E-commerce is expanding steadily in the country. Customers have the ever increasing
choice of products at the lowest rates. E-commerce is probably creating the biggest
revolution in the retail industry, and this trend would continue in the years to come.
India's e-commerce industry is forecasted to reach US$ 53 billion by 2018. Retailers
should leverage the digital retail channels (e-commerce), which would enable them to
spend less money on real estate while reaching out to more customers in tier-2 and tier-3
cities.

It is projected that by 2021 traditional retail will hold a major share of 75 per cent,
organised retail share will reach 18 per cent and e-commerce retail share will reach 7 per
cent of the total retail market.
Nevertheless, the long-term outlook for the industry is positive, supported by rising
incomes, favourable demographics, entry of foreign players, and increasing urbanisation.

Exchange Rate Used: INR 1 = US$ 0.0139 as on Q3 FY19.

References: Media Reports, Press Releases, Deloitte report, Department of Industrial

Policy and Promotion website, Union Budget 2017–18, Consumer Leads report by FICCI
and Deloitte - October 2018.

Retail is the process of selling consumer goods or services to customers through

multiple channels of distribution to earn a profit. Retailers satisfy demand identified
through a supply chain. The term "retailer" is typically applied where a service provider
fills the small orders of a large number of individuals, who are end-users, rather than
large orders of a small number of wholesale, corporate or government
clientele. Shopping generally refers to the act of buying products. Sometimes this is done
to obtain final goods, including necessities such as food and clothing; sometimes it takes
place as a recreational activity. Recreational shopping often involves window
shopping and browsing: it does not always result in a purchase.

Retail markets and shops have a very ancient history, dating back to antiquity. Some of
the earliest retailers were itinerant peddlers. Over the centuries, retail shops were
transformed from little more than "rude booths" to the sophisticated shopping malls of
the modern era.

Most modern retailers typically make a variety of strategic level decisions including the
type of store, the market to be served, the optimal product assortment, customer service,
supporting services and the store's overall market positioning. Once the strategic retail
plan is in place, retailers devise the retail mix which includes product, price, place,
promotion, personnel and presentation. In the digital age, an increasing number of
retailers are seeking to reach broader markets by selling through multiple channels,
including both bricks and mortar and online retailing. Digital technologies are also
changing the way that consumers pay for goods and services. Retailing support services
may also include the provision of credit, delivery services, advisory services, stylist
services and a range of other supporting services.
Retail shops occur in a diverse range of types and in many different contexts – from strip
shopping centres in residential streets through to large, indoor shopping malls. Shopping
streets may restrict traffic to pedestrians only. Sometimes a shopping street has a partial
or full roof to create a more comfortable shopping environment – protecting customers
from various types of weather conditions such as extreme temperatures, winds
or precipitation. Forms of non-shop retailing include online retailing (a type of electronic-
commerce used for business-to-consumer (B2C) transactions) and mail order.

Etymology[edit]

Retail comes from the Old French word tailler, which means "to cut off, clip, pare, divide"
in terms of tailoring (1365). It was first recorded as a noun with the meaning of a "sale in
small quantities" in 1433 (from the Middle French retail, "piece cut off, shred, scrap,
paring").[1] As in the French, the word, retail, in both Dutch and German, also refers to the
sale of small quantities of items.

Definition and explanation[edit]

Retail refers to the activity of selling goods or services directly to consumers or end-
users.[2] Some retailers may sell to business customers, and such sales are termed non-
retail activity. In some jurisdictions or regions, legal definitions of retail specify that at
least 80 percent of sales activity must be to end-users.[3]

Retailing often occurs in retail stores or service establishments, but may also occur
through direct selling such as through vending machines, door-to-door sales or electronic
channels.[4] Although the idea of retail is often associated with the purchase of goods, the
term may be applied to service-providers that sell to consumers. Retail service providers
include retail banking, tourism, insurance, private healthcare, private education, private
security firms, legal firms, publishers, public transport and others. For example, a tourism
provider might have a retail division that books travel and accommodation for consumers
plus a wholesale division that purchases blocks of accommodation, hospitality, transport
and sightseeing which are subsequently packaged into a holiday tour for sale to retail
travel agents.
Some retailers badge their stores as "wholesale outlets" offering "wholesale prices."
While this practice may encourage consumers to imagine that they have access to lower
prices, while being prepared to trade-off reduced prices for cramped in-store
environments, in a strict legal sense, a store that sells the majority of its merchandise
direct to consumers, is defined as a retailer rather than a wholesaler. Different
jurisdictions set parameters for the ratio of consumer to business sales that define a retail
business.

Retailing in antiquity

Marketplace at Trajan's Forum, the earliest known example of permanent retail

shopfronts

Retail markets have existed since ancient times. Archaeological evidence for trade,
probably involving barter systems, dates back more than 10,000 years. As civilizations
grew, barter was replaced with retail trade involving coinage. Selling and buying is
thought to have emerged in Asia Minor (modern Turkey) in around the 7th millennium
BCE.[5] Gharipour points to evidence of primitive shops and trade centres in Sialk Hills in
Kashan (6000 BCE), Catalk Huyuk in modern-day Turkey (7,500–5,700 BCE), Jericho
(2600 BCE) and Susa (4000 BCE).[6] Open air, public markets were known in ancient
Babylonia, Assyria, Phoenicia and Egypt. These markets typically occupied a place in
the town's centre. Surrounding the market, skilled artisans, such as metal-workers and
leather workers, occupied permanent premises in alleys that led to the open market-
place. These artisans may have sold wares directly from their premises, but also prepared
goods for sale on market days.[7] In ancient Greece markets operated within the agora, an
open space where, on market days, goods were displayed on mats or temporary
stalls.[8] In ancient Rome, trade took place in the forum.[9] Rome had two forums;
the Forum Romanum and Trajan's Forum. The latter was a vast expanse, comprising
multiple buildings with shops on four levels.[10] The Roman forum was arguably the
earliest example of a permanent retail shop-front.[11] In antiquity, exchange
involved direct selling via merchants or peddlers and bartering systems were
commonplace.[12]
The Phoenicians, noted for their seafaring skills, plied their ships across the
Mediterranean, becoming a major trading power by the 9th century BCE. The Phoenicians
imported and exported wood, textiles, glass and produce such as wine, oil, dried fruit and
nuts. Their trading skills necessitated a network of colonies along the Mediterranean
coast, stretching from modern day Crete through to Tangiers and onto Sardinia[13] The
Phoenicians not only traded in tangible goods, but were also instrumental in transporting
culture. The Phoenician's extensive trade networks necessitated considerable book-
keeping and correspondence. In around 1500 BCE, the Phoenicians developed a
consonantal alphabet which was much easier to learn that the complex scripts used in
ancient Egypt and Mesopotamia. Phoenician traders and merchants were largely
responsible for spreading their alphabet around the region.[14] Phoenician inscriptions
have been found in archaeological sites at a number of former Phoenician cities
and colonies around the Mediterranean, such as Byblos (in present-day Lebanon)
and Carthage in North Africa.[15]

In the Graeco-Roman world, the market primarily served the local peasantry. Local
producers, who were generally poor, would sell small surpluses from their individual
farming activities, purchase minor farm equipment and also buy a few luxuries for their
homes. Major producers such as the great estates were sufficiently attractive for
merchants to call directly at their farm-gates, obviating the producers' need to attend
local markets. The very wealthy landowners managed their own distribution, which may
have involved exporting and importing. The nature of export markets in antiquity is well
documented in ancient sources and archaeological case studies.[16] The Romans preferred
to purchase goods from specific places: oysters from Londinium, cinnamon from a
specific mountain in Arabia, and these place-based preferences stimulated trade
throughout Europe and the middle East.[17] Markets were also important centres of social
life.[18]
The rise of retailing and marketing in England and Europe has been extensively studied,
but less is known about developments elsewhere.[19] Nevertheless, recent research
suggests that China exhibited a rich history of early retail systems.[20] From as early as
200 BCE, Chinese packaging and branding was used to signal family, place names and
product quality, and the use of government imposed product branding was used between
600 and 900 CE.[21] Eckhart and Bengtsson have argued that during the Song Dynasty
(960–1127), Chinese society developed a consumerist culture, where a high level of
consumption was attainable for a wide variety of ordinary consumers rather than just the
elite.[22] The rise of a consumer culture led to the commercial investment in carefully
managed company image, retail signage, symbolic brands, trademark protection and
sophisticated brand concepts.

Retailing in Medieval Europe

In Medieval England and Europe, relatively few permanent shops were to be found;
instead customers walked into the tradesman's workshops where they discussed
purchasing options directly with tradesmen. In 13th century London, mercers and
haberdashers were known to exist and grocers sold "miscellaneous small wares as well
as spices and medicines" but fish and other perishables were sold through markets,
costermongers, hucksters, peddlers or other type of itinerant vendor.[24]

In the more populous cities, a small number of shops were beginning to emerge by the
13th century. In Chester, a medieval covered shopping arcade represented a major
innovation that attracted shoppers from many miles around. Known as "The Rows" this
medieval shopping arcade is believed to be the first of its kind in Europe.[25] Fragments of
Chester's Medieval Row, which is believed to date to the mid-13th century, can still be
found in Cheshire.[26] In the 13th or 14th century, another arcade with several shops was
recorded at Drapery Row in Winchester.[27] The emergence of street names such
as Drapery Row, Mercer's Lane and Ironmonger Lane in the medieval period suggests that
permanent shops were becoming more commonplace.
Medieval shops had little in common with their modern equivalent. As late as the 16th
century, London's shops were described as little more than "rude booths" and their
owners "bawled as loudly as the itinerants."[28] Shopfronts typically had a front door with
two wider openings on either side, each covered with shutters. The shutters were
designed to open so that the top portion formed a canopy while the bottom was fitted
with legs so that it could serve as a shopboard.[29] Cox and Dannehl suggest that the
Medieval shopper's experience was very different. The lack of glazed windows, which
were rare during the medieval period, and did not become commonplace until the
eighteenth century, meant that shop interiors were dark places. Outside the markets,
goods were rarely out on display and the service counter was unknown. Shoppers had
relatively few opportunities to inspect the merchandise prior to consumption. Many
stores had openings onto the street from which they served customers.[30]

Outside the major cities, most consumable purchases were made through markets or
fairs. Markets were held daily in the more populous towns and cities or weekly in the
more sparsely populated rural districts. Markets sold fresh produce; fruit, vegetables,
baked goods, meat, poultry, fish and some ready to eat foodstuffs; while fairs operated on
a periodic cycle and were almost always associated with a religious festival.[31] Fairs sold
non-perishables such as farm tools, homewares, furniture, rugs and ceramics. Market
towns dotted the medieval European landscape while itinerant vendors supplied less
populated areas or hard-to-reach districts. Peddlers and other itinerant vendors operated
alongside other types of retail for centuries. The political philosopher, John Stuart
Mill compared the convenience of markets/fairs to that of the itinerant peddlers:

"The contrivance of fairs and markets was early had recourse to, where consumers and
producers might periodically meet, without any intermediate agency; and this plan
answers tolerably well for many articles, especially agricultural produce … but were
inconvenient to buyers who have other occupations, and do not live in the immediate
vicinity … and the wants of the consumers must either be provided for so long
beforehand, or must remain so long unsupplied, that even before the resources of society
admitted of the establishment of shops, the supply of these wants fell universally into the
hands of itinerant dealers: the pedlar, who might appear once a month, being preferred to
the fair, which only returned once or twice a year."[32]
Blintiff has investigated the early Medieval networks of market towns across Europe, and
suggests that by the 12th century there was an upsurge in the number of market towns
and the emergence of merchant circuits as traders bulked up surpluses from smaller
regional, different day markets and resold them at the larger centralised market
towns.[33] Market-places appear to have emerged independently outside Europe.
The Grand Bazaar in Istanbul is often cited as the world's oldest continuously-operating
market; its construction began in 1455. The Spanish conquistadors wrote glowingly of
markets in the Americas. In the 15th century the Mexica (Aztec) market of Tlatelolcowas
the largest in all the Americas.[34]

English market towns were regulated from a relatively early period. The English
monarchs awarded a charter to local Lords to create markets and fairs for a town or
village. This charter would grant the lords the right to take tolls and also afford some
protection from rival markets. For example, once a chartered market was granted for
specific market days, a nearby rival market could not open on the same days.[35] Across
the boroughs of England, a network of chartered markets sprang up between the 12th
and 16th centuries, giving consumers reasonable choice in the markets they preferred to
patronise.[36] A study on the purchasing habits of the monks and other individuals in
medieval England, suggests that consumers of the period were relatively discerning.
Purchase decisions were based on purchase criteria such as consumers' perceptions of
the range, quality, and price of goods. This informed decisions about where to make their
purchases and which markets were superior.[37]

Braudel and Reynold have made a systematic study of these European market towns
between the thirteenth and fifteenth century. Their investigation shows that in regional
districts markets were held once or twice a week while daily markets were common in
larger cities. Gradually over time, permanent shops with regular trading days began to
supplant the periodic markets, while peddlers filled in the gaps in distribution. The
physical market was characterised by transactional exchange and the economy was
characterised by local trading. Braudel reports that, in 1600, goods travelled relatively
short distances – grain 5–10 miles; cattle 40–70 miles; wool and woollen cloth 20–40
miles. Following the European age of discovery, goods were imported from afar – calico
cloth from India, porcelain, silk and tea from China, spices from India and South-East Asia
and tobacco, sugar, rum and coffee from the New World.[38]

English essayist, Joseph Addison, writing in 1711, described the exotic origin of produce
available to English society in the following terms:
"Our Ships are laden with the Harvest of every Climate: Our Tables are stored with Spices,
and Oils, and Wines: Our Rooms are filled with Pyramids of China, and adorned with the
Workmanship of Japan: Our Morning's Draught comes to us from the remotest Corners of
the Earth: We repair our Bodies by the Drugs of America, and repose ourselves under
Indian Canopies. My Friend Sir ANDREW calls the Vineyards of France our Gardens; the
Spice-Islands our Hot-beds; the Persians our Silk-Weavers, and the Chinese our Potters.
Nature indeed furnishes us with the bare Necessaries of Life, but Traffick gives us greater
Variety of what is Useful, and at the same time supplies us with every thing that is
Convenient and Ornamental."[39]

Luca Clerici has made a detailed study of Vicenza’s food market during the sixteenth
century. He found that there were many different types of reseller operating out of the
markets. For example, in the dairy trade, cheese and butter was sold by the members of
two craft guilds (i.e., cheesemongers who were shopkeepers) and that of the so-called
‘resellers’ (hucksters selling a wide range of foodstuffs), and by other sellers who were
not enrolled in any guild. Cheesemongers’ shops were situated at the town hall and were
very lucrative. Resellers and direct sellers increased the number of sellers, thus
increasing competition, to the benefit of consumers. Direct sellers, who brought produce
from the surrounding countryside, sold their wares through the central market place and
priced their goods at considerably lower rates than cheesemongers.[40]

Retailing in the 17th, 18th and 19th centuries

By the 17th century, permanent shops with more regular trading hours were beginning
to supplant markets and fairs as the main retail outlet. Provincial shopkeepers were
active in almost every English market town. These shopkeepers sold general
merchandise, much like a contemporary convenience store or a general store. For
example, William Allen, a mercer in Tamworth who died in 1604, sold spices alongside
furs and fabrics.[41] William Stout of Lancaster retailed sugar, tobacco, nails and prunes at
both his shop and at the central markets. His autobiography reveals that he spent most of
his time preparing products for sale at the central market, which brought an influx of
customers into town.[42]
As the number of shops grew, they underwent a transformation. The trappings of a
modern shop, which had been entirely absent from the sixteenth and early seventeenth
century store, gradually made way for store interiors and shopfronts that are more
familiar to modern shoppers. Prior to the eighteenth century, the typical retail store had
no counter, display cases, chairs, mirrors, changing-rooms, etc. However, the opportunity
for the customer to browse merchandise, touch and feel products began to be available,
with retail innovations from the late 17th and early 18th centuries.[43] Glazing was widely
used from the early 18th-century. English commentators pointed to the speed at which
glazing was installed, Daniel Defoe, writing in 1726, noted that "Never was there such
painting and guildings, such sashings and looking-glasses as the shopkeepers as there is
now."[44]

Outside the major metropolitan cities, few stores could afford to serve one type of
clientele exclusively. However, gradually retail shops introduced innovations that would
allow them to separate wealthier customers from the "riff raff." One technique was to
have a window opening out onto the street from which customers could be served. This
allowed the sale of goods to the common people, without encouraging them to come
inside. Another solution, that came into vogue from the late sixteenth century was to
invite favoured customers into a back-room of the store, where goods were permanently
on display. Yet another technique that emerged around the same time was to hold a
showcase of goods in the shopkeeper's private home for the benefit of wealthier clients.
Samuel Pepys, for example, writing in 1660, describes being invited to the home of a
retailer to view a wooden jack.[45] The eighteenth century English entrepreneurs, Josiah
Wedgewood and Matthew Boulton, both staged expansive showcases of their wares in
their private residences or in rented halls.[46]

Savitt has argued that by the eighteenth century, American merchants, who had been
operating as importers and exporters, began to specialise in either wholesale or retail
roles. They tended not to specialise in particular types of merchandise, often trading as
general merchants, selling a diverse range of product types. These merchants were
concentrated in the larger cities. They often provided high levels of credit financing for
retail transactions.[47]
By the late eighteenth century, grand shopping arcades began to emerge across Europe
and in the Antipodes. A shopping arcade refers to a multiple-vendor space, operating
under a covered roof. Typically, the roof was constructed of glass to allow for natural light
and to reduce the need for candles or electric lighting. Some of the earliest examples of
shopping arcade appeared in Paris, due its lack of pavement for pedestrians. Retailers,
eager to attract window shoppers by providing a shopping environment away from the
filthy streets, began to construct rudimentary arcades. Opening in 1771, the Coliseé,
situated on the Champs Elysee, consisted of three arcades, each with ten shops, all
running off a central ballroom. For Parisians, the location was seen as too remote and the
arcade closed within two years of opening.[29] Inspired by the souks of Arabia, the Galerie
de Bois, a series of wooden shops linked the ends of the Palais Royal, opened in 1786 and
became a central part of Parisian social life.[48]

The architect, Bertrand Lemoine, described the period, 1786 to 1935, as l’Ère des
passages couverts (the Arcade Era).[49] In the European capitals, shopping arcades spread
across the continent, reaching their heyday in the early 19th century: the Palais Royal in
Paris (opened in 1784); Passage de Feydeau in Paris (opened in 1791) and Passage du
Claire in 1799.[29] London's Piccadilly Arcade (opened in 1810); Paris's Passage Colbert
(1826) and Milan's Galleria Vittorio Emanuele (1878).[50] Designed to attract the genteel
middle class, arcade retailers sold luxury goods at relatively high prices. However, prices
were never a deterrent, as these new arcades came to be the place to shop and to be seen.
Arcades offered shoppers the promise of an enclosed space away from the chaos that
characterised the noisy, dirty streets; a warm, dry space away from the elements, and a
safe-haven where people could socialise and spend their leisure time. As thousands of
glass covered arcades spread across Europe, they became grander and more ornately
decorated. By the mid nineteenth century, they had become prominent centres of fashion
and social life. Promenading in these arcades became a popular nineteenth century pass-
time for the emerging middle classes. The Illustrated Guide to Paris of 1852 summarized
the appeal of arcades in the following description:

"In speaking of the inner boulevards, we have made mention again and again of the
arcades which open onto them. These arcades, a recent invention of industrial luxury, are
glass-roofed, marble-paneled corridors extending through whole blocks of buildings,
whose owners have joined together for such enterprises. Lining both sides of these
corridors, which get their light from above, are the most elegant shops, so that the arcade
is a city, a world in miniature, in which customers will find everything they need."[51]
The Palais-Royal, which opened to Parisians in 1784 and became one of the most
important marketplaces in Paris, is generally regarded as the earliest example in the
grand shopping arcades.[52] The Palais-Royal was a complex of gardens, shops and
entertainment venues situated on the external perimeter of the grounds, under the
original colonnades. The area boasted some 145 boutiques, cafés, salons, hair salons,
bookshops, museums, and numerous refreshment kiosks as well as two theatres. The
retail outlets specialised in luxury goods such as fine jewellery, furs, paintings and
furniture designed to appeal to the wealthy elite. Retailers operating out of the Palais
complex were among the first in Europe to abandon the system of bartering, and adopt
fixed-prices thereby sparing their clientele the hassle of bartering. Stores were fitted with
long glass exterior windows which allowed the emerging middle-classes to window shop
and indulge in fantasies, even when they may not have been able to afford the high retail
prices. Thus, the Palais-Royal became one of the first examples of a new style of shopping
arcade, frequented by both the aristocracy and the middle classes. It developed a
reputation as being a site of sophisticated conversation, revolving around the salons,
cafés, and bookshops, but also became a place frequented by off-duty soldiers and was a
favourite haunt of prostitutes, many of whom rented apartments in the
building.[53] London's Burlington Arcade, which opened in 1819, positioned itself as an
elegant and exclusive venue from the outset.[54] Other notable nineteenth century grand
arcades include the Galeries Royales Saint-Hubert in Brussels which was inaugurated in
1847, Istanbul's Çiçek Pasajı opened in 1870 and Milan's Galleria Vittorio Emanuele
II first opened in 1877. Shopping arcades were the precursor to the modern shopping
mall.

While the arcades were the province of the bourgeoisie, a new type of retail venture
emerged to serve the needs of the working poor. John Stuart Mill wrote about the rise of
the co-operative retail store, which he witnessed first-hand in the mid-nineteenth
century. Stuart Mill locates these co-operative stores within a broader co-operative
movement which was prominent in the industrial city of Manchester and in the counties
of Yorkshire and Lancashire. He documents one of the early co-operative retail stores
in Rochdale in Manchester, England, "In 1853, the Store purchased for £745, a warehouse
(freehold) on the opposite side of the street, where they keep and retail their stores of
flour, butcher's meat, potatoes, and kindred articles." Stuart Mill also quoted a
contemporary commentator who wrote of the benefits of the co-operative store:
Buyer and seller meet as friends; there is no overreaching on one side, and no suspicion
on the other... These crowds of humble working men, who never knew before when they
put good food in their mouths, whose every dinner was adulterated, whose shoes let in
the water a month too soon, whose waistcoats shone with devil's dust, and whose wives
wore calico that would not wash, now buy in the markets like millionaires, and as far as
pureness of food goes, live like lords.

Qus-2. What are the key issues facing the Indian retailers?

Ans- While the “customer is always right” mantra has held true for quite some time, the
amount of power wielded by consumers has never been higher than it is right now.
Customers are no longer forced to choose between just a couple of options when looking
to purchase new luxury goods. Today, they have dozens. Maybe even hundreds.

Not only has the number of retailers expanded exponentially in recent years, but so has
the information available to customers. This means savvy shoppers tend to spend a lot of
time researching their purchases – and consider the entire customer experience while
doing so – before committing.

The amount of choice people enjoy today has also led to a waning of brand loyalty, with
customers switching between retailers and online/in-store channels from purchase to
purchase, depending which best serves their needs at the time. Luxury retailers are not
immune to this trend either, as even wealthy customers now tend to shop around for the
best option.

This decline in brand loyalty customers presents a unique challenge for modern retailers
as they try to find new and innovative way to appeal to buyers – both
existing and potential.

However, success was never born out of shying away from a challenge, and there are
methods retailers can employ to create new opportunities to build brand loyalty among
their customers. The information age is a door which swings both ways – there’s more
data available to customers, but this means there more available about them, too. With
the right know-how and tools, retailers can come up with new and innovative ways to
keep shoppers coming back for more.

#1: Consumers are Choosing Multichannel Buying Experiences

With more complete e-retail experiences available, and shipping times greatly reduced, it
is little wonder around 96% of Americans utilize online shopping in one way or another.
However, those same Americans spend about 65% of their total shopping budget in
traditional brick-and-mortar locations.

In other words, while almost everyone is shopping online, they are

making more purchases in-store.

Customers are moving seamlessly between online and offline experiences, and are open
to retailers who can best facilitate these transitions. The explosion in mobile retail means
in-store research and showrooming – the practice of viewing a product in-store only to
make the purchase online – are now more common than ever. On the other side of the
coin, online orders can be delivered to a local store – often for free – further closing the
divide between online and offline retail.

The solution here is to focus on creating a second-to-none customer experience across all
channels. Customers are looking for retailers they can trust to deliver exceptional service
time and again.

The right customer data can help them, creating an omnichannel customer experience
which allows consumers to interact wherever and however they wish by incorporating
real-time feedback across channels and devices – engaging the customer wherever they
may be.

#2: Customers Expect a Seamless Experience

When transitioning between online and in-store experiences, customers not only want
the same products to be available, they also want their experience to be seamless. This
means, if they are a regular online customer, they want to be treated like a regular
customer when they visit a brick-and-mortar location. If they made an online purchase
earlier in the day, the in-store systems should already have a record of it.

If retailers can create this type of fluid online/offline experience for their customers, they
can cease pitting their channels against one another. Centralized customer data can help
retailers build a seamless, fluid experience – beginning with an easily-accessible
customer profile.
Loyalty programs can help, by collecting relevant information and putting it to use. A
retailer can use its loyalty program to not only reward customers, but deliver relevant
content and integrate data across all interaction points – including online interactions, in-
store sales, and home service technicians – creating an integrated, omnichannel customer
experience.

#3: To Attract Customer Loyalty, Retailers Need an Experience Which Stands Out

Customer experience is the biggest contributor towards brand loyalty, with a negative
experience being the most significant factor in affecting a customer’s likelihood to make a
repeat visit. Don’t forget, most customers also serve people in their own working lives,
meaning when they are on the other side of the counter, they want to feel important.

While promotions and offers can certainly contribute towards helping customers feel like
they are special, the real key to an outstanding experience is personalization.

Getting to know customers from their previous purchases and interests can help retailers
drive loyalty. These insights can be gleaned from data, or even a simple conversation. The
size of the business will no doubt inform which of these methods is more convenient, but
nobody should be too big for a quick chat with a regular customer.

Personalized content and offers can be delivered via the customers’ preferred contact
method – even a personalized email subject line can make a world of difference –
anticipating their wants and needs, and guiding them down the sales funnel towards their
next purchase.

#4: A Siloed Marketing Infrastructure Makes It Expensive and Unwieldy to get Your
Message Across.

Modern marketing makes it necessary for businesses to engage with their customers
across many different channels. From SMS, to email and social media, multi-channel
communications are essential to engagement which, in turn, drives the creation of the
perfect customer experience.

However, with so many separate channels, it’s not uncommon for customer data to
become siloed. If all the moving parts of a marketing department are not communicating
efficiently and working together, customers can become overwhelmed with conflicting or
repeat messages. This bombardment of marketing communications can easily have the
opposite of the intended effect and drive customers to competitors with a clearer and
more congruent message.
The right technology and communication procedures can ensure all arms of a marketing
team are on the same page. Having a clear strategy will ensure all channels are working
together instead of against one another – saving time and money.

#5: So Many Technologies Exist to Drive Marketing and Sales, but They Don’t Seem to
Work Together

While the amount of data gathered by businesses keeps growing at an alarming rate, the
number of staff available to analyze it is staying more-or-less the same. What’s important,
then, is making sure all this data is being used in the correct way and not contributing
towards the data silo problem.

This means finding a technology solution which can handle the huge amount of data
being generated and ensure it is focused in a direction which best benefits – rather than
overwhelms – marketing efforts. The data scientist approach to marketing is only going
to become more prevalent as time goes on so when creating a truly unified omnichannel
service.

Conclusion

Only in the combining of streamlined un-siloed data science, seamless cross-channel

customer service and marketing, and authentic personalization, can retailers expect to
create buyer experiences which can combat the fickle nature of the modern consumer.
Get the balance right, however, and retailers can foster brand loyalty in an increasingly
disloyal world.
Retail formats in India: Hyper marts/supermarkets: large self-servicing outlets offering
products from a variety of categories. Mom-and-pop stores: they are family owned
business catering to small sections; they are individually handled retail outlets and have a
personal touch. Departmental stores: are general retail merchandisers offering quality
products and services. Convenience stores: are located in residential areas with slightly
higher prices goods due to the convenience offered. Shopping malls: the biggest form of
retail in India, malls offers customers a mix of all types of products and services including
entertainment and food under a single roof. E-trailers: are retailers providing online
buying and selling of products and services. Discount stores: these are factory outlets that
give discount on the MRP. Vending: it is a relatively new entry, in the retail sector. Here
beverages, snacks and other small items can be bought via vending machine. Category
killers: small specialty stores that offer a variety of categories. They are known as
category killers as they focus on specific categories, such as electronics and sporting
goods. This is also known as Multi Brand Outlets or MBO's. Specialty stores: are retail
chains dealing in specific categories and provide deep assortment. Mumbai's Crossword
Book Store and RPG's Music World are a couple of example. Trends in the Retail industry
Emergence of organized retail: Real estate development in the country, for example, the
construction of mega malls and shopping malls, is augmenting the growth of the
organized retail business Spending capacity of youth of India: India has a large youth
population, which is a conducive environment to growth of this sector. Raising incomes
and purchasing power: The per capita income in India has doubled between 2000- 01 and
2009-10 resulting in improved purchasing power. Changing mindset of customers: The
customer mind set is gradually shifting from low price to better convenience, high value
and a better shopping experience

Challenges faced by modern indian retailers

1. CHALLENGES FACED BY MODERN INDIAN RETAILERS By SRIRAM S YAMINI ASP

YUVASRI G PROJECT GUIDE Dr. P. MOHAN SUYAMBURAJ PROFESSOR THIAGARAJAR
SCHOOL OF MANAGEMENT MADURAI-625005
2. TABLE OF CONTENTS CH. NO. CONTENTS PAGE NO. 1 INTRODUCTION 3 2 CURRENT
SCENARIO OF INDIAN RETAIL MARKET 4 3 IMPACT ON MANUFACTURERS 4 4 THE
RELATIONSHIP BETWEEN RETAILERS AND SUPPLIERS 5 4.1 WHAT IS BUYER POWER?
5 4.2 ABUSES OF BUYER POWER 6 4.3 WHAT DO THESE ABUSES IMPLY FOR SUPPLIERS?
7 4.3.1 THE RISE OF RETAILERS’ OWN BRANDS AND THE LOSS OF INDEPENDENT
BRANDS 8 4.3.2 LOW PRICES, UNCERTAINTY AND SUSTAINABILITY OF SUPPLY 10 4.4
WHAT DO THESE ABUSES IMPLY FOR CONSUMERS? 13 4.4.1 THE CONSUMER BENEFITS
OF SUPERMARKETS 13 4.4.2 DETRIMENTS TO CONSUMERS 13 5 CHALLENGES IN
RETAIL LOGISTICS 14 5.1 LOGISTIC TASK 16 5.2 CARELESSNESS AT MOTHERCARE
LEAVES CUPBOARD BARE 17 5.3 FUTURE CHALLENGES 19 5.4 TESCO.COM: DELIVERING
HOME SHOPPING 21 6 RETAIL LOGISTICS 22 6.1 LOGISTICS FUNCTIONS 23 6.2
OVERCOMING OBSTACLES WITH DROP SHIPPING 24 6.2.1 B2B TO INTEGRATION 25
6.2.2 DATA, BUSINESS, INTEGRATION FLOW 26 6.2.3 COLLABORATORS NOT
CUSTOMERS 26 6.3 FOUNDATIONAL FACTORS 28 6.4 FOCUS ON THE CONSUMER 29 7
CONCLUSION 29 8 REFERENCES 30 2
3. 1. INTRODUCTION India is the second fastest growing economy in the world. It is third
largest economy in the world in terms of GDP and fourth largest economy in terms of
Purchasing Power Parity. India presents a huge opportunity to the world at age, to use as
a hub. Standing on the threshold of a retail revolution and witnessing a fast changing
retail landscape, India is all set to experience the phenomenon of global village. India is
the “promised land” for global brands and Indian retailers A “Vibrant economy”. India
tops in the list of emerging market for global retailer and India’s retail sector is expanding
and modernizing rapidly in line with India’s economic growth. The future is promising;
the market is growing, government policies are becoming more favorable and emerging
technologies are facilitating operations. Retailing in India is gradually inching its way
toward becoming the next boom industry. The whole concept of shopping has altered in
terms of format and consumer buying behavior, ushering in a revolution in shopping in
India. Modern retail has entered India as seen in sprawling shopping centers, multi-
storied malls and huge complexes offer shopping, entertainment and food all under one
roof. The Indian retailing sector is at an inflexion point where the growth of organized
retailing and growth in the consumption by the Indian population is going to take a
higher growth trajectory. The Indian population is witnessing a significant change in its
demographics. A large young working population with median age of 24 years, nuclear
families in urban areas, along with increasing working-women population and emerging
opportunities in the services sector are going to be the key growth drivers of the retail
sector in India. Retailing in India is evolving rapidly, with consumer spending growing by
unprecedented rates and with increasing no of global players investing in this sector.
Organized retail in India is undergoing a metamorphosis and is expected to scale up to
meet global standards over the next five years. India’s retail market has experienced
enormous growth over the past decade. The most significant period of growth for the
sector was between year 2000 & 2006, when the sector revenues increased by about
93.5% translating to an average annual growth of 13.3%.The sectors growth was partly a
reflection of the impressive Indian economic growth and overall rise in income level of
consumers. Apparels and consumer durables are the fastest growing vertical in the retail
sector. 3
4. Mobile phone as a product category has witnessed the highest growth in the consumer
demand amongst all retail products offering, with increasing penetration of
telecommunication in towns and villages. The telecommunication sector has been adding
on an average 5 million new users every month. The other product categories are gaining
traction predominantly in the urban areas and emerging cities, with increasing average
income and spending power of young urban India. India remained as the most attractive
market for third year in a row in an index prepared by At Kearney. Retail sector is the
largest contributing sector to country’s GDP. 2. CURRENT SCENARIO OF INDIAN RETAIL
MARKET The size of Indian retail industry is more than US $350 billion but it is highly
unorganized. The organized sector has started developing in the past few years. Many
International brands have entered the market. With the growth in organized retailing,
unorganized retailers are fast changing their business models. According to study
conducted by ICRIER, total retail business in India will grow at 13% annually, from US
$322 billion in 2006- 07 to US $590 billion in 2011-12 and further US $1 trillion by 2016-
17. 3. IMPACT ON MANUFACTURERS The impact on manufacturers are: (i) Large
manufacturers have started feeling the competitive impact of organized retail through
price and payment pressures. (ii) Entry of organized retail is transforming the logistics
industry. This will create significant positive externalities across the economy. (iii)
Manufacturers have started building and responding their brand strength and set up
dedicated teams to deal with modern retailers. Thus, the overall impact of organized
sector on other sectors is positive. According to a report prepared by FCRIER,
unorganized retailers in the vicinity of organized retailers experienced a decline in sales
and profit in initial years of the entry of organized sectors. The adverse impact, however,
weakens over time. 4
5. 4. THE RELATIONSHIP BETWEEN RETAILERS AND SUPPLIERS 4.1 WHAT IS BUYER
POWER? Buyer power is essentially the ability of a buyer to obtain more favorable buying
terms than would be possible in a fully-competitive market. Most people will understand
that, in most traded goods markets, bigger buying volumes command better buying
prices, but what explains the ability of large supermarkets to go on extracting better
terms from suppliers after economies of scale have been exhausted? The explanation is
abuse of buyer power. Supermarkets’ buyer power arises from their retailer power: often
commanding upwards of 60 percent of domestic grocery sales,1 supermarkets
collectively are of an importance to suppliers which enables them effectively to
determine what will – and will not – be stocked, and on what terms: sources, quantity,
quality, delivery schedules, packaging, returns policy, and above all, price and payment
conditions. There are, of course, other actors in grocery supply chains, some very large,
such as Procter & Gamble, Nestlé, and Unilever. But even for these, the dominance of
supermarkets is daunting, and the imbalance of bargaining power striking. Except
through supermarkets, brand owners large or small have only limited access to end
consumers. Producers of non-branded goods, most notably agricultural producers, have
even less access and less ability to bargain for it. Supermarkets’ buyer power and retailer
power are now mutually reinforcing. As their retail market share increases, they are able
to secure ever better deals from their suppliers. And, as buying prices fall, retail prices fall
too, giving them yet more market share. Buyer power would not exist without retailer
power, and vice versa. Figure below illustrates the circular relationship. 5

6. FIGURE: HOW BUYER POWER AND RETAILER POWER REINFORCE EACH OTHER 4.2
ABUSES OF BUYER POWER Under EU competition law, buyer power is not per se
objectionable it is the abuse of such power which is unlawful. The imbalance of
bargaining power that exists between supermarkets and their suppliers fosters abuses,
and the consequences for suppliers and consumers are considered next. Table presents
the principal abusive buying practices identified in EU Member States and elsewhere.
While the list is by no means exhaustive, it is remarkable how similar the abuses are
across different jurisdictions. 6

7. TABLE: SELECTED NATIONAL FOOD MARKET CONCENTRATION RATIO 2008 OR

LATER TABLE: SELECTED NATIONAL FOOD MARKET CONCENTRATION RATIOS 2005-
2006 4.3 WHAT DO THESE ABUSES IMPLY FOR SUPPLIERS? 7
8. It would not of course be reasonable to assert that supermarkets have inflicted only
abuse on suppliers: there have been benefits too. The principal gain that supermarkets
have brought to suppliers is volume. Also, there can be no question that the demands of
supermarkets have in several respects forced suppliers to raise their game: the quality of
their output, the variety of what they produce, and the condition in which it reaches the
end user. However, as expenditure by consumers on food has increased, so has the share
of that expenditure taken by supermarkets. Nor is it reasonable to suggest that only
supermarkets exert buyer power: the largest brand owners, themselves multi-national
corporations, almost certainly possess buyer power, as do a number of very large
European buying groups which act on behalf of major grocery retailers. But what makes
supermarkets distinctive in the exercise of buyer power is the power they also exercise as
retailers. The question that this paper considers is not whether supermarkets are a good
thing or not but whether, as gate-keepers controlling both suppliers and consumers, they
misuse their power over both groups. The conclusion drawn here is not only that they
can, but that they do. 4.3.1 THE RISE OF RETAILERS’ OWN BRANDS AND THE LOSS OF
INDEPENDENT BRANDS It is unsurprising that, as supermarkets acquired increasing
presence in the minds of consumers and economic power in grocery markets, they began
to develop their own brands as a means of bolstering market share and profits. This has
given retailers a new role – in addition to their traditional role as purchasers, they have
become direct competitors to their suppliers. To begin with, retailers’ own brand goods6
were generally low-price, basic versions of commodities such as (in the case of food)
cereals or tinned vegetables. The rather crude packaging applied to the early retailers’
own brands served to emphasize the cheap and cheerful nature of the products. Over
time, however, own brands have extended outwards to cover a much wider range of
goods, and upwards into premium segments. In Australia, the share of supermarket food
sales occupied by retailers’ own brands is now estimated at 25%. In the UK, it is
estimated by the British Brands Group as double that. Given that shelf space is finite,
branded goods are being increasingly squeezed out by retailers’ own brands. It is
profitable twice over for the supermarkets to do this. First, the 8
9. promotion of their own brand products can be carried as part of their corporate
promotional overhead, which implies substantial savings of indirect cost. Second, the
closer control that supermarkets have over their own brand suppliers means that they
can often achieve lower direct product costs too. Yet, as retailers’ own brands have
moved up market into premium and prepared foods, the prices they can command are
often not far below those of independent, established brand owners. In Australia, the loss
of brands and rise of retailers’ own brands has been comprehensively documented by
CHOICE, a leading consumer watchdog. The evidence that CHOICE provides suggests that
the removal of branded goods from supermarket shelves and their replacement by
retailers’ own brands is driven by the commercial interests of supermarkets rather than
consumer choice: “Many small suppliers – and even large ones such as Heinz and Coca
Cola – are concerned about the pressure they face in the fight for [this] finite shelf space.
Kevin [a branded goods manufacturer] argues his product was cut not because he wasn’t
innovating, but because Coles set him up to fail. “Coles told us it’s because our sales
weren’t achieving targets. But that’s because they wouldn’t put us in catalogues, we got
no shelf space, we were hidden behind a column and they refused to let us have
promotions, and that made it impossible for us to compete with the big boys. We suspect
what they were really doing was targeting the products they wanted to delete so that it
would be easier to justify in six to eight months’ time.” Over at Woolworths, brands are
also being cut. Mark [another branded goods manufacturer] had his organic product
deleted directly after Woolworths acquired the Macro label. Following steady sales for
three years, Woolworths’ category buyer told him there was only room for one organic
label – Macro, its own. This decision saw his yearly sales halved. Potentially more
damaging is the practice by supermarkets of demanding to know the future product plans
of branded suppliers. When these are shared with retailers’ own brand manufacturers in
order that retailers may launch own brand products simultaneously with or ahead of the
branded goods, it undermines the IP rights of the branded suppliers and damages their
profitability. The consumer interest in retailer own brands is considered later in this
paper. 9

10. FIGURE: PRIVATE LABELS IN AUSTRALIA 4.3.2 LOW PRICES, UNCERTAINTY AND
SUSTAINABILITY OF SUPPLY Low prices to suppliers are a complaint in all countries
where buyer power problems have been reported. Deep discounting by supermarkets
induces low buying prices and can result in producers making little profit or even losses.
The imbalance of economic advantage between actors in the supply chain for fresh fruit is
acute. 10
11. Figure illustrates the percentage of the retail price received at each stage of a
pineapple supply chain and shows the noticeably low percentage of the retail price
received by workers compared with distributors and retailers. FIGURE: WHO EARNS
WHAT FROM FIELD TO SUPERMARKET Where products are not sourced directly by
supermarkets, the effects can very easily be transmitted to suppliers via an intermediary.
This has been attested in relation to exports of fresh fruit from South Africa. Symington
believes that as a result of their strong positions, supermarkets and their importers are
able to bypass the standard business practice of agreeing a price for a particular volume
of product before it is packed and dispatched. 11

12. Instead the risk is passed on to the supplier (who might not find out what price has
been achieved until after the product is sold) and the supermarket has the flexibility to
pursue price wars and unscheduled promotions without having to bear the cost itself.
Over-procurement to ensure that shelves are covered is described as common, as are
complaints about quality. And it is the supplier, not the supermarket, which will pay the
price of offloading excess supply of a perishable product. In Symington’s view, 11
suppliers cannot tolerate these practices indefinitely:  Practices that have the potential
to create increased uncertainty for suppliers were identified as particularly significant by
the UK Competition Commission in its

2008 report already cited.  Twenty six such practices were described, often involving the
transfer of retrospective (and therefore unexpected) cost and excessive risk to suppliers,
undermining their ability to plan, invest and innovate, ultimately to the detriment of the
consumer. Again, it is important to note that supermarkets are not the only type of
organization to be able to exert buyer power: brand owners, to differing degrees, and
major buying groups also enjoy buyer power. But, to re-emphasize a point already made,
supermarkets are distinctive because of the retailer power that they exert. There are
signs of recognition by retailers and large manufacturers of the need for more
responsible commercial practices – if only to ensure the sustainability of their supply and
to respond to public pressure in domestic markets. An example of a supermarket
response is the Tesco Sustainable Dairy Group, which aims to address issues such as
price, uncertainty and the cost to UK dairy farmers of implementing standards. Although
other retailers have also taken action to address these issues in this industry and
elsewhere, what is significant about this initiative is the inclusion of a price guarantee.
The initiative only applies to liquid milk, however, and there is a long way to go before
supermarkets apply these principles throughout their supply base. 12
13. 4.4 WHAT DO THESE ABUSES IMPLY FOR CONSUMERS? 4.4.1 THE CONSUMER
BENEFITS OF SUPERMARKETS As with suppliers, so with consumers, there is no
suggestion that the record of supermarkets merits only criticism. For several decades
past, supermarkets have fuelled, and have been fuelled by, profound social and
demographic changes. For the vast majority of people in developed market economies it
is impossible to imagine modern life without supermarkets: the convenience of buying
substantially all one’s grocery needs under one roof in clean and pleasant surroundings,
from early in the morning to late at night, with ancillary services such as toilets and cafés,
adjacent car parking and/or public transport is irreplaceable. One might argue that for
many the true convenience store is in fact a supermarket. Supermarkets also claim –
though the evidence is mixed – that over the long term they have reduced the real (i.e.
inflation-adjusted) prices of food. Yet, as the market power of supermarkets has
increased, so have the numbers of those who feel that they are not well served by them:
those in rural areas and/or without a car, the old, and, increasingly, those who dislike the
damaging environmental impacts of out-of-town hypermarkets. The British Brands
Group (BBG) 15 submission to the UK Competition Commission’s inquiry of 2006-2008
reported survey findings that showed that some 26 per cent of the population and 33 per
cent of people older than 16 were not well served by supermarkets. It is unlikely that the
UK’s position in these respects is radically different from those of other large EU Member
States: indeed, where the population density is lower, as it is in France, Germany, Spain
and Italy, the prevalence of problems for people in rural areas may already be worse.
4.4.2 DETRIMENTS TO CONSUMERS The effects of abuse on suppliers identified in Table
are summarized and the subsequent effects of these on consumers are assessed in Table
below. This is followed by a commentary on the principal issues arising. 13
14. TABLE: EFFECTS OF BUYER POWER ABUSE ON CONSUMERS 5. CHALLENGES IN
RETAIL LOGISTICS It is often taken for granted that products will be available to buy in
the shops. The cornucopia of goods that is available in a hypermarket or a department
store sometimes means that one forget how the products were supplied. One expect their
lettuces to be fresh, the new Play station to be available on launch day and our clothes to
be in good condition and ready to wear. With the introduction of e-commerce one have
come to demand complete availability and home delivery at times of our choosing.
Consumer beliefs and needs have altered. Their willingness to wait to be satisfied or
served has reduced and they expect instant product availability and gratification. It
should be obvious from this that the supply or logistics system that gets products from
production through retailing to consumption has also needed to be transformed. Physical
distribution and materials management have been replaced by logistics management and
a subsequent concern for the whole supply chain (Figure). 14

15. FIGURE: LOGISTICS MANAGEMENT This logistics transformation derives from cost
and service requirements as well as consumer and retailer change (see Fernie, 1990;
Fernie and Sparks, 1998). Elements of logistics are remarkably expensive, if not
controlled effectively. Holding stock or inventory in warehouses just in case it is needed
is a highly costly activity. The stock itself is expensive and might not sell or could become
obsolete. Warehouses and distribution centers generally are expensive to build, operate
and maintain. Vehicles to transport goods between warehouses and shops are expensive,
in terms of both capital and running costs. There is thus a cost imperative to making sure
that logistics is carried out effectively and efficiently, through the most appropriate
allocation of resources along the supply chain. At the same time, there can be service
benefits. By appropriate integration of demand and supply, mainly through the
widespread use of information technology and systems, retailers can provide a better
service to consumers by, for example, having fresher, higher quality produce arriving to
meet consumer demand for such products. With the appropriate logistics, products
should be of a better presentational quality, could possibly be cheaper, have a longer shelf
life and there should be far fewer instances of stock outs. Reaction time to spurts in
demand can be radically improved through the use of information transmission and
dissemination technologies. If operating properly, a good logistics system can therefore
both reduce costs and improve service, providing a competitive advantage for the
retailer. 15
16. 5.1 LOGISTIC TASK The logistics management task is therefore initially concerned
with managing the components of the ‘logistics mix’. One can identify five components:
Storage facilities These might be warehouses or distribution centers or simply the stock
rooms of retail stores. Retailers manage these facilities to enable them to keep stock in
anticipation of or to react to, demand for products. Inventory All retailers hold stock to
some extent. The question for retailers is the amount of stock or inventory (finished
products and/or component parts) that has to be held for each product, and the location
of this stock to meet demand changes. Transportation Most products have to be
transported in some way at some stage of their journey from production to consumption.
Retailers therefore have to manage a transport operation that might involve different
forms of transport, different sizes of containers and vehicles and the scheduling and
availability of drivers and vehicles. Unitization and packaging Consumers generally buy
products in small quantities. They sometimes make purchase decisions based on product
presentation and packaging. Retailers are concerned to develop products that are easy to
handle in logistics terms, do not cost too much to package or handle, yet retain their
selling ability on the shelves. Communications To get products to where retailers need
them, it is necessary to have information, not only about demand and supply, but also
about volumes, stock, prices and movements. Retailers have thus become increasingly
concerned with being able to capture data at appropriate points in the system and to use
that information to have a more efficient and effective logistics operation. 16
17. 5.2 CARELESSNESS AT MOTHERCARE LEAVES CUPBOARD BARE Sales at Mothercare
dived by 6 per cent in three weeks after its move to a new hi-tech distribution centre
caused problems. The children's wear retailer admitted that staff shortcomings meant its
heralded autumn/winter clothing range had languished at the new Northampton shire
warehouse, causing huge stock shortages in its stores. Chief Executive Chris Martin, who
was recruited to turn around the chain, admitted the setback was ‘exceptionally
frustrating’ given that like-for-like sales until this period had been up about 10 per cent,
and that the new range had been well received. It was doubly frustrating, he said, as
management of the Daventry warehouse was sub- contracted to a third party, Tibbett &
Britten. ‘Some of their staff just weren’t doing their job’, said a source. Tibbett responded
by placing a senior director at the building to sort out the problems and establish a
proper flow of stock to the stores. Asked if he was considering legal action, Mr. Martin
said: ‘This is a five year relationship. We are working it through together.’ He added that a
fifth less stock than usual had been in the shops but stressed that it was ‘now coming
through’. In a trading statement Mr. Martin revealed that sales rose by 9.6 per cent for the
26 weeks to 28 September 2001, with like- for-like sales up by 7.6 per cent. Brokers at
Charterhouse Securities cut their recommendation from hold to sell after the news, but
Seymour Pierce retail analyst Richard Ratner said, ‘If they sort the warehouse problems
out in the next few weeks I won’t be unduly concerned, particularly as the 2.1 percentage
point improvement in margin was better than expected.’ Mothercare planned to continue
with the roll-out of its larger Mothercare World format after Christmas 2001. Source:
Helen Slingsby, Guardian, Tuesday 9 October 2001 It should be clear that all of these
elements are interlinked. In the past they were often managed as functional areas or
‘silos’, and while potentially optimal within each function, the business as a whole was
sub-optimal in logistics terms. More recently the management approach has been to
integrate these logistics tasks and reduce the functional barriers. So, if a retailer gets good
sales data from the checkout system, this can be used in scheduling transport and
deciding levels and locations of stock holding. If the level of inventory can be reduced,
perhaps fewer warehouses are needed. 17
18. If communications and transport can be linked effectively, a retailer can move from
keeping stock in a warehouse to running a distribution centre which sorts products for
immediate store delivery: that is, approaching a ‘Just-In-Time’ system. Internal
integration has therefore been a major concern. It should also be clear, however, that
retailers are but one part of the supply system. Retailers are involved in the selling of
goods and services to the consumer. For this they draw upon manufacturers to provide
the necessary products. They may outsource certain functions such as transport and
warehousing to specialist logistics services providers. Retailers therefore have a direct
interest in the logistics systems of their suppliers and other intermediaries. If a retailer is
effective, but its suppliers are not, errors and delays in supply from the manufacturer or
logistics services provider will impact the retailer and the retailer ’s consumers, in terms
of either higher prices or stock-outs (no products available on the store shelves). This
was the essence of the problem in the Mothercare example (page 3). If a retailer can
integrate effectively its logistics system with that of its suppliers, such problems may be
minimized. Much more importantly, however, the entire supply chain can then be
optimized and managed as a single entity. This brings potential advantages of cost
reduction and service enhancement, not only for the retailer, but also for the supplier. It
should also mean that products reach the stores more rapidly, thus better meeting
sometimes transient customer demand. In some instances it may mean the production of
products in merchandisable ready units, which flow through the distribution systems
from production to the shop floor without the need for assembly or disassembly. Such
developments clearly require supply chain co-operation and coordination. We may be
describing highly complex and advanced operations here. Retail suppliers are
increasingly spread across the world. A retailer may have thousands of stores in a
number of countries, with tens of thousands of individual product lines. They may make
millions of individual sales per day. Utilizing data to ensure effective operation amongst
retailers, manufacturers, suppliers, logistics services providers, head office, shops and
distribution centers is not straightforward. There is thus always a tension between
overall complexity and the desire for the simplest possible process. 18
19. Summarizing the discussion above, the logistics task therefore can be described as:
"The process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the
organization and its marketing channels in such a way that current and future
profitability are maximized through the cost effective fulfilment of orders." Managing the
logistics mix in an integrated retail supply chain, while aiming to balance cost and service
requirements, is the essential element of logistics management (Figure). FIGURE: THE
MANAGEMENT TASK IN LOGISTICS ` As retailers have begun to embrace this logistics
approach and examine their wider supply chains, many have realized that to carry out
logistics properly, there has to be a transformation of approach and operations. 5.3
FUTURE CHALLENGES While members of the supply chain have sought ways to foster
collaboration, the rise of e-commerce has posed another set of challenges for retailers.
The rise and subsequent fall of many dot.com companies led to a high degree of
speculation as to the reconfiguration of the business to consumer (B2C) channel.
Ultimately, e-fulfilment, especially the ‘last mile’ problem of delivering goods to the final
customer, holds the key to success in this channel. The business to business (B2B)
channel, however, has more to offer members of the supply chain because of the number
and complexity of transactions and the greater adoption of Internet technology by
businesses compared with consumers. 19
20. There have been numerous B2B exchange marketplaces created since the late 1990s,
with most of these exchanges being created in highly concentrated global market sectors
with a ‘streamlined’ number of buyers and sellers, for example in the automobile,
chemical and steel industries. The more proactive retailers developed B2B Internet
exchanges as an extension of the EDI platforms created a decade earlier. This has enabled
companies such as Tesco, Sainsbury and Wal-Mart to establish their own private
exchanges with suppliers to share data on sales, product forecasting, promotion tracking
and production planning. There are major benefits to be derived from pooling EDI efforts
into a smaller number of B2B platforms. For example it is easier to standardize processes
for communication, reduce development costs and give members access to a larger
customer base. In 2000 several Internet trading exchanges were created, promising a
revolution in product procurement. The two major exchanges, GlobalNet Xchange (GNX)
and World Wide Retail Exchange (WWRE), have made some progress. Although the
Global Commerce Initiative established draft standards for global Internet trading, many
issues need to be resolved to ensure the seamless flow of data across the supply chain.
The complexity of dealing with thousands of stock-keeping units (SKUs) has meant that
retailers have had to be selective in the projects that can be routed through their private
exchanges compared with these global exchanges. To date the focus of the GNX exchange
has been on special promotions, perishables and own-label products: for example, 600
out of potential 2,000 suppliers of Sainsbury’s retail brand products are on GNX. In the
business to consumer (B2C) channel, the rise and fall of Internet retailers has brought a
touch of realism to the evolving market potential of online shopping. In Europe, grocery
retailers are powerful ‘bricks and mortar’ companies and the approach to Internet
retailing has been reactive rather than proactive. Most Internet operations have been
small, and few pure players have entered the market to challenge the conventional
supermarket chains. Tesco is one of the few success stories in egrocery, having adopted
an unconventional model. 20
21. 5.4 TESCO.COM: DELIVERING HOME SHOPPING Tesco.com has become the world’s
largest Internet grocery system in a very short time. Unlike many of its competitors, it has
opted for an in store picking and home delivery operation, rather than starting with a
dedicated distribution centre system. This choice came about for three reasons: 
Warehouse-based picking and delivery was not believed to be economic due to low
penetration levels and drive times for vehicles being high  Customers confirmed that
they did not want a reduced offer online as this destroyed the point of shopping at Tesco
for them  Outside of London, the penetration rates possible did not make a warehouse a
valid option, even if other costs (such as picking) were solved Since introduction there
has been a very rapid roll-out to effectively cover the UK through the network of stores.
Each store involved has dedicated local delivery vehicles. The system in operation has
thrown up a few surprises:  Fresh food has been a big seller online, whereas people had
initially expected big, bulky replenishment items to be the most popular  People plan
their online order better than their in-store trip (aided by the Clubcard and Internet item
recall availability), so a higher proportion of spend is made with Tesco  The non-food
item offer can be more extensive online than in-store so sales in this area can be
expanded  Knowledge is gained from the online shopping process of what items
customers wanted to buy, that were not actually in stock. This helps enhance the supply
system Source: adapted from Jones, 2001 21

22. 6. RETAIL LOGISTICS According to Cerasis, from a distribution perspective, retail

logistics' has gone through multiple phases: FIGURE: THE EVOLUTION OF RETAIL
LOGISTICS  1970s: Retail stores were replenished by direct deliveries from suppliers or
wholesalers  1980s: Retailers started to centralize their store deliveries through new
distribution centers which, they controlled  1990s: Global sourcing took off, with many
retailers developing import centers to receive and process containerized imports  2000 -
present: ecommerce began to rapidly expand with pure-play retailers leading the way in
establishing e-fulfilment distribution networks. 22
23. 6.1 LOGISTICS FUNCTIONS 1. Mega e-fulfillment Centers: merchandise is stocked and
chosen at item level. These facilities, which are either operated by the retailer or a
logistics service provider, are typically 500,000 sq ft to one million sq ft in size, or larger.
They often operate 24 hours a day, 7 days a week 2. Parcel Hubs / Sorting Centers: sorts
orders according to geographical location -- often by zip or post code, so deliveries are
relevant to parcel delivery center, customer’s home or designated collection point 3.
Parcel Delivery Centers: handles the ‘last mile’ delivery to the customer 4. Seamlessly
Integrated Technology: shopping carts connect via API or web xml to a transportation
management system, so shoppers get the exact price quote of shipping of larger items.
Quotes are often more suited for less than truckload modes, as these technology products
for logistics, such as a TMS, must accomplish along with the shopping cart for better
management:  Ability to organize and track shipment no matter what mode  Online
order status and documentation  Online dispatch documentation and invoice, such as a
bill of lading and freight invoice  Auto reminder for payments  Seamless interface with
existing SCM or ERP system  Online alerts for critical information via text or mobile 
Information systems reports on past data analysis or delivery history Types of
ecommerce logistics systems ensure the following benefits to shippers, customers, and
3PL service providers:  Improved communication  Transparency into the supply chain 
Improved customer satisfaction  Cost reduction  Improvement in efficiency 23
24.  On-time delivery As a result, the logistic facilities will encourage some retailers to
set up their own networks of local depots -- either to cross-dock items shipped from
larger e-fulfillment centers or to ship certain ‘fast moving’ products direct to customers.
In this emerging model, e-fulfillment blends with urban logistics, as these facilities will be
mainly based around the major population centers where online sales densities are
highest. For example, in the U.S., Amazon opened smaller scale distribution facilities to
offer same-day delivery services. In the UK, Amazon has a current requirement for some
20 smaller distribution facilities around major urban areas. By contrast, in France,
Amazon’s demand remains focused on very large units, with the last kilometer delivery
being operated by third party providers. Omni-channel retailers are now managing their
channels in an integrated way that offers customers a seamless experience, however they
choose to shop. With Omni-channel, a retailer may fulfill orders from stores or
warehouses, ultimately blurring the distinction between the two e-fulfillment centers.
Fulfillment technologies have also helped integrate the front-end and back-end of online
retail. The back-end process is now a collaborative effect thanks to automated software
and real- time fulfillment date. The alignment of important touch-points in the supply
chain has reduced inefficiencies and has helped identify redundant processes. There are
even robots that will pick inventory for customers and move it around the warehouse!
6.2 OVERCOMING OBSTACLES WITH DROP SHIPPING As with many things, drop
shipping presents both advantages and disadvantages to retailers and suppliers. Many
retailers today have tried drop shipping and unfortunately failed. According to Commerce
Hub, “The lack of intercompany system integration is even more problematic in the drop
ship fulfilment model, because record keeping and track-ability become even more
critical as thousands of orders are sourced through hundreds of suppliers. In drop ship
fulfilment, thousands of orders are being shipped to thousands of locations. The
choreography of this is much more complex than single orders with thousands of line
items being shipped in a few warehouses.” 24
25. This may lead retailers to experience a loss of control, as they now rely on their
suppliers to ship promptly and skilfully. If a supplier fails to execute an order properly,
the customer service wing may get hit. Or worse, it could result in back orders,
complicated returns, and branding problems with packaging. Though, there are many
challenges that suppliers face too. Picking, packing, and shipping consumer orders is
much different than shipping pallets to a retailer or distribution center. Drop shipping
can require updates to warehousing, fulfilment, and invoicing systems, as well as changes
to processes and channel policies. This all contributes to an added degree of inventory
risk for the supplier. One of the greatest challenges faced by retailers and suppliers is
system-to-system integrations with trading partners. As well as, automating drop
shipping processes and the lack of any kind of standard for performing and maintaining
those integrations. I know, it may appear complicated and at this point even impossible.
However, the one key ingredient that will make drop shipping successful as an
ecommerce supply chain management technique is building and maintaining your
relationships. 6.2.1 B2B TO INTEGRATION With drop shipping, you replace the B2B
discussion -- when a retailer negotiates with a vendor to purchase inventory at wholesale
prices, then resells -- with an integration discussion -- where both sides need to
understand the virtual part of the relationship and work alongside one another to
designate resources to handle different business processes and new technology
requirements. 25

26. 6.2.2 DATA, BUSINESS, INTEGRATION FLOW FIGURE: DATA, BUSINESS,

INTEGRATION FLOW This commit-to-integrate discussion, and how each relationship
accesses it, is the key ingredient that will facilitate drop shipping success, or guarantee
failure. Extensive, coordinated expectations between the retailer and supplier are crucial.
6.2.3 COLLABORATORS NOT CUSTOMERS Conventional supply chain relationships and
business processes don’t necessarily fit into our newly adopted economic world. When a
retailer decides to modify their supply chain to a drop ship or inventory-less fulfilment
model, there are significant factors that should to be discussed. Drop shipping is not just
another fulfilment model. The financial equation is altered, so the vendor-retailer
relationship is altered as well. While not having to actually purchase the inventory is
financially beneficial to a retailer, it actually reduces the amount of leverage the retailer
has over the vendor’s behaviour. In return for the opportunity to market more products
26
27. through the retailer’s channel, the vendor takes on all of the financial risk, while
having far less up-front financial security. In conventional fulfilment models, the retailer
usually controls the process and technical requirements, while the vendor performs the
cost/benefit analysis. Since financial negotiation has already occurred between the
merchant and vendor, it makes sense for the technical discussion to be conducted
separately from the retailer’s organization. FIGURE: VENDOR DEALER RELATIONSHIP
With the drop shipping fulfilment model, conversations intersect much more frequently.
Retailers will often ask the vendor to spend time and money to work with them on the
premise of revenue. However, vendors are much more resistant to additional technical
and process demands. Vendors have less desire to add costs to participate in a drop
shipping program, because of the lower revenue per order normally associated with
consumer-driven orders. The following factors complicate things for retailers, as it makes
it difficult to leverage existing partner on-boarding processes or outsourced vendor
management systems. It’s also generally very difficult for a third party vendor to properly
represent the retailer during these discussions. 27

28. FIGURE: CONVERSATIONS INTERSECTING With drop shipping as your main strategy,
everyone is partners, which requires critical alignment. 6.3 FOUNDATIONAL FACTORS
Determining and utilizing partners for a drop ship or endless aisle program is different
than for a conventional order fulfilment method. While there is no commitment to buy,
retailers have the opportunity to choose from multiple supply partners. However, this
lack of financial incentive can affect the willingness of the supplier to spend time and
money to meet a retailer’s compliance needs. Finally, because of the distributed nature of
drop shipping, some component of electronic data exchange cannot be optional for the
supplier. Two foundational factors that should be considered:  Logistics Efficiencies:
When choosing a supplier to participate in a drop shipping initiative, retailers must
ensure that the supplier can do single-item fulfilment, and that its ability to do this
matches the retailer’s needs -- such as, shipping times and expedited options. The
capacity for suppliers to select individual items in their warehouse or fulfilment center is
a prerequisite for drop shipping. Retailers can gauge this ability if the supplier offers
direct-to-consumer fulfilment via its own ecommerce 28
29. site. Many suppliers underestimate the costs of switching to a single item fulfilment
model, so be cautious of those who promise to make the switch on your behalf. 
Technology Opportunities: Both sides will need to commit time and resources to drop
shipping. With that said, you’re not committing to a specific revenue number, but
minimizing the technical excuses for not participating. This means providing multiple
options to exchange data at no or little cost. Options will range from partners with very
minimal technical expertise, to those with a mature and robust ecommerce
infrastructure. Typical data-exchange options: o Self-service, manual portal o Non-
integrated batch process o Automated, filed based integration option o Web services (API,
XML) automated option

6. FOCUS ON THE CONSUMER The good news is that there is a strong alignment with all
of these issues: the consumer. Today, brands and suppliers are selling directly to the
consumer. This positions the supply side of the equation directly with the retail side: the
consumer experience drives everything. Consumers need descriptive product data, trust
in inventory certainty, a consumer-friendly ordering process, and item-level logistics that
are track able and returnable. The world is positioning its efforts on the consumer, and
that is driving new relationships in the supply chain, and especially partnerships between
those that would like to be on one side or the other of drop shipping, to flourish and find
success.

7. CONCLUSION Retailing in India is gradually inching its way toward becoming the next
boom industry. The whole concept of shopping has altered in terms of format and
consumer buying behavior, ushering in a revolution in shopping in India. Modern retail
has entered India as seen in sprawling shopping centers, multi-storied malls and huge
complexes offer shopping, entertainment and food all under one roof. The organized
players has started developing in the past few years. The growth potential for modern
retailers are enormous in India. They may seem to face lots of challenges. But that is
because they are exploring a market which has been unorganized and unstructured for
decades. Modern retailers are coming out with best solutions

Qus-3. What are the key issues facing the Indian retailers?
Ans- While the “customer is always right” mantra has held true for quite some time, the
amount of power wielded by consumers has never been higher than it is right now.
Customers are no longer forced to choose between just a couple of options when looking
to purchase new luxury goods. Today, they have dozens. Maybe even hundreds.
Not only has the number of retailers expanded exponentially in recent years, but so has
the information available to customers. This means savvy shoppers tend to spend a lot of
time researching their purchases – and consider the entire customer experience while
doing so – before committing.

The amount of choice people enjoy today has also led to a waning of brand loyalty, with
customers switching between retailers and online/in-store channels from purchase to
purchase, depending which best serves their needs at the time. Luxury retailers are not
immune to this trend either, as even wealthy customers now tend to shop around for the
best option.

This decline in brand loyalty customers presents a unique challenge for modern retailers
as they try to find new and innovative way to appeal to buyers – both
existing and potential.

However, success was never born out of shying away from a challenge, and there are
methods retailers can employ to create new opportunities to build brand loyalty among
their customers. The information age is a door which swings both ways – there’s more
data available to customers, but this means there more available about them, too. With
the right know-how and tools, retailers can come up with new and innovative ways to
keep shoppers coming back for more.

#1: Consumers are Choosing Multichannel Buying Experiences

With more complete e-retail experiences available, and shipping times greatly reduced, it
is little wonder around 96% of Americans utilize online shopping in one way or another.
However, those same Americans spend about 65% of their total shopping budget in
traditional brick-and-mortar locations.

In other words, while almost everyone is shopping online, they are

making more purchases in-store.

Customers are moving seamlessly between online and offline experiences, and are open
to retailers who can best facilitate these transitions. The explosion in mobile retail means
in-store research and showrooming – the practice of viewing a product in-store only to
make the purchase online – are now more common than ever. On the other side of the
coin, online orders can be delivered to a local store – often for free – further closing the
divide between online and offline retail.
The solution here is to focus on creating a second-to-none customer experience across all
channels. Customers are looking for retailers they can trust to deliver exceptional service
time and again.

The right customer data can help them, creating an omnichannel customer experience
which allows consumers to interact wherever and however they wish by incorporating
real-time feedback across channels and devices – engaging the customer wherever they
may be.

#2: Customers Expect a Seamless Experience

When transitioning between online and in-store experiences, customers not only want
the same products to be available, they also want their experience to be seamless. This
means, if they are a regular online customer, they want to be treated like a regular
customer when they visit a brick-and-mortar location. If they made an online purchase
earlier in the day, the in-store systems should already have a record of it.

If retailers can create this type of fluid online/offline experience for their customers, they
can cease pitting their channels against one another. Centralized customer data can help
retailers build a seamless, fluid experience – beginning with an easily-accessible
customer profile.

Loyalty programs can help, by collecting relevant information and putting it to use. A
retailer can use its loyalty program to not only reward customers, but deliver relevant
content and integrate data across all interaction points – including online interactions, in-
store sales, and home service technicians – creating an integrated, omnichannel customer
experience.

#3: To Attract Customer Loyalty, Retailers Need an Experience Which Stands Out

Customer experience is the biggest contributor towards brand loyalty, with a negative
experience being the most significant factor in affecting a customer’s likelihood to make a
repeat visit. Don’t forget, most customers also serve people in their own working lives,
meaning when they are on the other side of the counter, they want to feel important.

While promotions and offers can certainly contribute towards helping customers feel like
they are special, the real key to an outstanding experience is personalization.
Getting to know customers from their previous purchases and interests can help retailers
drive loyalty. These insights can be gleaned from data, or even a simple conversation. The
size of the business will no doubt inform which of these methods is more convenient, but
nobody should be too big for a quick chat with a regular customer.

Personalized content and offers can be delivered via the customers’ preferred contact
method – even a personalized email subject line can make a world of difference –
anticipating their wants and needs, and guiding them down the sales funnel towards their
next purchase.

#4: A Siloed Marketing Infrastructure Makes It Expensive and Unwieldy to get Your
Message Across.

Modern marketing makes it necessary for businesses to engage with their customers
across many different channels. From SMS, to email and social media, multi-channel
communications are essential to engagement which, in turn, drives the creation of the
perfect customer experience.

However, with so many separate channels, it’s not uncommon for customer data to
become siloed. If all the moving parts of a marketing department are not communicating
efficiently and working together, customers can become overwhelmed with conflicting or
repeat messages. This bombardment of marketing communications can easily have the
opposite of the intended effect and drive customers to competitors with a clearer and
more congruent message.

The right technology and communication procedures can ensure all arms of a marketing
team are on the same page. Having a clear strategy will ensure all channels are working
together instead of against one another – saving time and money.

#5: So Many Technologies Exist to Drive Marketing and Sales, but They Don’t Seem to
Work Together

While the amount of data gathered by businesses keeps growing at an alarming rate, the
number of staff available to analyze it is staying more-or-less the same. What’s important,
then, is making sure all this data is being used in the correct way and not contributing
towards the data silo problem.
This means finding a technology solution which can handle the huge amount of data
being generated and ensure it is focused in a direction which best benefits – rather than
overwhelms – marketing efforts. The data scientist approach to marketing is only going
to become more prevalent as time goes on so when creating a truly unified omnichannel
service.

Conclusion

Only in the combining of streamlined un-siloed data science, seamless cross-channel

customer service and marketing, and authentic personalization, can retailers expect to
create buyer experiences which can combat the fickle nature of the modern consumer.
Get the balance right, however, and retailers can foster brand loyalty in an increasingly
disloyal world.

Retail formats in India: Hyper marts/supermarkets: large self-servicing outlets offering

products from a variety of categories. Mom-and-pop stores: they are family owned
business catering to small sections; they are individually handled retail outlets and have a
personal touch. Departmental stores: are general retail merchandisers offering quality
products and services. Convenience stores: are located in residential areas with slightly
higher prices goods due to the convenience offered. Shopping malls: the biggest form of
retail in India, malls offers customers a mix of all types of products and services including
entertainment and food under a single roof. E-trailers: are retailers providing online
buying and selling of products and services. Discount stores: these are factory outlets that
give discount on the MRP. Vending: it is a relatively new entry, in the retail sector. Here
beverages, snacks and other small items can be bought via vending machine. Category
killers: small specialty stores that offer a variety of categories. They are known as
category killers as they focus on specific categories, such as electronics and sporting
goods. This is also known as Multi Brand Outlets or MBO's. Specialty stores: are retail
chains dealing in specific categories and provide deep assortment. Mumbai's Crossword
Book Store and RPG's Music World are a couple of example. Trends in the Retail industry
Emergence of organized retail: Real estate development in the country, for example, the
construction of mega malls and shopping malls, is augmenting the growth of the
organized retail business Spending capacity of youth of India: India has a large youth
population, which is a conducive environment to growth of this sector. Raising incomes
and purchasing power: The per capita income in India has doubled between 2000- 01 and
2009-10 resulting in improved purchasing power. Changing mindset of customers: The
customer mind set is gradually shifting from low price to better convenience, high value
and a better shopping experience
Challenges faced by modern indian retailers
1. CHALLENGES FACED BY MODERN INDIAN RETAILERS By SRIRAM S YAMINI ASP
YUVASRI G PROJECT GUIDE Dr. P. MOHAN SUYAMBURAJ PROFESSOR THIAGARAJAR
SCHOOL OF MANAGEMENT MADURAI-625005 2. TABLE OF CONTENTS CH. NO.
CONTENTS PAGE NO. 1 INTRODUCTION 3 2 CURRENT SCENARIO OF INDIAN RETAIL
MARKET 4 3 IMPACT ON MANUFACTURERS 4 4 THE RELATIONSHIP BETWEEN
RETAILERS AND SUPPLIERS 5 4.1 WHAT IS BUYER POWER? 5 4.2 ABUSES OF BUYER
POWER 6 4.3 WHAT DO THESE ABUSES IMPLY FOR SUPPLIERS? 7 4.3.1 THE RISE OF
RETAILERS’ OWN BRANDS AND THE LOSS OF INDEPENDENT BRANDS 8 4.3.2 LOW
PRICES, UNCERTAINTY AND SUSTAINABILITY OF SUPPLY 10 4.4 WHAT DO THESE
ABUSES IMPLY FOR CONSUMERS? 13 4.4.1 THE CONSUMER BENEFITS OF
SUPERMARKETS 13 4.4.2 DETRIMENTS TO CONSUMERS 13 5 CHALLENGES IN RETAIL
LOGISTICS 14 5.1 LOGISTIC TASK 16 5.2 CARELESSNESS AT MOTHERCARE LEAVES
CUPBOARD BARE 17 5.3 FUTURE CHALLENGES 19 5.4 TESCO.COM: DELIVERING HOME
SHOPPING 21 6 RETAIL LOGISTICS 22 6.1 LOGISTICS FUNCTIONS 23 6.2 OVERCOMING
OBSTACLES WITH DROP SHIPPING 24 6.2.1 B2B TO INTEGRATION 25 6.2.2 DATA,
BUSINESS, INTEGRATION FLOW 26 6.2.3 COLLABORATORS NOT CUSTOMERS 26 6.3
FOUNDATIONAL FACTORS 28 6.4 FOCUS ON THE CONSUMER 29 7 CONCLUSION 29 8
REFERENCES 30 2 3. 1. INTRODUCTION India is the second fastest growing economy in
the world. It is third largest economy in the world in terms of GDP and fourth largest
economy in terms of Purchasing Power Parity. India presents a huge opportunity to the
world at age, to use as a hub. Standing on the threshold of a retail revolution and
witnessing a fast changing retail landscape, India is all set to experience the phenomenon
of global village. India is the “promised land” for global brands and Indian retailers A
“Vibrant economy”. India tops in the list of emerging market for global retailer and India’s
retail sector is expanding and modernizing rapidly in line with India’s economic growth.
The future is promising; the market is growing, government policies are becoming more
favorable and emerging technologies are facilitating operations. Retailing in India is
gradually inching its way toward becoming the next boom industry. The whole concept of
shopping has altered in terms of format and consumer buying behavior, ushering in a
revolution in shopping in India. Modern retail has entered India as seen in sprawling
shopping centers, multi-storied malls and huge complexes offer shopping, entertainment
and food all under one roof. The Indian retailing sector is at an inflexion point where the
growth of organized retailing and growth in the consumption by the Indian population is
going to take a higher growth trajectory. The Indian population is witnessing a significant
change in its demographics. A large young working population with median age of 24
years, nuclear families in urban areas, along with increasing working-women population
and emerging opportunities in the services sector are going to be the key growth drivers
of the retail sector in India. Retailing in India is evolving rapidly, with consumer spending
growing by unprecedented rates and with increasing no of global players investing in this
sector. Organized retail in India is undergoing a metamorphosis and is expected to scale
up to meet global standards over the next five years. India’s retail market has
experienced enormous growth over the past decade. The most significant period of
growth for the sector was between year 2000 & 2006, when the sector revenues
increased by about 93.5% translating to an average annual growth of 13.3%.The sectors
growth was partly a reflection of the impressive Indian economic growth and overall rise
in income level of consumers. Apparels and consumer durables are the fastest growing
vertical in the retail sector. 3

4. Mobile phone as a product category has witnessed the highest growth in the consumer
demand amongst all retail products offering, with increasing penetration of
telecommunication in towns and villages. The telecommunication sector has been adding
on an average 5 million new users every month. The other product categories are gaining
traction predominantly in the urban areas and emerging cities, with increasing average
income and spending power of young urban India. India remained as the most attractive
market for third year in a row in an index prepared by At Kearney. Retail sector is the
largest contributing sector to country’s GDP. 2. CURRENT SCENARIO OF INDIAN RETAIL
MARKET The size of Indian retail industry is more than US $350 billion but it is highly
unorganized. The organized sector has started developing in the past few years. Many
International brands have entered the market. With the growth in organized retailing,
unorganized retailers are fast changing their business models. According to study
conducted by ICRIER, total retail business in India will grow at 13% annually, from US
$322 billion in 2006- 07 to US $590 billion in 2011-12 and further US $1 trillion by 2016-
17. 3. IMPACT ON MANUFACTURERS The impact on manufacturers are: (i) Large
manufacturers have started feeling the competitive impact of organized retail through
price and payment pressures. (ii) Entry of organized retail is transforming the logistics
industry. This will create significant positive externalities across the economy. (iii)
Manufacturers have started building and responding their brand strength and set up
dedicated teams to deal with modern retailers. Thus, the overall impact of organized
sector on other sectors is positive. According to a report prepared by FCRIER,
unorganized retailers in the vicinity of organized retailers experienced a decline in sales
and profit in initial years of the entry of organized sectors. The adverse impact, however,
weakens over time. 4
5. 4. THE RELATIONSHIP BETWEEN RETAILERS AND SUPPLIERS 4.1 WHAT IS BUYER
POWER? Buyer power is essentially the ability of a buyer to obtain more favorable buying
terms than would be possible in a fully-competitive market. Most people will understand
that, in most traded goods markets, bigger buying volumes command better buying
prices, but what explains the ability of large supermarkets to go on extracting better
terms from suppliers after economies of scale have been exhausted? The explanation is
abuse of buyer power. Supermarkets’ buyer power arises from their retailer power: often
commanding upwards of 60 percent of domestic grocery sales,1 supermarkets
collectively are of an importance to suppliers which enables them effectively to
determine what will – and will not – be stocked, and on what terms: sources, quantity,
quality, delivery schedules, packaging, returns policy, and above all, price and payment
conditions. There are, of course, other actors in grocery supply chains, some very large,
such as Procter & Gamble, Nestlé, and Unilever. But even for these, the dominance of
supermarkets is daunting, and the imbalance of bargaining power striking. Except
through supermarkets, brand owners large or small have only limited access to end
consumers. Producers of non-branded goods, most notably agricultural producers, have
even less access and less ability to bargain for it. Supermarkets’ buyer power and retailer
power are now mutually reinforcing. As their retail market share increases, they are able
to secure ever better deals from their suppliers. And, as buying prices fall, retail prices fall
too, giving them yet more market share. Buyer power would not exist without retailer
power, and vice versa. Figure below illustrates the circular relationship. 5

6. FIGURE: HOW BUYER POWER AND RETAILER POWER REINFORCE EACH OTHER 4.2
ABUSES OF BUYER POWER Under EU competition law, buyer power is not per se
objectionable it is the abuse of such power which is unlawful. The imbalance of
bargaining power that exists between supermarkets and their suppliers fosters abuses,
and the consequences for suppliers and consumers are considered next. Table presents
the principal abusive buying practices identified in EU Member States and elsewhere.
While the list is by no means exhaustive, it is remarkable how similar the abuses are
across different jurisdictions. 6

7. TABLE: SELECTED NATIONAL FOOD MARKET CONCENTRATION RATIO 2008 OR

LATER TABLE: SELECTED NATIONAL FOOD MARKET CONCENTRATION RATIOS 2005-
2006 4.3 WHAT DO THESE ABUSES IMPLY FOR SUPPLIERS? 7
8. It would not of course be reasonable to assert that supermarkets have inflicted only
abuse on suppliers: there have been benefits too. The principal gain that supermarkets
have brought to suppliers is volume. Also, there can be no question that the demands of
supermarkets have in several respects forced suppliers to raise their game: the quality of
their output, the variety of what they produce, and the condition in which it reaches the
end user. However, as expenditure by consumers on food has increased, so has the share
of that expenditure taken by supermarkets. Nor is it reasonable to suggest that only
supermarkets exert buyer power: the largest brand owners, themselves multi-national
corporations, almost certainly possess buyer power, as do a number of very large
European buying groups which act on behalf of major grocery retailers. But what makes
supermarkets distinctive in the exercise of buyer power is the power they also exercise as
retailers. The question that this paper considers is not whether supermarkets are a good
thing or not but whether, as gate-keepers controlling both suppliers and consumers, they
misuse their power over both groups. The conclusion drawn here is not only that they
can, but that they do. 4.3.1 THE RISE OF RETAILERS’ OWN BRANDS AND THE LOSS OF
INDEPENDENT BRANDS It is unsurprising that, as supermarkets acquired increasing
presence in the minds of consumers and economic power in grocery markets, they began
to develop their own brands as a means of bolstering market share and profits. This has
given retailers a new role – in addition to their traditional role as purchasers, they have
become direct competitors to their suppliers. To begin with, retailers’ own brand goods6
were generally low-price, basic versions of commodities such as (in the case of food)
cereals or tinned vegetables. The rather crude packaging applied to the early retailers’
own brands served to emphasize the cheap and cheerful nature of the products. Over
time, however, own brands have extended outwards to cover a much wider range of
goods, and upwards into premium segments. In Australia, the share of supermarket food
sales occupied by retailers’ own brands is now estimated at 25%. In the UK, it is
estimated by the British Brands Group as double that. Given that shelf space is finite,
branded goods are being increasingly squeezed out by retailers’ own brands. It is
profitable twice over for the supermarkets to do this. First, the 8
9. promotion of their own brand products can be carried as part of their corporate
promotional overhead, which implies substantial savings of indirect cost. Second, the
closer control that supermarkets have over their own brand suppliers means that they
can often achieve lower direct product costs too. Yet, as retailers’ own brands have
moved up market into premium and prepared foods, the prices they can command are
often not far below those of independent, established brand owners. In Australia, the loss
of brands and rise of retailers’ own brands has been comprehensively documented by
CHOICE, a leading consumer watchdog. The evidence that CHOICE provides suggests that
the removal of branded goods from supermarket shelves and their replacement by
retailers’ own brands is driven by the commercial interests of supermarkets rather than
consumer choice: “Many small suppliers – and even large ones such as Heinz and Coca
Cola – are concerned about the pressure they face in the fight for [this] finite shelf space.
Kevin [a branded goods manufacturer] argues his product was cut not because he wasn’t
innovating, but because Coles set him up to fail. “Coles told us it’s because our sales
weren’t achieving targets. But that’s because they wouldn’t put us in catalogues, we got
no shelf space, we were hidden behind a column and they refused to let us have
promotions, and that made it impossible for us to compete with the big boys. We suspect
what they were really doing was targeting the products they wanted to delete so that it
would be easier to justify in six to eight months’ time.” Over at Woolworths, brands are
also being cut. Mark [another branded goods manufacturer] had his organic product
deleted directly after Woolworths acquired the Macro label. Following steady sales for
three years, Woolworths’ category buyer told him there was only room for one organic
label – Macro, its own. This decision saw his yearly sales halved. Potentially more
damaging is the practice by supermarkets of demanding to know the future product plans
of branded suppliers. When these are shared with retailers’ own brand manufacturers in
order that retailers may launch own brand products simultaneously with or ahead of the
branded goods, it undermines the IP rights of the branded suppliers and damages their
profitability. The consumer interest in retailer own brands is considered later in this
paper. 9

10. FIGURE: PRIVATE LABELS IN AUSTRALIA 4.3.2 LOW PRICES, UNCERTAINTY AND
SUSTAINABILITY OF SUPPLY Low prices to suppliers are a complaint in all countries
where buyer power problems have been reported. Deep discounting by supermarkets
induces low buying prices and can result in producers making little profit or even losses.
The imbalance of economic advantage between actors in the supply chain for fresh fruit is
acute.
11. Figure illustrates the percentage of the retail price received at each stage of a
pineapple supply chain and shows the noticeably low percentage of the retail price
received by workers compared with distributors and retailers. FIGURE: WHO EARNS
WHAT FROM FIELD TO SUPERMARKET Where products are not sourced directly by
supermarkets, the effects can very easily be transmitted to suppliers via an intermediary.
This has been attested in relation to exports of fresh fruit from South Africa. Symington
believes that as a result of their strong positions, supermarkets and their importers are
able to bypass the standard business practice of agreeing a price for a particular volume
of product before it is packed and dispatched. 11

12. Instead the risk is passed on to the supplier (who might not find out what price has
been achieved until after the product is sold) and the supermarket has the flexibility to
pursue price wars and unscheduled promotions without having to bear the cost itself.
Over-procurement to ensure that shelves are covered is described as common, as are
complaints about quality. And it is the supplier, not the supermarket, which will pay the
price of offloading excess supply of a perishable product. In Symington’s view, 11
suppliers cannot tolerate these practices indefinitely:  Practices that have the potential
to create increased uncertainty for suppliers were identified as particularly significant by
the UK Competition Commission in its

2008 report already cited.  Twenty six such practices were described, often involving the
transfer of retrospective (and therefore unexpected) cost and excessive risk to suppliers,
undermining their ability to plan, invest and innovate, ultimately to the detriment of the
consumer. Again, it is important to note that supermarkets are not the only type of
organization to be able to exert buyer power: brand owners, to differing degrees, and
major buying groups also enjoy buyer power. But, to re-emphasize a point already made,
supermarkets are distinctive because of the retailer power that they exert. There are
signs of recognition by retailers and large manufacturers of the need for more
responsible commercial practices – if only to ensure the sustainability of their supply and
to respond to public pressure in domestic markets. An example of a supermarket
response is the Tesco Sustainable Dairy Group, which aims to address issues such as
price, uncertainty and the cost to UK dairy farmers of implementing standards. Although
other retailers have also taken action to address these issues in this industry and
elsewhere, what is significant about this initiative is the inclusion of a price guarantee.
The initiative only applies to liquid milk, however, and there is a long way to go before
supermarkets apply these principles throughout their supply base. 12
13. 4.4 WHAT DO THESE ABUSES IMPLY FOR CONSUMERS? 4.4.1 THE CONSUMER
BENEFITS OF SUPERMARKETS As with suppliers, so with consumers, there is no
suggestion that the record of supermarkets merits only criticism. For several decades
past, supermarkets have fuelled, and have been fuelled by, profound social and
demographic changes. For the vast majority of people in developed market economies it
is impossible to imagine modern life without supermarkets: the convenience of buying
substantially all one’s grocery needs under one roof in clean and pleasant surroundings,
from early in the morning to late at night, with ancillary services such as toilets and cafés,
adjacent car parking and/or public transport is irreplaceable. One might argue that for
many the true convenience store is in fact a supermarket. Supermarkets also claim –
though the evidence is mixed – that over the long term they have reduced the real (i.e.
inflation-adjusted) prices of food. Yet, as the market power of supermarkets has
increased, so have the numbers of those who feel that they are not well served by them:
those in rural areas and/or without a car, the old, and, increasingly, those who dislike the
damaging environmental impacts of out-of-town hypermarkets. The British Brands
Group (BBG) 15 submission to the UK Competition Commission’s inquiry of 2006-2008
reported survey findings that showed that some 26 per cent of the population and 33 per
cent of people older than 16 were not well served by supermarkets. It is unlikely that the
UK’s position in these respects is radically different from those of other large EU Member
States: indeed, where the population density is lower, as it is in France, Germany, Spain
and Italy, the prevalence of problems for people in rural areas may already be worse.
4.4.2 DETRIMENTS TO CONSUMERS The effects of abuse on suppliers identified in Table
are summarized and the subsequent effects of these on consumers are assessed in Table
below. This is followed by a commentary on the principal issues arising.
TABLE: EFFECTS OF BUYER POWER ABUSE ON CONSUMERS 5. CHALLENGES IN
RETAIL LOGISTICS It is often taken for granted that products will be available to buy in
the shops. The cornucopia of goods that is available in a hypermarket or a department
store sometimes means that one forget how the products were supplied. One expect their
lettuces to be fresh, the new Play station to be available on launch day and our clothes to
be in good condition and ready to wear. With the introduction of e-commerce one have
come to demand complete availability and home delivery at times of our choosing.
Consumer beliefs and needs have altered. Their willingness to wait to be satisfied or
served has reduced and they expect instant product availability and gratification. It
should be obvious from this that the supply or logistics system that gets products from
production through retailing to consumption has also needed to be transformed. Physical
distribution and materials management have been replaced by logistics management and
a subsequent concern for the whole supply chain (Figure). 14
15. FIGURE: LOGISTICS MANAGEMENT This logistics transformation derives from cost
and service requirements as well as consumer and retailer change (see Fernie, 1990;
Fernie and Sparks, 1998). Elements of logistics are remarkably expensive, if not
controlled effectively. Holding stock or inventory in warehouses just in case it is needed
is a highly costly activity. The stock itself is expensive and might not sell or could become
obsolete. Warehouses and distribution centers generally are expensive to build, operate
and maintain. Vehicles to transport goods between warehouses and shops are expensive,
in terms of both capital and running costs. There is thus a cost imperative to making sure
that logistics is carried out effectively and efficiently, through the most appropriate
allocation of resources along the supply chain. At the same time, there can be service
benefits. By appropriate integration of demand and supply, mainly through the
widespread use of information technology and systems, retailers can provide a better
service to consumers by, for example, having fresher, higher quality produce arriving to
meet consumer demand for such products. With the appropriate logistics, products
should be of a better presentational quality, could possibly be cheaper, have a longer shelf
life and there should be far fewer instances of stock outs. Reaction time to spurts in
demand can be radically improved through the use of information transmission and
dissemination technologies. If operating properly, a good logistics system can therefore
both reduce costs and improve service, providing a competitive advantage for the
retailer. 15
16. 5.1 LOGISTIC TASK The logistics management task is therefore initially concerned
with managing the components of the ‘logistics mix’. One can identify five components:
Storage facilities These might be warehouses or distribution centers or simply the stock
rooms of retail stores. Retailers manage these facilities to enable them to keep stock in
anticipation of or to react to, demand for products. Inventory All retailers hold stock to
some extent. The question for retailers is the amount of stock or inventory (finished
products and/or component parts) that has to be held for each product, and the location
of this stock to meet demand changes. Transportation Most products have to be
transported in some way at some stage of their journey from production to consumption.
Retailers therefore have to manage a transport operation that might involve different
forms of transport, different sizes of containers and vehicles and the scheduling and
availability of drivers and vehicles. Unitization and packaging Consumers generally buy
products in small quantities. They sometimes make purchase decisions based on product
presentation and packaging. Retailers are concerned to develop products that are easy to
handle in logistics terms, do not cost too much to package or handle, yet retain their
selling ability on the shelves. Communications To get products to where retailers need
them, it is necessary to have information, not only about demand and supply, but also
about volumes, stock, prices and movements. Retailers have thus become increasingly
concerned with being able to capture data at appropriate points in the system and to use
that information to have a more efficient and effective logistics operation. 16
17. 5.2 CARELESSNESS AT MOTHERCARE LEAVES CUPBOARD BARE Sales at Mothercare
dived by 6 per cent in three weeks after its move to a new hi-tech distribution centre
caused problems. The children's wear retailer admitted that staff shortcomings meant its
heralded autumn/winter clothing range had languished at the new Northampton shire
warehouse, causing huge stock shortages in its stores. Chief Executive Chris Martin, who
was recruited to turn around the chain, admitted the setback was ‘exceptionally
frustrating’ given that like-for-like sales until this period had been up about 10 per cent,
and that the new range had been well received. It was doubly frustrating, he said, as
management of the Daventry warehouse was sub- contracted to a third party, Tibbett &
Britten. ‘Some of their staff just weren’t doing their job’, said a source. Tibbett responded
by placing a senior director at the building to sort out the problems and establish a
proper flow of stock to the stores. Asked if he was considering legal action, Mr. Martin
said: ‘This is a five year relationship. We are working it through together.’ He added that a
fifth less stock than usual had been in the shops but stressed that it was ‘now coming
through’. In a trading statement Mr. Martin revealed that sales rose by 9.6 per cent for the
26 weeks to 28 September 2001, with like- for-like sales up by 7.6 per cent. Brokers at
Charterhouse Securities cut their recommendation from hold to sell after the news, but
Seymour Pierce retail analyst Richard Ratner said, ‘If they sort the warehouse problems
out in the next few weeks I won’t be unduly concerned, particularly as the 2.1 percentage
point improvement in margin was better than expected.’ Mothercare planned to continue
with the roll-out of its larger Mothercare World format after Christmas 2001. Source:
Helen Slingsby, Guardian, Tuesday 9 October 2001 It should be clear that all of these
elements are interlinked. In the past they were often managed as functional areas or
‘silos’, and while potentially optimal within each function, the business as a whole was
sub-optimal in logistics terms. More recently the management approach has been to
integrate these logistics tasks and reduce the functional barriers. So, if a retailer gets good
sales data from the checkout system, this can be used in scheduling transport and
deciding levels and locations of stock holding. If the level of inventory can be reduced,
perhaps fewer warehouses are needed. If communications and transport can be linked
effectively, a retailer can move from keeping stock in a warehouse to running a
distribution centre which sorts products for immediate store delivery: that is,
approaching a ‘Just-In-Time’ system. Internal integration has therefore been a major
concern. It should also be clear, however, that retailers are but one part of the supply
system. Retailers are involved in the selling of goods and services to the consumer. For
this they draw upon manufacturers to provide the necessary products. They may
outsource certain functions such as transport and warehousing to specialist logistics
services providers. Retailers therefore have a direct interest in the logistics systems of
their suppliers and other intermediaries. If a retailer is effective, but its suppliers are not,
errors and delays in supply from the manufacturer or logistics services provider will
impact the retailer and the retailer ’s consumers, in terms of either higher prices or stock-
outs (no products available on the store shelves). This was the essence of the problem in
the Mothercare example (page 3). If a retailer can integrate effectively its logistics system
with that of its suppliers, such problems may be minimized. Much more importantly,
however, the entire supply chain can then be optimized and managed as a single entity.
This brings potential advantages of cost reduction and service enhancement, not only for
the retailer, but also for the supplier. It should also mean that products reach the stores
more rapidly, thus better meeting sometimes transient customer demand. In some
instances it may mean the production of products in merchandisable ready units, which
flow through the distribution systems from production to the shop floor without the need
for assembly or disassembly. Such developments clearly require supply chain co-
operation and coordination. We may be describing highly complex and advanced
operations here. Retail suppliers are increasingly spread across the world. A retailer may
have thousands of stores in a number of countries, with tens of thousands of individual
product lines. They may make millions of individual sales per day. Utilizing data to ensure
effective operation amongst retailers, manufacturers, suppliers, logistics services
providers, head office, shops and distribution centers is not straightforward. There is
thus always a tension between overall complexity and the desire for the simplest possible
process. Summarizing the discussion above, the logistics task therefore can be described
as: "The process of strategically managing the procurement, movement and storage of
materials, parts and finished inventory (and the related information flows) through the
organization and its marketing channels in such a way that current and future
profitability are maximized through the cost effective fulfilment of orders." Managing the
logistics mix in an integrated retail supply chain, while aiming to balance cost and service
requirements, is the essential element of logistics management (Figure). FIGURE: THE
MANAGEMENT TASK IN LOGISTICS ` As retailers have begun to embrace this logistics
approach and examine their wider supply chains, many have realized that to carry out
logistics properly, there has to be a transformation of approach and operations. 5.3
FUTURE CHALLENGES While members of the supply chain have sought ways to foster
collaboration, the rise of e-commerce has posed another set of challenges for retailers.
The rise and subsequent fall of many dot.com companies led to a high degree of
speculation as to the reconfiguration of the business to consumer (B2C) channel.
Ultimately, e-fulfilment, especially the ‘last mile’ problem of delivering goods to the final
customer, holds the key to success in this channel. The business to business (B2B)
channel, however, has more to offer members of the supply chain because of the number
and complexity of transactions and the greater adoption of Internet technology by
businesses compared with consumers. There have been numerous B2B exchange
marketplaces created since the late 1990s, with most of these exchanges being created in
highly concentrated global market sectors with a ‘streamlined’ number of buyers and
sellers, for example in the automobile, chemical and steel industries. The more proactive
retailers developed B2B Internet exchanges as an extension of the EDI platforms created
a decade earlier. This has enabled companies such as Tesco, Sainsbury and Wal-Mart to
establish their own private exchanges with suppliers to share data on sales, product
forecasting, promotion tracking and production planning. There are major benefits to be
derived from pooling EDI efforts into a smaller number of B2B platforms. For example it
is easier to standardize processes for communication, reduce development costs and give
members access to a larger customer base. In 2000 several Internet trading exchanges
were created, promising a revolution in product procurement. The two major exchanges,
GlobalNet Xchange (GNX) and World Wide Retail Exchange (WWRE), have made some
progress. Although the Global Commerce Initiative established draft standards for global
Internet trading, many issues need to be resolved to ensure the seamless flow of data
across the supply chain. The complexity of dealing with thousands of stock-keeping units
(SKUs) has meant that retailers have had to be selective in the projects that can be routed
through their private exchanges compared with these global exchanges. To date the focus
of the GNX exchange has been on special promotions, perishables and own-label
products: for example, 600 out of potential 2,000 suppliers of Sainsbury’s retail brand
products are on GNX. In the business to consumer (B2C) channel, the rise and fall of
Internet retailers has brought a touch of realism to the evolving market potential of
online shopping. In Europe, grocery retailers are powerful ‘bricks and mortar’ companies
and the approach to Internet retailing has been reactive rather than proactive. Most
Internet operations have been small, and few pure players have entered the market to
challenge the conventional supermarket chains. Tesco is one of the few success stories in
egrocery, having adopted an unconventional model. 20 TESCO.COM: DELIVERING HOME
SHOPPING Tesco.com has become the world’s largest Internet grocery system in a very
short time. Unlike many of its competitors, it has opted for an in store picking and home
delivery operation, rather than starting with a dedicated distribution centre system. This
choice came about for three reasons:  Warehouse-based picking and delivery was not
believed to be economic due to low penetration levels and drive times for vehicles being
high  Customers confirmed that they did not want a reduced offer online as this
destroyed the point of shopping at Tesco for them  Outside of London, the penetration
rates possible did not make a warehouse a valid option, even if other costs (such as
picking) were solved Since introduction there has been a very rapid roll-out to effectively
cover the UK through the network of stores. Each store involved has dedicated local
delivery vehicles. The system in operation has thrown up a few surprises:  Fresh food
has been a big seller online, whereas people had initially expected big, bulky
replenishment items to be the most popular  People plan their online order better than
their in-store trip (aided by the Clubcard and Internet item recall availability), so a higher
proportion of spend is made with Tesco  The non-food item offer can be more extensive
online than in-store so sales in this area can be expanded  Knowledge is gained from the
online shopping process of what items customers wanted to buy, that were not actually in
stock. This helps enhance the supply system Source: adapted from Jones, 2001 21
RETAIL LOGISTICS
According to Cerasis, from a distribution perspective, retail logistics' has gone through
multiple phases: FIGURE: THE EVOLUTION OF RETAIL LOGISTICS  1970s: Retail stores
were replenished by direct deliveries from suppliers or wholesalers  1980s: Retailers
started to centralize their store deliveries through new distribution centers which, they
controlled  1990s: Global sourcing took off, with many retailers developing import
centers to receive and process containerized imports  2000 - present: ecommerce began
to rapidly expand with pure-play retailers leading the way in establishing e-fulfilment
distribution networks. LOGISTICS FUNCTIONS 1. Mega e-fulfillment Centers:
merchandise is stocked and chosen at item level. These facilities, which are either
operated by the retailer or a logistics service provider, are typically 500,000 sq ft to one
million sq ft in size, or larger. They often operate 24 hours a day, 7 days a week 2. Parcel
Hubs / Sorting Centers: sorts orders according to geographical location -- often by zip or
post code, so deliveries are relevant to parcel delivery center, customer’s home or
designated collection point 3. Parcel Delivery Centers: handles the ‘last mile’ delivery to
the customer 4. Seamlessly Integrated Technology: shopping carts connect via API or web
xml to a transportation management system, so shoppers get the exact price quote of
shipping of larger items. Quotes are often more suited for less than truckload modes, as
these technology products for logistics, such as a TMS, must accomplish along with the
shopping cart for better management:  Ability to organize and track shipment no matter
what mode  Online order status and documentation  Online dispatch documentation
and invoice, such as a bill of lading and freight invoice  Auto reminder for payments 
Seamless interface with existing SCM or ERP system  Online alerts for critical
information via text or mobile  Information systems reports on past data analysis or
delivery history Types of ecommerce logistics systems ensure the following benefits to
shippers, customers, and 3PL service providers:  Improved communication 
Transparency into the supply chain  Improved customer satisfaction  Cost reduction 
Improvement in efficiency 23
24.  On-time delivery As a result, the logistic facilities will encourage some retailers to
set up their own networks of local depots -- either to cross-dock items shipped from
larger e-fulfillment centers or to ship certain ‘fast moving’ products direct to customers.
In this emerging model, e-fulfillment blends with urban logistics, as these facilities will be
mainly based around the major population centers where online sales densities are
highest. For example, in the U.S., Amazon opened smaller scale distribution facilities to
offer same-day delivery services. In the UK, Amazon has a current requirement for some
20 smaller distribution facilities around major urban areas. By contrast, in France,
Amazon’s demand remains focused on very large units, with the last kilometer delivery
being operated by third party providers. Omni-channel retailers are now managing their
channels in an integrated way that offers customers a seamless experience, however they
choose to shop. With Omni-channel, a retailer may fulfill orders from stores or
warehouses, ultimately blurring the distinction between the two e-fulfillment centers.
Fulfillment technologies have also helped integrate the front-end and back-end of online
retail. The back-end process is now a collaborative effect thanks to automated software
and real- time fulfillment date. The alignment of important touch-points in the supply
chain has reduced inefficiencies and has helped identify redundant processes. There are
even robots that will pick inventory for customers and move it around the warehouse!
6.2 OVERCOMING OBSTACLES WITH DROP SHIPPING As with many things, drop
shipping presents both advantages and disadvantages to retailers and suppliers. Many
retailers today have tried drop shipping and unfortunately failed. According to Commerce
Hub, “The lack of intercompany system integration is even more problematic in the drop
ship fulfilment model, because record keeping and track-ability become even more
critical as thousands of orders are sourced through hundreds of suppliers. In drop ship
fulfilment, thousands of orders are being shipped to thousands of locations. The
choreography of this is much more complex than single orders with thousands of line
items being shipped in a few warehouses.” 24 This may lead retailers to experience a loss
of control, as they now rely on their suppliers to ship promptly and skilfully. If a supplier
fails to execute an order properly, the customer service wing may get hit. Or worse, it
could result in back orders, complicated returns, and branding problems with packaging.
Though, there are many challenges that suppliers face too. Picking, packing, and shipping
consumer orders is much different than shipping pallets to a retailer or distribution
center. Drop shipping can require updates to warehousing, fulfilment, and invoicing
systems, as well as changes to processes and channel policies. This all contributes to an
added degree of inventory risk for the supplier. One of the greatest challenges faced by
retailers and suppliers is system-to-system integrations with trading partners. As well as,
automating drop shipping processes and the lack of any kind of standard for performing
and maintaining those integrations. I know, it may appear complicated and at this point
even impossible. However, the one key ingredient that will make drop shipping
successful as an ecommerce supply chain management technique is building and
maintaining your relationships. 6.2.1 B2B TO INTEGRATION With drop shipping, you
replace the B2B discussion -- when a retailer negotiates with a vendor to purchase
inventory at wholesale prices, then resells -- with an integration discussion -- where both
sides need to understand the virtual part of the relationship and work alongside one
another to designate resources to handle different business processes and new
technology requirements. 25

26. 6.2.2 DATA, BUSINESS, INTEGRATION FLOW FIGURE: DATA, BUSINESS,

INTEGRATION FLOW This commit-to-integrate discussion, and how each relationship
accesses it, is the key ingredient that will facilitate drop shipping success, or guarantee
failure. Extensive, coordinated expectations between the retailer and supplier are crucial.
6.2.3 COLLABORATORS NOT CUSTOMERS Conventional supply chain relationships and
business processes don’t necessarily fit into our newly adopted economic world. When a
retailer decides to modify their supply chain to a drop ship or inventory-less fulfilment
model, there are significant factors that should to be discussed. Drop shipping is not just
another fulfilment model. The financial equation is altered, so the vendor-retailer
relationship is altered as well. While not having to actually purchase the inventory is
financially beneficial to a retailer, it actually reduces the amount of leverage the retailer
has over the vendor’s behaviour. In return for the opportunity to market more products
26 through the retailer’s channel, the vendor takes on all of the financial risk, while
having far less up-front financial security. In conventional fulfilment models, the retailer
usually controls the process and technical requirements, while the vendor performs the
cost/benefit analysis. Since financial negotiation has already occurred between the
merchant and vendor, it makes sense for the technical discussion to be conducted
separately from the retailer’s organization. FIGURE: VENDOR DEALER RELATIONSHIP
With the drop shipping fulfilment model, conversations intersect much more frequently.
Retailers will often ask the vendor to spend time and money to work with them on the
premise of revenue. However, vendors are much more resistant to additional technical
and process demands. Vendors have less desire to add costs to participate in a drop
shipping program, because of the lower revenue per order normally associated with
consumer-driven orders. The following factors complicate things for retailers, as it makes
it difficult to leverage existing partner on-boarding processes or outsourced vendor
management systems. It’s also generally very difficult for a third party vendor to properly
represent the retailer during these discussions. 27
28. FIGURE: CONVERSATIONS INTERSECTING With drop shipping as your main strategy,
everyone is partners, which requires critical alignment. 6.3 FOUNDATIONAL FACTORS
Determining and utilizing partners for a drop ship or endless aisle program is different
than for a conventional order fulfilment method. While there is no commitment to buy,
retailers have the opportunity to choose from multiple supply partners. However, this
lack of financial incentive can affect the willingness of the supplier to spend time and
money to meet a retailer’s compliance needs. Finally, because of the distributed nature of
drop shipping, some component of electronic data exchange cannot be optional for the
supplier. Two foundational factors that should be considered:  Logistics Efficiencies:
When choosing a supplier to participate in a drop shipping initiative, retailers must
ensure that the supplier can do single-item fulfilment, and that its ability to do this
matches the retailer’s needs -- such as, shipping times and expedited options. The
capacity for suppliers to select individual items in their warehouse or fulfilment center is
a prerequisite for drop shipping. Retailers can gauge this ability if the supplier offers
direct-to-consumer fulfilment via its own ecommerce 28 site. Many suppliers
underestimate the costs of switching to a single item fulfilment model, so be cautious of
those who promise to make the switch on your behalf.  Technology Opportunities: Both
sides will need to commit time and resources to drop shipping. With that said, you’re not
committing to a specific revenue number, but minimizing the technical excuses for not
participating. This means providing multiple options to exchange data at no or little cost.
Options will range from partners with very minimal technical expertise, to those with a
mature and robust ecommerce infrastructure. Typical data-exchange options: o Self-
service, manual portal o Non-integrated batch process o Automated, filed based
integration option o Web services (API, XML) automated option 6.4 FOCUS ON THE
CONSUMER The good news is that there is a strong alignment with all of these issues: the
consumer. Today, brands and suppliers are selling directly to the consumer. This
positions the supply side of the equation directly with the retail side: the consumer
experience drives everything. Consumers need descriptive product data, trust in
inventory certainty, a consumer-friendly ordering process, and item-level logistics that
are track able and returnable. The world is positioning its efforts on the consumer, and
that is driving new relationships in the supply chain, and especially partnerships between
those that would like to be on one side or the other of drop shipping, to flourish and find
success. 7. CONCLUSION Retailing in India is gradually inching its way toward becoming
the next boom industry. The whole concept of shopping has altered in terms of format
and consumer buying behavior, ushering in a revolution in shopping in India. Modern
retail has entered India as seen in sprawling shopping centers, multi-storied malls and
huge complexes offer shopping, entertainment and food all under one roof. The organized
players has started developing in the past few years. The growth potential for modern
retailers are enormous in India. They may seem to face lots of challenges. But that is
because they are exploring a market which has been unorganized and unstructured for
decades. Modern retailers are coming out with best
solutions
Qus-4. Elucidate the strategies available to the retailer to manage service quality.
Ans- This paper reports the results of a longitudinal study into the drivers of customer
satisfaction in a large UK Bank. The findings confirm the significance of staff satisfaction
and service quality, suggested by the service profit chain literature, but dispute that this
comprises a simple linear relationship. The findings also question the pre-eminence
afforded to the soft elements of the service encounter suggested by much of the Services
Marketing literature. A five year study of the relationship between customer satisfaction
and the technical and functional aspects of service quality suggests that technical service
quality plays a critical role in determining customer satisfaction. Further analysis
identifies Business Processes Management as a significant driver of technical service
quality. Key Words: Service Quality; Business Process Management; Financial Services
INTRODUCTION Satisfying customers is a core business challenge which has attracted
considerable research attention. The existing customer satisfaction literature is
dominated by two theoretical perspectives: the service profit chain (Heskett et al, 1994)
and SERVQUAL (Parasuranam, Zeithmal & Berry, 1985). In brief, the service profit 2
chain posits a positive relationship between staff satisfaction, service quality and
customer satisfaction leading, ultimately, to profitability. SERVQUAL also recognises the
significance of staff satisfaction and service quality as drivers of customer satisfaction.
However, SERVQUAL differentiates the service quality construct distinguishing between
functional service quality (doing things nicely) and technical service quality (doing things
right). Priority is afforded to functional service quality. Recently, there have been a
number of challenges to these perspectives. For example, researchers have questioned
the adequacy of the simple linear relationship proposed by the service profit chain
(Anderson & Mittal, 2000). Similarly, the priority afforded to functional service quality by
the SERVQUAL literature has been disputed (Newman, 2001). Meanwhile the emerging
Business Process Management (BPM) literature also challenges the prevailing orthodoxy
by predicating an alignment between processes and service delivery as critical to
customer satisfaction (Armistead, Pritchard and Machin, 1999). The research reported in
this paper extends this debate by synthesising and empirically testing the key variables
and relationships proposed in the current literature. Quantitative and qualitative data
from a longitudinal case study of a large UK bank is used to address two key research
objectives: 1. To evaluate the drivers of customer satisfaction, specifically to assess the
relative impact of technical and functional service quality 3 2. To explore the drivers of
technical service quality, specifically to assess the impact of BPM on technical service
quality The paper begins with a more detailed examination of the literature leading to the
development of six propositions for testing. Collectively, the propositions embrace the
key relationships expressed in current theory, supporting the first research objective.
They also enable a more detailed investigation into the role of process management as a
potential driver of customer satisfaction, supporting the second research objective. The
methodology used to test the propositions is outlined, and a detailed research design is
presented. An initial series of correlations are presented which cast doubt on some of the
traditional linkages. This prompts further detailed regression analysis. These quantitative
findings are triangulated through a systematic analysis of company literature and
interviews with a range of Bank personnel. The limitations of the research are considered
and conclusions are presented. LITERATURE Providing excellent service quality is widely
recognised as a critical business requirement (Voss et al, 2004; Vilares & Coehlo, 2003;
Van der Weile et al, 2002). It is ‘not just a corporate offering, but a competitive weapon’
(Rosen et al, 2003) which is ‘essential to corporate profitability and survival’ (Newman &
Cowling, 1996). However, service quality, particularly within the Services sector, remains
a complex 4 concept and there is little consensus as to the drivers for effective delivery
(Voss et al, 5 The SERVQUAL literature, on the other hand, takes a rather different
perspective on service quality. Parasuranam, Zeithmal & Berry (1985), the originators of
SERVQUAL, argue that much of the confusion surrounding the service quality concept has
its legacy in the dominance of traditional manufacturing definitions of quality which are
not appropriate in the service context. Services are different to goods in three critical
dimensions: - Services are intangible; as such they are more akin to performances rather
than objects - Services are heterogeneous; delivery can vary from provider to provider
and customer to customer - Production and consumption of Services are inseparable.
Services are not ‘manufactured’ remotely and then delivered intact to the customer. As a
result of these differences, service quality is more difficult for the customer to evaluate
than goods quality. Evaluations are not based solely on the outcome of the service, the
technical quality, they also involve the process of service delivery or functional quality
(Gronroos, 1984) These distinctions enabled Parasuranam, Zeithmal & Berry (1985) to
develop an instrument for measuring Service quality, SERVQUAL, which has subsequently
dominated both academic and practitioner perspectives (Buttle, 1996; Robinson, 1999).
SERVQUAL measures perceptions of service quality across five dimensions: tangibles;
reliability; responsiveness; assurance and empathy. A 22 item scale assesses the gap
between customers' expectations of the service and their perception of the 6 actual
service received. Positive scores show better than expected service; negative scores
suggest poor service. An overall service quality score can be calculated based on average
performance across the five dimensions, although later versions include weightings to
reflect the relative importance which customers may attach to each dimension.
SERVQUAL has been subject to a number of criticisms including the theoretical base of
the disconfirmation model (Cronin and Taylor, 1992), the dimensionality (Babakus and
Boller, 1992), the purpose (Cronin and Taylor, 1992), the format (Teas, 1993) and
validity (Buttle, 1996). Nevertheless, it remains the most widely applied measure of
service quality today (Sivadas & Baker-Prewitt, 2000). Indeed Woodall (2001) considers
that ‘service quality has effectively become SERVQUAL and vice versa.’ Recently, a
number of researchers have begun to question the priority afforded to the softer factors
in the SERVQUAL analysis. For example, Johnston (1995) accepts that customers are
concerned with many aspects of the service package and broadly supports the SERVQUAL
approach, albeit with some changes to the particular dimensions. However, he argues
that fully understanding service quality requires a distinction to be made between
satisfiers and dis-satisfiers. Both these constructs inform the customer evaluation.
Critically, the failure to remove the source of dis-satisfiers may be more significant than
efforts to enhance the satisfiers. He uses the example of the popular ‘smile’ campaigns
which, when implemented without addressing fundamental sources of dis-satisfaction
such as extended cycle times, and failure to meet promises, often lead to customer
cynicism. 7 Such thinking builds upon the ideas of Kano et al (1984) who identified three
types of customer requirements: ‘must be’; ‘one dimensional’ and ‘attractive’. ‘Must be’
requirements are simply taken for granted by the customer. Failing to meet these types of
requirements will guarantee dis-satisfaction. With ‘one dimensional’ requirements,
customer satisfaction is proportional to the level of fulfilment. ‘Attractive’ requirements
provide the greatest opportunity to ‘delight’ the customer. Other researchers have
adopted the terminology of ‘hygiene factors’; ‘enhancing factors’ and ‘dual threshold
factors’ (Lewis, 1995). Anderson & Mittal (2000) have modelled the satisfaction
relationship in terms of asymmetry and non linearity. Asymmetry recognises that
changes to the drivers of satisfaction will not influence actual satisfaction equally, both in
terms of direction and size. For example, a one day extension in delivery time may have a
greater negative impact, than the positive impact arising from a one day improvement.
Non linearity reflects the idea that there may be diminishing returns from progressive
units of improvement. A reduction in delivery time from 10 days to eight days may have a
greater impact than a subsequent reduction to six days. Newman’s analysis of a
SERVQUAL implementation in a large UK Bank reinforces the idea that ‘delivering the
promise’ is critical to service quality (Newman, 2001). Whilst the SERVQUAL focus on
‘soft’ issues such as empathy and assurance, resonate strongly with the Service marketing
community, his findings suggest that effective delivery on hard factors is a necessary pre-
condition for overall service quality. ‘Where hard quality, especially reliability of service
delivery, is low, then ‘soft’ quality cannot compensate’. Similarly, Lassar et al (2000) in a
study of Private 8 Banking customers, find a much stronger relationship between
technical quality and satisfaction than functional quality and satisfaction. Woodall (2001)
argues that SERVQUAL has so captured the imagination that it has led researchers to over
emphasise the functional or soft aspects of service quality at the expense of the technical
or hard issues. He cites Keaveney’s (1995) study which found that core service failures
were the biggest cause of service switching. ‘A zero defects philosophy to deliver
technically correct services every time should be effective in reducing customer
defections.’ The recognition that hard factors are critical to service quality has led some
researchers to explore what determines performance on these dimensions. Here, process
management seems to play an important role. Roth & Jackson (1995), in an investigation
into the strategic determinants of service quality, find that business process management
has a significant impact on service quality. Indeed, they report that ‘business process
capabilities had a larger impact on service quality than did people capabilities’ and
conclude that ‘the area of robust business process capabilities requires greater scrutiny
in service management’. Frei et al (1997) take up this challenge. Using data from a large
sample of American Banks, they analysed amongst other issues, the relationship between
process performance and customer satisfaction. Their findings suggest that consistent
process performance is critical to customer satisfaction. Moreover, banks with good,
consistent processes, enjoy higher financial performance. Critically, it is the performance
of the overall ‘basket’ of processes, rather than performance of one or 9 two individual
processes, which determines satisfaction levels. Subsequent research by Tsikriktsis &
Heineke (2004) reinforces the importance of effective process performance in driving
service quality. Their analysis of customer dis-satisfaction data in the US Airline industry
leads them to conclude that ‘reduction of customer dissatisfaction depends upon
improvement in process quality.’ Woodall (2001) argues that an increasing number of
companies are focusing on process management in order to ensure effective performance
on hard quality dimensions. He cites the recent explosion of Six Sigma initiatives as
evidence that companies are taking dissatisfaction seriously and suggests that the
emphasis within Six Sigma on defect free processes is seen as a welcome balance to the
prevailing focus on softer attributes. Such thinking resonates with a growing body of
literature exploring the re-birth of process management. Following the widely reported
demise of Business Process Reengineering, a number of authors are now reporting cases
where companies are revisiting process, albeit from a different perspective. McCormack
& Johnson (2001) for example, find that processes are now viewed as ‘strategic assets’,
which require companies to ‘take a business process orientation’. Processes are
considered ‘a generic factor in all organisations. They are the way things get done’
(Armistead, Pritchard and Machin, 1999). Process is not simply the ‘management fad’ of
reengineering, but a more pervasive issue, requiring serious attention. ‘Process thinking
has become mainstream’ (Grover, Kettinger, Teng, 2000). This new focus on processes is
predicated on the view that it is the horizontal linkages between key activities that
impact the customer (Zairi, 1997). Managing these ‘end to end’ processes is an ongoing
requirement if a company is to meet customer 10 requirements. Process capabilities and
execution determine critical aspects of the customer encounter such as speed, accuracy
etc. Performance on these dimensions form an important part of the customer evaluation
of service. Business Process Management (BPM) is a new phenomenon and there is little
empirical evidence to support this key assumption. In summary, three main bodies of
research are found to be relevant to an exploration of the drivers of customer
satisfaction: the service profit chain, including the satisfaction mirror, SERVQUAL and
BPM. Whilst there is some common ground across these areas of research, each one
posits a specific set of relationships. Figure 1 below illustrates these relationships. ---------
---------------------------------------------------------------------------------------------- INSERT
FIGURE 1 HERE ----------------------------------------------------------------------------------------------
------- The service profit chain proposes a direct causal relationship between staff
satisfaction, service quality and customer satisfaction. Within the service profit chain
literature, the satisfaction mirror simplifies this relationship suggesting that staff
satisfaction is a direct driver of customer satisfaction. The SERVQUAL literature
differentiates the service quality construct into functional and technical service quality,
suggesting that functional service quality is the critical driver. There is little discussion
regarding potential antecedents to these two constructs; the role of staff satisfaction as a
potential driver of both types of service quality is often assumed and rarely disputed
within this literature stream. 11 Finally, The BPM literature proposes a positive
relationship between process management and customer satisfaction. Here, some
authors suggest a link to technical service quality. The research objectives, outlined
earlier, seek to clarify conflicts identified by the literature review and to address gaps in
current knowledge. Whilst there is a broad consensus that staff satisfaction is a
significant driver of customer satisfaction, and that both technical service quality and
functional service quality are also important, there is some dispute surrounding the
relative significance of technical service quality and functional service quality. The first
research objective addresses this debate. Meanwhile, the BPM literature proposes a
positive relationship between process management and customer satisfaction. However,
BPM is an emerging subject and there is little empirical evidence to support this position.
In particular, the authors are not aware of a specific study into the relationship between
BPM and technical service quality. The second research objective addresses this gap.

Qus-5. What are the various methods of positioning a retail store? Explain with
examples.

Ans- Definition of 'Positioning'

Definition: Positioning defines where your product (item or service) stands in relation to
others offering similar products and services in the marketplace as well as the mind of
the consumer.

Description: A good positioning makes a product unique and makes the users consider
using it as a distinct benefit to them. A good position gives the product a USP (Unique
selling proposition). In a market place cluttered with lots of products and brands offering
similar benefits, a good positioning makes a brand or product stand out from the rest,
confers it the ability to charge a higher price and stave off competition from the others. A
good position in the market also allows a product and its company to ride out bad times
more easily. A good position is also one which allows flexibility to the brand or product in
extensions, changes, distribution and advertising.

Positioning refers to the place that a brand occupies in the minds of the customers and
how it is distinguished from the products of the competitors. In order to position
products or brands, companies may emphasize the distinguishing features of their brand
(what it is, what it does and how, etc.) or they may try to create a suitable image
(inexpensive or premium, utilitarian or luxurious, entry-level or high-end, etc.) through
the marketing mix. Once a brand has achieved a strong position, it can become difficult to
reposition it.

Positioning is one of the most powerful marketing concepts. Originally, positioning

focused on the product and with Ries and Trout grew to include building a product's
reputation and ranking among competitor's products. Schaefer and Kuehlwein extend the
concept beyond material and rational aspects to include 'meaning' carried by a brand's
mission or myth.[1] Primarily, positioning is about "the place a brand occupies in the mind
of its target audience".[2][3] Positioning is now a regular marketing activity or strategy. A
national positioning strategy can often be used, or modified slightly, as a tool to
accommodate entering into foreign markets.[2][4]
The origins of the positioning concept are unclear. Scholars suggest that it may have
emerged from the burgeoning advertising industry in the period following World War I,
only to be codified and popularised in the 1950s and 60s. The positioning concept
became very influential and continues to evolve in ways that ensure it remains current
and relevant to practising marketers.

Definitions[edit]

David Ogilvy noted that while there was no real consensus as to the meaning of
positioning among marketing experts, his definition is "what a product does, and who it is
for". For instance, Dove has been successfully positioned as bars of soap for women with
dry hands, vs. a product for men with dirty hands.[5]

Ries and Trout advanced several definitions of positioning. In an article, Industrial

Marketing, published in 1969, Jack Trout stated that positioning is a mental device used
by consumers to simplify information inputs and store new information in a logical place.
He said this is important because the typical consumer is overwhelmed with unwanted
advertising, and has a natural tendency to discard all information that does not
immediately find a comfortable (and empty) slot in their mind.[6] In Positioning: The
Battle for Your Mind, the duo expanded the definition as "an organized system for finding
a window in the mind. It is based on the concept that communication can only take place
at the right time and under the right circumstances".[7]

Positioning is closely related to the concept of perceived value. In marketing, value is

defined as the difference between a prospective customer's evaluation of the benefits and
costs of one product when compared with others. Value can be expressed in numerous
forms including product benefits, features, style, value for money.

Product differentiation

The precise origins of the positioning concept are unclear. Cano (2003), Schwartzkopf
(2008) and others have argued that the concepts of market segmentation and positioning
were central to the tacit knowledge that informed brand advertising from the 1920s, but
did not become codified in marketing textbooks and journal articles until the 1950s and
60s.
Al Ries and Jack Trout are often credited with developing the concept of product or brand
positioning in the late-1960s with the publication of a series of articles, followed by a
book. Ries and Trout, both former advertising executives, published articles about
positioning in Industrial Marketing in 1969 and Advertising Age in 1972.[11] By the early
1970s, positioning became a popular word with marketers, especially those in
advertising and promotion. In 1981, Ries and Trout published their now classic
book, Positioning: The Battle for Your Mind. However, the claim that Ries and Trout
devised the concept has been challenged by marketing scholars. According to Stephen A.
Fox, Al Ries and Jack Trout "resurrected the concept and made it their trademark."[12]

Some scholars credit advertising guru, David Ogilvy, with developing the positioning
concept in the mid-1950s, at least a decade before Ries and Trout published their now
classic series of articles.[13] In their early writing, Ries and Trout suggest that the
positioning concept was widely used in the advertising industry prior to the 1950s.
Ogilvy's own writings indicate that he was well aware of the concept and drilled his
creative team with this idea from at least the 1950s. Among other things, Ogilvy wrote
that "the most important decision is how to position your product" and,[14] "Everyone in
the organization should understand the brand positioning and use it as context for
making decisions"[15]and "Every advertisement is part of the long-term investment in the
personality of the brand."[16] Ogilvy is on record as having used the positioning concept in
several campaigns in the mid 1950s and early 1960s, well before Ries and Trout
published their articles on positioning. In relation to a Dove campaign launched in 1957,
Ogilvy explained, "I could have positioned Dove as a detergent bar for men with dirty
hands, but chose instead to position it as a toilet bar for women with dry skin. This is still
working 25 years later."[17] In relation to a SAAB campaign launched in 1961, Ogilvy later
recalled that "In Norway, the SAAB car had no measurable profile. We positioned it as a
car for winter. Three years later it was voted the best car for Norwegian winters."[17]
Yet other scholars have suggested that the positioning concept may have much earlier
heritage, attributing the concept to the work of advertising agencies in both the US and
the UK in the first decades of the twentieth century. Cano, for example, has argued that
marketing practitioners followed competitor-based approaches to both market
segmentation and product positioning in the first decades of the twentieth century; long
before these concepts were introduced into the marketing literature in the 1950s and
60s.[18] From around 1920, American agency, J. Walter Thompson (JWT), began to focus
on developing brand personality, brand image and brand identity—concepts that are
very closely related to positioning. Across the Atlantic, the English agency, W. S.
Crawford's Ltd, began to use the concept of 'product personality' and the 'advertising
idea' arguing that in order to stimulate sales and create a 'buying habit' advertising had to
'build a definitive association of ideas round the goods'.[19] For example, in 1915 JWT
acquired the advertising account for Lux soap. The agency suggested that the traditional
positioning as a product for woolen garments should be broadened so that consumers
would see it as a soap for use on all fine fabrics in the household. To implement, Lux was
repositioned with a more up-market posture, and began a long association with
expensive clothing and high fashion. Cano has argued that the positioning strategy JWT
used for Lux exhibited an insightful understanding of the way that consumers mentally
construct brand images. JWT recognised that advertising effectively manipulated socially
shared symbols. In the case of Lux, the brand disconnected from images of household
drudgery, and connected with images of leisure and fashion.[20]

As advertising executives in their early careers, both Ries and Trout were exposed to the
positioning concept via their work. Ries and Trout codified the tacit knowledge that was
available in the advertising industry; popularising the positioning concept with the
publication their articles and books. Ries and Trout were influential in diffusing the
concept of positioning from the advertising community through to the broader marketing
community. Their articles were to become highly influential.[21] By the early 1970s,
positioning became a popular word with marketers, especially those that were working
in the area of advertising and promotion. In 1981 Ries and Trout published their classic
book, Positioning: The Battle for Your Mind (McGraw-Hill 1981). The concept enjoys
ongoing currency among both advertisers and marketers as suggested by Maggard[3] who
notes that positioning provides planners with a valuable conceptual vehicle, which is
effectively used to make various strategy techniques more meaningful and more
productive.[3]
Several large brands – Lipton, Kraft, and Tide – developed "precisely worded" positioning
statements that guided how products would be packaged, promoted and advertised in the
1950s and 1960s. The article, "How Brands Were Born: A Brief History of Modern
Marketing," states, "This marked the start of almost 50 years of marketing where
'winning' was determined by understanding the consumer better than competitors and
getting the total 'brand mix' right.[22] This early positioning tactic was focused on the
product itself – its "form, package size, and price", according to Al Ries and Jack Trout[3]

The positioning concept continues to evolve. Traditionally called product positioning, the
concept was limited due to its focus on the product alone.[23] In addition to the previous
focus on the product, positioning now includes building a brand's reputation and
competitive standing.[3] John P. Maggard notes that positioning provides planners with a
valuable conceptual vehicle for implementation of more meaningful and
productive marketing strategies.[3] Many branding practitioners make positioning a part
of brand strategy and even label it as "brand positioning".[24][25] However, in the book Get
to Aha! Discover Your Positioning DNA and Dominate Your Competition, Andy
Cunningham proposes that branding is actually "derived from positioning; it is the
emotional expression of positioning. Branding is the yang to positioning's yin, and when
both pieces come together, you have a sense of the company's identity as a whole".

Developing the positioning statement

Positioning is part of the broader marketing strategy which includes three basic decision
levels, namely segmentation, targeting and positioning, sometimes known as the S-T-P
approach:

Segmentation: refers to the process of dividing a broad consumer or business market,

normally consisting of existing and potential customers, into sub-groups of consumers
(known as segments)[27]

Targeting: refers to the selection of a segment or segments that will become the focus of
special attention (known as target markets).[28]

Positioning: refers to an overall strategy that "aims to make a brand occupy a distinct
position, relative to competing brands, in the mind of the customer".[29]
In general terms, there are three broad types of positioning: functional, symbolic, and
experiential position. Functional positions resolve problems, provide benefits to
customers, or get favorable perception by investors (stock profile) and lenders. Symbolic
positions address self-image enhancement, ego identification, belongingness and social
meaningfulness, and affective fulfillment. Experiential positions provide sensory and
cognitive stimulation.[30]

Positioning statement[edit]

Both theorists and practitioners argue that the positioning statement should be written in
a format that includes an identification of the target market, the market need, the product
name and category, the key benefit delivered and the basis of the product's
differentiation from any competing alternatives.[31] A basic template for writing
positioning statements is as follows: "For (target customer) who (statement of the need
or opportunity), the (product name) is a (product category) that (statement of key benefit
– that is, compelling reason to buy). Unlike (primary competitive alternative), our
product (statement of primary differentiation)."[31] An annotated example of how this
positioning statement might be translated for a specific application appears in the text-
box that follows.

Differentiation vs positioning[edit]

Differentiation is closely related to the concept of positioning. Differentiation is how a

company's product is unique, by being the first, least expensive, or some other
distinguishing factor. A product or brand may have many points of difference, but they
may not all be meaningful or relevant to the target market. Positioning is something (a
perception) that happens in the minds of the target market whereas differentiation is
something that marketers do, whether through product design, pricing or promotional
activity.[33]

Strategies

To be successful in a particular market a product must occupy an "explicit, distinct and

proper place in the minds of all potential and existing consumers".[34] It has to also be
relative to other rival products with which the brand competes.[34] This may require
considerable research of customer perceptions and competitor activity in order to ensure
that the points of difference are meaningful in the minds of customers. Perceptual
mapping (discussed below) is often used for this type of research.
Visibility and recognition is what product positioning is all about as the positioning of a
product is what the product represents for a buyer the business is targeting. As markets
become increasingly competitive, buyer have more purchase choices, and the process of
setting one brand apart from rival brands is critical success factor.[34] It is vital that a
product or service needs to have a clear identity and placement to the needs of the
consumers targeted as they will not only purchase the product, but can warrant a larger
margin for the company through increased added value.

A number of different positioning strategies have been cited in the marketing

literature:[35]

Approaches Example

Pre-emptive positioning

(Being the first to claim a benefit or Smith's Chips - the original and still the best
feature)

Superlative positioning

(Being the best or exhibiting some The burgers are better at Hungry Jack's
type of superiority)

Exclusive positioning

(Being a member of an exclusive club XYZ Ltd - a Fortune 500 company

or group)

Positioning within a category

Within the prestige car category, Volvo is the
(Strong registration of both category safe alternative
and brand)

Positioning by competitor strategy

(Use competitor's strategy as a Avis - we're number two, so we try harder

reference point)

Positioning according to product Toothpaste with whitening, tartar control or

benefit(s) enamel protection
(Emphasize a problem, need or (or mutltiple benefits)
benefit where the firm
can offer superior satisfaction)

Positioning according to product

Dove is one-quarter moisturizer
attribute

Positioning for usage occasion

Cadbury Roses Chocolates—for gift giving or
(Can be associated with seasonal saying, 'Thank-you'
products)

Positioning along price lines A premium brand or an economy brand

Johnson & Johnson range of baby products

Positioning for a user or user group
(e.g., No Tears Shampoo)

Australia's Easter Bilby (as a culturally

appropriate alternative to
Positioning by cultural symbols
the Easter Bunny) used as the shape of Easter
chocolates

Positioning Strategy

What key words come to your mind when you think about companies such as Apple,
Walmart and Disney? Most consumers would say that innovative products, competitive
pricing and excellent service are synonymous with these companies. An important step in
developing key operational strategies depends upon how a company positions itself in
the marketplace. Every company can't satisfy every customer and also be competitive in
areas like quality, cost, flexibility, speed, innovation and service.

A positioning strategy is when a company chooses one or two important key areas to
concentrate on and excels in those areas. A firm's positioning strategy focuses on how it
will compete in the market. An effective positioning strategy considers the strengths and
weaknesses of the organization, the needs of the customers and market and the position
of competitors. The purpose of a positioning strategy is that it allows a company to
spotlight specific areas where they can outshine and beat their competition.
Let's examine the requirements needed for a company to compete in the following areas:
quality, cost, flexibility, speed, innovation and service. We will take a look at different
manufacturing and service companies to identify examples for each and how they use
their positioning strategy from an operational standpoint.

Cost Positioning Strategy

Bigmart is not known for excellent customer service. In fact, it is almost impossible to
find help in the stores. Bigmart is the biggest retailer in the world because they have
aligned their operations to embrace a cost positioning strategy. Following this strategy,
they focus on ways to eliminate any wasteful procedures within the company and pass
the savings on to their customers.

Bigmart has invested large amounts of money into operational processes that fully
automate inventory, ordering and delivery procedures. Today, the entire cost structure is
examined for reduction potentials, not just direct labor costs. Bigmart is successful
because the operation cost savings allow the stores to offer lower prices to their
customers. In order to remain cost competitive, Bigmart consistently invests in updating
their equipment, software and training of their employees, as well as applications and
procedures to streamline operations even more and stay the leader in their market.

Quality Positioning Strategy

Most companies worry about quality in a reactionary way by chasing after problems and
defects. This can destroy a company's credibility in the marketplace by alienating
customers and suppliers. Some smart companies choose to focus on a quality positioning
strategy as a way of differentiating themselves from their competitors by using
exceptional parts and materials and committing to minimal defects.

Precision Auto Manufacturer heavily invests in their operations and procedures to create
a high quality product. The company is known for only using top suppliers for their parts
and utilizing high-grade material for their cars. The results are automobiles that garner
an expensive price tag due to excellent quality materials and performance.

Flexibility Positioning Strategy

Consumers embrace companies that are able to change products and services based on
their needs. Most companies, however, find change a challenge to their operation and
product design. Every change to a manufacturer results as an increase in production
costs. The ability of manufacturing to respond to change has created a new level of
competition. A flexibility positioning strategyis another way for companies to
differentiate themselves from their competition by being able to produce a wide variety
of products, introduce new products or modify old products quickly and respond to
customer needs immediately.

DigiFilm and Filmback are two companies that manufacture camera and film products.
DigiFilm quickly realized that consumers' needs were changing, and they became the
leader in providing digital cameras, cloud storage for photos and wearable photo
technology. On the other hand, Filmback was slow to realize that traditional cameras and
film were being replaced by new technology. DigiFilm's ability to be flexible and change
their products, operations and method of delivery allowed them to prosper, while
Filmback closed their doors in 2009.

Many companies have embraced new technology to provide flexibility for their products.
For example, a well-known sneaker manufacturer now allows customers to create their
own sneaker designs online, and their state-of-the-art production facilities capture the
request and create custom foot apparel in the blink of an eye.

Speed Positioning Strategy

Another source of competitive advantage for companies is to use a speed positioning

strategy. Fast food and delivery companies all compete on delivering their products and
services quickly to their customers. For example, Glasses R Us prides itself on having
operations in stores that allow one hour delivery of eyeglasses. Companies such as
Prodazon ship product orders the same day to

MBA 538 (PRODUCT AND BRAND MANAGEMENT)

Qus-1. What are the sources of measuring brand equity? Explain with suitable
example.

Ans- What Is Brand Equity?

Brand equity refers to a value premium that a company generates from a product with a
recognizable name when compared to a generic equivalent. Companies can create brand
equity for their products by making them memorable, easily recognizable, and superior in
quality and reliability. Mass marketing campaignsalso help to create brand equity.

When a company has positive brand equity, customers willingly pay a high price for its
products, even though they could get the same thing from a competitor for less.
Customers, in effect, pay a price premium to do business with a firm they know and
admire. Because the company with brand equity does not incur a higher expense than its
competitors to produce the product and bring it to market, the difference in price goes
to margin. The firm's brand equity enables it to make a bigger profit on each sale.

[Important: Brand equity is an extension of brand recognition - but more-so than

recognition, brand equity is the added value in a particular name.]

nderstanding Brand Equity

Brand equity has three basic components: consumer perception, negative or positive
effects, and the resulting value. Foremost, consumer perception, which includes both
knowledge and experience with a brand and its products, builds brand equity. The
perception that a consumer segment holds about a brand directly results in either
positive or negative effects. If the brand equity is positive, the organization, its products,
and its financials can benefit. If the brand equity is negative, the opposite is true.

Finally, these effects can turn into either tangible or intangible value. If the effect is
positive, tangible value is realized as increases in revenue or profits and intangible value
is realized as marketing as awareness or goodwill. If the effects are negative, the tangible
or intangible value is also negative. For example, if consumers are willing to pay more for
a generic product than for a branded one, the brand is said to have negative brand equity.
This might happen if a company has a major product recall or causes a widely publicized
environmental disaster.

Effect on Profit Margins

When customers attach a level of quality or prestige to a brand, they perceive that
brand's products as being worth more than products made by competitors, so they are
willing to pay more. In effect, the market bears higher prices for brands that have high
levels of brand equity. The cost of manufacturing a golf shirt and bringing it to market is
not higher, at least to a significant degree, for Lacoste than it is for a less reputable brand.
However, because its customers are willing to pay more, it can charge a higher price for
that shirt, with the difference going to profit. Positive brand equity increases profit
margin per customer because it allows a company to charge more for a product than
competitors, even though it was obtained at the same price.

Brand equity has a direct effect on sales volume because consumers gravitate toward
products with great reputations. For example, when Apple releases a new product,
customers line up around the block to buy it even though it is usually priced higher than
similar products from competitors. One of the primary reasons why Apple's products sell
in such large numbers is that the company has amassed a staggering amount of positive
brand equity. Because a certain percentage of a company's costs to sell products are fixed,
higher sales volumes translate to greater profit margins.

Customer retention is the third area in which brand equity affects profit margins.
Returning to the Apple example, most of the company's customers do not own only one
Apple product; they own several, and they eagerly anticipate the next one's release.
Apple's customer base is fiercely loyal, sometimes bordering on evangelical. Apple enjoys
high customer retention, another result of its brand equity. Retaining existing customers
increases profit margins by lowering the amount a business has to spend on marketing to
achieve the same sales volume; it costs less to retain an existing customer than to acquire
a new one.

Key Takeaways

Brand equity refers to a value premium that a company generates from a product with a
recognizable name when compared to a generic equivalent.

Brand equity has three basic components: consumer perception, negative or positive
effects, and the resulting value.

Often, companies in the same industry or sector compete on brand equity.

Brand Equity Examples

A general example of a situation where brand equity is important is when a company

wants to expand its product line. If the brand's equity is positive, the company can
increase the likelihood that customers might buy its new product by associating the new
product with an existing, successful brand. For example, if Campbell's releases a new
soup, the company is likely to keep it under the same brand name rather than inventing a
new brand. The positive associations customers already have with Campbell's make the
new product more enticing than if the soup has an unfamiliar brand name.

Here are some other examples of brand equity: Manufactured since 1955 by McNeil (now
a subsidiary of Johnson & Johnson), Tylenol ranks above average in the pain relief
category, according to the Mayo Clinic. EquiTrend studies show that consumers trust
Tylenol over generic brands. Tylenol has been able to grow its market with the creations
of Tylenol Extra Strength, Tylenol Cold & Flu, and Tylenol Sinus Congestion & Pain.

Since 2009, the Kirkland Signature brand by Costco has maintained positive growth.
Signature encompasses hundreds of items, including clothing, coffee, laundry detergent
and food and beverages (one study shows that Costco sells more wine than any other
brand in the country, despite state laws that restrict it from selling alcohol in certain
areas). Costco even provides members with exclusive access to cheaper gasoline at its
private gas stations. Adding to Kirkland's popularity is the fact that its products cost less
than other name brands.

According to a Starbucks consumer case study, customers choose its brand of coffee over
others both because of its quality and because of the company. Rated the fifth-most-
admired company in the world by Fortune magazine in 2014. Starbucks is held in high
regard for its pledge to social responsibility. With more than 28,000 stores around the
globe in 2018, Starbucks remains the largest roaster and retailer of Arabica coffee beans
and specialty coffees.

With a brand value in the ballpark of $57.3 billion in 2018, Coca-Cola is often rated the
best soda brand in the world. However, the brand itself represents more than just the
products – it's symbolic of positive experiences, a proud history, even the U.S. itself. Also
recognized for its unique marketing campaigns, the Coca-Cola corporation has made a
global impact on its consumer engagement.
Porsche, a brand with strong equity in the automobile sector, retains its image and
reliability through the use of high-quality, unique materials. Viewed as a luxury brand,
Porsche provides owners of its vehicles not only with a product but an experience. In
comparison to other vehicle brands in its class, Porsche was the top luxury brand in 2019,
according to U.S. News & World Report.

Tracking a Company's Success with Brand Equity

Brand equity is a major indicator of company strength and performance, specifically in

the public markets. Often, companies in the same industry or sector compete on brand
equity. For example, an EquiTrend survey conducted on July 14, 2016, found that The
Home Depot was the No. 1 hardware company in terms of brand equity. Lowe's
Companies, Inc. came in second, with The Ace Hardware Corporation scoring below
average. A large component of brand equity in the hardware environment is consumer
perception of the strength of a company's e-commerce business. The Home Depot is an
industry leader in this category. It was also found that, besides e-commerce, The Home
Depot has the highest familiarity among consumers, allowing it to further penetrate the
industry and increase its brand equity.
1 INTRODUCTION By introducing the concept of “brand equity” or “customer-based
brand equity” related to lowinvolvement product brands and high-product homogeneity,
the research problem and the research problem specification are discussed. Thereby, the
research question and purpose are defined. 1.1 Problem Discussion Brand is a name,
term, sign, symbol, design, or a combination of them with the primary purpose of
differentiation between competitive offerings (Kotler, 2011, p. 241). Moreover, it also
embraces all tangible (e.g.: products) and intangible (e.g.: quality and awareness)
attributes that the business stands for (Kim & Kim, 2005, p. 549). As a result, Brands have
been increasingly considered as primary capital for many businesses, and building strong
brand is critical to companies’ success (Wood, 2000, p. 662). However, the value of
brands and its equity is derived from the words and actions of customers. It is consumers
that decide which brand is preferred than the other, or which brands have more equity
than other brands (Hoeffler & Keller, 2003, p. 421). As a result, the source of brand equity
is customer perception (Keller, 1993, p. 3). Furthermore, when marketers use the term
“brand equity” to measure brand strength, it often refers to as “customer-based brand
equity” (Wood, 2000, p. 662). In order to measure brand equity, Aaker (1992) developed
the conceptual brand equity model which consists of brand loyalty, brand name
awareness, perceived brand quality, brand associations, and other proprietary brand
assets (e.g., patents, trademarks, channel relationship). In this conceptual model, brand
awareness and perceived quality represent common dimensions of brand equity (Yoo,
Donthu, & Lee, 2000, p. 196). Moreover, to evaluate a firm’s brand equity, marketing
performances that positively related to brand equity will lead to a more favorable
behavioral response from consumers. Furthermore, there is a positive relationship
between brand equity assets towards both customer value and firm value (Aaker D. A.,
1992, p. 29; Yoo, Donthu, & Lee, 2000, p. 196). Therefore, in order to increase firm value,
company can enhance brand equity through perceived marketing mix elements which
include product, price, brand name, store image, distribution intensity, advertising
spending, and sales promotion (Yoo, Donthu, & Lee, 2000, pp. 206-207; Huang &
Sarigöllü, 2012, p. 97; Zeithaml, 1988, pp. 5-8). However, Atilgan, Akoy, and Akinci (2005)
argue that there are no significant direct effects of brand awareness and perceived
quality on brand equity. As a result, no common viewpoint has emerged as to how brand
equity should be conceptualized and measured so far (Vázquez, Del Río, & Iglesias, 2002,
pp. 27-28). Aloe Vera Drycken AB first launched its aloe vera plant based fruit drink in
July 2008 with a vision to developing and selling functional beverages. The target group
of its products includes 1) young and health awareness from age 15 to 30; 2) families
with children from age 40 and up; and 3) older healthy mind from age 55 to 65. Until
2010, the drink was sold exclusively at upscale coffee shops and fitness facilities in
western Sweden. The healthy features of the products, such as 50% aloe bits, all natural
ingredients free from artificial colors and preservatives build the health image of Aloe
Vera Drycken on the market. In addition, the exclusivity of sales channels in the first two
years also helps Aloe Vera Drycken establish brand and demand for the product. Due to
the high competition on healthy beverage markets, the company is constantly striving for
delivering healthy, high quality and natural ingredients enriched aloe drink for its
customers. Today, the company has extended its product range into five 2 major
categories, which include aloe vera drink Original, aloe vera drink Goji, aloe vera drink
Green Tea & Lemon, aloe vera drink Diet Original, and aloe vera drink Diet Pomegranate.
In order to build brand and gain market share, the company has expanded its marketing
activities and distributed the products through various channels including supermarkets,
convenience stores, cafeteria and gyms (AB, 2014). However, to measure brand equity of
Aloe Vera Drycken will help evaluate the company’s current marketing performance and
enhance the firm value in the future. 1.2 Problem Specification As illustrated in the
problem discussion, brand building to differentiate from competitors is important for
Aloe Vera Drycken AB on a competitive beverage market. In the long run, it helps the
company gain market share and competitive advantage. Measuring customer-based
brand equity will help Aloe Vera Drycken AB to evaluate current brand performance from
customers’ perspective, which will give the company implications to enhance customer
value. To measure brand equity, two dimensions of brand equity (brand awareness and
perceived quality) and their relationship with perceived marketing mix will be studied. In
addition, a relationship between brand equity and customer value is investigated. 1.3
Research Questions The research question is: How does customer perceived marketing
mix elements affect customer value of Aloe Vera Drycken through brand awareness and
perceived quality for target group age from 15 to 30 on Swedish market? Strategic
Question: How to enhance Aloe Vera Drycken’s brand awareness and perceived quality,
in order to increase customer value for target group age from 15 to 30 on Swedish
market in the future? 1.4 Purpose of Research The purposes of the research are: 1. To
investigate the relationship between the elements of perceived marketing mix towards
brand equity of Aloe Vera Drycken 2. To investigate the relationship between brand
equity towards customer value of Aloe Vera Drycken 3. To measure current performance
of perceived market mix elements and brand equity of Aloe Vera Drycken based on brand
awareness and perceived quality 4. To provide recommendation to improves brand
equity of Aloe Vera Drycken 1.5 Target Groups This project is a scientific study at
academic level for project supervisors, lecturers, examiners, and research students who
are expected to be the main target readers.
It is also a case study of the Aloe 3 Vera Drycken brand. Therefore, managers and
employees of Aloe Vera Drycken who are involved and responsible for branding are also
included as part of the targeted readers. Brand Equity /Customer-Based Brand Equity
The topic of brand equity is highly diverse when it comes to the definition of brand equity
(Vázquez, Del Río, & Iglesias, 2002, p. 27). However, Brand Equity can be defined as 1) a
set of brand assets and liabilities; 2) linking to the brand’s name and symbol; 3)
subtracting from, as well as adding to, the value provided by a product or service, and 4)
providing value to customers as well as to a firm (Aaker D. A., 1992, p. 28). Nevertheless,
the concept of brand equity is referred to by marketers as the term customer-based
brand equity, which can in turn be defined as “the differential effect of brand knowledge
on consumer response to the marketing of the brand” or “a brand is said to have positive
(negative) customer-based brand equity when consumers react more (less) favorably to
the element of the marketing mix of the brand than they do to the same marketing mix
element when it is attributed to a fictitiously named or unnamed version of the product
or service” (Keller, 1993, p. 1; Wood, 2000, p. 662). Subsequently, brand equity has been
studied in three different perspectives which include 1) customer based perspective, 2)
company based perspective (brand equity is viewed as a tool to support a company’s
activities to be more effective such as facilitating growth and expansion, defending a
product from competition, helping secure distribution, and making advertising and
promotion more effective), and 3) financial based perspective (view brand equity as an
intangible asset that brings the company cash flows in excess of the return on tangible
assets) (Keller & Lehmann, 2006, pp. 744-745; Simon & Sullivan, 1993, p. 31). However,
among these three perspectives, consumer-based perspective is proved to be the most
important perspective for identifying brand equity (Vázquez, Del Río, & Iglesias, 2002, p.
28). Customer based perspective views brand equity from customers’ point of view. It is
generated by the “nonobjective” part of the product offering from a particular company
and function as a part of the attraction to/repulsion of the particular offering. At the
beginning, a brand may be synonymous with the product that it refers to. However,
through advertising, usage experience, and other activities and influences, a series of
attachments and associations for the brand can be developed which exist over and
beyond the objective product itself (Keller & Lehmann, 2006, p. 745). The conceptual
framework of brand equity is comprised of five brand equity asset dimensions, which
include brand loyalty, brand awareness, perceived quality, brand associations and other
proprietary brand assets. In addition, all dimensions of brand equity will affect value to
the customers and to firms (Aaker D. A., 1992, pp. 29-31). However, Yoo et al. (2000)
extended the conceptual model of brand equity by adding perceived marketing mix as the
antecedents of brand equity asset dimensions (Yoo, Donthu, & Lee, 2000, p. 196).
Moreover, brand equity assets can be categorized into two groups which consist of
consumer perceptions attributes(brand awareness and perceived quality) and consumer
behavior attributes(brand loyalty and willingness to pay a higher price) (Myers, 2003, p.
40; Kim & Kim, 2005, p. 551). Brand awareness refers to “the strength of a brand’s
presence in consumers’ minds” (Pappu, Quester, & Cooksey, 2005, p. 145) while
perceived quality is 1) different 5 from objective or actual quality; 2) represent a higher
level abstraction rather than a specific attribute of a product; and 3) a judgment that
usually made within a consumer’s evoked set (Zeithaml V. A., 1988, pp. 3-4).
Consequently, changes in brand equity assets will lead to changes in customer value and
firm value. For customer value, brand equity plays roles on consumers’ interpretation or
processing of information, confidence in the purchase decision, and satisfaction. On the
other hand, for firm value, brand equity enhances efficiency and effectiveness of a
company’s marketing program, builds brand loyalty and competitive advantage, etc.
Therefore, there is a positive relationship between brand equity assets towards both
customer value and firm value (Aaker D. A., 1992, p. 29; Yoo, Donthu, & Lee, 2000, p. 196).
However, Atilgan, Akoy, and Akinci (2005) argue that there are no significant direct
effects of brand awareness and perceived quality on brand equity. In the extended model
of brand equity, perceived marketing mix elements are used because consumer
psychology is affected more directly by perceived marketing efforts rather than actual
marketing mix activities. Moreover, it is more feasible to study the perceived marketing
mix activities rather than actual marketing efforts. Therefore, brand equity can be
enhanced through five perceived marketing mix elements which include price, store
image, distribution intensity, advertising spending, and price promotion. (Huang &
Sarigöllü, 2012, p. 97; Yoo, Donthu, & Lee, 2000, pp. 200, 205-207). Conceptual Model The
conceptual model of brand equity are based on the theories from Aaker D. A. (1992) and
Keller (1993) in order to explain the relationship between brand equity elements and
their contribution to customer value and firm value. Meanwhile, the model is extended
from the theory of Yoo, Donthu, and Lee (2000) by adding the perceived marketing mix as
the antecedent attributes. However, in order to provide an in-depth analysis, only two
elements of brand equity are selected which are brand awareness and perceived quality
(consumer perceptions). Overall, both brand awareness and perceived quality are
positively related to customer value. By increasing brand awareness and perceived
quality through company’s marketing performance, customer value will be enhanced. As
a result, customers’ purchase intention will increase accordingly, which will contribute to
enhanced firm market performance (firm value). The concepts of brand equity and
perceived marketing mix illustrated in the conceptual model will be explained in the
following sections.
Part One: 6 Ways to Measure Brand Equity for Distributed Brands

Without an understanding of a brand's current equity, organization's can struggle to set

metrics for improvement. Companies can measure brand equity in a number of ways,
from how aware customers are of the brand, to the financial numbers that shareholders
care about. There are six distinct factors that enable a comprehensive understanding of
distributed brand equity, detailed below.

1. Brand Awareness

Customer knowledge of your products and services is an important part of brand equity.
But even better than customers knowing you is customers not being able to avoid
thinking about your brand. A leading indicator of the consumer's awareness of your
company is “conversation share,” or the amount of time your brand comes up in everyday
conversations about the products and services you offer.

Measuring brand awareness among your target customers can take many forms. Some
methodologies used to understand how aware your ideal customers are include:

Surveys and focus groups

Web traffic

Search volume for your brand and products

Social mentions and reviews

2. Preference Metrics

Consumer preference is a powerful factor in daily purchase decisions; it’s the reason a
customer may decide to travel further and spend more money to access a product or
service they really like. Aspects of customer preference that can be measured through
focus groups, sales data and surveys can include:

Brand relevance: The extent to which your customers agree your brand provides unique
and specific value that is not offered by your competitors.

Accessibility: The ability to provide your target market with your products or services.

Emotional Connection: Your strength in forming emotional connections with customers, a

key factor in loyalty.
Brand Value: A measure of how much your customers are willing to pay for your products
and services.

3. Financial Metrics

Financial metrics surrounding brand equity are directly tied to sales performance. If
these indicators, related to the financial value of your brand, are increasing your revenue
is likely to be moving in the same direction. Ways to measure brand equity through
related financial aspects include:

Price premium over competition

Average transaction value

Customer lifetime value

Rate of sustained growth

4. Output Metrics

What if your brand is investing time and budget into brand equity-building and you don’t
see results? Output is a measure of marketing activity, which measures the marketing
assets that get released to the public. Output looks at how often marketing materials are
released, and the type of asset released to the market place. Output can also be measured
through the impact of your brand-created offers in local markets.

Local activity impacts brand equity because assets that aren't being utilized by a local
store owner can't influence sales. Similarly, poor-quality output – such as a direct mail
offer that's amateurishly edited by a local franchisee – may have a serious negative
impact on your brand equity.

Three ways to determine how your assets for local marketers are translating into output
are:

Local marketer campaign and asset utilization

Sales on promoted products

Customer adoption of loyalty programs

With some technologies, such as Local Marketing Automation, brand managers can also
conduct A/B testing between similar markets to compare output and subsequent results.

5. Local Marketer Perception Metrics

For distributed brand management teams, there’s value in thinking of your local
marketers as customers. Your local representatives all have influence over your brand
equity metrics; their local advertising and in-store customer experience shapes
awareness, preference and financial habits.

These factors influence their success and local customer experiences – a dealer who
doesn't prefer your brand is less likely to have success selling your products to a
customer. A franchisee who doesn't have an instinctive connection to your brand may use
your marketing assets improperly.

Your local outlets are directly responsible for the way your customers experience the
brand. By monitoring local marketers' sentiment, you can further understand whether
your brand equity is increasing or decreasing and improve the quality of your support to
local representatives. Ways to measure local perception of your brand include:

Surveys

Focus groups

Software adoption rates

Campaign deployment rates

6. Competitive Metrics

Your competitors’ brand equity has a direct influence on how your company's brand
equity trends. If competition doubles-down and launches a campaign advertising a
pricing adjustment, your customer preference could dip for reasons that have nothing to
do with the work you're doing – and everything to do with your competitor's brand.

Competitive metrics can reveal areas where your competition is not providing value to
customers, such as missing products, poor customer experiences, or pricing. It can also
reveal tactics and campaigns that have resonated with your consumer base. Metrics here
include, but are not limited to:

Customer Acquisition Rate

Market Share

Sales Lift

ROI of Channels of Distribution

Sales Lift of Pricing, Discounts, and Annual Specials

Final Thoughts on Measuring Brand Equity: Think Qualitatively and Quantitatively

Measuring brand equity is certainly complex and involves many variables, but it’s wholly
possible. For brand managers to truly understand the value of their brand-building
activities, understanding brand equity from the perspective of both local marketers and
customers is crucial. The “full story” of your brand’s value lies in thinking qualitatively
and quantitatively about customers and local marketers.

There are aspects of brand equity that can be measured quantitatively, such as average
transaction value or your stores' sales performance. Others require more qualitative
methods of measurement, such as evaluating your franchisees' knowledge of the brand
mission. At the intersection of these two methods of measurement, you’re best able to
capture true brand equity. Use this knowledge to build your brand’s value among all of
your stakeholders.

Part Two: 3 Ways to Go Beyond Measuring and Actually Build Brand Equity

Brand equity is built through every "touch" or interaction with the customer. Your
advertising at the national and local level supports your brand equity, but so do your local
marketers' face-to-face interactions with customers on a daily basis. By understanding
that every outbound communication and in-store experience is an opportunity to add to a
positive brand impression, brand managers can take control and not just measure brand
equity but actually build it in the process.

Learn More: How to Build Strong Brand Equity

1. Build Your National Brand

Distributed brand managers don't have direct control over local marketing execution,
though they do have control over national-level campaigns. Using traditional, proven
methodologies for building your brand on a national scale can increase your value to
consumers and local affiliates. Strategic tools for expanding your value include:

Improving your brand positioning

Telling your brand story

Improving your tools for international brand consistency

Using consumer and local marketer feedback to improve messaging

2. Create Brand Equity by Improving Local Marketing Performance

Brand equity at the local level is influenced by the quality of the customer experiences
and consistency. If your customers see a product in your national advertisements, go to
buy it, and have a great experience, you're on the way to building lasting brand equity.
Just as easily as you build equity through good execution, poor local execution will
undermine all those gains.

Delivering consistently great experiences at local storefronts requires brand

management teams to define expectations clearly and establish processes, often by using
technology, that make it easier for two-way communications between local marketers
and brand management teams to occur.

3. Support Local Innovation, Within Reason

How boring would it be if your brand released the exact same direct mail flier with no
updates every summer? Pretty boring. Brands need to recast ideas in new and interesting
ways to keep their customers excited and engaged. To achieve balance, brand managers
need to understand the two primary types of brand consistency:

Repetition: The same thing over and over again.

Innovation: The same idea expressed repeatedly, in a different way.

Semantic consistency is what keeps your brand exciting, while rote consistency builds
customer trust. Achieving a balance of these two factors is important to building your
existing equity. For distributed enterprises, successfully balancing the two types of
consistency requires supporting the right kind of innovation at the local level, making it
easy for locals to comply with brand guidelines, and using a mixture of tools and strategic
tactics like:

Brand Guidelines

Brand Voice and Tone Guidelines

Digital Asset Management Technologies

Local Marketing Automation (LMA) technologies

Two-Way Communications

Elevating Your Distributed Brand Equity

Distributed brand equity is hard-earned and easily lost. It may take just one bad
experience at their favorite store to turn a long-time, loyal customer off to your brand.
Building on the equity you've already created by delivering a consistently great
experience is a challenge. Doing that when you manage a network of thousands of
affiliates, can feel next to impossible.

Traditionally, businesses measure brand equity through customer knowledge,

preference, and financial metrics. Distributed brands can also determine brand equity
through measuring output, local marketing metrics, and competitors. With a solid
baseline understanding of distributed brand equity, your organization will be positioned
to build equity through national efforts, improving local marketing performance, and
support for local innovation.

The key to understanding how your brand is executing against your promise is to
understand that your consumers aren’t the only factor to monitor. Your local marketers'
perceptions are tied to action, and working to improve their equity measures will have a
direct influence on your local execution and equity.

CampaignDrive is a distributed marketing platform designed with local marketing in

mind. Our secure platform centralizes marketing assets across franchise and enterprise
locations to give businesses a holistic view of their collateral and facilitate brand
compliance across all branches and affiliates. Brand managers, designers, and local
marketers can have the tools they need to stay aligned with brand guidelines as well as
automate and streamline processes for faster output.

Looking for creative ways to enable local marketers to execute local marketing? Get The
Local Marketing Playbook for new ideas, tactics, to inspire your local team.

Q-2. What is product life cycle? What are its characteristics?

Ans- Product life-cycle management (PLM) is the succession of strategies by business

management as a product goes through its life-cycle. The conditions in which a product is
sold (advertising, saturation) changes over time and must be managed as it moves
through its succession of stages.

The product life cycle is an important concept in marketing. It describes the stages a
product goes through from when it was first thought of until it finally is removed from
the market. Not all products reach this final stage. Some continue to grow and others rise
and fall.
The main stages of the product life cycle are:

Research & development - researching and developing a product before it is made

available for sale in the market

Introduction – launching the product into the market

Growth – when sales are increasing at their fastest rate

Maturity – sales are near their highest, but the rate of growth is slowing down, e.g. new
competitors in market or saturation

Decline – final stage of the cycle, when sales begin to fall

This can be illustrated by looking at the sales during the time period of the product.

Overview of the Product Life Cycle

Extending the Product Life Cycle

For successful products, a business will want to do all it can to extend the growth and
maturity phases of the life cycle, and to delay the decline phase.

What can businesses do to extend the product life cycle?

To do so, it may decide to implement extension strategies - which are intended to extend
the life of the product before it goes into decline.
Examples of extension strategies are:

Advertising – try to gain a new audience or remind the current audience

Price reduction – more attractive to customers

Adding value – add new features to the current product, e.g. improving the specifications
on a smartphone

Explore new markets – selling the product into new geographical areas or creating a
version targeted at different segments

New packaging – brightening up old packaging or subtle changes

Evaluating the Product Life Cycle Model

The product life cycle model is by definition simplistic. It is used to predict a likely shape
of sales growth for a typical product.

Whilst there are many products whose sales do indeed follow the classic shape of the life
cycle model, it is not inevitable that this will happen.

For example, some products may enjoy a rapid growth phase, but quickly move into a
decline phase if they are are replaced by superior products from competitors or demand
in the market overall declines quickly.

Other products with particularly long life cycles seem to enjoy a maturity phase that lasts
for many years.

Goals[edit]

The goals of product life cycle management (PLM) are to reduce time to market, improve
product quality, reduce prototyping costs, identify potential sales opportunities and
revenue contributions, maintain and sustain operational serviceability, and reduce
environmental impacts at end-of-life. To create successful new products the company
must understand its customers, markets and competitors. Product Lifecycle Management
(PLM) integrates people, data, processes and business systems. It provides product
information for companies and their extended supply chain enterprise. PLM solutions
help organizations overcome the increased complexity and engineering challenges of
developing new products for the global competitive markets.[citation needed]
Product life cycle[edit]

The concept of product life cycle (PLC) concerns the life of a product in the market with
respect to business/commercial costs and sales measures. The product life cycle
proceeds through multiple phases, involves many professional disciplines, and requires
many skills, tools and processes. PLC management makes the following three
assumptions:[1]

Products have a limited life and thus every product has a life cycle.

Product sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller.

Products require different marketing, financing, manufacturing, purchasing, and human

resource strategies in each life cycle stage.

Once the product is designed and put into the market, the offering should be managed
efficiently for the buyers to get value from it. Before entering into any market complete
analysis is carried out by the industry for both external and internal factors including the
laws and regulations, environment, economics, cultural values and market needs. From
the business perspective, as a good business, the product needs to be sold before it
finishes its life. In terms of profitability, expiry may jolt the overall profitability of the
business therefore there are few strategies, which are practiced to ensure that the
product is sold within the defined period of maturity.

Extending the product life cycle[edit]

Extending the product life cycle by improving sales, this can be done through

Advertising: Its purpose is to get additional audience and potential customers.

Exploring and expanding to new markets: By conducting market research and offering
the product (or some adapted form of it) to new markets, it is possible to get more
customers.

Price reduction: Many customers are attracted by price cuts and discount tags.

Adding new features: Adding value to the product to enhance its usability or to attract the
attention of a wider customer base.

Packaging: New, attractive, useful or eco-friendly packaging influence the target

customers.
Changing customer consumption habits: Promoting new trends of consumption can
increase the number of customers.

Special promotions: Raising interest by offering Jackpot and other offers.

Heightening interest: Many of the following things attract many customers who match
certain profiles: Eco-friendly production processes, good work conditions, funding the
efforts of non-profit organizations (cancer cure, anti-war efforts, refugees, GLTBI,
environment and animal protection, etc.) and the like.

Something important to notice is that all these techniques rely on advertising to become
known. Advertising needs the others to target other potential customers and not the
same over and over again.

Characteristics of PLC stage

There are the following major product life cycle stages:

Stage Characteristics

This is the stage in which the product has been introduced first time
in the market and the sales of the product starts to grow slowly and
gradually and the profit received from the product is nominal and
non-attained. The market for the product is not competitive initially
and also the company spends initially on the advertisement and
uses various other tools for promotion in order to motivate and
produce awareness among the consumers, therefore generating
discerning demands for particular brand. The products start to gain
1. Market distribution as the product is initially new in the market and in this
introduction stage the quality of the product is not assured and the price of the
stage product will also be determined as low or high.[3]

costs are very high

slow sales volumes to start

little or no competition

demand has to be created

customers have to be prompted to try the product

 makes little money at this stage

In the growth stage, the product is visibly present in the market, the
product has habitual consumers, and there is quick growth in
product sales. More new customers are becoming aware of the
product and trying it. The customers are becoming satisfied with the
product and are buying it again and again. The ratio of the product
repetition for the trial procurement has risen. Competitors have
started to overflow the market with more appealing and attractive
inventions. This helps in creating increased competition in the
market and also results in decreasing the product price.
2. Growth stage
costs reduced due to economies of scale

sales volume increases significantly

profitability begins to rise

public awareness increases

competition begins to increase with a few new players in

establishing market

increased competition leads to price decreases

In maturity stage, the cost of the product has been decreased

because of the increased volume of the product and the product
started to experience the curve effects. Also, more and more
competitors have seen to be leaving the market. In this way very few
buyers have been left for the product and this results in less sales of
the product. The decline of the product and cost of attaining new
3. Maturity buyers in this level is more as compare to the resulted profit. The
stage brand or the product differentiation via rebating and discounts in
price supports in recalling the outlet distribution. Also, there is a
decline in the entire cost of marketing through enhancing the
distribution and promotional efficiency with switching brand and
segmentation.

costs are decreased as a result of production volumes increasing

and experience curve effects
 sales volume peaks and market saturation is reached

increase in competitors entering the market

prices tend to drop due to the proliferation of competing products

brand differentiation and feature diversification is emphasized to

maintain or increase market share

industrial profits go down

In this stage, the profit as well as the sales of the product has started
to decline because of the deletion of the product from the market.
The market for the product in this stage started to show negative
rate of growth and corroding cash flows. The product at this stage
may be kept but there should be fewer adverts.[4]

costs become counter-optimal

4. Saturation
and decline sales volume decline
stage
prices, profitability diminish

profit becomes more a challenge of production/distribution

efficiency than increased sales

Note: Product termination is usually not the end of the business

cycle, only the end of a single entrant within the larger scope of an
ongoing business program.

The Product Life Cycle contains five distinct stages. For the four stages introduction,
growth, maturity and decline, we can identify specific product life cycle strategies.
These are based on the characteristics of each PLC stage. Which product life cycle
strategies should be applied in each stage is crucial to know in order to manage the
PLC properly. We will now go into these four PLC stages in detail to identify
characteristics of the stages and product life cycle strategies for each.

Introduction stage – Product Life Cycle Strategies

The introduction stage is the stage in which a new product is first distributed and made
available for purchase, after having been developed in the product development stage.
Therefore, the introduction stage starts when the product is first launched. But
introduction can take a lot of time, and sales growth tends to be rather slow. Nowadays
successful products such as frozen foods and HDTVs lingered for many years before
entering a stage of more rapid growth.

Furthermore, profits in the introduction stage are negative or low due to the low sales on
the one hand and high-distribution and promotion expenses on the other hand.
Obviously, much money is needed to attract distributors and build their stocks. Also,
promotion spending is quite high to inform consumers of the new product and get them
to try it.

In the introduction stage, the focus is on selling to those buyers who are the most ready
to buy (innovators).

Concerning the product life cycle strategies we can identify the proper launch strategy:
the company must choose a launch strategy that is consistent with the intended product
positioning. Without doubt, this initial strategy can be considered to be the first step in a
grander marketing plan for the product’s entire life cycle.

The main objective should be to create product awareness and trial.

To be more precise, since the market is normally not ready for product improvements or
refinements at this stage, the company produces basic versions of the product. Cost-plus
pricing should be used to recover the costs incurred. Selective distribution in the
beginning helps to focus efforts on the most important distributors. Advertising should
aim at building product awareness among innovators and early adopters. To entice trial,
heavy sales promotion is necessary. Following these product life cycle strategies for the
first PLC stage, the company and the new product are ready for the next stages.

Growth stage – Product Life Cycle Strategies

The growth stage is the stage in which the product’s sales start climbing quickly. The
reason is that early adopters will continue to buy, and later buyers will start following
their lead, in particular if they hear favourable word of mouth. This rise in sales also
attracts more competitors that enter the market. Since these will introduce new product
features, competition is fierce and the market will expand. As a consequence of the
increase in competitors, there is an increase in the number of distribution outlets and
sales are augmented due to the fact that resellers build inventories. Since promotion costs
are now spread over a larger volume and because of the decrease in unit manufacturing
costs, profits increase during the growth stage.

The main objective in the growth stage is to maximise the market share.

Several product life cycle strategies for the growth stage can be used to sustain rapid
market growth as long as possible. Product quality should be improved and new product
features and models added. The firm can also enter new market segments and new
distribution channels with the product. Prices remain where they are or decrease to
penetrate the market. The company should keep the promotion spending at the same or
an even higher level. Now, there is more than one main goal: educating the market is still
important, but meeting the competition is likewise important. At the same time, some
advertising must be shifted from building product awareness to building product
conviction and purchase.

The growth stage is a good example to demonstrate how product life cycle strategies are
interrelated. In the growth stage, the firm must choose between a high market share and
high current profits. By spending a lot of money on product improvements promotion
and distribution, the firm can reach a dominant position. However, for that it needs to
give up maximum current profits, hoping to make them up in the next stage.

Maturity stage – Product Life Cycle Strategies

The maturity stage is the stage in which the product’s sales growth slows down or levels
off after reaching a peak. This will happen at some point, since the market becomes
saturated. Generally, the maturity stage lasts longer than the two preceding stages.
Consequently, it poses strong challenges to marketing management and needs a careful
selection of product life cycle strategies. Most products on the market are, indeed, in the
maturity stage.
The slowdown in sales growth is due to many producers with many products to sell.
Likewise, this overcapacity results in greater competition. Since competitors start to
mark down prices, increase their advertising and sales promotions and increase their
product development budgets to find better versions of the product, a drop in profit
occurs. Also, some of the weaker competitors drop out, eventually leaving only well-
established competitors in the industry.

The company’s main objective should be to maximise profit while defending the market
share.

To reach this objective, several product life cycle strategies are available. Although many
products in the maturity stage seem to remain unchanged for long periods, most
successful ones are actually adapted constantly to meet changing consumer needs. The
reason is that the company cannot just ride along with or defend the mature product – a
good offence is the best defence. Therefore, the firm should consider to modify the
market, product and marketing mix. Modifying the market means trying to increase
consumption by finding new users and new market segments for the product. Also, usage
among present customers can be increased. Modifying the product refers to changing
characteristics such as quality, features, style or packaging to attract new users and
inspire more usage. And finally, modifying the marketing mix involves improving sales by
changing one or more marketing mix elements. For instance, prices could be cut to attract
new users or competitors’ customers. The firm could also launch a better advertising
campaigns or rely on aggressive sales promotion.

Decline stage – Product Life Cycle Strategies

Finally, product life cycle strategies for the decline stage must be chosen. The decline
stage is the stage in which the product’s sales decline. This happens to most product
forms and brands at a certain moment. The decline can either be slow, such as in the case
of postage stamps, or rapid, as has been the case with VHS tapes. Sales may plummet to
zero, or they may drop to a low level where they continue for many years.

Reasons for the decline in sales can be of various natures. For instance, technological
advances, shifts in consumer tastes and increased competition can play a key role. As
sales and profits decline, some competitors will withdraw from the market.
Also for the decline stage, careful selection of product life cycle strategies is required. The
reason is that carrying a weak product can be very costly to the firm, not just in profit
terms. There are also many hidden costs. For instance, a weak product may take up too
much of management’s time. It requires advertising and sales-force efforts that could
better be used for other, more profitable products in other stages. Most important may be
the fact that carrying a weak product delays the search for replacements and creates a
lopsided product mix. It also hurts current profits and weakens the company’s foothold
on the future.

Therefore, proper product life cycle strategies are critical. The company needs to pay
more attention to its aging products to identify products in the decline stage early. Then,
the firm must take a decision: maintain, harvest or drop the declining product.

The main objective in the decline stage should be to reduce expenditure and “milk” the
brand. General strategies for the decline stage include cutting prices, choosing a selective
distribution by phasing out unprofitable outlets and reduce advertising as well as sales
promotion to the level needed to retain only the most loyal customers.

If management decides to maintain the product or brand, repositioning or reinvigorating

it may be an option. The purpose behind these options is to move the product back into
the growth stage of the PLC. If management decides to harvest the product, costs need to
be reduced and only the last sales need to be harvested. However, this can only increase
the company’s profits in the short-term. Dropping the product from the product line may
involve selling it to another firm or simply liquidate it at salvage value.

In the following, all characteristics of the four product life cycle stages discussed are
listed. For each, product life cycle strategies with regard to product, price, distribution,
advertising and sales promotion are identified. Choosing the right product life cycle
strategies is crucial for the company’s success in the long-term.

Q-3. What are the roles of logos and symbols? Explain.

Ans- Importance of Symbols in Logo Design

Logo
A logo (abbreviation of logotype,[4] from Greek: λόγος, translit. logos, lit. 'word' and
Greek: τύπος, translit. typos, lit. 'imprint') is a graphic mark, emblem, or symbol used to
aid and promote public identification and recognition. It may be of an abstract or
figurative design or include the text of the name it represents as in a wordmark.

In the days of hot metal typesetting, a logotype was one word cast as a single piece of type
(e.g. "The" in ATF Garamond), as opposed to a ligature, which is two or more letters
joined, but not forming a word.[5] By extension, the term was also used for a uniquely set
and arranged typeface or colophon. At the level of mass communication and in common
usage, a company's logo is today often synonymous with its trademark or brand

History

Numerous inventions and techniques have contributed to the contemporary logo,

including cylinder seals (c. 2300 BCE), coins (c. 600 BCE),[7][8] trans-cultural
diffusion of logographic languages, coats of arms,[9] watermarks,[10] silver hallmarks, and
the development of printing technology.

As the industrial revolution converted western societies from agrarian to industrial in the
18th and 19th centuries, photography and lithography contributed to the boom of an
advertising industry that integrated typography and imagery together on the
page.[11] Simultaneously, typography itself was undergoing a revolution of form and
expression that expanded beyond the modest, serif typefaces used in books, to bold,
ornamental typefaces used on broadsheet posters.[12]

The arts were expanding in purpose—from expression and decoration of an artistic,

storytelling nature, to a differentiation of brands and products that the growing middle
classes were consuming. Consultancies and trades-groups in the commercial arts were
growing and organizing; by 1890, the US had 700 lithographic printing firms employing
more than 8,000 people.[13] Artistic credit tended to be assigned to the lithographic
company, as opposed to the individual artists who usually performed less important jobs.
Innovators in the visual arts and lithographic process—such as French printing firm
Rouchon in the 1840s, Joseph Morse of New York in the 1850s, Frederick Walker of
England in the 1870s, and Jules Chéret of France in the 1870s—developed an illustrative
style that went beyond tonal, representational art to figurative imagery with sections of
bright, flat colors.[13] Playful children’s books, authoritative newspapers, and
conversational periodicals developed their own visual and editorial styles for unique,
expanding audiences. As printing costs decreased, literacy rates increased, and visual
styles changed, the Victorian decorative arts led to an expansion of typographic styles
and methods of representing businesses.[14]
Logo design
Since a logo is the visual entity signifying an organization, logo design is an important
area of graphic design. A logo is the central element of a complex identification system
that must be functionally extended to all communications of an organization. Therefore,
the design of logos and their incorporation in a visual identity system is one of the most
difficult and important areas of graphic design. Logos fall into three classifications (which
can be combined). Ideographs, such as Chase Bank, are completely abstract forms;
pictographs are iconic, representational designs; logotypes (or wordmarks) depict the
name or company initials. Because logos are meant to represent companies' brands or
corporate identities and foster their immediate customer recognition, it is
counterproductive to frequently redesign logos. The logo design profession has
substantially increased in numbers over the years since the rise of the Modernist
movement in the United States in the 1950s.[18] Three designers are widely[19] considered
the pioneers of that movement and of logo and corporate identity design: The first
is Chermayeff & Geismar,[20] which is the firm responsible for a large number of iconic
logos, such as Chase Bank (1964), Mobil Oil (1965), PBS(1984), NBC (1986), National
Geographic (2003), and others. Due to the simplicity and boldness of their designs, many
of their earlier logos are still in use today. The firm recently designed logos for
the Library of Congress and the fashion brand Armani Exchange. Another pioneer of
corporate identity design is Paul Rand,[21] who was one of the originators of the Swiss
Style of graphic design. He designed many posters and corporate identities, including the
famous logos for IBM, UPS, and ABC. The third pioneer of corporate identity design is Saul
Bass.[22] Bass was responsible for several recognizable logos in North America, including
both the Bell Telephone logo (1969) and successor AT&T Corporation globe (1983).
Other well-known designs were Continental Airlines (1968), Dixie (1969), and United
Way (1972). Later, he would produce logos for a number of Japanese companies as well.
An important development in the documentation of logo design is the study of French
trademarks by historian Edith Amiot and philosopher Jean Louis Azizollah.[23]
Logo color

Color is a key element in logo design and plays an important role in brand differentiation.
The importance of color in this context is due to the mechanics of human visual
perception wherein color and contrast play critical roles in visual detail detection. In
addition, we tend to acquire various color connotations and color associations through
social and cultural conditioning, and these play a role in how we decipher and evaluate
logo color. While color is considered important to brand recognition and logo design, it
shouldn't conflict with logo functionality, and it needs to be remembered that color
connotations and associations are not consistent across all social and cultural groups. For
example, in the United States, red, white, and blue are often used in logos for companies
that want to project patriotic feelings but other countries will have different sets of colors
that evoke national pride.

Choosing an organisation's logo's color is an important decision because of its long term
implications and its role in creating differentiation among competitors' logos. A
methodology for identifying potential logo colors within an industry sector is color
mapping, whereby existing logo colors are systematically identified, mapped, and
evaluated (O'Connor, 2011).[24]

Logo design process

Designing a good logo often requires involvement from a marketing team teaming with
the graphic design studio. Before a logo is designed, there must be a clear definition of the
concept and values of the brand as well as understanding of the consumer or target
group. Broad steps in the logo design process include research, conceptualization,
investigation of alternative candidates, refinement of a chosen design, testing across
products, and finally adoption and production of the chosen mark.

Dynamic logos

Brand extension

The first logo to be trademarked was the Bassred triangle in 1876

The Arts and Crafts Movement of late-19th century, partially in response to the excesses
of Victorian typography, aimed to restore an honest sense of craftsmanship to the mass-
produced goods of the era.[15] A renewal of interest in craftsmanship and quality also
provided the artists and companies with a greater interest in credit, leading to the
creation of unique logos and marks.

By the 1950s, Modernism had shed its roots as an avant-garde artistic movement in
Europe to become an international, commercialized movement with adherents in the
United States and elsewhere. The visual simplicity and conceptual clarity that were the
hallmarks of Modernism as an artistic movement formed a powerful toolset for a new
generation of graphic designers whose logos embodied Ludwig Mies van der Rohe’s
dictum, "Less is more." Modernist-inspired logos proved successful in the era of mass
visual communication ushered in by television, improvements in printing technology, and
digital innovations.

Contemporary logos

There are mainly three elements of a logo- font, color and symbol. While the first two
components are easier to select, most designers face a problem with symbol. Corporate
identity of a software company and a fast food chain is completely different and
expressing that identity through a symbol is really difficult.

Common people think that logo is just the graphical representation of a company and
attractive design is the ultimate aim. Aesthetic beauty is certainly important, but a logo
needs to be meaningful as well. Not only an emblem should attract people, but make them
understand the core values of the organization it represents.

What Should a Designer Do? – Logo is a passive communicator. It sends a visual message
to the audience and promote the company, but doesn’t intimidate the consumers. It’s
more like “I represent a great business and we value our customers”, not “we sell X
product. Our product is the best. You must buy it.”

First of all, a logo designer should think like an artist, not a marketing expert. He should
study symbology to know the meaning of different symbols and how those meanings may
vary across nations. It’s quite possible that some nations may consider a sign holy and
other countries may think of it as a representation of evil. For instance, Thumbs up is a
positive sign in western countries, but Middle Eastern countries consider it as vulgar.
Different Types of Symbols – There are mainly two types of symbols- representational
and abstract. Examples of representational symbols are animal, thing or an object. On the
other hand, abstract symbols are quite interesting. This type of symbol is based on
contemporary arts and shapes. For instance, box, swoosh and triangle are all abstract
signs.
Every symbol has a meaning. As a designer you must know the meanings and associate
different signs in an insignia to solidify your client’s brand image.

Which Symbol Is Ideal? – That is the million dollar question. The answer may seem
unbelievable, but sometimes the symbol or the entire logo may not tell anything about
the business. That is the case of Nike and Apple. Both these companies use abstract
symbols in the logo and its impossible to get an idea of their brand story from the
emblem.

However, if you are more interested in showing the brand identity through logo, then
write down the core values of your client’s business, his target audience, future plans and
the way he wants to project his company. Once you know these factors, use your
symbology knowledge to sort out 2-3 suitable symbols.

Finally, make some mock designs and show it to the client. Let him take the ultimate
decision.

Qus-4. What are brand extensions? Discuss Brand Extension is important.

Ans- Brand extension

Brand extension or brand stretching is a marketing strategy in which a firm marketing a

product with a well-developed image uses the same brand name in a different product
category. The new product is called a spin-off. Organizations use this strategy to increase and
leverage brand equity (definition: the net worth and long-term sustainability just from the
renowned name). An example of a brand extension is Jello-gelatin creating Jello pudding
pops. It increases awareness of the brand name and increases profitability from offerings in
more than one product category.
A brand's "extendibility" depends on how strong consumer's associations are to the brand's
values and goals. Ralph Lauren's Polobrand successfully extended from clothing to home
furnishings such as bedding and towels. Both clothing and bedding are made of linen and
fulfill a similar consumer function of comfort and hominess. Arm & Hammer leveraged its
brand equity from basic baking sodainto the oral care and laundry care categories. By
emphasizing its key attributes, the cleaning and deodorizing properties of its core product,
Arm & Hammer was able to leverage those attributes into new categories with success.
Another example is Virgin Group, which was initially a record label that has extended its
brand successfully many times; from transportation (aeroplanes, trains) to games stores and
video stores such as Virgin Megastores.

In the 1990s, 81 percent of new products used brand extension to introduce new brands and
to create sales.[1] Launching a new product is not only time-consuming but also needs a big
budget to create brand awareness and to promote a product's benefits.[2] Brand extension is
one of the new product development strategies which can reduce financial risk by using the
parent brand name to enhance consumers' perception due to the core brand equity.[3][4]

While there can be significant benefits in brand extension strategies, there can also be
significant risks, resulting in a diluted or severely damaged brand image. Poor choices for
brand extension may dilute and deteriorate the core brand and damage the brand
equity.[5][6] Most of the literature focuses on the consumer evaluation and positive impact on
parent brand. In practical cases, the failures of brand extension are at higher rate than the
successes. Some studies show that negative impact may dilute brand image and
equity.[7][8] In spite of the positive impact of brand extension, negative association and wrong
communication strategy do harm to the parent brand even brand family.[9]

Product extensions are versions of the same parent product that serve a segment of the
target market and increase the variety of an offering. An example of a product extension
is Coke vs. Diet Coke in the same product category of soft drinks. This tactic is undertaken
due to the brand loyalty and brand awareness associated with an existing product.
Consumers are more likely to buy a new product that has a reputable brand name on it than
buy a similar product from a competitor without a reputable brand name. Consumers
receive a product from a brand they trust, and the company offering the product can increase
its product portfolio and potentially gain a larger share in the market in which it competes.

Types[edit]
Brand extension research mainly focuses on consumer evaluation of extension and attitude
toward the parent brand. In their 1990 model, Aaker and Keller provide a sufficient depth
and breadth proposition to examine consumer behaviour and a conceptual framework. The
authors use three dimensions to measure the fit of extension. First, the "Complement" refers
to consumers taking two product classes (extension and parent brand product) as
complementary in satisfying their specific needs.[10] Secondly, the "Substitute" indicates two
products have the same user situation and satisfy the same needs, which means the product
classes are very similar and that the products can act to replace each other. Lastly, the
"Transfer" describes the relationship between extension product and manufacturer which
"reflects the perceived ability of any firm operating in the first product class to make a
product in the second class"[11] The first two measures focus on the consumer's demand and
the last one focuses on the firm's perceived ability.

From the line extension to brand extension, however, there are many different types of
extension such as "brand alliance",[12] co-branding[13][14] or "brand franchise
extension".[15]Tauber (1988) suggests seven strategies to identify extension cases such as
product with parent brand's benefit, same product with different price or quality, etc. In his
suggestion, it can be classified into two category of extension; extension of product-related
association and non-product related association.[16] Another form of brand extension is a
licensed brand extension. In this scenario, the brand-owner works with a partner
(sometimes a competitor), who takes on the responsibility of manufacturing and sales of the
new products, paying a royalty every time a product is sold.

Brand extension can also be done through marketing strategies such as guerrilla marketing,
where brands can promote their goods or services through unconventional means such as
emotional connections to the brand by tackling social problems/dilemmas. These emotional
connections are generally done through social experiments where brands express their
concern and offer small solutions thereby making the brand standout and seem righteous.
Guerilla marketing is a very effective way of connecting with the target market and reaching
out to different markets, this extension into the vast demographic while creating brand
awareness is highly effective for brands[17]

Categorization theory[edit]
Researchers tend to use "categorization theory" as their fundamental theory to explore the
effects of brand extension.[18][19] When consumers are faced with thousands of products to
choose amongst, they are not only initially confused, but try to categorise by brand
association or image given their knowledge and previous experience. A consumer can judge
or evaluate the extension product with his or her category memory. Consumers categorise
new information into specific brand or product class label and store it.[20][21] This process is
not only related to consumer's experience and knowledge, but also involvement and choice
of brand.[22] If the brand association is highly related to extension, consumer can perceive the
fit among brand extension. Some studies suggest that consumer may ignore or overcome the
dissonance from extension i.e. perceived misfit with parent brand is ignored, and does not
cause dilution of parent's brand equity.[23][24]

Failure[edit]

Literature related to negative effect of brand extension is limited and the findings are
revealed as incongruent. The early works of Aaker and Keller (1990) find no significant
evidence that brand name can be diluted by unsuccessful brand extensions.[25] Conversely,
Loken and Roedder-John (1993) indicate that dilution effect do occur when the extension
across inconsistency of product category and brand beliefs. The failure of extension[26] may
come from difficulty of connecting with parent brand, a lack of similarity and familiarity and
inconsistent IMC messages.

"Equity of an integrated oriented brand can be diluted significantly from both functional and
non-functional attributes-base variables", which means dilution does occur across the brand
extension to the parent brand.[27] These failures of extension make consumers create a
negative or new association relate to parent brand even brand family or to disturb and
confuse the original brand identity and meaning.[28]

In addition, Martinez and de Chernatony (2004)[29] classify the brand image in two types: the
general brand image and the product brand image. They suggest that if the brand nameis
strong enough as Nike or Sony, the negative impact has no specific damage on general brand
image and "the dilution effect is greater on product brand image than on general brand
image". Consequently, consumers may maintain their belief about the attributes and feelings
about parent brand, however their study does show that "brand extension dilutes the brand
image, changing the beliefs and association in consumers' mind".
The flagship product is a money-spinner to a firm. Marketers spend time and money to
maximise exposure and awareness of the product. In theory, a flagship product has the top
sales and highest awareness in its product category. In spite of Aaker and Keller's (1990)
research, which reports that prestigious brands are not harmed from failure of extensions,
some evidence shows that the dilution effect has great and instant damage to the flagship
product and brand family. Still, some studies suggest that even though overall parent belief is
diluted; the flagship product would not be harmed. In addition, brand extension also
"diminish[es] consumer's feelings and beliefs about brand name."[30] To establish a strong
brand, it is necessary to build up a "brand ladder".[31]

Marketers may follow the order and model created by Aaker[32] and Keller[33] who are
authorities on brand management, but branding does not always follow a rational line. One
mistake can damage all brand equity. A classic extension failure example would be Coca-
Cola launching "New Coke" in 1985.[34] Although it was initially accepted, a backlash against
"New Coke" soon emerged among consumers. Not only did Coca-Cola not succeed in
developing a new brand but sales of the original flavour also decreased. Coca-Cola had to
make considerable efforts to regain customers who had turned to Pepsi cola.

Although there are few works about the failure of extensions, literature provides sufficient
in-depth research into this issue. Studies also suggest that brand extension is a risky strategy
to increase sales or brand equity. It should consider the damage of parent brand no matter
what types of extension are used.[35]

Brand equity[edit]

Main article: Brand equity

Brand equity is defined as the main concern in brand management and IMC campaign. Every
marketer should pursue the long term equity and pay attention to every strategy in detail.
Because a small message dissonance would cause great failure of brand extension. On the
other hand, consumer has his psychology process in mind. The moderating variable is a
useful indication to evaluate consumer evaluation of brand extension.

Throughout the categorisation theory and associative network theory, a consumer has the
ability to process information into useful knowledge for them. They would measure and
compare the difference between core brand and extension product through quality of core
brand, fit in category, former experience and knowledge, and difficulty of making.
Consequently, in this article, we may conclude the following points about consumer
evaluation of brand extension:
Quality of core brand creates a strong position for brand and low impact of fit in consumer
evaluation.

Similarity between core brand and extension is the main concern of consumer perception of
fit. The higher the similarity is, the higher perception of fit will be.

Consumer's knowledge and experience affect the evaluation before extension product trail.

The more innovation of extension product is, the greater positive fit can perceive.

A successful brand message strategy relies on a congruent communication and a clear brand
image.[36] The negative impact of brand extension would cause a great damage to parent
brand and brand family. From a manager and marketer's perspective, an operation of
branding should maintain brand messages and associations within a consistency and
continuum in the long way. Because the effects of negative impact from brand extension are
tremendous and permanently. Every messages or brand extension can dilute the brand in
nature.

Product line extension

A product line extension is the use of an established product brand name for a new item in
the same product category.

Line extensions occur when a company introduces additional items in the same product
category under the same brand name such as new flavors, forms, colors, added ingredients,
package sizes. This is as opposed to brand extension which is a new product in a totally
different product category. Line extension occurs when the company lengthens its product
line beyond its current range. The company can extend its product line down-market stretch,
up-market stretch, or both ways.

Product line extensions are a process where companies with an established brand alter the
factors of a product or products to satisfy a refined segment in the market.[1] There are two
types of product line extensions, horizontal and vertical. Horizontal extensions consist of
keeping the price and quality consistent, but changing factors like flavour or colour to
differentiate the products. Vertical extensions consist of increasing and decreasing the
quality and price to create inferior and luxury goods. These product line extensions are often
closely related to existing products in a brands portfolio, but targets specific brand
consumers through this approach.[2]

Product line extensions help companies identify and tend to the needs of refined target
markets. If applied appropriately, their advantage within the intended market.[3]
Practically, when brands apply a product extension strategy they can often benefit from the
new addition or additions. This is as extending their product line enlarges their product
portfolio and as a result provides the consumers with more variety to choose from. This is
positive, as consumers tend to enjoy being able to have choice and through expanding a
brands product line, the brand is providing this choice.

Investing in this approach is commonly pursued by companies due to their desire to create
revenue and to advance their competitive status against rival companies. The advantages
when undergoing product line extensions is that the new product or products are commonly
closely related to existing products, so the company often has the appropriate production
process and capacity to produce the new product or products.[2]

Issues facing product line extensions can include company's investments in the new
products without the desired return. The product may come at a loss or may not be able to
make enough of the return the company was forecasting for. The new addition could also
send confusion to the company's customer base, and in turn negatively affect the loyalty they
have for the brand.[3] This can evidently become a long-term risk in terms of brand image, as
consumers may have a new view of the brand as cheap, in the case of downward extension,
or unrealistic and unreasonable in terms of upward extension.[1] An issue also connected to
the extensions, could result in the production process becoming more and more complicated
as a result of new products, this could affect the company's efficiency and quality in the
production of the brands product range.[3]

An advantage of extending company product lines is the likely rise in sales, demand and
market share. Product line extension increases the amount of different products available to
consumers, and through adding more products into the market it keeps consumers
interested. This can be helpful in avoiding customer base loss.

Down-Market Stretch[edit]

A company positioned in the middle market may want to introduce a lower-priced line
for any of the 3 reasons

The company may notice strong growth opportunities as mass retailers such as Wal-
Mart, Best Buy, and others attract a growing number of shoppers who want value-priced
goods.
The company may wish to tie up lower-end competitors who might otherwise try to
move up-market. If the company has been attacked by a low-end competitor, it often
decides to counterattack by entering the low end of the market.

The company may find that the middle market is stagnating or declining.

An advantage to downward product line extension is it creates more competition

between brands. This can be good for the consumer as product prices may become more
competitive, and goods may become cheaper to purchase. Increased competition
generated from the extension allows the brand to gain more market share over their
competitors. The brand can also benefit from an increase in exposure through this
competitive process.[2]

Brand image is a big contributing factor when it comes to product line extension. Within
downward extension it can make the brand seem less luxurious, cheap, basic, and
inconsistent. In a study,[1] the results revealed when high status brands downward extend
their product line, consumers feel a sense of dishonesty and untrustworthy towards the
brands image. This is as a result of luxury brands having a stereotype of being exclusive
and high quality, and with the addition of a lower quality, cheaper product the consumers
perceive this as a breach.

When extending the product line downward, the new product or products become more
available to consumers and most likely, cheaper. With this product volume and price, a
less-luxurious image can be formed around the brand by consumers. This can either be a
positive or negative impact on the brand depending on which industry and market the
brand is a part of. For example, Walmart is widely known for its low prices and
availability, so this consumer image of the brand would not impact the company
negatively. Whereas, if Pradawere to start selling a downward product line of low quality,
low priced goods this would impact the brand's high status, exclusivity and luxurious
image negatively.[1]

However, when introducing downward line extensions, consumers may be opted to by

this cheaper option the brand is providing rather than their upward line extension goods.
This introduction may negatively affect the sales of their premium and more luxury
goods. So while demand and increased market share may be a positive to downward line
extensions, the approach may disadvantage the brands overall profit.[4]

Up-Market Stretch[edit]
Companies may wish to enter the high end of the market for more growth, higher
margins, or simply to position themselves as full-line manufacturers. Many markets have
spawned surprising upscale segments: Starbucks in coffee, Haagen-Dazs in ice
cream and Evian in bottled water. Leading Japanese auto companies have each
introduced an upscale automobile: Toyota's Lexus, Nissan's Infiniti, and Honda's Acura.
Note that they invented entirely new names rather than using or including their own
names.

Brands extending their product lines upward successfully can benefit through the
increasing amount of middle-class consumers that are becoming more capable and
willing to invest their money in luxury products. Brands can adjust pricing to coincide
with trends within the economy, to ensure the luxury goods do not lose too much of their
consumer demand within their most popular market segments.[1]

Upward product line extension can advantage the brand through associating the new
luxury product addition with the existing brand name. Additional high quality, high
priced products can improve the image of the brand and create a new outlook within the
consumer market through consumers associating the brand with its more exclusive and
elite products. This can help with sales and demand if the luxury goods become quite
popular and favourable.[2]

However, cheaper products may draw attention and demand away from a brands upward
product line extension. A way to combat this is to increase the quality of the brands
luxury goods, as well as targeting aspects of the consumer market that are able and
prepared to pay more for the higher quality product.[3]

Two-Way Stretch[edit]

Companies serving the middle market might decide to stretch their line in both
directions. Texas Instruments (TI) introduced its first calculators in the medium-price-
medium-quality end of the market. Gradually, it added calculators at the lower end taking
the share from Bowmar, and at the higher end to compete with Hewlett-Packard. This
two-way stretch won Texas Instruments (TI) an early market leadership in the hand-
calculator market.

As they say the most successful brand extensions come from companies that really know
their customers, even more so that know the limitations of their brand. Our experts
discuss extensions that have been successful and those that have the potential to dilute a
brand, and what makes some brands more extendible than others.
The simple answer for marketers seeking ways of entering new categories, tapping new
customer segments and exploring new benefit areas has been: “Extend the brand”. After
all, the logic of brand extensions is compelling, at least on paper. Brand extensions build
on existing equity, they are less expensive to launch than entirely new brands, and they
are a low risk option in these competitive times.

But is it really so simple?

Consider some of the brands that according to Brandz, were the world’s most valuable
brands in 2011: Apple, IBM, McDonald’s, Vodafone, Coca Cola. If brand extensions was the
magic solution, you’d have seen dozens of extensions of these brands
across marketing landscapes far and wide. Coca Cola potato chips, McDonald’s T-
shirts, Vodafone TV sets, Apple refrigerators...

The reason why this does not work is that from a consumer viewpoint, there has to be a
recognisable and intuitively meaningful connection across the offerings. And the
“marketing manager’s link” is often just too-logical-by-half.

Let’s look at some of the extensions that bombed because of ‘spurious linkages’. Pond’s
Dreamflower Talc was all about freshness, and toothpaste is about fresh breath early in
the morning... but Pond’s toothpaste went down the drain. Nirma toothpaste followed
another but equally logical sounding link: it cleans clothes, why shouldn’t it clean teeth? It
didn’t wash with consumers. Saffola followed a supposedly increasing health
consciousness into a baked snack called ‘Saffola Zest’. But it missed a simple truth: no one
ever ate a snack for her health. The product has disappeared. Mothers have happily been
giving Bournvita to their kids in milk, but that did not help to win them over to Bournvita
biscuits. And the list can go on.

The point is that, what appears logical from one direction is not compelling from another.
If you make ‘health’ the axis of commonality’ Saffola Zest snack can go down the gullet as
smoothly as Saffola cooking oil. But is the axes are ‘snacks’ and ‘cooking oil’ the twain
miss the mark!

There is another, perhaps even more important link required to make brand extensions a
success. And that is, whether the corporate skills and capability required is transferable
across the products. Putting a Lakme moisturising lotion in a tube calls for one set of
product development and manufacturing skills; running a Lakme salon needs a very
different ability to make sure the girls who attend to customers in dozens of salons have
flawless skin!
Putting a Kingfisher logo on an aluminum can that carries 330 ml of beer is a bit different
from running a business in which the Kingfisher logo is put on a 110 feet wide, 75-tonne
container that carries 150 people.

Over a period of three million years the Australopithecus hominid has evolved through
several ‘brand extensions’ into us: Home sapiens. But species of snacks don’t evolve
overnight from a species of cooking oil. On the other hand, a Sunsilk shampoo and a
Sunsilk conditioner seem so similar to me that I am not even sure a term such as ‘brand
extension’ should be used.

So my sense is that all too often, brands may be getting extended on weak grounds, and
the logic of the conference room fails to meet the logic of the kitchen counter. Of course
there is no clear line between what is a ‘genuine’ brand extension and what is not, but
that is where judgment comes in. Otherwise extending brands could become a matter of a
rule of thumb. Which more likely than not, will get a thumbs down.

Q-5. Briefly explain the various steps in strategic brand management process.

Ans- In marketing, brand management is the analysis and planning on how a brand is
perceived in the market. Developing a good relationship with the target market is
essential for brand management. Tangible elements of brand management include the
product itself; its look, price, and packaging, etc. The intangible elements are the
experiences that the consumers share with the brand, and also the relationships they
have with the brand. A brand manager would oversee all aspects of the consumer's brand
association as well as relationships with members of the supply chain

Definitions[edit]

In 2001, Hislop defined branding as "the process of creating a relationship or a

connection between a company's product and emotional perception of the customer for
the purpose of generating segregation among competition and building loyalty among
customers." In 2004 and 2008, Kapferer and Keller respectively defined it as a fulfillment
in customer expectations and consistent customer satisfaction.[2]

Brand management is a function of marketing that uses special techniques in order to

increase the perceived value of a product (see: Brand equity). Based on the aims of the
established marketing strategy, brand management enables the price of products to grow
and builds loyal customers through positive associations and images or a strong
awareness of the brand.[3]
Brand management is the process of identifying the core value of a particular brand and
reflecting the core value among the targeted customers. In modern terms, brand could be
corporate, product, service, or person. Brand management build brand credibility and
credible brands only can build brand loyalty, bounce back from circumstantial crisis, and
can benefit from price-sensitive customers.

History

The earliest origins of branding can be traced to pre-historic times. The practice may
have first begun with the branding of farm animals in the middle East in the neolithic
period. Stone Age and Bronze Age cave paintings depict images of branded cattle.
Egyptian funerary artwork also depicts branded animals.[4] Over time, the practice was
extended to marking personal property such as pottery or tools, and eventually some
type of brand or insignia was attached to goods intended for trade.

Around 4,000 years ago, producers began by attaching simple stone seals to products
which, over time, were transformed into clay seals bearing impressed images, often
associated with the producer's personal identity thus giving the product a
personality.[5] Bevan and Wengrow have argued that branding became necessary
following the urban revolution in ancient Mesopotamia in the 4th century BCE, when
large-scale economies started mass-producing commodities such as alcoholic drinks,
cosmetics and textiles. These ancient societies imposed strict forms of quality control
over commodities, and also needed to convey value to the consumer through
branding.[6] Diana Twede has argued that the "consumer packaging functions of
protection, utility and communication have been necessary whenever packages were the
object of transactions" (p. 107). She has shown that amphorae used in Mediterranean
trade between 1500 and 500 BCE exhibited a wide variety of shapes and markings, which
provided information for purchasers during exchange. Systematic use of stamped labels
dates appears to date from around the fourth century BCE. In a largely pre-literate
society, the shape of the amphora and its pictorial markings functioned as a brand,
conveying information about the contents, region of origin and even the identity of the
producer which were understood to convey information about product quality.[7]

A number of archaeological research studies have found extensive evidence of branding,

packaging and labelling in antiquity.[8][9] Archaeologists have identified some 1,000
different Roman potters' marks of the early Roman Empire, suggesting that branding was
a relatively widespread practice.
In Pompeii (circa 35 CE), Umbricius Scauras, a manufacturer of fish sauce (also known
as garum) was branding his amphora which travelled across the entire Mediterranean.
Mosaic patterns in the atrium of his house were decorated with images
of amphora bearing his personal brand and quality claims. The mosaic comprises four
different amphora, one at each corner of the atrium, and bearing labels as follows:[11]

1. G(ari) F(los) SCO[m]/ SCAURI/ EX OFFI[ci]/NA SCAU/RI Translated as "The flower of

garum, made of the mackerel, a product of Scaurus, from the shop of Scaurus"

2. LIQU[minis]/ FLOS Translated as: "The flower of Liquamen"

3. G[ari] F[los] SCOM[bri]/ SCAURI Translated as: "The flower of garum, made of the
mackerel, a product of Scaurus"

4. LIQUAMEN/ OPTIMUM/ EX OFFICI[n]/A SCAURI Translated as: "The best liquamen,

from the shop of Scaurus"

Scauras' fish sauce was known to be of very high quality across the Mediterranean and its
reputation travelled as far away as modern France.[12] Curtis has described this mosaic as
a "an advertisement... and a rare, unequivocal example of a motif inspired by a patron,
rather than by the artist."[13]

In Pompeii and nearby Herculaneum, archaeological evidence also points to evidence of

branding and labelling in relatively common use. Wine jars, for example, were stamped
with names, such as "Lassius" and "L. Eumachius;" probably references to the name of the
producer. Carbonized loaves of bread, found at Herculaneum, indicate that some bakers
stamped their bread with the producer's name and other information including the use,
price or intended recipient. These markings demonstrate the public's need for product
information in an increasingly complex market-place.[14]
In the East, evidence of branding also dates to an early period. Recent research suggests
that Chinese merchants made extensive use of branding, packaging, advertising and retail
signage.[15] From as early as 200 BCE, Chinese packaging and branding was used to signal
family, place names and product quality, and the use of government imposed product
branding was used between 600 and 900 AD.[16]Eckhart and Bengtsson have argued that
during the Song Dynasty (960–1127), Chinese society developed a consumerist culture,
where a high level of consumption was attainable for a wide variety of ordinary
consumers rather than just the elite (p. 212). The rise of a consumer culture led to the
commercial investment in carefully managed company image, retail signage, symbolic
brands, trademark protection and the brand concepts of baoji, hao, lei, gongpin, piazi and
pinpai, which roughly equate with Western concepts of family status, quality grading, and
upholding traditional Chinese values (p. 219). Eckhardt and Bengtsson's analysis
suggests that brands emerged in China as a result of the social needs and tensions
implicit in consumer culture, in which brands provide social status and stratification.
Thus, the evolution of brands in China stands in sharp contrast to the West where
manufacturers pushed brands onto the market in order to differentiate, increase market
share and ultimately profits (pp 218–219). In Japan, branding has a long heritage. For
many Japanese businesses, a "mon" or seal is an East Asian form of brand or trademark.

Not all historians agree that the distinctive packages and markings used in antiquity can
be compared with modern brands or labels. Moore and Reid, for example, have argued
that the distinctive shapes and markings in ancient containers should be termed proto-
brands rather than seen as modern brands according to our modern understanding.[17] A
proto-brand is one that possesses at least one of three characteristics; place – information
about the origin of manufacture-expressed by a mark, signature or even by the physical
properties of the raw materials including the packaging materials, performs a basic
marketing function such as storage, transportation and assortment; and quality
attributes- information about the product's quality expressed by the name of the
manufacturer, place of origin or ingredients or any other generally accepted indicator of
quality.[18]
The impetus for more widespread branding was often provided by government laws,
requiring producers to meet minimum quality specifications or to standardise weights
and measures, which in turn, was driven by public concerns about quality and fairness in
exchange. The use of hallmarks, applied to precious metal objects, was well in place by
the 4th century CE in Byzantium. Evidence of silver bars marked under authority of the
Emperor Augustinian dates to around 350 CE, and represents one of the oldest known
forms of consumer protection.[19] Hundreds of silver objects, including chalices, cups,
plates, rings and bullion, all bearing hallmarks from the early Byzantine period, have been
found and documented.[20] Hallmarks for silver and gold were introduced in Britain in
1300

In Medieval Europe, branding was applied to a broader range of goods and services. Craft
guilds, which sprang up across Europe around this time, codified and reinforced, systems
of marking products to ensure quality and standards. Bread-makers, silversmiths and
goldsmiths all marked their wares during this period.[22] By 1266, English bakers were
required by law to put a symbol on each product they sold. Bricui et al. have argued that
the number of different forms of brands blossomed from the 14th century following the
period of European discovery and expansion.[23] Some individual brand marks have been
in continuous use for centuries. The brand, Staffelter Hof, for example, dates to 862 or
earlier and the company still produces wine under its name today.

The granting a royal charter to tradesmen, markets and fairs was practiced across Europe
from the early Medieval period. At a time when concerns about product quality were a
major public issues, a royal endorsement provided the public with a signal that the holder
supplied goods worthy of use in the Royal household, and by implication inspired public
confidence. In the 15th century, a Royal warrant of appointment replaced the royal
charter in England. The Lord Chamberlain of England formally appointed tradespeople as
suppliers to the Royal household.[24] The printer, William Caxton, for example, was one of
the earliest recipients of a Royal Warrant when he became the King's printer in
1476.[25] By the 18th-century, mass market manufacturers such as Josiah
Wedgewood and Matthew Boulton, recognised the value of supplying royalty, often at
prices well below cost, for the sake of the publicity and cudos it generated.[26] Many
manufacturers began actively displaying the royal arms on their premises, packaging and
labelling. By 1840, the rules surrounding the display of royal arms were tightened to
prevent fraudulent claims. By the early 19th century, the number of Royal Warrants
granted rose rapidly when Queen Victoria granted some 2,000 royal warrants during her
reign of 64 years.[27]
By the eighteenth century, as standards of living improved and an emerging middle class
began to demand more luxury goods and services, the retail landscape underwent major
changes. Retailers were tending to specialize in specific goods or services and began to
exhibit a variety of modern marketing techniques. Stores not only began to brand
themselves, but also displayed branded goods, both in the glazed shop windows to attract
passers-by and display counters to appeal to patrons inside the store.[28] Branding was
more widely used in the 19th century, following the industrial revolution, and the
development of new professions like marketing, manufacturing and business
management formalised the study of brands and branding as a key business
activity.[2] Branding is a way of differentiating product from mere commodities, and
therefore the use of branding expanded with each advance in transportation,
communication, and trade.[29] The modern discipline of brand management is considered
to have been started by a memo at Procter & Gamble[30] by Neil H. McElroy.

With the rise of mass media in the early 20th century, companies soon adopted
techniques that would allow their advertising messages to stand out; slogans, mascots,
and jingles began to appear on radio in the 1920s and early television in the 1930s. Many
of the earliest radio drama series were sponsored by soap manufacturers and the genre
became known as a soap opera.[32] Before long, radio station owners realized they could
increase advertising revenue by selling 'air-time' in small time allocations which could be
sold to multiple businesses. By the 1930s, these advertising spots, as the packets of time
became known, were being sold by the station's geographical sales representatives,
ushering in an era of national radio advertising.[33]\
From the first decades of the 20th-century, advertisers began to focus on developing
brand personality, brand image and brand identity—concepts. The British advertising
agency, W. S. Crawford's Ltd, began to use the concept of 'product personality' and the
'advertising idea' arguing that in order to stimulate sales and create a 'buying habit',
advertising had to 'build a definitive association of ideas round the goods'. In the US,
advertising agency, J. Walter Thompson company (JWT), was pioneering similar concepts
of brand personality and brand image. The notion of a 'brand personality' was developed
independently and simultaneously in both the US and Britain.[34] For example, in 1915
JWT acquired the advertising account for Lux soap and recommended that the traditional
positioning as a product for woolen garments should be broadened so that consumers
would see it as a soap for use on all fine fabrics in the household. To implement, Lux was
repositioned with a more up-market posture, and began a long association with
expensive clothing and high fashion. Cano has argued that the positioning strategy JWT
used for Lux exhibited an insightful understanding of the way that consumers mentally
construct brand images. JWT recognised that advertising effectively manipulated socially
shared symbols. In the case of Lux, the brand disconnected from images of household
drudgery, and connected with images of leisure and fashion.[35]

By the 1940s, manufacturers began to recognize the way in which consumers were
developing relationships with their brands in a social/psychological/anthropological
sense.[36]Advertisers began to use motivational research and consumer research to gather
insights into consumer purchasing. Strong branded campaigns for Chrysler and
Exxon/Esso, using insights drawn research methods from psychology and cultural
anthropology, led to some of most enduring campaigns of the 20th-century. Esso's "Put a
Tiger in Your Tank" campaign was based on a tiger mascot used in Scandinavia at the
turn of last century, and first appeared as a global advertising slogan in the 1950s and
60s, and subsequently reappeared in the 1990s.[37] Throughout the late 20th-century,
brand advertisers began to imbue goods and services with a personality, based on the
insight that consumers searched for brands with personalities that matched their own

Branding terminology[edit]

Brand associations refers to a set of information nodes held in memory that form a
network of associations and are linked to a key variable. For example, variables such
as brand image, brand personality, brand attitude, brand preference are nodes within a
network that describes the sources of brand-self congruity. In another example, the
variables brand recognition and brand recall form a linked network that describes the
consumer's brand awareness or brand knowledge.[43]
Brand attitude refers to the "buyer's overall evaluation of a brand with respect to its
perceived ability to meet a currently relevant motivation." [44]

Brand awareness refers to the extent to which consumers can identify a brand under
various conditions.[45] Marketers typically identify two distinct types of brand awareness;
namely brand recognition and brand recall.[46]

Brand equity Within the literature, it is possible to identify two distinct definitions of
brand equity. Firstly an accounting definition suggests that brand equity is a measure of
the financial value of a brand and attempts to measure the net additional inflows as a
result of the brand or the value of the intangible asset of the brand.[47] A different
definition comes from marketing where brand equity is treated as a measure of the
strength of consumers' attachment to a brand; a description of the associations and
beliefs the consumer has about the brand.[48]

Brand image refers to an image an organisation wants to project;[49] a psychological

meaning or meaning profile associated with a brand.[50]

Brand personality refers to "the set of human personality traits that are both applicable
to and relevant for brands."[51]

Self-brand congruity draws on the notion that consumers prefer brands with
personalities that are congruent with their own; consumers tend to form strong
attachments with brands where the brand personality matches their own.[52]

Brand preference refers to "consumers' predisposition towards certain brands that

summarise their cognitive information processing towards brand stimuli."[53]

Brand orientation[edit]
Brand orientation refers to "the degree to which the organization values brands and its
practices are oriented towards building brand capabilities".[54] It is a deliberate approach
to working with brands, both internally and externally. The most important driving force
behind this increased interest in strong brands is the accelerating pace of globalization.
This has resulted in an ever-tougher competitive situation on many markets. A product's
superiority is in itself no longer sufficient to guarantee its success. The fast pace of
technological development and the increased speed with which imitations turn up on the
market have dramatically shortened product lifecycles. The consequence is that product-
related competitive advantages soon risk being transformed into competitive
prerequisites. For this reason, increasing numbers of companies are looking for other,
more enduring, competitive tools – such as brands.

Justification[edit]

Brand management aims to create an emotional connection between products,

companies and their customers and constituents. Brand managers & Marketing managers
may try to control the brand image.[2]

Brand managers create strategies to convert a suspect to prospect, prospect to buyer,

buyer to customer, and customer to brand advocates.

Approaches[edit]

"By Appointment to His Royal Majesty" was a registered and limited list of approved
brands suitable for supply to the Royal British family.

Some believe brand managers can be counter-productive, due to their short-term focus.[2]

On the other end of the extreme, luxury and high-end premium brands may create
advertisements or sponsor teams merely for the "overall feeling" or goodwill generated.
A typical "no-brand" advertisement might simply put up the price (and indeed, brand
managers may patrol retail outlets for using their name in discount/clearance sales),
whereas on the other end of the extreme a perfume brand might be created that does not
show the actual use of the perfume or Breitling may sponsor an aerobatics team purely
for the "image" created by such sponsorship. Space travel and brand management for this
reason also enjoys a special relationship.

"Nation branding" is a modern term conflating foreign relations and the idea of a
brand.[55] An example is Cool Britannia of the 1990s.
Social media

Even though social media has changed the tactics of marketing brands, its primary goals
remain the same; to attract and retain customers.[56] However, companies have now
experienced a new challenge with the introduction of social media. This change is finding
the right balance between empowering customers to spread the word about the brand
through viral platforms, while still controlling the company's own core strategic
marketing goals.[57] Word-of-mouth marketing via social media, falls under the category
of viral marketing, which broadly describes any strategy that encourages individuals to
propagate a message, thus, creating the potential for exponential growth in the message's
exposure and influence.[58] Basic forms of this are seen when a customer makes a
statement about a product or company or endorses a brand. This marketing technique
allows users to spread the word on the brand which creates exposure for the company.
Because of this, brands have become interested in exploring or using social media for
commercial benefit.

Brand heritage

Brands with heritage are not simply associated with antiquated organizations; rather,
they actively extol values and position themselves in relation to their heritage.[59] Brands
offer multiple benefits to organisations at various market levels, reflecting the entire
experiential process afforded to consumers.[60] In the case of voluntary organisations if
they can unlock their brand heritage and it will improve volunteer engagement, to the
extent that organisations 'with a long history, core values, positive track record, and use
of symbols possess, whether consciously or not, an inherent advantage in an increasingly
competitive landscape'.[59] In the context of tourism preconceived notions of brand
heritage stimulate the increased experience of existential authenticity, increasing
satisfaction with the visitor experience.[61] For consumer goods the communication of
continuity of the brand promise can increase perceived brand authenticity.

MBA 539 (PURCHASING AND STORE KEEPING)

Qus-1 Discuss the views of Gonzalez Benito related to supplier buyer

collaboration?
Ans- 1. Introduction In the food industry, products to be consumed must be free of any
kind of hazards for consumers' health. Traceability is the registering and tracking parts,
processes, and materials used in production (Cox et al, 2002). In this sense, traceability
becomes an indispensable process to prevent consumer’s hazards and a crucial
mechanism to assure quality in food firms. As a matter of fact, as of January 2005,
European Union authorities require that food firms ensure quality by tracing all 2.
Literature Review With the review of the literature, our intention has been twofold. On
the one hand, to find out those variables, previously studied, that influence the
relationships between buyers and suppliers in order to establish a general framework;
and on the other hand, to examine what has been studied regarding traceability as a
management tool. There are several examples of research on the variables that influence
the characteristics of the relationship between supplier-buyer in the supply chain
literature, as shown in the literature reviews carried out by Croom et al. (2000), and
Alfaro et al. (2002). For our purpose, we have selected several references, whose
objectives and methodological profiles are summarised in Table 1. These articles have
allowed us to identify 13 variables, which have being clustered into three factors, as
described in Figure 1. The factors are: supplier-specific, firm-specific, and competitive
environment. Insert Table 1 about here Insert Figure 1 about here From the supplier side,
González Benito et al. (2003) hypothesised that the larger the company, measured in
number of employees, the greater its implementation of supplier quality assurance
practices in the Spanish automobile industry. In terms of internationalisation, González
Benito et al. (2003) found that the degree of internationalisation was a significant
variable: those companies with a global presence were particularly concerned about
quality assurance. Ragatz et al. (1997) found that top management commitment was a
variable that positively influenced the success of supplier integration, and defined it as a
relationship structuring driver in a number of different 3 industries. Zigger and
Trienekens (1999) also emphasised the involvement of all management levels as a key
factor to determine successful partnerships in the food industry. With respect to strategy,
González-Benito et al. (2003) found that quality-oriented strategies eased the
development and success of buyer-supplier relationships. Finally, the characteristics of
supplies was found to be an important variable by Ziggers and Trienekens (1999), who
affirmed that the variability of supplies in the food sector, for instance seasonality or
biological variations, influenced buyer-supplier relationships. GonzálezBenito et al.
(2003) claimed that the technological complexity of supplies also influenced supply
relationships. We have found that some of the variables The above three factors
determine the relationships between buyers and suppliers. This relationship is
characterized through a number of different variables. Ragatz et al. (1997) for example,
included trust, confidence, shared education, and training. Benton and Maloni (2004)
added balance of power, commitment, co-operation, duration, attitude, degree of
communication, information, and the agreement on planning and goals. From these
variables, balance of power is also cited in Zigger and Trienekens (1999), GonzálezBenito
et al. (2003), Carter (2000) and De Toni and Nassimbeni (1995). All these variables are
encompassed in what we call in Figure 1 degree of co-ordination. In this paper, we want
to analyze those variables that affect the level of co-ordination, which is the dimension,
that in our point of view, best summarizes the buyer-supplier relationships, and the one
in which we are interested in this project. Even though there are similarities in the papers
we have reviewed, we have not found any two articles containing the same set of
variables. This is something that may be explained on the basis of the different aspects of
supply relationships studied, different sectors, and even different countries. We have
used the framework shown in Figure 1 as a reference to analyse the case studies. The
interest on traceability in the academic literature took off in the early nineties, even
though there are some examples of articles written in the mid-seventies. For instance,
Fisk and Chandran (1975) gave several reasons why traceability should be considered a
source of competitive advantages for firms. Most of the research done in traceability in
the last decade has being focused on the relevance of tracing systems as a quality tool as
well as a mechanism to handle information. 5 Cheng and Simmons (1994) analysed
traceability in manufacturing firms and concluded that at least two forms of traceability
should be considered: status traceability to provide knowledge of the current situation;
and performance traceability to compare achievements with plans. Jansen-Vullers et al.
(2003a) defined traceability in a passive and in an active sense. The former refers to
firms that only use traceability to provide visibility on item’s disposition and location at
all times. Traceability used in an active way implies the usage of tracking information to
optimise and control processes, something that must be seen as a tool to manage quality
information through the entire chain. Dimara and Skuras (2003) developed an empirical
study to determine if traceability, together with certification and geographic association,
influenced the perception of quality by consumers. They stressed that these variables
directly reduce the risks associated with the adoption of new products. Sohal (1997)
carried out a case study in which he described a number of factors, all of them critical to
the development and implementation of a traceability system in an automotive parts
manufacturer. The factors were basically related to top management understanding of
CIM (Computer Integrated Manufacturing), a multidisciplinary team approach,
relationship between software vendor and user, and training of employees. Regarding the
relationship between traceability and information, Lindkvist et al. (2002) reported on
traceability codes for making digital fingerprints of the products. Dióspatony et al (2000)
emphasized that one of the problems associated with traceability of raw materials was
the vast amount of information that must be handled. In this sense, the authors proposed
the use of several applications running on different database systems. 6 Jansen-Vullers et
al. (2003b) developed an approach to design information systems for traceability based
on graph models. To sum up, we have found that the majority of authors tend to consider
traceability as a mechanism that enhances competitiveness. We contend that there is still
a need to do more research in order to have a better understanding about the variables
that affect either positively or negatively the implementation of traceability. The above
statement allows us to say that our line of investigation may contribute to fill a relevant
gap. 3. Methodology For this project, we have used Case Study methodology. As described
by Yin (1984), Miles and Huberman (1994), and Voss et al. (2002), Case Study is a
research strategy that tries to understand the dynamics present within single settings
and is appropriated to study phenomena that take place in rich contexts where there are
always many variables to consider in comparison to the number of observations made.
This methodology typically combines data collection methods such as archives,
interviews, questionnaires and observations, and can be used to accomplish descriptions,
theory development and hypotheses testing. For this case study research, we have
followed a multi-stage process. In order to select the case studies, we first performed a
round of interviews with representatives of three industry associations, the chairman of
the government committee that supervises all industry regulations concerned with food
safety, the Director of Agricultural Department of National Technical Centre of Canned
Vegetables, 7 representatives of co-operatives, and managers of an organization in charge
of certifying quality systems in the vegetable industry. A questionnaire listing 92
vegetable firms was provided and the experts were asked to identify those firms that had
successfully implemented traceability. We considered as best practices those companies
that were selected by, at least, four of the seven experts. With this criterion, twelve firms
were preselected. The authors approached all of them and finally four were chosen
because of two reasons: the first one, the willingness of the top twelve ranked firms to
participate; and secondly, due to the fact that the four firms differ in size, type of
products, ownership, raw materials employed and mechanisms to implement traceability.
Therefore, we consider that the information provided by these firms positively reflects
most of the characteristics of the vegetable industry in Spain, something that was
confirmed by the experts that we consulted. Data collection took almost one year and a
half, from March 2002 to September 2003. Personal interviews were always performed
by two members of the team in order to compare notes. Team members had
complementary yet differing insights, something that added richness to the data.
Different perspectives increased the likelihood of capitalising on any novel insights found
in the data. Also, the convergence of information from multiple investigators enhanced
the confidence in the findings. We used a semi-structured questionnaire. Interviews
lasted an average of 1.5 hours. Data analysis of case research represents assessing
whether or not evidence within each case is internally valid and supportive of the pre-
specified propositions across cases. Therefore, data analysis is concerned with the issues
of internal validity and generalizability. For each question, evidence from multiple
sources was collected in order 8 to allow for triangulation and consequently to enhance
internal validity. In the analysis of the cross-case patterns, we followed Eisenhardt
(1989) in order to prevent premature and even false conclusions. For doing so, we
selected categories and dimensions, and then looked for within-group similarities
coupled with inter-group differences. Finally, we divided the data by data source. With all
this, as stated in Eisenhardt's article, we tried to go beyond initial impressions to derive
preliminary conclusions. The issue of generalizability is more complex. In this project, our
intention is basically to find out if those factors in the literature that having been found
influential in buyer-supplier relationships, also apply to the specific case of the vegetable
industry. Thus the generalizability issue was confronted through a multiple case study,
and an independent evaluation criterion has been employed to further examine results
and interpretations. Like any other methodology, case studies are subject to potential
researcher biases. In our case, we subjected findings to key individuals in the
organisations that participated in the project. We did this in order to prevent
misunderstandings that may have occurred and that would have affected the results.
Doing this, results gained a higher degree of validity. In our case, key informants in the
organisations (Miles and Huberman, 1984), confirmed the results and, thereby, provided
support for the analytical technique. 4. Case Analysis The vegetable industry in Spain is
mostly concentrated in two regions: Ebro Valley and Murcia (see Figure 2). Around 60%
of the Spanish vegetable firms are located in these two geographical areas. Our empirical
research was carried in the first region, the Ebro Valley. 9 Insert Figure 2 about here
There are three kinds of suppliers of raw materials: farmers, trading companies and co-
operatives of first degree. Trading companies act as intermediaries between the farmers
and transforming firms, even though it is common to find farmers that sell their products
to co-operatives created by them. Transforming firms may be public corporations, and
the so called co-operatives of second degree. The last ones are integrated by first degree
cooperatives associated to transform the vegetables they grow. Firms in this industry
produce and sell five kinds of final products: ƒ First gamma products: fresh vegetables
sold directly to wholesalers or retailers. ƒ Second gamma products: canned products
made with vegetables. ƒ Third gamma products: frozen vegetables. ƒ Fourth gamma
products: fresh vegetables that are cleaned, cut, mixed, and put into plastic bags. ƒ Fifth
gamma products: cooked and pre-cooked food whose main ingredients are vegetables.
Finally, distribution is done through wholesalers and retailers. Supply relationships in the
Spanish vegetable industry are described in Figure 3. Insert Figure 3 about here The
vegetable industry in this area has evolved over the last twenty years. Until the late
eighties, the industry was mainly composed of small, family run, companies. Managing
these firms was not complex and decisions were taken on the basis of the owner's
experience. The buyer-supplier relationship was based on contracts in which only the
price 10 and quantity of raw materials were specified. Chemical analysis was performed
by the firms on a statistical basis to test the quality of supplies. Due to the entrance of
Spain in the European Union, new food habits and the irruption of low-cost producers
from Asia and South America have changed the competitive conditions of the vegetable
industry. Some multinationals bought firms, a number of small companies merged, and
others disappeared. Traditional products, such as canned asparagus and peppers (second
gamma), were replaced by new ones, much of them of the fourth and fifth gamma. Large
multinational retailers appeared on scene with their enormous bargaining power. Finally,
the mad cow disease crisis had drastically increased consumers’ concern for food safety.
The above circumstances, together with new laws enacted by the European Union about
traceability have forced firms to face the necessity of controlling all the activities that
have an influence in the assurance of food safety. In order to assure the quality of raw
materials, firms must trace all activities, from sowing to delivering vegetables into the
transforming firm's warehouses. Our analysis is focused on the way in which traceability
is implemented in the supply side of vegetable industry. Figure 4 shows the different
processes that are encompassed in the supply stage of any vegetable firm, something that
gives an idea of the complexity of tracing raw materials and the amount of information
that must be managed. Insert Figure 4 about here Traceability implies three kinds of
flows between vegetable firms and its suppliers: first, requirements about the
characteristics of raw material; second, a physical flow of raw 11 materials from
suppliers to the firm; and finally, information in which suppliers send the data requested
that permits vegetable firms trace raw materials. As stated in the methodology, we finally
selected four firms that had successfully implemented traceability programs. The first
one produces frozen food (third gamma), and it is integrated into a European
multinational group; the second firm manufactures fourth gamma products; the third one
is a co-operative of second degree that is specialised in canned vegetables (second
gamma); and, finally, the fourth case is a family owned firm that produces frozen
vegetables (third gamma).
Qus-2. What are Consequences of Poor Storekeeping?

Ans- Consequences of Poor Storekeeping

The title of storekeeper applies to professionals in multiple fields of endeavor, including

the management of documents and records, the ordering and control of stocks and
materials, and the direction of activities in a retail store. In each of these professional
settings, failure to meet the requirements, objectives and challenges of the job can result
in poor outcomes for the person who holds the position as well as for the enterprise she
heads.

Recordkeeping Personnel

Storekeepers who manage document repositories must maintain orderly filing systems
that facilitate immediate retrieval of any item requested for access and review. Whether
these individuals work in government, industry, academia or small business, they must
administer the equipment necessary to house the materials they oversee, create effective
indexing and automation systems, comply with any rules, laws or regulations that govern
the privacy of sensitive information, and take steps to assure the safety of their stores
against catastrophic loss. Poor job performance can lead to sloppy document
management, lost or damaged records, costly demands for space without consideration of
off-site storage options, damaged files, and the disclosure of protected, private or
proprietary information to unauthorized parties.

Inventory Control

In industrial, commercial or educational settings, storekeepers manage inventories of

supplies, foodstuffs, books, raw materials, stationery and forms, tools and parts. Their
duties include monitoring inventory levels for compliance with expectations of goods on
hand, managing procurement, verifying the contents and condition of incoming
shipments, maintenance of storage areas, supervising and controlling hazardous
materials, and delivering products and materials to destinations or personnel within the
organization. Without proper store-keeping performance, a business may run out of
materials vital to manufacturing, sales or scholastic activities; lose stock to deterioration
or contamination; waste funds on merchandise that doesn't match ordering needs; and
fail to oversee the condition of incoming orders.

Retail Location
Some retail organizations use the term "storekeeper" to designate the manager of a sales
location. Such positions involve responsibility for maintaining the premises and its
contents, hiring personnel, scheduling working shifts, ordering stock, watching for
shoplifting or employee theft, promoting the store to the public, and managing cash and
credit payables and receivables. With poor store-keeping, the establishment can look
dirty and unkempt, and have lackluster profit performance connected to the loss of
merchandise and sales. Unstocked shelves, inept or rude salespeople, sloppy inventory
control, improperly processed sales transactions and unpaid vendor invoices can point to
inadequate store-keeping.

Other Considerations

Along with control of tangible items, storekeepers hold responsibility for personnel-
related decisions that affect the facilities they run, as well as their interaction with the
rest of a larger enterprise or the ownership of a smaller establishment. From the
selection and training of subordinates to those individuals' performance on the job, the
storekeeper must exert authority over scheduling, product knowledge, material
management and maintenance. The smaller the company or facility, the more a
storekeeper's failures to perform can have negative ripple effects throughout the rest of
the company, whether she supervises others' performance or steps in to do their jobs in
the event of their poor performance.

References (7)

U.S. Department of the Interior: Question 1: Why Records Management? Ten Business
Reasons

Info Entrepreneurs: Stock Control and Inventory

Food and Agriculture Organization of the United Nations: Prevention and Disposal of
Obsolete Pesticides

Management Study Guide: Roles and Responsibilities of a Store Manager

Santa Rosa Junior College: Storekeeper

National School District: Job Description: Buyer/Storekeeper

Cambridge International College: Storekeeping, Stock Control and Stores Management

Resources (1)
Reliability Of Storekeepers' Discretion on Stationery Management Decisions in Public
Service Organisations: Julius Aidoo-Buameh et al.

About the Author

Elizabeth Mott has been a writer since 1983. Mott has extensive experience writing
advertising copy for everything from kitchen appliances and financial services to
education and tourism. She holds a Bachelor of Arts and Master of Arts in English from
Indiana State University.

Photo Credits

James Woodson/Digital Vision/Getty Images

Qus -2. What are Consequences of Poor Storekeeping?

Ans- PROBLEMS OF STOREKEEPING- Many eCommerce business owners state the
biggest challenge in running their business is in inventory and stock management. While
many companies have a staggering amount of capital tied up in inventory, over 43% of
small companies noted in a recent survey they don’t track inventory or use manual
processes to do so.(1)

Finding the sweet spot in how much stock to have on hand should be the goal of any
successful and viable inventory management plan. While companies don’t want to
oversell any item across their webstores, they also don’t want to have unsold items
sitting in a warehouse for years. While these issues affect all retailers, for omnichannel
eCommerce retailers, inventory management can be especially time-consuming and
complicated.

eCommerce retailers often list their products in several marketplaces for greater reach,
including on Amazon and eBay. The cross-listing of products can make inventory
management tedious and error-prone. Without a centralized place to manage inventory
and orders, duplicate sales and the misallocation of funds are common.

Thankfully, retailers can easily avoid inventory mismanagement through preparation,

organization, and inventory management systems. To highlight how vital inventory
management and eCommerce platforms are in running an omnichannel retail store, we’ve
highlighted four real consequences of poor inventory control practices:
 Poor eCommerce UX Placing an order on a webstore to later find out the item is out of
stock can affect customer relationships. In today’s omnichannel environment, consumers
have options at every turn. People are much more likely to find a company that can fulfill
orders on time than return to your store after seeing an out of stock message. Letting
down customer can add up and has a long-term impact on your business. Overstocking
Ordering too much product results in higher costs, including storage and warehousing,
and losses due to obsolescence, shrinkage, and deterioration of products. Tactics such as
product discounts, sales, and bundling can help move ordered products in greater
quantities than necessary, but this often results in selling at a loss or at least reducing
revenue from the anticipated amount. Inability to forecast and track trends Without a
system in place to assist in forecasting demand, retail managers are often taking a shot in
the dark in how many units they’ll move for a certain product. To accurately forecast
demand, you’ll need prior sales to compare to and check past sales history. Inventory
management systems, like ChannelGrabber, can assist in going back monthly, quarterly,
and yearly to look at your entire sales history and determine which products consistently
sell and look at trends and patterns throughout the year. Lose out to competitors The
mismanagement of inventory can lead potential customers to leave for other more
organized eCommerce providers. A recent survey found that 70% of shoppers will go to a
competitor rather than wait for an item that is out-of-stock; so in order to retain
customers, a retailer must have stock on hand.

As discussed above, forecasting and warehouse management are critical aspects of any
successful inventory management plan, along with many other areas.

Which areas are you investing in most heavily to evolve your inventory management
practices? See the chart below for details on where retailers are investing money to
improve their inventory management practices.
In an increasingly competitive environment, it is vital that retailers control costs,
streamline operations, and have accurate, real-time data both for business operations,
like forecasting, and to provide a satisfying omnichannel customer experience. As the
above graph suggests, more and more retailers are investing in these areas to evolve their
inventory management practices and keep up with the changing landscape.

A comprehensive, multichannel inventory management solution, like ChannelGrabber,

can help eCommerce retailers with all aspects of inventory management. ChannelGrabber
provides a fully-integrated system for listing stock and managing it across all outlets,
including online marketplaces, and brick-and-mortar stores and warehouses. It also
provides tools for forecasting, stock synchronization, and data analytics to help your
company streamline, and become more efficient and effective.

Managing a company’s inventory is such an important part of most businesses. Without a

proper management system in place, long-term profits can be affected, as more
inefficiencies are likely to occur.

Here are a few of the most common inefficiencies that are caused by improper
inventory management:
- Inaccurate quantities
- Inaccurate identification of items
- Inability to fulfill orders efficiently
- Overstocking (excess inventory) or lack of inventory
- Improper use of spreadsheets to track inventory, which leads to inaccuracies

Unfortunately, there are always negative consequences to improper management. In

the long run, all of the above inefficiencies can have a distressing effect on the company’s
overall profitability. Other effects include:

- Increased expenditures caused by errors/inaccuracies

- Sales & Customer Service suffers due to delays in inventory processes or lack of
inventory stock

The best way to ensure none of these negative effects take place is to look into a fully
integrated warehouse management system, that will be able to efficiently track inventory
and integrate all data into the company’s management ERP database. Look for a WMS
(Warehouse Management System) capable of:

Providing real-time information to determine inventory status and other warehouse

activities

Remotely scanning bar-coded items and tracking shipments

Tracking several warehouses

Tracking the output of your employees for efficiency

Tracking your merchandise by a variety of factors (SKU, location, lot number)

Managing the locations and receiving elements of merchandise

Including an accounting component of inventory

Including an Internet-enabled dashboard from which to control and assess all aspects of
multiple operations

Bilingual dashboard

Easy integration with company’s ERP system

Mobility, efficiency and ease-of-access are what many business executives look for when
selecting the right WMS. Of course, they are all on the hunt to:
Reduce operating expenditures

Improve customer relationships & service

Reduce unnecessary costs

Shorten fulfillment lead times

Streamline inventory management

Eliminate manual data entry (data accuracy increases)

Track inventory in real-time

Increase transitory speed of inventory

Increase employee productivity

Increase profits in the long-term

Once they’ve figured out the root of their problems and found the best warehouse
management system for their business, they can easily and quickly fulfill their goals and
effortlessly manage their inventory. Don’t let improper inventory management affect
your bottom line – make the necessary improvements today.

1. Provides the proper place:

Under modern store keeping, each item of the material is kept at proper place so that at
the time of need it may be obtained easily. If any material is not kept at proper place and
is not available when required then the advantages of store keeping are not fully derived.

2. Leads to minimum inventory investment:

It avoids the material in stores and thus enables the company to have more profitable use
of working capital by way of minimum inventory of investment.

3. Leads to easy identification and specification of materials:

Store keeping will make easy identification and specifications of materials in store. It will
also help in using the oldest materials first on the basis of first in first out. It provides for
proper storage space, equipment and scientific location of the store rooms.

4. Materials estimation in anticipation:

Store keeping is a link between purchasing and production. The efficient and economical
receiving’s, handling, and issuing of store items, will save the investment in inventory and
further it will facilitate ordering of needed materials. So, the choice of right and at right
place and at right time can be made for future needs of an organisation.

5. Protection of material:

By effective store keeping process, materials stored are protected against damages,
deterioration, theft, pilferage, unauthorised removal etc.

6. Helps to minimise accident:

The proper system of store keeping the materials when place in different racks, bins and
shelves properly (and not in a haphazard manner) will help in minimising the cases of
accidents.

7. Quality & Cost:

Modern age is the age of specialisation. Qualitative goods are to be produced at lesser and
lesser cost. Poor control and bad store keeping may result in the issuance of old, Semi-
obsolescent materials to the factory which would create the problem of product quality.
This will also create marketing problems for the company and in extreme case, may affect
its reputation.

8. Enables the continuous production:

Stoppage in manufacturing operations is minimised by ensuring continuous flow of
materials needed for the different jobs. Thus, production schedules are not dislocated and
therefore promised delivery dates are maintained. Stock position is easily known which
enables timely replenishment of stock of the needed items once the stock reaches the
minimum level.

9. Reduces mismanagement:

A regular analysis will be possible in order to control losses, wastages, obsolescence and
pilferage and have updated information on material requirements. The good system of
store keeping will be helpful in measuring, counting and weighing the store items.

10. Other benefits:

Store keeping also make easy identification of materials in a store due to application of
classification and codification system with the result there is no problem in the process of
issuing the material to the concerned department.

Warehouse management is commonly associated with six basic tenets: accuracy, cost
control, efficiency, cleanliness, safety and security, but the underlying processes are
complex and dynamic, presenting major problems for warehouse managers across
industries. Distributors have to deal with trade-offs due to resource limitations, leading
to under performance in key functional areas.

Warehouse managers face the challenge of maximizing performance while balancing

trade-offs under uncertain conditions. This article examines the top five warehouse
management problems and their solutions.

Redundant Processes

Traditionally, warehouse employees have been likely to handle a product several times
due to the nature of the warehousing process. This tendency lingers on in current
practices. A notable redundant process in warehouses is where warehouse workers pass
the same ticket through multiple hands.
While necessary in some instances, such redundant procedures are time-consuming and
increase the cost of labor. Using barcode technology streamlines the warehousing
process, removing redundant processes while maximizing resource utilization.
Automated systems are evolving fast, a trend that compels warehouse managers to
maintain up-to-date systems to achieve the desired results.

Poor Facility Layout

Efficient use of space is a critical success factor in warehousing. Inadequate storage space
and inefficient use of available storage are common problems in warehouses with poor
facility layout. Poorly configured warehouses are a major cause for worry for managers
because of the inherent potential for negative impacts on profits.

The optimal layout factors both the floor space and the vertical space available for use. In
addition to maximizing the use of space, a good layout maximizes the use of equipment
and labor, accessibility to all items and the security of all items. Using forklifts that reach
the roof of the warehouse allows for a configuration that maximizes both the horizontal
and vertical space.

The complementary solution is to ensure that the highest-selling inventory is easily

accessible by placing it at the most accessible point.

Seasonality in Demand

Fluctuations in demand pose serious challenges for warehouse managers. The dip in sales
due to the recent global financial crisis resulted in major cost problems for warehouses
due to increased inventory levels. Although it did not affect all industries alike, the
problem highlights the challenge of fluctuations in demand due to forces outside the
control of the warehouse.

Managing seasonality in demand requires timely and accurate information about

manufacturing, retailing and the industry. Information gaps between the warehouse and
other relevant entities or the industry limit the ability of the distributor to monitor and
respond to changes in demand effectively. It is necessary for warehouses to use timely
and accurate information in planning and forecasting demand as well as in providing
supply chain visibility.
Rearranging the products to match changes in demand helps minimize the negative
impacts of seasonal demand. Such a rearrangement involves correct positioning of the
items by placing the products with high demand during the current season at the front of
the picking aisle and at the correct height.

Dealing with seasonality in demand, however, goes beyond just layout and picking. The
problem also requires proper management of transportation networks and strategic
sourcing of transportation services. These long-term solutions build a lasting capability
with strategic value for the distributor.

High Labor Costs

Warehouse managers strive to increase productivity while minimizing labor costs in a

labor-intensive environment. Inbound Logistics estimates that labor constitutes about
65% of the operating budgets of most warehouses. A typical warehouse uses expensive
equipment and employs a large labor force, presenting a challenge that is for the most
part unique to warehousing operations.

The staff ranges from cleaners and packers to managers and administrative personnel.
Attempts to reduce the cost of labor should take into consideration the impacts of the
move on other costs. The two major strategies for addressing labor-related problems
include maximizing available labor and replacing labor with automated systems.

>Action item: use our ROI calculator to see how you can lower labor costs<

Developing the right mix of expertise through workforce planning helps managers hone
the skills necessary for successful labor force practices. A combination of the right skills
and motivation, through practices such as excellent working conditions, training and
flexible hours, enhances employee productivity and the performance of the warehouse.

Inaccurate Inventory

Accuracy and efficiency in handling inventory in warehousing go hand in hand.

Inaccurate inventory causes problems such as maintaining improper stock levels and
buildups of obsolete inventory. Picking problems also arise when pickers rely on
inaccurate information, leading to inefficient processes. Other costs of inaccurate stock
information include increased expenses, lost revenue and low productivity. Automation is
a key factor in solving accuracy-related problems.
Automated systems offer real-time, accurate information about stock levels and
composition. The technology employed in managing inventory in a warehouse is critical
to success because the value of the automated system is just as good as the quality of the
system itself. A low-quality system retains some of the risks associated with inaccurate
inventory. A careful and informed selection process reduces the risk of procuring an
automation system that does not meet the needs of the warehouse.

Warehouses face increasingly dynamic environments as remote events in the global

supply chain become more relevant to local business environments. The desirable
approach when dealing with the challenges that arise due to new developments is to use
inexpensive solutions that offer sustainable best practices. Warehouse managers should
monitor and track changes in the business environment and adopt responsive solutions.

Common warehouse problems such as redundant processes, poor facility layout,

seasonality in demand, high labor costs and inaccurate inventory information require
robust systems that keep managers informed about changes and gaps that require
attention.

Q-3. Define supplier development. What are the Importance of supplier development.

Ans- It is defined as an activity which is carried out for improving the supplier’s ability
and performance, by the customer firm, so as to meet the supply needs of the customer
(Krause and Wagner, 2008).

It is also defined as the mutual effort by customer and supplier base, to improve the
supplier’s capabilities or performance in the areas of cost, delivery, technology, quality,
time, management, environmental accountability and financial feasibility (Krause and
Handfield, n.d.).

“Supplier development is the process of working with certain suppliers on a one-to-one

basis to improve their performance for the benefit of the buying organization” (CIPS,
n.d.).

Thus, it is a necessary approach which is accepted by various companies so as to improve

their supply chain. It helps in improving the capacity of the company, meeting the needs
in quality, cost and delivery and to recognize the way of reducing waste.

Supplier Development

Supplier Involvement
NPD Performance

Company

Performance

From the figure we can say that if we involve suppliers in the initial stages of
development then it would increase the NPD performance and hence would increase the
company’s performance (Krause and Wagner, 2008)..

1.1) Concepts of Supplier development

It is fairly a new concept, which is concerned primarily with the product development. As
traditionally a product takes lot of time to develop but with this concept, the same thing
can be done in quicker time thereby reducing the cost of production, improving
performance and resolving the quality issues.

According to (CIPS, n.d.)

An organisation should establish its several needs and objectives before implementing
the supplier development.

Supplier’s assessment should be done on the basis of its value and potential, not on the
basis of supplier’s rankings.

The Supplier development approach should be made based on the situation and is
different for every situation the company faces.

The suppliers should be encouraged in developing the relationship with their customers.

It’s the buyer and the suppliers who really have to decide about the time of ending the
development project.

A supplier Development may involve in redesigning the corporate strategy for developing
the supplier’s business so that it develops a long term relationship with its buyer and
there should be a smooth decision making process in order to achieve their objectives.
There are several prerequisites for it, like skills in the areas of technical purchasing,
project management and contract management. Also there is a need of excellent
interpersonal skills, so as to develop an effective communication between the supplier
and the customer base and also an ability to appreciate each other for the job done.

The Supplier Selection is done on the basis of improvement opportunity, supplier co-
operation, cost, complexity and duration.

Also as per supplier development, the suppliers are categorized in 3 ways

Being developed

Possibility for development

Not being worth of development

To encourage the suppliers for their work, some rewards in the form of incentives should
be given.

1.2) Research Findings

According to (Krause and Wagner, 2008) different companies have different approaches
towards New Product Development (NPD). Supplier evaluation plays an important role in
NPD as it helps in evaluating risks in terms of performance, timeline and trust.

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For measuring the Supplier evaluation, a grid is formed, representing complexity of

suppliers in vertical axis and horizontal axis represents the complexity in the system.

Based on the assessments, it is decided how to assign resources for supplier evaluations.

1.2.1) Supplier Development model (Krause and Handfield, n.d.)

This model helps the companies to figure out the way of doing Supplier Development. It
gives emphasis on “How to do the supplier development.”

There are 4 major stages in the development of a universally aligned supplier network.
Stage 1: To identify, rationalize and assess the supplier base

Step 1: It involves the recognition of a need, which is aligned with the requirements of the
end-user, improvement in the supplier’s performance and NPD.

Step 2: It involves the search for spirited supplier who can offer high performance and
delivery.

Step 3: There is an establishment of performance measurement system to measure the

supplier’s performance over the period of time.

Step 4: It deals with the optimization of supply base, involving an elimination of the
suppliers who are incapable of meeting the needs of the company.

Stage 2: It deals with solving the issues related with quality, delivery and cost.

Step 5: After successful optimization of the suppliers, a performance matrix is created

based on the Quality, Cost, Delivery, Design and Management. Then a team of specialists
makes a detailed risk assessment of the suppliers by noting down their strengths and
weakness.

Step 6: It involves several remedial actions to remove the supplier’s deficiencies, which
are identified from the performance matrix.

Stage 3: It deals with Proactive development of the suppliers

Step 7: It precedes the supplier’s proactive development by establishing an open dialog

with the top management of the supplier.

Step 8: It includes several improvement activities like process mapping, training,

maintenance, process mapping and joint projects, which are balanced by several award
programs, thereby improving the business performance.

Step 9: It provides continuous improvement in the company’s philosophy by encouraging

their suppliers to maintain their momentum for improvement. This is done by looking
into their performance feedback, which help the suppliers to start their own
improvement plans.

Stage 4: This stage involves integrative development, which is to globally align the
supplier network.
Step 10: It includes the addition of suppliers into the supply chain network of the
purchasing organization. It enables the suppliers to provide input into the NPD and
services through sharing of technology.

Step 11: It includes the development of the second tier suppliers i.e. the suppliers to the
first tier suppliers.

Step 12: It establishes the integration of the entire supply chain network.

From the above key findings we can draw out 3 results from it

Improvements in performance and capabilities of the supplier

Improvements in Buyer supplier relationship

Improvements in managing the suppliers by the buying organisation

1.3) Case Examples

Nissan’s approach (Southey, 2009)

Nissan has formed its suppler development on the basis of continuous improvement over
a long term with the same suppliers as they have mutual trust with them.

It involves its suppliers in the initial stages of design process so that it would help them in
achieving world class standards and strategic goals of being a successful company.

It has a supplier development team whose job is to evaluate the supplier’s performance
on the basis of Quality, Cost, Delivery, Development and Management (QCDDM). They
monitor the supplier’s performance against their own standards and then select the best
out of them and address the weak performers to improve their productivity and reduce
defects.

There were several key factors like their management of continuous improvement, good
bidirectional communication, open relationship and involving staff at all levels.

2) Supplier Development at Honda (Japanese)

2.1) Infrastructure and Management

As per (Sako, 2003), there are 3 basic principles which are undertaken by Honda

Free competition: buying cheap and good products from any part of the world
Supplier’s managerial self confidence: achieving the balance between needs of the Honda
as well as the customer base.

Equal partnership: avoiding the sponsorship that characterize the relationship

It places purchasing philosophy in the background for its Supplier development activity.

By 1973, Honda developed linkage with group of suppliers by shareholding or by long

term linkages in order to deal with 16 fold increase in its car production. But with no
growth projections in the industry, Honda realized the necessity to cut the cost of the
materials so as to survive in the market.

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This extended to the inspection of capital equipment and production process. So, a group
of 8 supplier companies were identified by a team of 7 engineers from Honda, this
activity was known as Soft Best Position (SBP). Then they started changing the layout and
maintaining the shop floor, so as to make it compete globally. So there was a need to work
together to increase their performance by giving priority to quality or profits, as giving
instructions to the suppliers could not work. This made Honda to form a Kaizen team
containing suppliers and the engineers.

Honda’s activity of supplier development is BP, which means Best Process, Best Profit,
and best Practice and so on. There are 2 types of BP which Honda undertakes

Soft BP: In this, changes are made without any capital investment, which are made after
doing the first job. It results in small improvements (kaizen).

Hard BP: It is achieved through new capital investments as it starts from pre-production
stages, about 2 years before the actual start of the first task. It delivers higher jumps in
performance improvement (Kaikaku).

So HBP became very popular and an ultimate weapon to avoid productivity bottlenecks
and the bringing of special robots has helped Honda in increasing its line speed.
Three SSP suppliers work under 1 engineer who provides guidance to these 3 firms. A
Large Project Leader (LPL) and a Project Leader (PL) is assigned to every SSP supplier,
who sets their performance improvement targets and monitor their progress as well.

According to (Maloney, 2000), there were several benefits from the Honda Trading
supply chain

Quality assurance

Availability controlling

Guaranteed delivery

Consistent material pricing

Based on the manufacturing projections, the purchase orders are issued to the suppliers
and then they determine the materials that are needed and send the request to the
Trading department of Honda. Then they issues purchase orders for the raw materials,
which are received by mills, who delivers plastics, aluminium and steel to the respective
suppliers. After the manufacturing, the parts are delivered to the assembly plants of
Honda.

Mr. Greg Norval, the senior manager of Honda trading, said, “We give the suppliers annual
pricing for their raw materials, that way we can fix the cost for parts that will go into each
model-year car. It’s a win-win for parts makers and for Honda” (Malony, 2000).

2.2) Kaizen at Honda

It’s a Japanese word for continuous improvement. It helps in providing the employees a
channel so as to contribute in the development of the company.

Honda claimed Kaizen to be voluntary and paid more interest on suggestion systems with
higher potential mobility (Brunet and New, 2003).

The kaizen activity of continuous improvement was also performed on a chosen model
line and was concentrated on forming groups with other suppliers in the same division, in
order to take some actions in bringing improvements to the model lines at one of the
suppliers and applying the achievements got from the model line into other production
lines in the company of the supplier (Sako, 2003).
In order to prioritize more incentives, Honda was reducing seniority amongst employees
and providing them retirement benefits and healthcare and also raising their salaries so
as to make them feel confident. Thus, it would provide high levels of motivation beyond
any direct rewards for Kaizen activities (Brunet and New, 2003).

2.3) Honda’s Philosophy

Entrepreneurship and Innovation are the strong factors till date and so it has a “go it
alone mentality”.

On seeing its current line up, there is a reflection of creativity and youthfulness which
comes out from the company (Upwards, 2004).

2.4) Strategy

Global Flexifactory

As per (Mair, 1994), Honda is the leading master in developing flexifactories, which plays
a significant role in its corporate strategy both regionally and globally. Honda is largely
known for its marketing and manufacturing strategy.

Flexifactory means the act of a factory in making changes in its products rapidly by
putting low cost and with great ease.

Characteristics of Flexifactories

It’s an ability of making more than 1 model simultaneously in a factory

Frequent introduction of new models

Flexibility in employees to increase fluidity

Geographical flexibility is attained through Planning

Operated as a system to stabilize their capacities

Due to the network of flexifactories, Honda is considered as a Flexible company. It plays

an important role in organizing the global manufacturing operations of the company.
(Mair, 1994)

2.5) Organizational Structure

According to (Mair, 1998), Honda is considered as a successful learning organization. It is
also categorized by Innovation, decentralization of responsibility and individualism.
According to Ohmae, there is no organizational chart in Honda as known so far except the
fact of its employing of project teams frequently, who are innovative.

The reason for having a flat hierarchy is the employment of young research engineers as
it gives a feeling of high independence. It was all done by Mr. Honda with the passion and
desire to succeed, that made it into a multinational Giant. There was a strict channel in
which the workers operate, which provided an equality and democracy so as to function
efficiently and effectively.

Several production equipments were designed by the workers themselves like

automating the entire body panel and assemblies without any supervision (Mair, 1998).

Honda is able to produce high quality products in lower cost, providing superior
customer value (Leong and Ward, 1995).

2.6) Relational capabilities

Honda includes its suppliers in the early stages of product design to ensure better quality,
short lead times and lower cost from them (Offodile and Arrington,1992).

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A commitment is required from both the buyer and supplier towards the collaborative
work that they do together. Honda does this by sending its executives to the presidential
level showing them the way, the suppliers does their work and expect their involvement
when any need arises (Vereecke and Muylle, 2006).

Honda in West, mostly gives emphasis to innovation and individual

proposals (Naylor, 2000). In US it does informal meetings and formal

briefings with their suppliers so as develop trust among them (Cousins,

et. al., 2008).

The Honda Manufacturing in UK (HUM), is the hub of its operations in the largest market
of the world (Mair, 1998). Due to HUM, Rover developed a partnership with Honda,
which played an important role in its entry into European market.

There was an introduction of small batch production system in HUM, which was different
from one piece flow system in Japan. They assign responsibilities to all the employees to
work cooperatively in a team within the production system (Mair, 1998).

3) Supplier development at GM (Western)

3.1) Management and Organizational Capabilities

GM is the firm which produces around 60-70% of the components internally and that’s
the reason it is said as a highly vertically integrated firm, as they use arm’s length
relationship instead of partnership. One of the GM’s executive said “We don’t know what
a supplier partnership gets you. It just locks you in. We don’t even like using the word
partner” (Dyer, 2000; pp: 25). But this approach was highly outdated leading to several
losses in their share value.

GM also uses almost 10 times the number of suppliers as compared to Toyota, which
often compensate with the benefits and also reduces the capability of suppliers to attain
the desired level of economies (Dyer, 2000).

As per the inventory level, GM has about 4 times of supplier inventories as compared to
Toyota (Dyer, 2000; pp: 44).

GM is well known for its slowest product development cycle times yet it keeps its
information on its lead time to be a secret (Dyer, 2000; Pg: 134).

GM always attempted to keep its input price to be low by preserving size and bargaining
power over suppliers.

GM always places new set of procurement rules and policies whenever it introduces new
management (Dyer, 2000; Pg:99).

The suppliers of GM deliver their products only 1.5 times a day. Also, it has only 0.2 guest
engineer for each supplier.

According to (Teresko, 2000), GM’s vice president, Ralph Szygenda wanted GM to be

transformed into digital enterprise, so as to broaden and transform the strategic
alternative for GM.
Thus GM’s management supported the strategic sight of IT, which made them to increase
their efficiency and reduce the cost.

Standardization was introduced with only 1 CAD system which improved the product
development cycles as it got reduced to 18 months, which was used to be 4 years in the
past, producing about $1 Billion savings. So there was a chance in fulfilment of the vehicle
order from 76 days to 40 days.

Also they cleared all the clutters before introducing a $1.7 billion on internet based
applications, which made them to spend about $600 million less on IT.

So, more than 200 Information officer and business specialists were recruited for product
development, production, marketing and supply chain to provide solutions.

To meet the customer’s requirement, they developed a website GMBuyPower.com for

consumers to buy cars online.

Thus GM was able to integrate technology with the business which was all due to the
successful hiring of the people. Due to this GM was again labelled as “Big and fast” from
“Slow and Bureaucratic.”

3.2) Ineffective Partnerships

GM also involved in partnerships with several research institutions so as to enhance its

competitiveness by bringing new ideas and knowledge. Also GM’s R&D management
developed a model to understand partnership functioning (Sengir et al., 2004).

GM offers narrow statements concerning partnership behaviour to assure partnership

success. Joint work in GM supports the partners associated with it despite of the
problems during the partnership cycle.

There is a need to build trust in undergoing any sort of partnership as it’s the most
essential thing for it to be sustained (Sengir et al., 2004).

3.3) Conflicts

There were several conflicts regarding the technical directions of what needs

to be achieved and what’s not, which were faced by researchers. Also, due to

cultural differences between them which arose from either individual

interactions or from hierarchy structure. This created a risk in the entire

structure of the relationship. There was a difference in opinions of

both Research University and the GM researchers which lead to

increase in conflicts. This resulted in low communication frequency.

Thus we can say that they reported good cooperation while partnership cooperation was
low (Sengir et al., 2004).

3.4) Unstable Network

Both GM as well as its suppliers, kept their innovations proprietary. GM employed so

many suppliers for the reason that was told by an executive of GM “Our purchasing
activities are huge and extensive. Most activities have been geared to making sure we
don’t get stung by an unscrupulous supplier out there.” (Dyer, 2000; Pg: 96).

Also GM didn’t develop a stable supply network, which resulted in the overlapping
knowledge bases, dense interactions and no sharing of information and knowledge with
their suppliers. This made the suppliers to refuse engaging into these activities which
costs a lot, without giving any actual benefit (Singh and Dyer, 1998).

Due to the various hierarchies, GM’s internal supply divisions were unable to make the
decisions on the investment and the capital spending, independently as it needs to be
authorized at the corporate level. Thus, they felt cash constrained and so less than 1%
was spent on R&D (Dyer, 2000; Pg: 56).

3.5) High labour cost

GM produces about 35% of its parts internally, including labour cost of

around 15%. This makes an overall loss to GM of about 5% (Dyer, 2000;

Pg:56).

Thus, managing large number of suppliers could lead to increase in the

perceived transaction costs, which could be reduced on decreasing the

number of suppliers. So GM is also reducing the number of suppliers so as to

get rid of its costly engineers and accountants to track the large number of

suppliers. This made GM to reduce cost by encouraging supplier competition

which can make GM to save around $4 billion (Kim and Mitchell, 1999).
3.6) Knowledge Sharing

GM does the knowledge sharing with other suppliers for only 6 days (Dyer, 2000; Pg:79).

“A GM manager stated that, on average, 100 to 200 improvement ideas are generated by
the development team during a typical workshop brainstorming session” (Hartley and
Choi, 1996).

If the supplier wants to make any major changes in the current running processes, then
they have to take the permission from the customer, which was difficult to obtain and
was time consuming and often requires significant downtime as well to make any
changes. So they generally felt constrained, working in that kind of environment (Dyer,
2000; Pg: 83).

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GM, during its face to face with the suppliers, spends about 47% of the time in non
productive activities because of their act of bidding frequently about the price
negotiations, which takes more time to solve and about 53% additional time in
productive activities (Dyer, 2000; Pg:94).

3.7) Relational Capability

GM interacts with the suppliers only formally and gives them the instructions about what
needs to be done, and there was low level of communication between the two.

GM allows their suppliers to deliver large number of inventories and for this, they often
get dramatic fluctuations in their forecasts, during the last 3 days before production to
about 20% (Dyer, 2000; Pg:83).

GM usually sends a team of consultants called PICOS, to its suppliers in order to help
them in increasing their productivity. (Dyer, 2000; Pg:97).

Due to the frequent rotating of the large number of suppliers, none of the suppliers were
able to achieve crucial cost benefits, thus destroying their experience curves (Dyer, 2000;
Pg 141).
Also GM’s suppliers declined to make any long term assets in capital equipment.

In 2000, it strategically got associated with Fiat and established procurement, based on
the equity swap by undertaking of 50% assets for purchasing of around $32 Billion per
annum. Their aim was to improve the quality standard by lowering the cost (Jung and
Lee, 2006).

GM is also less trustworthy organization in terms of its transaction costs, which are
higher than that of Toyota. So (Dyer, 2000; Pg: 96) says that Trust is the most important
factor, which gives lower costs of transaction to the buyer-supplier relationship

4) Difference between Japanese and western Approach

The association between the suppliers could be either co-operative or competitive

(Southey, 2009).

The Japanese approach (Honda) follows the cooperative policies which involves stable
and long term relationships with their suppliers leading to mutual dependence. Also the
responsibilities are shared in a cross functional way in every department.

Western approach (GM) follows competitive policies, which gives the benefit to some
alternative supplier who is always available and hence reduces the dependence on a
single supplier so it is multi sourced. It interacts with its suppliers through formal
programs and acknowledges their efforts by giving incentives.

In western approach mostly the negotiations are win-lose because of their competitive
behaviour. While in Japanese, the negotiations are win-win because of their co-operative
behaviour.

The Japanese develop small and trustworthy supplier base and gives them a chance to
grow and turn into world class. Western approach deals with large number of unreliable
suppliers as they believe in alternatives.

Western people have their focus onto meeting the required standards from the supplier
and often reject any part which is defected while Japanese do the reverse of it as they
rectify their problems first so that it is prevented in future.

Western approach prefers products made in lower cost while Japanese approach has
more focus towards higher quality of the product.
From the above analysis, I can say that Japanese approach delivers better results as
compared to the Western approach as it’s more trustworthy, involves high level of Buyer-
Supplier communication and delivers positive results than that of Western approach
which is too complex to handle.

5) Supplier’s perspective

Suppliers always look out for different ways of increasing their business and profit
margins. According to suppliers, GM was the least trusted organization. Also its
procurement cost was significantly higher (twice) than that of other manufacturers like
Toyota.

The suppliers also do not provide them new designs because of their habit of transferring
the copies of it to their competitors in order to get it done for lower cost. So the suppliers
have no trust in GM at all (Dyer, 2000; Pg:97).

The suppliers didn’t want the PICOS team of GM to inspect the problems as the team was
more concerned with negotiating about the price decrement rather than finding and
solving the problems. Also they were unwilling to accept any support from them, due to
the lack of trust on GM (Dyer, 2000; Pg:97). The lack of trust is also due to the frequent
changes in its management rules and policies and also due to its competitive bidding,
which makes the suppliers feel like temporary members, not an important member of the
value-chain(Dyer, 2000; Pg:101). So, there is always a fear of getting thrown out during
the model change (Dyer, 2000; Pg:103).

As per suppliers’ perspective, GM’s Philosophy is its own profit, its strategy is Vertical
Integration and arm’s length relation and its approach is competitive, which was not liked
by suppliers at all.

On the other hand, if we put Honda and Toyota then the story is quite different as their
philosophy is to develop long term relations and trust with the suppliers and the strategy
they follow is the partnership principle with a Japanese approach of early involvement of
the supplier and knowledge sharing. This attitude of involving directly with supplier
gives the supplier a feeling of trust with the company and willingness to work and so the
suppliers ranked them as their preferred customers. This can be seen by the Figure 1.

Supplier

Chrysler

GM
Ford

Nissan

Honda

Toyota

Willing to Share New Tech w/o PO

2.2

2.3

2.5

2.9

3.3

3.5

Willingness to Invest in New Tech

2.7

2.8

3.0

3.3

3.9

4.0

Trust of OEM

2.2

2.3

2.6

2.9

3.7
3.7

Preferred Customer

2.7

2.8

3.3

3.7

4.9

4.8

Figure 1: 2008 Working Relations Index Data (Hedge, 2008)

And from Figure 2, we can see that Toyota and Honda have made their concern on the
profit margins of its suppliers and also gave them an ability to recover their material
costs and allocate them charge-backs.

Supplier Perception

Chrysler

GM

Ford

Nissan

Honda

Toyota

Fair ROI

2.4

2.5

2.6

2.9

3.4
3.3

Ability to Make Profit

1.3

1.4

1.6

2.0

2.9

2.9

Ability to Recover Material Cost

1.6

1.7

2.1

2.3

2.9

2.8

Fairness in Charge Backs

2.4

2.3

2.6

2.5

3.2

3.0

Figure 2: 2008 Working Relations Index Data

According to the working relation index, the suppliers gave the rankings to various
companies in terms of their:

Degree of trust

Helping the suppliers in reducing cost and improving quality

OEM’s openness and honest communication

Managing the profit of the Supplier

Providing timely information to the suppliers

Suppliers’ involvement in product development process

According to this, suppliers ranked Toyota and Honda to be the most preferred ones and
GM and Chrysler to be the least trusty organizations, in terms of supplier working
relations (Hedge, 2008)

So the suppliers’ prefer the Japanese OEM’s to be far more reliable and preferable over
the western OEM’s.

6) Success and failure

Success of Honda

Success is defined as an act of achieving the desired results or outcomes (Thorne, 2000).

The founder of Honda, Soichiro Honda expresses that it is the failure only through which
success is achieved. He also quoted that Success is equivalent to 99% failure.

He entered into the market with a small engine attached to a bi-cycle, making it a
motorcycle which proved to be a great success. Then he started making sports cars
frequently faster than Toyota.

Its success in the world due to its ability to set up an efficient distribution network for all
its products and this is enhanced by effective IT supported controlling and
communicating systems. For this it is well-known as an expert in its technology and
designing of the engines (Thompson and Richardson, 1995).

Honda introduced its new products at a fast rate and defeated Yamaha by maintaining
and reinforcing its lead (Turpin, 1992).
Honda’s empire is extended over to 120 manufacturing facilities and in 29 countries and
has developed its own strategies of managing the organisation which makes them feel
proud and refreshing. (Upwards, 2004).

Today, Honda is the fifth-largest car manufacturer in the world, and is in its own league in
manufacturing business (Automotive, 2008).

Failures of Honda

The collaboration of Honda-Rover ended in 1987, due to the sheer gap with which both
the companies were running and also due to quality control issues (Oliver and Carver,
2008).
The first hybrid-electric car of the world, made by Honda, failed either because of its
conventional look or due to its low Abstract This paper presents a case study employing
both qualitative and quantitative study of role of supplier development in procurement
effectiveness from the buyer perspective. Specifically, it seeks to investigate the role of
supplier development in procurement effectiveness in terms of first time quality, delivery
and order cycle time, cost and technology. This paper examines the linkages between
supplier understanding of goals, presence of buyer coordinator at the suppliers’ location,
supplier participation and information exchange and the effectiveness of procurement
function at the National Cereal and Produce Board. It revealed that, information
exchange, supplier participation, supplier understanding of the buyer’s goals and buyer
coordinator presence influenced procurement effectiveness. However the extent of
influence varied among the variables. Both supplier’s participation and buyer
coordinator’s presence influenced procurement effectiveness greatly and information
exchange and suppliers understanding of goal influenced procurement effectiveness to a
lesser extent. Regression analysis among the variables indicated that supplier
participation was the most significant variable, followed by buyer coordinator presence,
information exchange and understanding of goals. It was therefore recommended that, in
order to enhance the procurement effectiveness, enhanced participation of the supplier
in development of specifications be emphasized and implemented, buyer constantly
monitor the process execution of contract terms from first time to eradicate any quality
and delay problems as early as possible. There is also need to enhance proper
communication mechanisms probably through application of information communication
and technology. Other supplier development methods that may enhance procurement
effectiveness are training, promise of rewards, creation of competition, ethics and
integrity which can also form part of future research. Key words Supplier development,
Procurement effectiveness, National Cereal and Produce Board, Procurement function
Introduction Traditionally, the role of supplier in contributing to the procurement
performance of the buyer has never been accorded strategic importance. This has been
due to the simple reason that the inter-organizational linkages between the buyers and
sellers has been of arm’s length and often adversarial with individual firms in the supply
chain seeking to achieve cost reduction, profitability and growth at the expense of each
other ( Lyson and Farrington, 2006). However, researchers, such as Latifah Che Amad et
al (2008), states that successful buyers recognize the role working closer with their
suppliers play s with regards to inventory management and handling, demand
management, purchasing processing management, and International Research Journal of
Business and Management – IRJBM ISSN 2322-083X IRJBM – (www.irjbm.org ) March -
2014 - Volume No – III © Global Wisdom Research Publications – All Rights Reserved. 50
achievement of success in the face of industry competition and increasing material
scarcity in the global arena. Schwartz (2005) define suppliers development as “any acting
effort by the buying firm with its suppliers to increase the performance and/or capability
of the supplier and meet the buying firms short- and/or long term supply chain efforts by
the buying firms to increase the performance and/or capability of suppliers of products
in order to improve the sustainability of the objectives and core function of the buying
firm. Buying firms use a variety of activities to improve supplier performance, including
assessing supplier performances, providing incentives to improve performance,
instigating competition among suppliers, working directly with suppliers, either through
training direct. Krause (2007) claimed that direct involvement as a factor of supplier
development may consist of asset of practices such as formal suppliers evaluation,
suppliers site visits, training, facilitating the supplier buyer sites and facility visits, as well
as verbal or written demands for performance improvement. According to UNIDO (2003)
the aims of suppliers’ development is to transform the relationship between the buyer
and the seller from a purely contractual relationship into a collaborative relationships.
Efficient supplier involvement, raising performance expectations, evaluation, exchange of
personnel, information exchange among others are vital for effectiveness in procurement
functions of National Cereal and Produce Board. The World Food Program report (2010)
relates current poor procurement performance at the NCPB to inadequate support to
farmers, arm’s length relationship between the buying farms and international supplier,
unpredictable weather conditions, escalating costs, failure to apply modern technology in
operations and uncertain pricing. Research Problem In Kenya, Stephen Hammond (2010)
indicates that NCPB has faced severe logistical nightmares which have had great effect on
supply and final cost of maize. There has also been witnessed greater mistrust and lack of
commitment between NCPB and farmers. According to Misoi (2011) due to poor grain
handling, Kenya loses 20% of its grain output; there is a shortage of 30% of maize supply
and price increase of more than 100%. Heightened competition between NCPB and
commercial dealers in grain sector has also tilted in favour of these commercial dealers.
While there is every indication that supplier development is appropriate, steps of
supplier development and methods of supplier development can be enhanced to achieve
effective procurement functions have received considerable attention in literature
(Ellram, 2005; Krause, 1998; Hellen et al, 1991), questions still remain. For example, little
evidence exists of the role of supplier development in enhancing effectiveness of
procurement functions especially in the grain sector in which the NCPB is. There is also
very little evidence especially in Kenya of benefits attributable directly to supplier
development and how these affects the effectiveness of the procurement functions of the
buyers especially the NCPB. Much of the existing literature on the supplier development
actually focuses on the attributes of the supplier development from the supplier point of
view but do not mainly answer the question , how supplier development influences the
procurement functions of the buying firm. On the other hand research on the role of
supplier development on the effectiveness of International Research Journal of Business
and Management – IRJBM ISSN 2322-083X IRJBM – (www.irjbm.org ) March - 2014 -
Volume No – III © Global Wisdom Research Publications – All Rights Reserved. 51
procurement functions in the grain industry is still a gray hair. This study is to examine
the role of supplier development on the effectiveness of the procurement functions of the
NCPB. Objectives i. To examine the role of information exchange in effectiveness of
procurement functions of the buyer ii. To examine the role of supplier participation on
the effectiveness of procurement functions of the buyer iii. To examine the role of
supplier understanding of the buyers’ goals on the effectiveness of procurement functions
of the buyer iv. To examine the role of buyer coordinator presence on the effectiveness of
procurement functions of the buyer. Literature Review Measuring Procurement
Effectiveness Key procurement indicators serve as measures of effectiveness and
efficiency with which procurement meets its functions. They empirically depict
observable and measurable circumstances. According to Krause, (2000), in formulating
key procurement indicators special aspects of procurement must be taken into account.
Traditionally they include volume and value of business, price/cost effectiveness of
service, customer satisfaction, timely responses, quality service, and technology. Warwick
Business School (2004) provides comprehensive view of the performance indicators of
effective procurement function by corroborating the works of Tickner (2009). Total
number of customer orders; Total number of contracts managed; Total value of business
including orders and contracts. The total cost of service as a percentage of value of
contracts/purchases; Cost per Kshs spent; True cost of placing an order from quotation to
payment of invoice. Measure price movements against Requisition purchase index or
price trends published in trade and procurement journals and by government regulatory
authorities. Range of goods and services; Quality of products; Cost; Delivery; Helpfulness
of staff; Speed of response for advice and assistance; Clarity of advice and assistance. The
average time taken to satisfy a customer order (from receipt to delivery); The percentage
of customer orders satisfied within target response time; The percentage of fixed term
contracts renewed by the due date; The percentage of other contracts and purchases
where work is completed in accordance with timescales agreed with customer. Number
of orders processed completely and accurately; Number of orders subject to error (non-
delivery/shortdelivery /over-delivery/incorrect item delivered/customer returns, etc.);
Percentage of orders completely satisfied at first attempt. Monczka et al (2005) noted
that strategic supplier development has greater role to play in achieving the above
procurement performance indicators more effectively for competitiveness of a procuring
organization. It is recognized that the purchasing function is carried out using a variety of
different methods by individual buying firms (Handfield et al, 2000). The type of different
methods used range from a strategic procurement role with the purchasing function
being delegated to many staff within an authority, to a totally centralized system being
located within a specialist supplier either within the industry or a consortium of
suppliers, and there are many different variations in between these two extremes.
Supplier Development and key Concepts Information Exchange International Research
Journal of Business and Management – IRJBM ISSN 2322-083X IRJBM – (www.irjbm.org )
March - 2014 - Volume No – III © Global Wisdom Research Publications – All Rights
Reserved. 52 Information exchange was selected as a variable for the research due to the
numerous authors advocating its importance in successful supplier development
processes (Burt et al., 2003; Dunn & Young, 2004; Elmuti, 2002; Monczka et al., 2002;
Sanchez-Rodriguez et al., 2005). Burton (2000) defined information exchange as the
“relaying of business-related information in a way that enables the recipient to take
action”. Moberg (2000) noted the “premise behind SCM [supply chain management] is
that the sharing of information and coordination of strategies among firms in a supply
chain can reduce total logistics costs and enhance value delivered to the customer” Sako
(2004) posited that higher levels of information exchange between organizations in a
supply chain lead to lower inventories and higher levels of customer satisfaction. Ogden
(2006) showed that top leadership support, good information systems, and cross-
functional support are important to an organization focused on supply-base reduction.
“Effective communication skills are indispensable skills for a project manager to possess”
(Sutterfield, Friday-Stroud, & Shivers-Blackwell, 2006. Lambert and Knemeyer (2004)
noted as the level of partnership grows, the need for greater communication also
increases. Level of Supplier Participation Understanding the level of supplier
participation by the selling firm was selected as a variable for the research due to the
numerous authors advocating its importance in successful supplier development
processes (Burt et al., 2003; Krause, 1995; Monczka et al., 2002). “Resource allocation
clearly testifies to people throughout the organization, that the goal is important and that
the senior manager is serious about it” (Lindsey, 1989,). Lindsay noted that resource
allocation to specific strategies communicates to others within the firm where priorities
have been positioned and conveys authority, power, and status. In line with these
findings, Easton (2000) showed where supply chain leadership dedicated greater
resources to spend more time at suppliers’ locations as a result of greater supplier
development results. Nelson (2004) determined two key elements: (a) lean supplier
development requires an organization to invest in talent and resources with knowledge
in activities to improve a supplier’s performance and (b) the activity requires a long-term
commitment by the leadership of the organization. Purchasing plays a key role in
spanning functions by fostering relationships and communication to improve quality
performance for both the supplying and the buying firm (Paulraj & Chen, 2005).
Understanding of Goals Understanding of goals was selected as a variable for the research
due to the numerous authors advocating its importance in successful supplier
development processes (Krause & Scannell, 2002; Sako, 2004; Sanchez-Rodriguez et al.,
2005; Taj &Berro, 2006). Goals establish organizational priorities and represent the
foundation of how resources are allocated (Lindsey, 1989). Lindsay wrote, “There must
be both organizational and individual commitment to the strategy and the goals that
derive from the strategy”. Goals may fall into two classifications: strategic goals and
operational goals. “Strategic goals are the long-term results that an organization seeks to
achieve in pursuing its purpose” (Lindsey). For purposes of the current research, the
operational classification of goals was utilized, referring to the short-term objectives that
an organization plans to accomplish to support the achievement of strategic goals.
“Operating goals are normally one year or less, mostly quantitative and they form the
basis for allocating resources” (Lindsey). Shepherd and Gunter (2006) suggested based
on research that purchasing organizations need to adopt a systemic approach to supplier
performance measures including effective feedback. Coordinator’s Presence International
Research Journal of Business and Management – IRJBM ISSN 2322-083X IRJBM –
(www.irjbm.org ) March - 2014 - Volume No – III © Global Wisdom Research Publications
– All Rights Reserved. 53 Understanding the level of coordinator’s presence was selected
as a variable for the research due to the numerous authors advocating its importance in
successful supplier development processes (Burt et al., 2003, Easton, 2000; Monczka et
al., 2002; Trent, 2004; Wagner, 2003). Based on a review of literature, Wagner asserted
that supplier participation in buying firms may lead to lowering costs, improved quality,
and reduced developmental costs. In the process map for supplier development,
(Monczka et al., 2002) emphasized the importance of reaching agreement on the key
project and securing the joint resources to execute. The joint agreement should specify
the roles and responsibilities of each party in the execution of the project (Monczka et al.,
2002). Trent (2004) reported organizations should focus on areas such as measurement
and evaluation as one of the characteristics in the foundation to pursue progressive
supply strategies. Theoretical Orientation This section dwells on past theories, models
and studies that are related to the concept of supplier development and its influence
specifically its role of procurement effectiveness. It is noteworthy that these theories may
be on different disciplines such as strategic management and sociology. Supplier
development is a highly strategic decision which may be explained by various strategic
models and theories (Lyson et al, 2006). Some of the theories are: Theory of Constraints
The Theory of Constraints (TOC) is a philosophy of management and improvement
originally developed by Eliyahu M. Goldratt and introduced in his book, The Goal. It is
based on the fact that, like a chain with its weakest link, in any complex system at any
point in time, there is most often only one aspect of that system that is limiting its ability
to achieve more of its goal. For that system to attain any significant improvement, that
constraint must be identified and the whole system must be managed with it in mind. In
borrowing this concept, buyers seek to identify the constraints in the supply chain that
emanates from poor buyer/supplier relationship and then work collectively to eliminate
the constraint thus improving the functions and aspirations of each, more specifically,
procurement functions for the buyer. The TOC Thinking Processes, taken as a whole,
provides an integrated problem-solving methodology that addresses not only the
construction of solutions, but also the need for communication and collaboration that
successful implementation of supply chain functions requires. They have been used to
create powerful generic, "starting-point" solutions for various supply chain inefficiencies,
including: Long supplier lead-times, Incoming quality problems, Late or unreliable raw
material or purchased part deliveries, Raw material shortages, Poor quality. In this
connection then chances are good that an organizations constraint is in the supply chain
that it rely on and the policies and practices associated with your relationships with
suppliers. The challenge is to get from your suppliers what you need from them to be
effective, whether it's better delivery performance, quality, or other aspect of what they
supply to the organization. Since 1985, the Theory of Constraints has been delivering
startling tangible results to companies worldwide. An independent study by Pfeiffer
(1985) on Theory of Constraints implementations around the world found that huge
results were consistently achieved: International Research Journal of Business and
Management – IRJBM ISSN 2322-083X IRJBM – (www.irjbm.org ) March - 2014 - Volume
No – III © Global Wisdom Research Publications – All Rights Reserved. 54 Lead Time
Reduced 69% Cycle Times Reduced 66% Due Date Performance Improved 60%
Inventory Levels Reduced 50% Revenue /Throughput Increased 68% Source: Pfeffer et al
(1985) Eliyahu Goldratt originated the idea in his book The Goal as a way of managing
organizations to increase profits. The Theory of Constraints is a proven method that can
be used by existing personnel to increase throughput (sales), reliability, and quality while
decreasing inventory, WIP, late deliveries, and overtime. Successful organizations also
adopt the Theory of Constraints to help make tactical & strategic decisions for continuous
improvement. Through supplier development NCPB can also apply it to eradicate its
procurement inefficiencies thus attaining procurement efficiency. Resource Dependence
Theory Resource Dependence Theory (RDT) promoted by Pfeffer and salancikin 1978, is
the study of how the external resources of organizations affects the performance of the
organization. The procurement of external resources is an important tenet of both the
strategic and tactical management of any company. Nevertheless, a theory of the
consequences of this importance was not formalized until the 1970s, with the publication
of The External Control of Organizations: A Resource Dependence Perspective (Pfeffer
and Salancik 1978). Resource Dependence Theory has implications in the procurement
effectiveness of the buying firms especially in tapping into the relationship with suppliers
as their important and dependable partners. Thus this theory props up the notion of
supplier development RDT proposes that actors lacking in essential resources will seek to
establish relationships with (i.e., be dependent upon) others in order to obtain needed
resources. Just like buyer will depend on suppliers for external resources and sellers on
buyers for precious markets. Also, organizations attempt to alter their dependence
relationships by minimizing their own dependence or by increasing the dependence of
other organizations on them. Within this perspective, organizations are viewed as
coalitions alerting their structure and patterns of behavior to acquire and maintain
needed external resources. Acquiring the external resources needed by an organization
comes by decreasing the organization’s dependence on others and/or by increasing
other’s dependency on it, that is, modifying an organization’s power with other
organizations. METHODOLOGY A descriptive case study approach was adopted for this
study. Kothari (2008) defined a case study as a method used to narrow down a very
broad field of research into one easily researchable topic. Babbie (1989) case study
research excels at bringing forth an understanding of a complex issue or object and can
extend experience and add strength to what is already known through previous research.
Babbie further posits that case study provides detailed contextual analysis of limited
number of events or conditions and their relationships. The target population in this
study consisted of employees of National Cereal and Produce Board. However the study
population was 50 employees across the ranks involved in procurement duties at the
NCPB headquarters in Nairobi. This was because the headquarters International
Research Journal of Business and Management – IRJBM ISSN 2322-083X IRJBM –
(www.irjbm.org ) March - 2014 - Volume No – III © Global Wisdom Research Publications
– All Rights Reserved. 55 is the source of all strategic decisions like supplier development
and procurement all the data and results of these processes are handled by these
employees. They therefore were expected to possess information on the role of supplier
development on procurement effectiveness. The human resources offices based at the
NCPB headquarters, which held the list of all staff involved in procurement management,
provided the sampling frame. Table 3.1; Tabulation of the Study Group and Sample
SECTION STUDY POPULATION SAMPLE SIZE SAMPLE Managers 10 100% 10
Procurement officers 10 100% 10 User 30 100% 30 Totals 50 100% 50 Source; Human
Resources Department NCPB (2010) A sample of 50 employees was used in this study.
According to Mugenda and Mugenda (2003), a minimum ten percent of the study
population is adequate to form a sample size. However, in this study a census was
conducted where all the 50 employees performing procurement activities and who have
participated in supplier development activities were issued with questionnaires.
According to Baxter (2008) a census is the procedure of systematically acquiring and
recording information about the members of a given population. In this study the entire
population of 50 personnel from the procurement department at the Head office of NCPB
will be chosen. Census will provide increased confidence level, maximized chances of
identifying negative feedback and avoids biasness (Yin, 1994). In addition, a sample must
be large enough to represent the salient characteristics of the study population. To
determine the role of supplier development on the effectiveness of procurement
functions of National Cereal and Produce Board, the researcher prepared a survey
questionnaire and a set of guide questions for the interview that is asked to the intended
respondents. The respondents graded each statement in the survey-questionnaire using a
Likert scale with a five-response scale wherein respondents are given five response
choices. The questionnaires have the advantage of being cheap and easy to administer
and results in data suitable for analysis as designed by the researcher. Correlation
analysis was also carried out to establish the nature of the relationship that existed
between the variables. In this case Procurement Effectiveness (y) was the dependent
variable. Independent variables were Information Exchange (x1); supplier participation
(x2); supplier understanding of goal (x3); and buyer coordinator presence (x4). A
multiple regression equation for predicting P.E was expressed as follows: y =
β0+β1x1+β2x2+β3x3+β4x4+α Qualitative data analysis method will be employed to
analyse data gathered using open end questionnaires.
Q-4. What are the advantage and disadvantage of Centralization of purchasing?
Ans- As the duplication of efforts in buying function is eliminated, its cost will be
relatively less and it will be managed efficiently
2) The Manager of manufacturing departments, departmental heads and office managers
are relieved from the responsibility of purchasing their own requirements. They can
concentrate in their assigned areas of activities in a better way.
3) It is possible to tap the advantage of the specialized skill of the buying staff.
4) Bulk buying strengthens the bargaining position of the buyer. Moreover, the advantage
of the quantity discount can be tapped. Direct contact with the suppliers will be possible
which will eliminate the link of the intermediaries
5) It enables to develop and maintain good relations with the suppliers. Moreover, it
facilitates the supplier to maintain relations with few buyers and thus it enables him to
pass over some benefits on buyers.
6) It will enable the purchase of standardized items through standardized procedure.
7) It will reduce the inventory carrying costs. The minimum level of inventory are not
maintained at different centers but at centralized center which reduce investments in
inventories along with the other incidental storing costs. The central buying staff
manages the stock levels, recording material usage, lead time and prices effectively.
8) The receiving of large supply through consolidated orders reduces the transport cost
per unit.
9) The cost of order processing such as order placing, receiving, inspection, accounts etc
are reduced substantially due to few orders of large quantities
10) As the responsibility center is fixed on one departmental head, the shifting of
responsibility for wrong decisions is eliminated.
11) The inter-section requirements of the materials can be easily adjusted. Scarce
materials can be allocated according to the economical advantage.

Disadvantages

The centralized purchasing suffers from the following limitations:

1) The specific requirements of the individual items may not be attended successfully. At
times, it may result in absence of matching of mind between the needy section and the
buying section resulting in wrong buying.
2) The centralized standard procedure may result in delays in receiving the materials.
3) It is likely that the centralized buying staff may not be expert in buying varied types of
items.
4) In case of multi-plant units located at distant places and receiving their requirements
from centralized storing, it may not be possible to tap the local resources. However, this
situation can be handled effectively authorizing the regional purchase agent to make local
purchases if they involve cost advantage.
5) It adversely affects the employee morale. It can be concluded that the company should
centralize all policy matters, the purchase of major raw materials and capital equipment
should be made by the head office, while the individual divisions should be allowed to
make their own purchases in accordance with the policies established by central office. If
the company adopts the “profit center decentralized” set up the decentralized should be
made accordingly.

Purchasing manual: The purchasing manual is an important means of effective

purchasing. It outlines the policies and procedures to be followed by the purchasing
personnel. It contains the approved statement of policies and thus provides standing
answer to recurring questions.

Purchasing manual sometimes becomes a source of irritation and conflict. Many

purchasing managers consider it to restrictive. In fact such situations can be eliminated if
the following aspects are considered while preparing the manual:

1) The purchase authorities should be clearly defined

2) It should clarify the relationship with other departments.
3) The co-operation of the personnel should be sought while preparing the manual
4) It should be drafted clearly.
5) The policies and procedures should be segregated. Generally, policies are of
permanent nature while procedures are subject of frequent changes.
Purchasing manual is an important tool for managing the purchase function efficiently. It
is not only useful to the large organization, but is required in small organizations as well.
In the large organization, the purchase function is relatively complex and can be eased
with the help of the purchasing manual. In the small organization, it is essentially
required because in such organization, purchasing function becomes a one man show and
the absence of such key man may paralyze the purchase activity. Purchasing manual
attempts to reduce such over dependence of one man.

Advantages and Disadvantage of “Centralized Purchasing” – Materials Management

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Whether purchasing should be centralised or decentralised, is a question to be decided

with reference to a particular situation prevailing in an organisation. If, in the case of
concern, the function of buying direct materials, indirect materials and items capital in
nature, is entrusted to a single person or at a single place like head office, buying is said to
be ‘centralised’.

However, if this function is performed by the other managers of the same or different
managerial hierarchy besides the purchase manager, and if a factory has a number of
divisions or branches, and in each division there is a purchase manager, the purchasing
function is said to be ‘decentralised’.

Advantages of Centralized Purchasing:

1. The purchasing department can be staffed with highly paid officials who are experts in
the art of purchasing the materials. Specialised knowledge and skill of these persons can
be utilised.

2. When materials are purchased, favourable terms, e.g., more trade discount or
economies in transport can be obtained because the quantity involved will be large.

3. All records with regard to purchases are kept at one place under the supervision of the
purchase officer. This results in economy, both in compilation and consultation of
records.

4. Centralised purchasing results in economy to a vendor because there is only one

purchase officer to be dealt with, instead of many persons under decentralized
purchasing.
ADVERTISEMENTS:

5. Better control on purchasing is possible. There are chances of reckless buying when
several persons are authorised to make purchases for their requirements.

Disadvantages of Centralised Purchasing:

1. There are chances of misunderstanding between the branch which requires the
material and the purchasing department with the result that wrong purchases of
materials can be made.

2. Centralised purchasing will pause delay because branches at different places will send
their requirements to the purchasing department and the purchasing department will
then look into their requirements and place the order for the purchase of materials.

3. In case of centralised purchasing, branches at different places cannot take advantage of

localised purchasing.

ADVERTISEMENTS:

4. It will lead to high initial cost because a separate purchasing department for the
purchase of materials is to be set up.

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Centralized purchasing is the control by one headquarters department of all purchasing
that is undertaken by a business. This allows for central management and volume
purchases that lead to better prices and terms as well as the ability to work with larger
suppliers.

This central control enables more efficient inventory control, lower staffing costs and a
decrease in overheads. Staff also benefit with better training and support and the ability
to build better relationships with suppliers.

While this may seem obvious, many large companies either have grown quickly and
organically or have grown via mergers and acquisitions. This means that they often have
several separate purchasing departments that are each responsible for purchasing a
group of products.

Advantages of centralized purchasing:

Allows for fewer overheads.

Duplication of staff efforts and resulting costs are negated and all activities are
standardized.

Many staff no longer have to spend time on low level ad hoc purchasing.

Volume purchasing means that better prices, greater discounts and more agreeable terms
can be obtained.

Volume deliveries cut down on delivery charges and staffing costs to move and store the
goods.

Computerized systems can be used to automate much of the work as well as integrate the
purchasing systems with accounting and stock control.

Centralized records can be kept of all purchases.

Staff can be trained in purchasing and how to minimize costs.

Suppliers know where and whom to contact which makes supplier contact much easier.
Purchasing staff can build good relationships with the buyers that enable the supplier to
understand the business need and suggest other products that may be more suitable and
cost effective. It allows for better control of inventories so that they can be kept at
optimum levels.
Disadvantages of centralized purchasing:

Purchase requisitions for ad hoc goods have to be sent from other areas to the purchasing
department causing delays and some irritations.

If the company is very geographically diverse, it may not be able to take advantage of
local discounts.

The centralized purchasing department may become too large and complex to manage.

Conversely, with a small company it may not be cost effective to have staff and a
computer system that only deals with purchasing.

As you can see if you are a large company that is not too geographically dispersed the
advantages of a centralized purchasing department far outweigh the disadvantages.

Centralized purchasing refers to the purchase of materials by a single purchase

department. This department is headed and managed by a purchasing manager. Under
centralized purchasing, all purchases made by the purchase department to avoid
duplication, overlapping and the non-uniform procurement. A company has to follow the
centralized purchasing of materials for ensuring proper materials control as well as
efficient store keeping. Under this system, the purchasing department purchases the
required materials for all the departments and branches of the company.

Advantages Of Centralized Purchasing

- Bulk quantity of materials can be purchased at a low price with favorable purchasing
terms.

- The service of an efficient , specialized and experienced purchase executive can be

obtained.

- Better layout of stores is possible in centralized stores.

- Economy in recording and systematic accounting of materials.

- Transportation costs can be reduced because bulk quantity of materials purchased.

- Centralized purchasing avoids reckless purchases.

- Centralized purchasing discourages duplication of efforts.

- Centralized purchasing helps to maintain uniformity in purchasing policies.

- Centralized purchasing helps to minimize the investment on inventory.

Disadvantages Of Centralized Purchasing

- High initial investment has to be made in purchasing.

- Delay in receiving materials from the centralized store by other departments.

- Centralized purchasing is not suitable, if branches are located at different geographical

locations.

- In case of an emergency, materials can not be purchased from local suppliers. -

Defective materials can not be replaced timely.

Q-5. What are the feature of Green Products and Services?

Ans- Definition of 'Product Definition: A product is the item offered for sale. A product
can be a service or an item. It can be physical or in virtual or cyber form. Every product is
made at a cost and each is sold at a price. The price that can be charged depends on the
market, the quality, the marketing and the segment that is targeted. Each product has a
useful life after which it needs replacement, and a life cycle after which it has to be re-
invented. In FMCG parlance, a brand can be revamped, re-launched or extended to make
it more relevant to the segment and times, often keeping the product almost the same.

more than 200 billion $ market of Lifestyles, Health and Sustainability (LOHAS) is
expected to

become double by 2010 and quadruple by the end of 2015 (Widger, 2007). Therefore,

understanding consumers’ green buying behavior is important not only for academics
and

practitioners but for marketers, and it is especially critical for environment friendly
businesses.

In this regard, Theory of Planned Behavior states that intention is seen as the proximal
determinant of behavior: the more one intends to engage in a particular behavior, the
more likely

one is to actually engage in it (Ajzen, 1985; Kalafatis., Pollard., East., and Tsogas, 1999).

Several researches have been conducted on green purchasing intentions. Among these,
many

researchers have identified the determinants of consumers' green purchase behavior,

majority of

them have been conducted in industrialized countries (Bleda and Valente, 2008;
Chatterjee,

2009; Chan, 2004; Davis, 1993), but the findings often contradict each other (Elham, R
and

PJETS Volume 2, No 1, 2012 87

Nabsiah, A.Wahid, 2011). For that reason, the findings may only be relevant in certain
cultural,

demographical and geographical context, and time. Because of complexity in green

purchasing

behavior of consumers', generalization is often not meaningful under different cultural,

social

and demographical contexts. To strengthen this argument, Elham and Nabsiah (2011),
Ottman

(1992) and Peattie (1992) reported that demand and attitudes for environment friendly
products

is likely to be uneven across different market segments and cultures. As a result, research
on the

effects of various factors on consumers green purchase intentions in emerging Asian

markets is

considered to be opportune.
 Besides, many previous studies have been based upon data collected in the 1970s and
1980s.

This is perhaps a serious issue, as during the last three decades environmental
knowledge,

environmental concern, attitudes, and behaviors have undergone substantial changes

(Diamantopoulos, et al., 2003; Kilbourne and Beckmann, 1998; Roberts, 1996). What are
the

main determinants of the demand for environment friendly products in developing

societies? The

answer to this question is particularly important since we want to change our modes of

consumption and production to inflict less pressure on our natural environment.

We generally propose in this study that the perceived product price and quality of a
green

product does influence consumer’s decisions and choices, but it acts indirectly through

moderating constructs that are closely linked to the product being purchased.
Understanding this

moderation can help public policy makers or marketers to determine how to develop
marketing

communications about the environment related products and services in developing

societies.

Certainly, such an understanding can provide useful insights into further advancing the
idea of

green consumption in the country. Additionally, this kind of research can provide some
insights

PJETS Volume 2, No 1, 2012 88

to green marketers regarding how they can start and expand their operation in South
Asia
particularly in Pakistan.

Therefore, the purpose of this study was to find the determinants of consumers green
purchase

intentions with particular focus on whether and how does perceived product price and
quality of

a green product influence consumer decisions and choices. In first chapter of the research
paper,

we have discussed the background, objectives and justification of the study. This chapter
also

reviews the literature on green purchasing intention, OGI, EK, EC and PPP&Q keeping in
view

the variables of study for the development of hypotheses in order to answer the research

questions of current study.

2. LITERATURE REVIEW

2.1. Green Purchase Intention (GPI)

Green purchase intention is conceptualized as the probability and willingness of a person

to give

preference to products having eco-friendly features over other traditional products in

their

purchase considerations. According to Beckford et al., (2010) and Chan (2001) research
studies,

green purchase intention is a significant predictor of green purchase behavior, which

means that

purchase intention is positively affecting the probability of a customer decision that he

will buy

green products. Chan and Lau (2002) conducted a cross-cultural research study in China
and
America, wherein consumers in Shanghai and Los Angeles were surveyed, concluded that
the

asymmetric influence of green purchasing intention on green purchasing behavior

warrants

further attention.

2.2. Organization Green Image (OGI)

A sustainable organization is an organization that takes part in green or environment

friendly

activities to make sure that all processes, manufacturing activities and products adequately

PJETS Volume 2, No 1, 2012 89

address current environmental concerns while maintaining a profit. In other words, it is a

business that “meets the needs of the present world without compromising the ability of
the

future generations to meet their own needs” (Anderson, 2006, United Nations General
Assembly,

1987). According to Rennie (2008), everyone affects the sustainability of the marketplace
and

the planet in one way or another. Sustainable development within an organization can
create

value for investors, customers and the environment. A sustainable business must meet
customer

needs while, at the same time, treating the environment well. Furthermore, the idea of
green

business helps organizations to increase their productivity while using the limited
resources in a

manner which is harmonious (compatible) with human health as well as for non-human
species
(Isaak, 2002).

2.3. Environmental Concern (EC)

Dunlap and Jones (2002, p: 485) defined environmental concern as the degree to which
people

are aware of environmental problems and assist struggles to solve them or signify the
readiness

to contribute personally to their solution. In literature, it is almost commonplace that

people are

definitely concerned about environmental problems. As a result, it is not the weakness of

environmental concern, but some other factors that hamper them in undertaking
environment

friendly behavior.

2.4. Environmental knowledge (EK)

Fryxell and Lo, (2003, p. 45) defined environmental knowledge as “a general knowledge
of

facts, concepts, and relationships concerning the natural environment and its major
ecosystems”.

Hence, it involves public knowledge about the environment, key relationships concerning
to

environmental facets or impacts, an admiration of entire organism, and mutual

conscientiousness

for sustainable development. The customer’s level of environmental knowledge about

PJETS Volume 2, No 1, 2012 90

environmental issues, the available substitutes and solutions to these problems are
another factor,

which has at times proven to affect the consumer’s behavior.

2.5. Relationship of Organization Green Image (OGI) with Consumer Green Purchase

Intention (GPI).

About two decades ago, the idea of a sustainable link between business and the
environment

initially suggested, revolves around the premise that the goals of business and the goals
of

environmental conservation need not be incongruent and contradictory (Hawken.,

Lovins, and

Lovins, 1999; Holliday., Schmidheiny, and Watts, 2002). Advocates of environmental

sustainability have now taken this theory one footstep advance with the argument that

ecologically conscious and environment friendly strategies could in fact, lead to

competitive

advantages and superior financial performance (Engardio, 2007; Esty and Winston,
2006).

In the context of the current social movement, consumers are powerful actors for
promoting

socially responsible behaviors. They have the power to reconsider their spending
patterns and to

force companies all over the world to embrace the socially responsible paradigm, to make
it

more respectful of the environment, of animals and of other inhabitants of the earth. This
is why,

it is very important to find out the barriers that stop consumers from developing
positive attitudes

towards socially responsible consumers and becoming enthusiastic contributors in this

social

movement (Astous and Legendre, 2009).

It was argued that customer pressure would direct businesses to focus more on the
environment since customers have the power to support (accept) or oppose (reject)
businesses or

disparage them for worsening the environment. Recent approaches advocate that
increasing

numbers of consumers not only seek environmentally friendly products but also favor

environmentally conscious business behaviors. Therefore such customers cannot be

ignored

PJETS Volume 2, No 1, 2012 91

(Sisodia et al. 2007). A recent research, at a world level showed that the positive reputation
of an

organization regarding its ecological responsibility is determined by the fifty three

percent of

customers (approximately 1 billion) as an important reason that makes them buy and use
its

products (Spanos, 2008). Thus, we propose that:

H1: There is positive relationship between OGI and consumer GPI.

2.6. Relationship of Environmental Concern (EC) with Consumer Green Purchase

Intention (GPI).

A study conducted by Fraj-Andrés, Martínez-Salinas and Matute-Vallejo (2009),

emphasized

that many customers are more worried about environmental problems, and those
organizations

that do not take actions to confront the environmental issue by offering green products,
will

possibly lose credibility in the eyes of their customers. As social concerns and
environmental
regulations are most influential pressure factors on management commitment. Thus,
managers

tend to have a deeper involvement in environmental protection that receive more

pressure and

experience more strict regulations from customers about environmental expectations.

According to Laskova (2007), people with high environmental concerns shows the
more

positive attitude towards the environment than people who think themselves powerless
to help

the environment are less likely to participate in pro-environmental activities. This

argument is

further substantiated by the study of Kim and Choi (2005), where environmental
concerns have a

direct and positive influence on the customer purchasing intention of green products.
This

suggested that customer with strong environmental concern may be interested in

consumption of

products which reflect that concern.

Besides Mostafa (2009) highlighted the importance of environmental concern along

with other

variables for the prediction of consumer green purchase behavior. He further added that
based on

PJETS Volume 2, No 1, 2012 92

environmental concerns one can differentiate between green consumers and non-
consumers. To

end with, while consumers’ ecological concerns have moved in to middle-of-the-road

marketing,
it is useful from a marketplace viewpoint to examine how consumers’ make well-versed
choices

about environment friendly products. Thus, we propose that:

H2: There is positive relationship between EC and consumer GPI.

2.7. Relationship of Environmental Knowledge (EK) with Consumer Green Purchase

Intention (GPI)

In one of their research study Pickett-Baker and Ozaki (2008) found that respondents
considered

it good to buy brands that were less damaging to the environment. Though, they revealed
that

sometimes it is not easy to identify green products. Moreover, respondents indicated that
they do

not notice much relevant or engaging marketing about these products. Therefore, in
order to get

effective results from the marketing campaign, marketers must put emphasis on the
benefits of

the product to the consumer and product improvements, such as a new improved
formula or

design. Thus, the better use of marketing and portraying a good brand image is crucial to
sell

green products.

Similarly, a study made by Paco and Raposo (2009) in Portugal exposed that consumers

understand the environmental challenges, support policies to improve the environment,

even

though their concerns do not transform into action. The reason for non-reflection of

environmental concerns into purchasing behavior is the lack of awareness about the
greening
concept in newly industrialized countries as those in developed countries (Yam-Tang and
Chan,

1998). Therefore, still there is a need that business personnel and government together
take

initiatives to educate and persuade people for green purchase decision. Moreover, it is
found that

there is a positive relationship between environmental awareness and people’s attitude,

decisions

PJETS Volume 2, No 1, 2012 93

and finally participation. So, if people’s awareness is increased, ultimately their

sustainable

consumption behavior will be improved (Fraj and Martinez, 2006; Haron et al. 2005;
Yam-Tang

and Chan, 1998).

In addition, Manrai et al., (1997) argued that environmental knowledge of a customer

has a

direct proportional relation with the intention to purchase the products, having green
claim.

Therefore, managers may find the way to translate environmental issues into higher sales
of

green products. Perhaps, the initial perception that one forms about a product
environmental

benefits is, in some way, by exposure to information/knowledge commenced by the

marketer

together with the information provided on product labels and Media advertising. Thus,
we

propose that:
H3: There is positive relationship between consumer EK and consumer GPI.

2.8. Moderating effect of Perceived Product Price & Quality (PPP&Q)

From the above debate, it becomes visible that green products have a great perspective
worth for

the corporate concerns in terms of improved profits and positive business image on one
hand and

guarantee safety of environment alternatively. A study conducted by Polonsky (1994),

concluded

that consumer put too much responsibility on businesses and government agencies to
make the

environment safe, and they do not consider themselves as a part of this process, and are
not much

serious in this regard. Therefore, green marketing does not strongly influence all
consumers

(Lampe and Gazdat, 1995).

Likewise, Wong et al., (1996) reported that contrary to the enthusiastic opinion poll
evidence

concerning public attitudes towards environment friendly consumption, the degree of

consumer

adoption of green products is much less. Therefore, it is very important to find out the
barriers

PJETS Volume 2, No 1, 2012 94

that stop consumers from developing positive attitudes towards green consumption and

becoming green consumer (Astous and Legendre, 2009).

Fraj and Martinez (2006) argued that although people have enough knowledge and are
very
much concerned about environmental problems, but still less involved in terms of their
shopping

habits and daily customs. Besides, Gan et al., (2008) argued that environmental concerns
are not

the only reasons for the customers to purchase environment friendly products, and also
they do

not agree to trade off other product attributes for a better environment. This reveals that
the

characteristics of traditional products such as the brand name, its price and quality are
still the

most important ones that are considered by consumers while making purchasing
decision.

No doubt, now firms recognized that the future prospects for green goods remain bleak,
until

and unless they can balance environmental compatibility with customers’ primary desire
for high

quality products that perform well. Because, it is not logical for customers to pay more for
a

product that does not offer basic benefits, whatever the environmental benefits (Wong et
al.

1996). In this regard, Schlegelmilch., Bohlen and Diamantopoulos (1996) recommended

that

those organizations aim to enhance market penetration of the existing green products’
offerings

must launch an advertising campaign directed at increasing concern about the

environmental

quality in the consumer base. Second, organizations must make it possible that their
products
perform competitively in other dimensions. If these two things are achieved, then
environmental

considerations will no longer take back seat in purchasing decision.

Because, usually the perception of environmentally friendly products is negatively

linked with

consumers’ intention to buy them if in comparison to traditional products they are of

higher

prices and low quality. As a result, it may be said that there is an expectation on the part
of

PJETS Volume 2, No 1, 2012 95

consumers whom offered green products should be environmentally safe and sound
without a

need to sacrifice on price and quality (D’Souza, Taghian, Lamb, and Peretiatkos, 2006).

Besides, Ali et al., (2010) argued that customers are ready to buy environment
friendly

products more often, but as for as the products price and quality are concerned,
environment

friendly products must perform competitively just like the traditional products.
Similarly, another

study revealed that many consumers are unwilling to forgo essential product benefits
during their

purchase decision. So, green products must also perform competitively not only
according to

environmental aspects, but also based on others important product characteristics, for
instance,

price, quality, convenience and durability (Diamantopoulos et al. 2003).

 All together, Schuhwerk and Lefkokk-Hagius (1995) suggested that the more involved
the

consumers become with the environment, the more likely they would purchase
environment

friendly products. Derived from this suggestion, it can be anticipated that green
consumers will

be inclined to buy green products if compete in price and quality. Thus, we propose that:

H4: The PPP&Q of the green product moderates the influence of OGI towards the

environment on consumer GPI.

H5: The PPP&Q of the green product moderates the influence of consumer EC towards

the environment on consumer GPI.

H6: The PPP&Q of the green product moderates the influence of consumer EK towards

the environment on consumer GPI.

H7: There is positive relationship between PPP&Q and consumer GPI.

PJETS Volume 2, No 1, 2012 96

3. METHODOLOGY

Sample and data collection

The current research is an attempt to investigate the key determinants of consumers

green

purchase intentions. In this study, we also tried to explore the moderating role of PPP&Q,
which

was highlighted by different authors in their researches. All these efforts are made to
present a
consumer’s point of view for marketers regarding green marketing strategies. After all,
this

research will enable marketers to get a strategic control over the execution of these
strategies in

order to achieve the organizational objectives.

Green Marketing Definition

Green marketing refers to the process of selling products and/or services based on their
environmental benefits. Such a product or service may be environmentally friendly in
itself or produced in an environmentally

Being manufactured in a sustainable fashion

Not containing toxic materials or ozone-depleting substances

Able to be recycled and/or is produced from recycled materials

Being made from renewable materials (such as bamboo, etc.)

Not making use of excessive packaging

Being designed to be repairable and not "throwaway"

Green Marketing and Sustainable Development

Green marketing is typically practiced by companies that are committed to sustainable

development and corporate social responsibility. More organizations are making an effort
to implement sustainable business practices as they recognize that in doing so they can
make their products more attractive to consumers and also reduce expenses, including
packaging, transportation, energy/water usage, etc. Businesses are increasingly
discovering that demonstrating a high level of social responsibility can increase brand
loyalty among socially conscious consumers; green marketing can help them do that.

The key barrier to sustainable business practices such as green procurement is short
versus long term cost; the cost of "greenness" often doesn't fit into short-term budgets
that don't internalize long-term total costs.
Public Works and Government Services Canada has information on green procurement
principles and resources for businesses. Ethical sourcing has become important to
companies and consumers alike.

Are Consumers Willing to Pay More for Green Products The obvious assumption of green
marketing is that potential consumers will view a product or service's "greenness" as a
benefit and base their buying decision accordingly. The not-so-obvious assumption is that
consumers will be willing to pay more for green products than they would for a less-
green comparable alternative product. Is this true?

Apparently, yes. The 2014 Nielsen Global Survey on Corporate Social Responsibilitypolled
30,000 consumers from 60 countries to determine statistics on consumer preferences for
sustainable purchasing, and found that:

55% of consumers were willing to pay extra for products and services from companies
committed to positive social and environmental impact (up from 45% in 2011)

52% made at least one purchase in the past six months from at least one socially
responsible company

52% check product packaging to ensure sustainable impact

Interestingly, consumers in the Asia-Pacific region, Latin America, and the Middle
East/Africa showed a higher preference (64%, 63%, 63%) to pay extra, whereas the
preference in North America and Europe was lower (42% and 40%).

The Nielsen survey also looked at retail purchase statistics, and according to sales data,
brands that advertised sustainability on packaging had 2% year-over-year increases in
sales from 2011 to 2014, as compared with 1% for those that did not.

Misrepresenting Products or Service as Green Can Backfire

While green marketing is growing greatly as increasing numbers of consumers are willing
to back their environmental consciousnesses with their dollars, it can be dangerous. The
public tends to be skeptical of green claims to begin with and companies can seriously
damage their brands and their sales if a green claim is discovered to be false or
contradicted by a company's other products or practices. Presenting a product or service
as green when it's not is called greenwashing.
For example, in 2012 a CBC Marketplace study found that Dawn Antibacterial dish soap,
which featured a label showing baby seals and ducklings and claiming that "Dawn helps
save wildlife" was found to contain Triclosan which has been officially declared as being
toxic to aquatic life - environmental groups have called for it to be banned.
Understandably, Proctor & Gamble, maker of Dawn products, refused an interview
request by Marketplace.

Seaworld Orlando's introduction of its "Cup That Cares" in 2013 was another dismal
example of green marketing gone wrong. The cup was marketed as environmentally
friendly; each time a person refilled the cup at a vending machine in the park, an
embedded chip would display how much CO2 he or she had saved. Unfortunately, the cup
was plastic - as were the 40 accessories that could be purchased separately to deck out
the cup that doubled as a penguin toy.

BDC Business Consultant Chris O’Shea sums it up well; “Green marketing is about your
whole company. You really have to be authentic. If you’re not, people will accuse you of
greenwashing and your reputation will suffer.”

For green marketing to be successful, it has to fit with your brand. Having a single green
product when the rest of your products are not, for instance, can make customers wonder
if you're serious about your environmental commitment, says O'Shea.

Examples of Green Marketing

Grocers that advertise organic produce. The organic food industry has grown in leaps and
bounds as consumers express an increased preference for non genetically modified
foods that are free of pesticides.

Restaurants that promote "locally sourced" meats, vegetables, fish, wines, etc.Local
sourcing is attractive to consumers as it projects an image of sustainabilityand
willingness to invest in the community.

Toyota's marketing of the Prius hybrid. (The Prius outsells all other hybrid vehicles,
mostly because its unique styling reflects the typical owner's passion for sustainability.)

Volkswagen/Mercedes-Benz' marketing of its vehicles as "clean diesel" "Earth Friendly"

vehicles. As truthinadvertising.org pointed out in its roundup of companies accused of
greenwashing on Earth Day 2016, "there’s nothing clean about diesel engines that spew
pollutants at levels way over the legal limit."
Making claims that are not as impressive as they look. Some companies try to look green
by making environmentally friendly claims that are essentially meaningless. For instance,
Worldwatch shows an example of a Coopertone sunscreen with a "no CFCs" label. Being
a chlorofluorocarbon-free product sounds great (you can help save the ozone layer), until
you realize that CFC production in the United States has been banned since 1995.

Green marketing can be a very powerful marketing strategy though when it's done right.
See Three Keys to Successful Green Marketing.

Corporations That Are Embracing Sustainable Development

PepsiCo is one of the world's largest food and beverage producers with annual revenues
of more than $65 billion and a product line that includes brands such as Quaker,
Gatorade, Pepsi-Cola, and Frito-Lay. Over the past decade PepsiCo has become a leader
among corporations in water conservation and energy usage. In 2012 PepsiCo received
the Stockholm Industry Water Award in recognition of its efforts to reduce water and
energy usage across all of its business operations, from supply chains to factories.

PepsiCo sustainability efforts include:

Working with farmers to monitor water usage and carbon emissions and maximize crop
yields

Retrofitting factories and corporate offices to improve energy efficiency. For example, the
350 employee Casa Grande Frito Lay facility in Arizona generates half the plant's
electricity requirements with solar power, water is recycled to drinking standards, and
waste is recycled wherever possible. The facility is one of over 20 other PepsiCo sites
certified to LEED sustainability standards.

Also Known As: Environmental Marketing, Ecological Marketing, Eco-Marketing, green

sheen.
Examples: Chad’s green marketing campaign bombed because he made the mistake of
packaging his environmentally friendly product in styrofoam.
 MBA 540 (LOGISTIC MANAGEMENT)

Qus-1. Describe Supplier delivers CIF. Explain Modular Consortia?

Ans- Modularity is a key issue nowadays in industry. Although it is not a new issue, it has
growing in importance in recent years in the auto industry. The aim of this paper is not to
discuss modularity theoretically, but to discuss some new production arrangements and
new design strategies which are based on new forms of relationship between assemblers
and suppliers, as well as on the use of modularization. The discussion is based on a field
research in the Brazilian automotive industry, involving the main assemblers, some of the
most important first tier suppliers and some few second tiers suppliers. Brazil has been a
ground proof for strategies based on modular concepts mainly in production (see
Baldwin and Clark, 1987, to a categorisation of modularity: in design, in production and
in use) and, to some extent, also in design. Since the announcement by VW of its “modular
consortium” production model, many other experiences have taken place involving
companies as Fiat, Ford, GM, Mercedes-Benz and Chrysler (before the venture), Renault,
in greenfields or even in brownfields. Some suppliers are deeply involved in modularity;
maybe Dana is the best known due to the “rolling chassis” supplied for Chrysler, but many
other suppliers are on the same road. Modular production/supply tested in Brazil was in
the centre of the North American discussion for the “transplant” of the “model” to US
plants, mainly in the GM case and its so called Yellowstone project 1 , in Ford plans to
modular assembly for the Focus and the Amazon project
2 , in Fiat discussions for the renewal of the Punto in Melfi, Italy3 , and so on. We will
propose firstly a historical and chronological approach for modularity in the Brazilian
auto industry. Then, by analysing the assembly plants that have introduced or are
introducing modular assembly involving important parts of the future vehicles and
involving suppliers in the production of the “sub-assembly” or “module”4 , we will discuss
some characteristics of 1Automotive News, May 17, 1999, p.6.; Automotive Industries,
May 1999. The GM Yellowstone plan to introduce modularity in some of its US operations
was confirmed in interviews with suppliers in Brazil. See also Automotive Industries,
November 1998, p.43-43; Automotive News, 29 March 1999, p.24j. There was also a
discussion amongst UAW (United Auto Workers, the US automobile trade union)
members on the subject – one of the authors was asked to send then some papers on the
“Brazilian model”. 2 Automotive Industries, July 1999. 3 Data get during a seminar and
discussions with researchers at University of Calabria in Rende, Italy, June 1999. 4 For
simplicity, we are not going to distinguish between modules, sub-assemblies, systems and
whatsoever. 62 Actes du GERPISA n° 33 modular production. And since for many medium
and high volume assemblers and suppliers Brazil is a peripheral design basis for adapting
vehicles (in a process named “tropicalisation”) or for the design of derivatives for Third
World countries based on a predefined platform (subcompact cars, small pick ups, small
station wagons, small 5 doors etc.), we will discuss design activities, modular design and
the possibilities set for peripheral countries with a stablished industry and large market
and production facilities. MODULARITY : BEYOND DESIGN AND PRODUCTION, A NEW
WAY TO COPE WITH UNCERTAINTY AND SAVE INVESTMENT EXPENDITURES,
RESHAPING BOUNDARIES AND THE BUSINESS OF THE COMPANY By modularity we
mean not only a design strategy (modular design), a modular assembly or a modular
maintenance (use). Actually, in our field research in Brazil, we have found that what firms
call "modular production" has not necessarily the characteristics of "modularity" in the
sense discussed by Sako & Murray (1999), for instance. The main characteristic of the so-
called "modular arrangements" that have been carried out in the automobile industry is a
new form of relationship among assemblers and suppliers that reshapes the boundaries
of the industry and, to some extent, even the definition of the business and the risks
linked to it (Marx, Zilbovicius and Salerno, 1997). Historically speaking, one could argue
that modularity is not new even in the auto industry, since some companies used to
dedicate plants or parts of a final assembly plants for some “subassemblies” like engines,
gearboxes/transmissions, seats, wiring harnesses, dashboards, doors trimming etc. So,
the concept of modularity we are discussing has a physical and a functional 5 In this
sense, it is worth noticing that, up till now, each company adopts its own definition of
what is a "module" or a "sub-assembly", and there are differences even between
departments in the same company – for instance, in an assembler researched last April,
design department utilised a different nomenclature than the purchasing department.
Nevertheless, in the literature we may find some interesting discussions on the definition
of sub-assemblies, modules and systems- see, for example, Sako & Murray, 1999.
dimension of course (what is a “module”, a “system” etc.), but is much more than that. It is
an option linked to a particular competitive game and business strategy of some
assemblers to cope with their need to internationalise their production activities by
saving investment expenditures, in an environment usually named by “globalisation”.
This is why, in this paper, we will not make any distinction among modules, sub-
assemblies or subsystems. By modularity we mean also more than physical proximity of
the suppliers. One can argue that one can have modular supply with a supplier located far
from the assembler. That’s true, depending on the volume and on logistical costs. But in
our “modular package” we include other activities than design or physical delivery:
modular consortium, industrial condominiums or alike means the assembler demands
and the supplier is responsible for some services, like technical assistance for the
subassembly, to participate directly in problem solving in the assembly line, to cope with
scheduling changes and so on. We will return on the argument later, after a historical-
chronological analysis of modular facilities in Brazil. The evolution of strategies based on
modular production in the Brazilian automotive industry : a historical background The
modular consortium The “modular consortium” in the new VW truck plant in Resende1
was the launching basis for a systematic and widespread debate on modularity. Due to
the end of the Autolatina venture with Ford, VW has to withdraw from the plant it is
sharing with Ford to produce buses and trucks. This gives VW the opportunity of
designing a whole new greenfield plant, based on the “modular consortium” concept, with
the explicit aim to reduce the total investment by the assembler. At the time, the truck
operation represented about 20% of VW do Brasil income in 1994-1995, and margins
were much greater than for passenger cars. But VW did not have (and still does not have)
truck and bus business outside Brazil; we have some indications that the “stand alone”
Brazilian position was considered in the set of the consortium. 1 For a deeper discussion
on the model, and to follow the discussion at Gerpisa’s Colloquiums, see Salerno (1994,
1995a , 1995b); Marx, Zilbovicius and Salerno (1997). Actes du GERPISA n° 33 63 In
November 1995 VW began an experimental operation in a rented building. Although the
production was very low (up to 4 bus chassis/day) and only the very final assembly was
developed with the correspondent partners in that period, the impact of the announced
plant was very high among other assemblers and suppliers. The new plant specially
designed for the modular consortium was only partially inaugurated in November 1996,
but important modules such press and body shop, and painting, were only inaugurated
many months after. ÿ The model became famous due to the absence of VW’s blue collar
workers in the plant, all run by suppliers’ direct workers. But perhaps some other
features were more important to set the “paradigm” of modularity independent of who
employs the direct workers. These features are : ÿ The investment agreement among
assembler and each supplier that operates inside the assembly plant or in the
surroundings (in the arrangement called “industrial condominium”, discussed below).
The formal agreement between VW and the so called “modulists” suppliers is not public;
it is considered confidential by all the companies involved. We could perceive, however,
that apart from traditional clauses like prices reduction and supply assurance, there is
one related to the amortisation of the invested capital and how “modulists” suppliers are
paid. There is a fixed part of the payment, independent of the volume of production,
related to amortisation – in that sense, it sounds as if VW have borrowed money from the
suppliers. The variable part depends on the production VW has “accepted” after its own
quality audits. The payment system according to the effective production instead of the
planned one is an old demand of the assemblers: in early 80’s, GM made an unsuccessful
attempt in that sense, promptly rejected by individual suppliers and also by the
Sindipeças (The National Suppliers Association). ÿ The dedicated investment the chosen
suppliers make in the assembler plant or in the surroundings. Although there are some
few exceptions, the first tier (or “0,5 tier”) facilities are dedicated to the specific
assembler plant. It means that suppliers tend to invest a minimum in these plants, just to
cope with supply requirements (mix, short delivery times, assurance service etc.),
keeping central plants with the highest capital invested. ÿ The integration between
modules in design and modules in production. Although they can be different, many
modules are (co)designed and supplied by the same company. We have no definitive data
on the efficiency of Resende plant. Some engineers interviewed considers that the plant is
too big, with over capacity, and the basic design of the truck cabin is quite old. The plant
runs in two shifts, and there are some internal complains on the quality of stamped parts
– maybe due to the age of the design and the tooling. Anyway, from the market side, VW
got more than 20% of the Brazilian market, generally speaking has lower prices than the
competitors, forcing then to reduce prices and, maybe, margins. The game is still open
since VW was searching for a strong international partner in truck business, and finally
bought a heavy participation in Scania, also with strong presence in Brazil. After VW
Resende plant, Ford announced the restructuring of its Brazilian main plant by
introducing the so called “industrial condominium”, asking some suppliers to set inside
the site. But the main challenge was introduced just after by GM, who announced a
“modular” plant to produce a new car (the Blue Macaw, a subcompact Corsa derivative)
co-designed locally. When VW announced its “modular consortium”, there were rumours
on a possible GM secret plan on modularity, plan that Mr. Lopez would have brought
when he moved to VW. Anyway, GM approach to the Blue Macaw plant in Gravataí, near
Porto Alegre, in the south of the country, is a mix between consortium (with parts of the
assembly carried out by suppliers, like seats, tapestry) and condominium (with sub-
assemblies supplied by companies with facilities in the site or in the surroundings, the
carmaker continuing to assemble the final vehicle). Afterwards, Ford, Renault, VW and
Chrysler announced new plants or the restructuring of brownfields in the so called
“industrial condominium” system. 64 Actes du GERPISA n° 33 The Industrial
Condominium The "winner" model for the new assembly plants not only in Brazil but also
in other countries (Skoda-VW in Check Republic, Mercedes M-Class in the USA, Swatch in
France etc.) seems to be the industrial condominium linked to sub-assemblies "modules"
supply see table 1. If we take into account that more than 75% of the suppliers of VW Sao
Bernardo plant – VW Brazilian headquarters, the oldest industrial automotive site in the
country, an icon of Brazilian auto industry, as Wolfsburg plant is for Germany – are
located no longer than 50 km from the plant, and that no one would consider today that
plant as a “model”, it seems logical that condominium is much more than physical
proximity. A condominium is different from an industrial park or a regional concentration
of industries. Many cities around the world have attracted plants due to market
conditions. In a condominium, the assembler completely controls suppliers location. The
assembler negotiates benefits with local governments, gets the land and the
infrastructure, designs its production system thinking of “modules” of the product,
defines its own internal operations and the subcontracted operations, the modules
outsourced that should be produced nearby in the condominium or in the surroundings.
This kind of organisation means an agreement between assemblers and suppliers located
in the condominium characterised by much longer horizons than before. Typically, our
research found agreements linked to part lifetime, not to orders size or term. The
previous participation in arrangements such as condominiums and consortiums is being
utilised by suppliers and recognised by assemblers as a differentiation factor in the
search for new contracts, including those with co-design. This panorama would suggest
us to think of proximity as the main criteria for supplying, but this is not really true, as we
discuss just below. Mixed Arrangements : Between Modular Consortium and Industrial
Condominium Although modular consortium, in its pure form, remains a unique case,
lessons were taken. For most companies, trucks and bus chassis are very particular
product, much more suited for radical modular production due to their own product
architecture. Cars instead have different characteristics. As can be seen in Table 1, some
new plants present mixed characteristics : partial consortium (with the final assembly
being carried out by the supplier), partial condominium (with final assembly being
carried out by the assembler itself), depending on the sub-assembly, module or system.
The closer to pure consortium is the Chrysler Dakota plant in Campo Largo, where Dana
supplies the rolling chassis. What Changes with Modular Supply and Assembly ?
Proximity is crucial for some core subassemblies/modules, but not for all components.
Receiving sub-assemblies instead of isolated components means different logistical
questions and costs. An assembled dashboard has different logistical costs than their
components have; an assembled seat is another typical example. At the same time, some
processes have economy of scale and/or the need of fixed capital that make not viable to
decentralise production according to each new assembly plant. For instance, Magneti
Marelli made a US$50 million investment due to the new Mercedes A-class plant in Brazil.
But only US$1 million went to the condominium, the rest being canalised to the main
Marelli plant that produces components not only for Mercedes but also for Fiat. The
facility in Mercedes condominium only makes some operations and final assembly of the
sub-assembly. The same is true for dashboards, seats (the press shop for the structure of
the seats being centralised), fuel systems, forged suspension parts, windscreens and so
on. Thinking of the whole sets of isolated components needed to build a car, proximity is
not an imperative. Obviously, it depends on total costs (production costs, logistical costs,
taxes etc.), on the strategic plans of the companies, policy of incentives. For instance, Ford
relocated its future plant from Porto Alegre region (Gravataí) to Salvador region
(Camaçari), more than 3.000km far from the original location, and 2.000km far from the
main suppliers and from Ford’s engine/ transmission plant (Taubaté, near São Paulo and
the ABC). Sub-assembly/"modules" supply means the assembler receives less but much
more important “parts”, with greater value added. Actes du GERPISA n° 33 65 Table 1. -
Productive configuration of the main assemblers’ plants in Brazil Assembler System Parts
produced by the assembler Suppliers in the condominium (proximity) VW Resende
Truck/Bus chassis modular consortium No direct production. 7 productive modules run
by suppliers; internal logistics and maintenance outsourced Mercedes Juiz de Fora A-
Class industrial condominium Body shop, painting, final assembly. Press shop and axles in
the truck plant (São Bernardo); engine and gear box from Germany 8 firms : seats,
painted plastic parts, tires assembly, exhausts, dashboards, wiring harness VW Taubaté
Gol/Parati initial condominium Press, body and painting shops, final assembly,
thermoplastics. Engine/mechanics from other VW plants in Mercosur in the surroundings
: seats, axles, bumpers, wiring harness, fuel tanks, pressed parts VW/Audi Sao José dos
Pinhais Golf/Audi A3 condominium with some consortium Press shop, body shop,
painting Mechanics and pressed parts from Mercosur (mainly São Bernardo and São
Carlos) and Germany seats, plastic parts, fuel system, axles, tires assembly, exhausts,
lightning systems, cooling system, windscreen VW/São Bernardo condominium Being
restructured for PQ-24, a new platform between The Polo and the Golf In definition. In a
first look, similar to VW/Audi Fiat Betim Palio/Uno/ Marea initial condominium final
assembly, body shop, painting, engines, heavy press suspension, bumpers, dashboards,
exhauts, front (cooling system, plastics), seats, small-medium stamped parts Ford
Camaçari Amazon condominium with some consortium Final assembly, body shop.
Amazon : a new platform for a small van (1st model to be produced) and the new Fiesta
(2nd model) Mechanics from Taubaté plant 13 suppliers below Ford’s roof; 10 in the
surroundings painting, door assembly, front panel (with steering column), seats,
trimming, bumpers, dashboard, tires assembly, front (cooling, lightning), engine/gearbox
assembly, logistical operator GM Gravataí Blue Macaw condominium with partial
consortium Press shop, body shop, painting. Assembly from GM and suppliers (in
consortium) sheets cutting, pressed parts, seats & trimming, dashboards, exhausts,
steering system, plastics, windscreen, cooling Renault São José dos Pinhais Scénic/Clio
condominium Body shop, painting, final assembly. Engines in a plant nearby. Stamping
outsourced Other mechanical parts from Mercosul and France seats, exhaust systems and
steering columns, cockpits and door panels, front and rear axles and tires assembly
Chrysler Campo Largo Dakota partial consortium Assembly plant. Engines Detroit Diesel
(located beside – only assembly) Chassis in consortium (Dana) engines assembly, rolling
chassis with 300 components (suspension, fuel tanks, wheel&tires) : around 30% of
Dakota cost. Source : interviews with assemblers and suppliers ; newspapers 66 Actes du
GERPISA n° 33 In this "modular" system, the supply is responsible for delivery and
technical assurance to the whole sub-assembly. This is quite different from the
responsibility of a single part that will be further manipulated, manufactured and
assembled by the final assembler: if a problem occurs on the line, the assembler must
track it to look for its origin. But if the whole sub-assembly is delivered ready-to-be
assembled for a supply in a just in sequence basis, the responsibility for problems is much
easier to be set. In that sense we consider that modularity, understood beyond
subassembly delivery including a special organisation and managerial system between
suppliers and assemblers, it is driven also by vulnerability and by service issues. By
vulnerability we mean a twofold concept : vulnerability of the production and
vulnerability of the investment. For instance, Chrysler invested in Campo Largo, Brazil,
only 32% of the total amount a fully integrated own plant would require (Automotive
Industries, 1998) – rolling chassis, engines are produced in a modular basis in a
condominium. So, the assembler needs lower investments to set plants, launch new
models etc. Less investment in a plant means greater possibilities to cope with the need
to spread plants in different continents/regions/countries, as well as lower risks in terms
of profitability (see Marx, Zilbovicius and Salerno, 1997, for the risk sharing issue).
Proximity has many roles : ÿ to reduce logistical costs of sub-assemblies; ÿ to reduce
inventories in the assembler due to just in sequence delivery according to its final
scheduling; ÿ service relation. We would like to discuss the typical service relation in such
arrangements. Modularity as a Service Relation New assembly plants usually are
dedicated to one single platform, but each platform can admit many derivatives, options,
versions etc. In order to set a pull system driven by sales, assemblers desire to postpone
in extremis their production scheduling. To do so, they must have a coordinated and fast
supplier system – proximity is crucial to reduce the gap between the component (or
"module", or sub-assembly…) order and its delivery. In terms of "modulists"
manufacturing strategy, it means that they must have a fast production system and/or
inventories – time interval to deliver some modules can be less than 2 hours (e.g., seats).
The hidden side of the story our research put light on is what we call service relation.
Many suppliers have considered that the most important issue is to be “present” at the
client facility in order to react to quality or delivery problems (to solve them without
stopping the assembly line), to quickly discuss with the plant some modifications in the
component/module to better fit assembler’s characteristics and so on. On the other hand,
as many modules are more complex than its isolated components - due to the fact that it
is an assemble of components, which leads to several internal interfaces, along with the
external ones - and as they are "black boxes" from the assembler's point of view, the need
for a good, quick-respondent service is enhanced by the use of a subassembly/"modular"
supply. For instance, one "modulist" have trucks in stand by just in case a problem occurs
with the ones on route to the assembler, located few kilometres far away, and a special
scheme to avoid the effects of river floods in the region. The same supplier has a resident
engineer in the assembler’s line to deal with technical issues linked to quality although it
has never had a rejected module by the client. The reason ? “The client feels better with
our support”, in the manager words. But, apart from this feeling, to provide a local service
with specialised staff means proximity not only for the current operation, but also for
future operations, in the sense that it permits to perceive and to anticipate clients’
movements in order to anticipate proposals. In our main findings, proximity is a function
of volume and logistical problems, but also – and in some case, mainly – an issue of
service. First tier suppliers are delivering not also a whole subassembly just in sequence,
but also technical assistance (sometimes with some of their blue collar workers and
engineers working in the client’s facility), adjusting the deliverance to (frequent) changes
in scheduling due to marketing issues or to productive problems of the assembler. For
instance, if there’s a problem with the production of a version (e.g., the lack of an
important component like the particular break), the assembler would desire to change
the schedule. But to do so it has two possibilities: a) to maintain Actes du GERPISA n° 33
67 inventories; b) to have a supply system with reduce gap – this is important for
components like seats and dashboards, very linked to the particular version of each
vehicle (colour, tissue, instruments, optionals etc.) Modularity and proximity is not only a
question of components price for the assembler or of wages, but a way to reduce
uncertainties, anticipating local changes and adaptations in process and product design.
In the sense of product and process design, there are two types of proximity : the one to
the headquarters (linked to future vehicles) and the one to the assembly plants (linked to
current operations – also a way to be qualified to future business). Proximity to
headquarters means no deconcentration of the main plants and of the main design staff.
In Brazil, although most of the newer plants are located outside the traditional ABC
region – the “Brazilian Detroit”, with a high concentration of local headquarters – the
main suppliers are not thinking of moving their engineering and design facilities from
ABC. These types are coherent with the movement of capital concentration and the
leadership of some few “global players” component companies. During the development
of a vehicle, proximity means location nearby the development centre, in the
headquarters or elsewhere: co-design partially carried out by Fiat (Palio model) and GM
(Blue Macaw) in Brazil were based on local facilities of the main component companies.
Adaptation to local markets and derivatives co-design for regional markets means
proximity to local headquarters. Delivery efficiency and service dayto-day service
relations means proximity to the assembly plant, say, to be part of a
consortium/condominium. A discussion on the technological and strategic risks of
modular supply can be found in Marx, Zilbovicius and Salerno (1997) and in Automotive
Industries (1998). DESIGN PROCESS AND MODULARITY IN BRAZIL Concerning the
patterns of design present in the Brazilian automotive industry, three issues will be
discussed in this paper : first, the presence of modular product and design. Second, the
existence of different alternatives for product design strategy, ranging from the “world
car” strategy (global, standardised product derived from a new platform) to the local
design product based on an old platform (Sugiyama and Fujimoto, 2000). Third, the
present product development organisation in assemblers and autoparts makers and the
insertion of Brazilian subsidiaries or firms in this organisation. We will begin discussing
the second issue. According to Sugiyama and Fujimoto (2000), there would be four basic
strategies in product design : ÿ global design product using newly developed platform
(global standardisation); ÿ local design product using newly developed platform; ÿ global
design product using old platform; ÿ local design product using old platform. Global
design aims to reduce development costs and time, since the design activities might be
realised only once for a model that will be produced in a “global” or, at least, a larger
scale. But sometimes it may be difficult to meet specific needs of the local markets; also,
products conceived for markets of developed countries may be too “sophisticated” for
consumers of emerging countries, whose purchasing capacity as a rule is lower, a
problem known as “overdesign” (Sugiyama and Fujimoto, 2000; Fujimoto, 1999). On the
contrary, local design does not permit the development cost and time savings related to
the global one, but the needs of local consumers are more easily fulfilled. The option for a
new or old platform based strategy also have advantages and disadvantages. Concerning
the old platform strategies, the advantages relates to the usage of already proven and
well-known technologies of production, leading to fewer production problems. But
consumers may not approve an old design and technology, refusing the product. On the
other hand, new platform strategies may suffer from overdesign problems. Before the
nineties, we had observed in Brazil the presence of the third and fourth product design
strategies mentioned above. For example, VW was one of the companies which clearly
followed the fourth alternative; it might be considered in Brazil one of the most
decentralised companies concerning engineering activities – but actually 68 Actes du
GERPISA n° 33 these activities have been, most of the time, dedicated to adaptation of old
platforms originally conceived for the central markets. Nevertheless, in some cases the
local design gave birth to unique models, which may be, in a way, considerate Brazilian
models – as the Brasilia or the Gol. These previous activities would have led to the
consolidation of some competencies in product development in the Brazilian subsidiary.
The opening of the Brazilian automotive market in 1991 marked a change in these
strategies. Due to the possibility of exploitation of the Brazilian huge internal market as
well as the whole Mercosul market, car assemblers and autoparts producers have
decided to (re)invest in Brazil, either by inaugurating new plants, modernising the
existing ones and changing the product portfolio in order to face a fiercer concurrence.
This last point meant also a change in the product design strategy, from global or local
design using an old platform to a global or local design using newly developed platforms.
Actually most of the products introduced in the Brazilian market in the last five years and
produced in the country are vehicles conceived as global products, on new platforms, but
adapted to local or regional markets. These adaptations – or “tropicalisation” – are
necessary since there may be some differences among the target markets of the global
product; there may be some differences in the customers’ preferences, or in the local
conditions of usage or yet in the scale of production, which may demand a different
process and/or some differences in the product. For instance, Mercedes Benz A Class was
launched almost simultaneously in Europe and in Brazil. The Brazilian model has suffered
some adaptations due to different climate, fuel, roads and general conditions of usage. If
this alteration in the strategies meant, on one hand, the modernisation of models and
their production process, and to some extent the introduction of new technologies of
process and design, on the other hand it promoted a general “downsizing” in the product
engineering departments of the companies. As an illustration, VW had 1800 employees
working in the product engineering department ; nowadays, this number fell to 600. The
second important issue concerning the design strategy in assemblers and autoparts
makers is the configuration of the product development process. Sugiyama and Fujimoto
(2000) argue that a key factor in determining the type of organisation is the choice of
location of the product development activities, which can be home country or subsidiary
based. There may be a centralisation of the process in the headquarters, therefore in the
“central” countries; or a decentralisation of the development, with the participation of the
subsidiaries. From the point of view of the technological development of emerging
countries, the later would be the most interesting strategy because it may lead to a
competencies building process, which collaborates to the creation and consolidation of
“superior” competitive advantages (Porter, 1991) – and these, in turn, may lead to a
sustainable economic growth. Global product development may imply in a concentration
of the activities of product development in the headquarters. In fact, this centralisation is
recognised as one of the advantages of a global product, as the development costs are
reduced due to the existence of an unique development centre. Even the adaptation of
global products to local conditions, or “tropicalisation”, may be concentrated in the
headquarters. In Brazil we have found empirically examples of either concentration and
de-concentration of adaptations. For instance, Mercedes-Benz A Class and Renault Scénic
were totally developed in the headquarters, even their tropicalisation. On the other hand,
Fiat Palio and GM Blue Macaw were partially developed in Brazil, with the participation
of Brazilian engineering teams from the assemblers and the suppliers. Modularity and
decentralisation of design activities The "modular" product and design may facilitate a
decentralisation strategy, since it may not be necessary to develop every part at the same
place. Given the main characteristics of each module, its development may be done in a
black box way. Even if there is co-design or grey box development – that is, suppliers’
participation in the design process – , this does not mean that all the development
activities must be realised altogether – actually, the development of each module,
independent by definition, may be carried out in parallel processes, thus reducing the
time-tomarket of the final product. The existence of a modular product facilitates co-
design itself, inasmuch as it is much more Actes du GERPISA n° 33 69 complex for the
assembler to co-ordinate the work of different suppliers developing hundreds of isolated
parts, which should after be put together by the carmaker, than to co-ordinate the design
of a few modules by a few suppliers. The modular product reduces the number of
interfaces that must be managed by the assembler. In which refers to the specific needs
and preferences of different markets in opposition to a global, standardised product, the
adoption of modular design may be a way to obtain “the best of two worlds”. Modular
design helps to maintain the advantages of a global product and at the same time to
respond to the requests of the different markets, due to the possibility of creation of some
common modules which will be shared among several different models; the
differentiation itself may also be made through the design of different modules (Bartlett
and Ghoshal, 1992). Modularity also makes it easier to locally adapt some of the modules
without changing the basic vehicle concept – the second and fourth alternative presented
by Sugiyama and Fujimoto (2000), local design based on a new or old platform.
Therefore, if there is any need of centralisation in the product development, it does not
come from modularity; on the contrary, modularity itself makes it easier to de-
concentrate and, maybe, to profit from any competitive advantage on design that may
exist in the headquarters or subsidiaries of suppliers and carmakers. Given this scenario,
partially made possible by modularity strategies, we have some evidence that Brazil is
being consolidated as a “peripheral” product development centre, due to the size of its
market, to the importance the country has in the whole business of some companies (like
Fiat, GM, VW), and to the existence of some competencies in specific areas of product
design, specially concerning “popular” vehicles, suspension, engine adaptations etc. We
have found some interesting cases of product development being made in Brazilian
subsidiaries of transnational companies, either carmakers or autoparts firms; in these
cases generally the Brazilian subsidiaries are responsible for the creation of a derivative
model, or the adaptation or the design of some parts or modules over a pre-developed
platform. In other words, using the definitions from Clark and Fujimoto (1991)
concerning the stages of design process, the basic product concept is defined in the
headquarters, as well as the advanced vehicle design and styling. The co-ordination of the
whole process is also in charge of the central offices. The design process is decentralised
towards the subsidiaries in the later stages – component or module design, prototype,
building and testing and process engineering. Fiat’s Brazilian subsidiary, Fiasa, is an
interesting example of how this decentralisation may take place. At Fiasa there are two
main possibilities of joining a global product development process. The first one is to be
responsible for the adaptations of products or platforms for local or regional conditions1
; actually this is one of the competencies of the Brazilian product engineering department,
together with the development of local suppliers, the testing of the final model and the
nationalisation of components. For instance, the 178 Project, which gave birth to the Palio
and Siena models, was developed with the participation of Brazilian engineering teams
from Fiasa or even from some suppliers of modules, with whom there was a co-design
scheme. This participation occurred only after the stages of product concept definition
and advanced design and styling of the vehicle. Brazilian engineers and purchasing
executives went to Italy for some months during the stages of basic definitions. After this
period, the design process was centralised in Brazil, under the co-ordination of Fiat Italy.
The same process is taking place at present with the re-styling of the Palio model;
however, as this is not an entirely new platform, the participation of Fiasa has been more
significant, since there are not so many activities of conception and styling as there would
be in the conception of a new platform. But Fiasa may take part in a global development
process in another way. Fiasa has two “excellence centres” for product development of
the company, along with another four centres, all of them located in Italy. The Brazilian
centres are responsible for the development of some specific components for motors (to
deal with bad quality or alternative fuel as ethanol) and for the development of
suspension modules. This means that even if Fiat is developing a product not target for
the Brazilian or South American market, it can delegate to Fiasa the responsibility for the
development of these 1 By regional we mean not only Mercosul, but al the Third World
countries Palio and derivatives are produced or sold. 70 Actes du GERPISA n° 33 modules
or specific components – always under the co-ordination of Fiat Italy. Fiasa is one of the
assemblers’ subsidiaries most integrated to the global product development process of
their headquarters. A good example is the 178 restyling : according to the budget, Brazil
has 50% of the design hours, an Italian specialised company (Stola) has 39,4% and the
central design headquarters only 10,6%. We may find different situations if we look at
other carmakers in Brazil. GM, as mentioned above, is to launch the Arara Azul, co-
designed in Brazil. VW, firstly, has decided to reduce local design activities regarding the
next platform/family (PQ-24), but has turned back, because it would cost less to
“tropicalise” and to develop derivatives locally. Ford has increased its design engineering,
sending 60 engineers to participate in the development of the Amazon platform in
Dearborn, USA. We have already mentioned the case of Mercedes Benz A Class, that
represents a more centralised design process. On the other hand, if we look at Brazilian
autoparts companies, we will notice that in general they do not participate in co-design
with the assemblers. In most of the cases they simply develop the production process to a
given product, designed by their clients. In case they supply a very simple product, they
can design it in a “supplier’s proprietary part” way. Since modularity do not determine
the centralisation or decentralisation of the global product design process, and since we
may empirically find examples of either one or another configuration, which would be the
key factors to shape the global product development organisation in which refers to
location of activities? There are no easy answers to this question, as there are many
issues, of different natures, which may influence the decision of where to locate the
activities of the product development process; but we are able to draw some alternatives
from our empirical research in Brazil. The path, or administrative heritage of each
company concerning the product development strategies, for instance, plays an
important role in this decision (Sugiyama and Fujimoto, 2000; Bartlett and Ghoshal,
1992). Looking at the trajectories of the carmakers in Brazil, we may notice that there are
some companies that has always showed a greater intensity of product development or
adaptation activities in their subsidiaries than others. VW is one example, as we
mentioned before. One hypothesis is that along the years the existence of some product
development or adaptation activities have created some technical competencies in the
subsidiaries, and then the company could profit from these existing competencies in
order to adapt old or global products or to develop local or regional products, creating a
“virtuous circle”. In the Brazilian autoparts industry, we can also find examples of
transnational companies profiting from previously developed competencies in product
engineering. During the nineties, specially after the Automotive Regime in 1995, the
autoparts sector suffered a strong concentration and internationalization, and many
traditional Brazilian companies were acquired by transnational companies. Some of these
Brazilian companies had developed technological competencies in specific fields. After
the acquisitions, the transnational companies have centralised the product development
process in their headquarters; but, in some cases, the competencies developed by the
Brazilian company were not found in the transnational company. Thus the Brazilian
subsidiary has become the global product development centre for the products related to
those competencies. For instance, Metal Leve, a Brazilian autoparts company, had
developed competencies in the design and production of bearings. When Mahle bought
Metal Leve, it decided to maintain in Brazil the research centre for bearings, as Mahle
itself did not have the technological competencies for the development and production of
bearings. Some authors argue that the kind of knowledge necessary to develop a product
would influence the decision of whether to centralise or not the development.
Subramanian et al (1998) and Carrincazeaux and Lung (1997) shows that in the product
development process we may find both tacit knowledge – which can not be easily codified
and transmitted – and explicit knowledge. For instance, it is more difficult to determine
the preferences of each market than the conditions of the roads in a given country.
Sugiyama and Fujimoto (2000) add that even some information necessary for problem
solving in the development process may be “sticky”, or difficult to transfer, similarly to
the tacit knowledge. Actes du GERPISA n° 33 71 If the tacit knowledge or “sticky”
information are important in the development process, the physical proximity becomes
also more important, because it is more difficult to transfer it to another person. Fiat’s
Brazilian subsidiary, for example, is responsible for the adaptation of products to other
countries in South America, South Africa and countries with similar road conditions. I
means a particular development for each country, because conditions and consumers
“taste” are never the same. The companies we have studied pointed to the fact that the
Brazilian subsidiaries can be more agile to identify adaptation needs and the solutions for
these adaptations, since they are closer to the consumer market; in addition, sometimes
the best solutions come from the competencies of local based suppliers. But, to have a
broader panorama, one must develop a quantitative research, a path our research group
is following, but research is just in the beginning. The importance of tacit knowledge or
sticky information in the product development process and the existence of local
competencies may influence, but hardly ever determine the localisation of a complete
structure for product development in Brazil. Another key factor is the production scale.
For example, the carmakers that entered the market and inaugurated plants in Brazil
after 1991, often with a production scale much lower than the previously established
companies, as a rule did not create a strong structure for product development in Brazil,
as it would demand a great amount of investment. Their technical departments generally
look after some small adaptations and mainly technical assistance to customers. Also, as
argued previously, the importance of the subsidiary in the business of the parent
company helps to define whether the subsidiary will or not participate in the design
process, as well as the extent of this participation. In Brazil, subsidiaries of VW, GM and
Fiat, which contribute heavily to the economic performance of their parent companies,
have stronger participation in their product design processes, in comparison with other
subsidiaries as the Mercedes Benz (in the car business, not in truck business), Ford,
Renault and Chrysler ones, for instance. Finally, the choice of whether to concentrate or
not the product design process is also affected by some industrial policy issues, as the
existence of public direct incentives to local product development activities and the
existence (or potential for) of technological infrastructure, universities, research
institutes, workforce education etc. Thus the governments play an important role in the
attraction of product development activities to their countries. In Brazil we have
observed that this question is not in the agenda of neither the national nor the regional
governments. Despite the presence of “bidding wars” among several states, characterised
by the providing of lands, infrastructure, tax breaks and loans by the states (Arbix and
Rodríguez-Pose, 1999), these disputes aim only to increase local economic activity and
generate employment through the establishment of plants of assemblers and suppliers to
their territory. There is no discussion on subjects such as establishment of local
technological centres, or the participation of local workforce in product design activities.
CONCLUSIONS We tried to characterise modularity as an organisational and managerial
broad issue, linked to particular business strategies which emerge with the
internationalisation of the auto industry. In that sense, modularity is a broader concept
than modular design, assembly or use, it is linked to Regarding the design strategies in
the automobile industry, we could raise an hypothesis for further research. Modularity
would make easier to develop strategies characterised by a decentralisation of the design
process – either between assemblers and new service relations between car and parts
makers, to a definition of the boundaries of the companies, and to investment risks. In the
research agenda, it lacks a discussion on the suppliers side of the game.1 suppliers or
between headquarters and subsidiaries – as the development of local products based on a
platform centrally designed, and co-design. However, it does not determine the choice for
these alternatives; there are many important factors
Qus-2. Explain the process of measuring service quality in
logistic.
Ans- 1. Introduction The inclusion of concepts such as service quality and relationship
marketing has significantly changed both the academic study and business practice of
logistics. Logistics has traditionally been considered necessary for connecting production
and consumption. From this perspective, a company’s logistics function was seen only as
a generator of costs with no capacity for differentiation (Ballou, 2004). This began to
change in the mid-1990s as logistics research based on marketing principles began to
analyze the capacity of logistics to deliver quality and thus generate greater customer
satisfaction and loyalty (Mentzer et al., 2004; Richey et al., 2007). The logistics industry
today is a classical example of service-based industry development (Chapman et al.,
2003) and more in-depth studies of logistics are needed from the perspective of supply
channel relationships (Lambert et al., 2004; Knemeyer and Murphy, 2004, 2005; Foggin
et al., 2004). In addition, the generalized use of information and communication
technologies (ICT) has brought far reaching transformations to different business areas
and logistics is no exception. Stock and order management, warehousing and transport
are logistics activities which can benefit from the new opportunities offered by the
technologies to organize new forms of supply chain relationships. Given the relatively
recent application of ICT to logistics management, however, there is yet no clear
understanding of how ICT are applied or of their impact (Feng and Yuan, 2006). This
work presents an in-depth study, in an inter-organizational context, of the relationship
between logistics service quality (LSQ), with a particular emphasis on its defining factors
and customer satisfaction and loyalty. We also propose to determine how logistics ICT
influences this consequence chain. Our objective therefore, is to examine the moderator
effect of ICT intensity on said variables, in other words, we want to analyze the influence
of high levels of ICT in comparison to low levels of ICT on the perception of LSQ and how
this can affect satisfaction and in the final instance, loyalty. The study is divided into three
parts. First, through a literature review we define the theoretical framework for
examining the different consequence chain variables. Secondly, we establish the
methodology used in the empirical research and evaluate the results obtained. Finally, we
report the most significant conclusions which can be drawn from this study. 2. Theory
development and hypotheses 2.1 Logistics service quality Since the mid-1980s, service
quality has been a priority theme in both marketing and logistics research, running
parallel to the interest in quality, quality management and satisfaction in companies (Fisk
et al., 1993; Shet et al., 2006; Richey et al., 2007). Research by Millen et al. (1999)
identifies significantly improved customer satisfaction as a key benefit of LSQ. On these
lines, research in Spain by Va´zquez Casielles et al. (2002, p. 40) confirms that quality in
supplier physical distribution activities has the greatest influence on customer
satisfaction. The notion of LSQ has been studied from two different perspectives:
objective and subjective quality. The first approach relates quality with adapting the
service to service provider defined specifications (Crosby, 1991). This industrial view of
service sees quality as an accurate evaluation of all the stages and operations necessary
to LSQ: a new way to loyalty 651 deliver the service, likening the process to that of
manufacturing a product by considering the service as a physical object which can be
observed and with attributes that can be evaluated (Garvin, 1984). The second approach
transfers evaluation of quality to the customer, that is subjective quality. From this
perspective, service quality is “a global judgment or attitude, concerning the superior
nature of the service” (Parasuraman et al., 1988, p. 16). In the sphere of logistics service,
the contribution from Bienstock et al. (1997), includes this development by identifying
objective variables measured through customers’ perceptions in relation to their
expectations (subjective components) as the main components of LSQ. More recent
studies (Millen and Maggard, 1997; Sohal et al., 1999; Mentzer et al., 2001), contribute to
this line by considering LSQ as the difference between the expected and the perceived
service. This subjective character makes quality highly relative and volatile in nature as it
varies in time and space (Holbrock and Corfman, 1985). In terms of modeling and
measurement proposals, there are two schools in the literature, the Nordic and the
American. The former differentiates two components in service quality (Gro¨nroos,
1982): (1) technical quality expressed as the service being technically acceptable and
leading to a concrete result; and (2) functional quality which includes the way the
customer is treated during the service provision process. Later work by Rust and Oliver
(1994) adds a third component: the service environment. The American school has
predominantly used the SERVQUAL scale to measure and dimension service quality. This
multi-item scale evaluates five quality dimensions from a global perspective
(Parasuraman et al., 1988): (1) reliability; (2) reactivity; (3) guarantee/safety; (4)
empathy; and (5) tangible elements. According to this model, perceived quality is
measured by the imbalance between two separate scales, one measuring expectations
and the other the perception of the result. Later revisions of the scale, however, led
Cronin and Taylor (1994) to reject measurement of expectations and consider only the
result measurement scale (SERVPERF). The debate is ongoing, although in the sphere of
logistics specific measurement models are being developed on the basis of the above
models, but adapted to the special features of logistics service. These features include in
particular the fact that the people object of the service are replaced by “things” (objects,
materials, products, ...) and the physical separation of customer and supplier. We would
underline two important contributions from Bienstock et al. (1997) and Mentzer et al.
(1999). The former developed a specific model known as physical distribution service
quality, based on result, rather than on functional or process dimensions. Mentzer et al.
(1999) carried out a study to confirm the accuracy of the model developed by Bienstock
et al. (1997) with an integral logistics focus. This revision and validation IMDS 108,5 652
provided a new multidimensional model which they called LSQ. Analysis of these and
other significant contributions (Novack et al., 1994; Anderson et al., 1994; Rutner and
Langley, 2000; Stank et al., 2003; Richey et al., 2007; Rafid and Jaafar, 2007) has allowed
us to identify a set of dimensions for measuring LSQ (timeliness, condition and accuracy
of the order, quality of information, availability and quality of contact personnel). Of all
these dimensions, timeliness has the greatest influence (La Londe and Zinszer, 1991;
Perrault and Russ, 1974; Novack et al., 1994; Bienstock et al., 1997; Mentzer et al., 2001),
and is understood to mean reception of the order placed by the customer at the agreed
moment (Mentzer et al., 2001). A more recent study (Rahman, 2006) confirms these
results, showing that the most important component is “on time delivery.” 2.2 Satisfaction
and loyalty in inter-company relationships We now proceed to analyze the main
consequences of quality delivery which are satisfaction and loyalty. There is a long
research tradition into both these concepts which gives different nuances to their
conceptualization. Satisfaction has been studied with a dual process-result focus and is
defined by some authors (Hunt, 1977; Westbrook, 1980) as a process of evaluating or
measuring a purchase experience where expectations are compared with the result.
Other authors relate satisfaction to process result, in other words to the response or state
of the customer considering consumption of the product. This response may be cognitive
(Howard and Sheth, 1969; Churchill and Surprenant, 1982; Day, 1984), with satisfaction
as the result of a consumption experience in which the consumer cognitively evaluates
the variables (expectations and results, effort and reward) or satisfaction may be
affective (Woodruff and Gardial, 1996; Giese and Cote, 2000; Vanhamme and Snelders,
2001; Eggert and Ulaga, 2002) and reflect the feelings of the consumer or the company
(Anderson and Narus, 1984) in terms of product enjoyment. The most useful theoretical
basis for explaining the process which leads to judgments of satisfaction has proved to be
the disconfirmation of expectations paradigm based on evaluating or measuring certain
variables, mainly the perception of the results (performance) and certain comparison
standards. Analysis of the most recent contributions shows a certain convergence
towards understanding satisfaction as a phenomenon linked to cognitive judgments and
affective responses (Oliver et al., 1997; Phillips and Baumgartner, 2002; Wirtz and
Bateson, 1999). Some studies share this dual focus, assuming that satisfaction is an
affective response arising from a cognitive judgment (Halstead et al., 1994; Giese and
Cote, 2000; Yu and Dean, 2001). Satisfaction can also be interpreted from the point of
view of a specific transaction or from an accumulative view (Boulding et al., 1993). Most
approaches in the literature use the first perspective (Giese and Cote, 2000), although
proposals like those by Fornell et al. (1996) and Anderson et al. (1994) consider
satisfaction as a global evaluation based on consumption experience over time or on a set
of similar experiences. More recent contributions adopt this last approach in the wide
sense supporting the idea of satisfaction as “a global measurement of a set of satisfactions
with specific prior experiences” (Yu and Dean, 2001, p. 235). According to Jones and Suh
(2000), satisfaction defined from this point of view would explain behavioral intentions
better. Finally, the consequence chain closes with loyalty. The literature coincides in
pointing to loyalty as the “sine qua non of an effective business strategy” (Heskett, LSQ: a
new way to loyalty 653 2002, p. 355), pointing out that delivering quality and achieving
satisfaction can be the basis for developing said relationship (Rauyruen and Miller, 2007),
so that it is possible to speak of a conceptual quality-satisfaction-loyalty network. The
link between the last two items, however, is asymmetric so that although consumers are
normally satisfied, satisfaction does not universally translate into loyalty (Oliver, 1999).
It is true though, that while satisfaction influences loyalty, there are other determining
factors and predictors of loyalty which are not included in the conceptual structure of
satisfaction. The literature review allowed us to identify two different approaches to the
conceptual definition of loyalty. One view is that loyalty is simply another word for
expressing customer retention: “a customer who continues to buy is a loyal customer”
(Buttle and Burton, 2002, p. 218). Another view is that customer loyalty has an affective
component where feelings are important. Research into loyalty has thus developed from
the perspective of effective, evident behavior which implies repeat
purchase/consumption or from the perspective of attitude (Dick and Basu, 1994; de
Ruyter et al., 1998; Oliver, 1999). These two perspectives can be reconciled through the
definition offered by Gremler and Brown (1996, p. 173): [...] loyalty is the degree to which
a customer shows repeat purchase behavior towards a supplier, is positively disposed
towards the supplier and considers using only this supplier when he needs that service.
These conceptual differences have given rise to different measurements for loyalty.
Behaviorally, loyalty is understood to be the degree of customer repeat purchase from a
service provider and some typical measurements used are repurchase rate, purchase
behavior in a period of time and so on (Martı´nez-Ribes et al., 1999); measurements with
more affinity to the affective perspective are based on intention to frequent a service
supplier, continuing to purchase the same type of service or brand in the future,
recommendation, and so on. The latter approach to measuring loyalty has been widely
accepted after the proposal by Zeithaml et al. (1996). Specifically, in the logistics context,
different contributions clearly show the importance (Innis and La Londe, 1994;
Daugherty et al., 1998; Stank et al., 2003) and direct, positive influence of satisfaction on
loyalty. 2.3 Logistics function and ICT Finally, we have study the influence of ICT on the
consequence chain described above. The use of ICT in logistics has been truly
revolutionary (Christopher, 1992; Novack et al., 1992; Closs and Xu, 2000; Ballou, 2004),
especially in terms of improving LSQ for the customer. Rather than merely evolving, the
concept of logistics has been revolutionised, especially in terms of inter-company
relationships (Parasuraman and Grewal, 2000; Chen and Dwivedi, 2007), to the extent
that the conceptual structure has been redesigned to include information technologies
which facilitate information gathering, processing and distribution so that decision taking
can be improved both internally (Lewis and Talalayevsky, 1997) and in the supply chain
(Angeles, 2000). This very recent relevance of ICT, has led us to include them in this study
in order to verify any moderator effect they may have on the quality-satisfaction-loyalty
consequence chain. IMDS 108,5 654 Information management, as Lewis and Talalayevsky
(1997) suggest, does not have to follow the same structure as the physical flow. ICT can
be used to shorten the channel and reduce intermediaries, generating direct contact with
customers in terms of information and communication (Sua´rez A´ lvarez et al., 2004).
This shortening of the channel improves communication speed, reducing information
transmission costs (Christopher, 1992). Differentiated management of the information
flow and the physical flow makes it possible to optimize each of them independently and
improve company productivity. Differentiated information management is done through
what is known as the logistics information system (LIS). LIS is defined as “the interactive
structure composed of people, teams, methods and controls which together, give the
information management needs to form a basis for decision making on planning,
implementation and control” (Casanovas and Cuatrecasas, 2001, p. 191). The importance
of LIS lies in its capacity to transform data into useful and relevant information to
facilitate decision making in business management (Introna, 1993). The external
dimension of information management is one of the most relevant characteristics of ICT
logistics. The logistics function has a clear inter-company nature to the extent that it
interacts with other agents in the supply chain such as suppliers and customers
(Bowersox and Closs, 1996; Morash et al., 1997; Ballou, 2004) and this interaction is even
greater when logistics activities are subcontracted (Dura´n et al., 2001). The need to
interact externally makes gathering and transmitting information beyond the limits of the
organization essential. It is a question of creating inter-organizational information
systems to improve a company’s competitiveness by sharing updated information
(Sa´nchez Ferna´ndez, 2002). From the literature review, we have extracted the most
widely applied ICT in logistics and in particular those used to improve LSQ. We especially
note the following (Taylor Nelson Sofres, 2001; Feng and Yuan, 2006): . Enterprise
resource planning business software which allows companies to plan and control all the
resources required for collecting, making, sending and entering customer orders in
production, distribution and service companies (Edwards et al., 2001; Manetti, 2001;
Huang et al., 2008). . Material resources planning software used to optimize material
needs planning (Bardi et al., 1994). . Electronic data interchange which is the telematic
transmission of information in a standardized format from one company’s computer
application to another company’s system, without the need for manual intervention,
through a third party-managed network (Bath, 2001; Martı´nez Sa´nchez and Pe´rez
Pe´rez, 2004; Leonard and Davis, 2006). . Technologies for optimizing transport such as
GPS and route planning software. In our study, intensity of technology use is taken to be
an indicator of ICT intensity in the companies analyzed. Based on the above contributions
in this conceptual framework, we define the following research hypotheses: H1. LSQ has a
direct, positive effect on customer satisfaction. H2. Customer satisfaction has a direct,
positive effect on loyalty. LSQ: a new way to loyalty 655 H3. The effect of LSQ is greater
when ICT intensity in the supplier-customer relationship is high. H4. The effect of
satisfaction on loyalty is greater when ICT intensity in the supplier-customer relationship
is high. 3. Research methods The literature review has made it possible to offer a
conceptual definition of the variables being studied here and establish the best scales for
evaluating them, thus providing guidelines for designing the empirical research. The
research started by identifying the companies to be studied. In a second stage, a
qualitative study was done which provided a first proposal for a questionnaire. The
questionnaire was evaluated by a pre-test which enabled some of the scales to be purged.
The final proposal was an ad hoc questionnaire which permitted data collection by means
of personal interviews in field work carried out between May and June 2004. The sample
consisted in 194 companies, which were contacted by telephone to arrange a meeting for
the personal interview. A first characterization of the companies examined shows large
sized companies with an average turnover of e32 million and over 200 employees and an
average ICT investment of 0.5 percent of the total turnover, spanning all sectors of
business in the Valencian region. This characterization agrees with the results reported
by Chuang et al. (2007) which identify company size as a key factor in ICT adoption. 3.1
Developing the measurement scales We analyzed contributions from different authors in
order to identify measurement scales for the variables in our study. In relation to the
variable LSQ, the literature review showed that the measurement scale developed by
Mentzer et al. (2001) has been used repeatedly and is up-to-date. Our evaluation
proposal is based on that scale (Table I). However, given that various works identify
“timeliness” as the most significant dimension in LSQ (La Londe and Zinszer, 1991;
Perrault and Russ, 1974; Novack et al., 1994; Bienstock et al., 1997; Mentzer et al., 2001),
we decided it should be retained as an independent variable in the model in order to
verify its specific effect on satisfaction and compare it with the effect of the other LSQ
dimensions. Analysis of the different contributions has suggested a scale for evaluating
satisfaction (Table I) based on a minor adaptation of Stank et al. (2003) which is a current
piece of research focusing on inter-company logistics service and has been used before
(Daugherty et al., 1998). Finally, our proposal for measuring loyalty (Table I) is based
mainly on the contribution by Zeithaml et al. (1996) based on evaluating loyalty as
behavioral intention. 3.2 Measurement model results The different scales in this study
were dimensioned using exploratory factor analysis with varimax rotation using the
eigenvalues greater than 1 criterion. The LSQ scale extracted two factors, presenting a
total accumulated variability of 58.60 percent. The scales for satisfaction and loyalty were
unidimensional, with an explained variance of 86.37 percent for satisfaction and 74.02
percent for loyalty. With regard to reliability of subscales (a coefficient for the two multi-
item dimensions of LSQ was 0.821 and 0.790) and scales (a coefficient for the satisfaction
scale was 0.837 and loyalty was 0.739), all the coefficients exceed the minimum
recommended threshold of 0.7 (Nunnally, 1987) and so we can confirm initial scale
reliability. Then we went on to confirm scale dimensionality before verifying the causal
relations using confirmatory factor analysis and EQS 6.1 statistical software. This analysis
enabled us to include theoretical and statistical considerations in developing the scales
following Anderson and Gerbing (1988). The confirmatory model was estimated using
the robust maximum likelihood method (Bentler, 1995). The results obtained in
estimating the measurement model show that the variables measured converge perfectly
towards the factors established in the exploratory factor analysis, as all the measurement
parameters are significant (Table II). Construct validity of the scales was analyzed by
studying convergent and divergent validity. Convergent validity shows the degree to
which two or more attempts to measure the same concept agree. To measure this
relationship in unidimensional factors, the variables must have significant, high
weighting (Anderson and Gerbing, 1988). Validity was therefore checked through
standardized loads for each dimension (Table II). Saturations were almost always above
0.5 and all the t-student statistic associated values were significant at 5 percent. We can
therefore conclude that the scale has convergent validity (Anderson and Gerbing, 1988;
Steemkamp and van Trijp, 1991). To verify discriminant validity of the measurement
scales, we calculated the square of linear correlations between each pair of scales, to see
if this was lower than the level of variance extracted from each of them. Correlations
between the different scales (standardized covariances between factors) show evidence
of discriminant validity as values are well below eigenvalue (lower than 0.8). After
squaring, they are almost all lower than the extracted variance. In addition, confidence
levels between parameters (Table I) which indicate correlation between latent factors are
sufficiently below the eigenvalue to guarantee discriminant validity of the latent variables
or scales (Anderson and Gerbing, 1988). Finally, Table II shows the quality indexes for the
fit of the measurement model with highly satisfactory levels of fit. 4. Discussion and
implications of the structural model Our main interest is to contrast the LSQ-satisfaction-
loyalty consequence chain in the logistics sphere and examine the moderator effect of ICT
intensity. Thus, after verifying scale psychometric properties and before the multi-sample
analysis we focused on estimating the causal relationships considered in the hypotheses
for the consequence chain. With regard to these estimates for the causal relationships
(Figure 1), the results obtained for the first two hypotheses for the model under
consideration allow us to state that there is a clear, positive and significant influence of
personnel, information and order quality on satisfaction. Similarly, satisfaction is
positively and significantly dependent on timeliness. Furthermore, in terms of the
satisfaction-loyalty relationship, the results show that satisfaction has a direct, significant
influence on the consequent variable loyalty. All the coefficients are significant at 99
percent and so we can verify the hypotheses considered for the sample as a whole (H1
and H2). Finally, it should be noted that the indexes for model fit (Table III) are
satisfactory and so we can state that our results are robust.
influence in the group of companies with higher ICT intensity. Timeliness, however, has
the opposite effect, significantly influencing the consequent variable satisfaction only in
the group of companies with low-ICT intensity. In order to check for significant
differences between the causal parameter estimations, we estimated the proposed model
again, introducing the restriction as null hypothesis which establishes that regression
coefficients in a structural model (g and b according to LISREL notation) are the same in
the two groups (Iglesias and Va´zquez, 2001). In this second stage and thanks to the
Lagrange multiplier test (Imtest), significant differences can be observed between the
parameters for both subsamples. That is, we can verify that eliminating restrictions
causes significant change in x 2 statistic, which would mean rejecting the equal parameter
restriction as model fit would be significantly improved if it were eliminated (Table VI).
The statistic associated to x 2 for each of the restrictions shows that only the restriction
between satisfaction and loyalty has a positive affect on model fit. We can therefore state
that ICT intensity has a positive influence on the relationship between satisfaction and
loyalty in the logistics sphere (H4), but not in the other relationships considered. These
results therefore, confirm that ICT intensity moderates the effect of satisfaction on
loyalty. 5. Conclusions, managerial implications and future research In this paper, we
aimed to analyze the LSQ-satisfaction-loyalty consequence chain in the sphere of inter-
company relationships and research the moderator effect of ICT in the proposed
relationships. From the conceptual point of view and after reviewing progress in the main
lines of research into LSQ, we identified timeliness as the most significant dimension
together with personnel, information and order quality. We therefore approached the
analysis of quality from its two basic components. The literature review also allowed us
to propose a relationship model which begins with LSQ and ends with loyalty through
satisfaction. The results of the empirical research on a sample of 194 Spanish, mainly
manufacturing companies, show that LSQ-associated to timeliness and personnel,
information and order quality, has a clear, positive and significant influence on
satisfaction and loyalty shown by customer companies. In addition, the results suggest
that ICT logistics intensity in the supplier-customer relationship moderates the effect of
the proposed links between the variables. Thus, we can conclude that in situations of
high-ICT intensity the effect of the predictors, personnel, information, order quality and
satisfaction on loyalty is intensified. Here, slightly stronger relationships are evident in
the first dimension of service quality and especially in the satisfaction-loyalty
relationship. This work also shows that this chain of effects exists around logistics service
and underlines the significance and ability of ICT to affect relationship intensities
between these variables. In particular, ICT improve the quality of the logistics service
offered to customers. Constraints Gl x2 difference p-Value Personnel quality, information
quality, and order quality-satisfaction 1 0.006 0.939 Timeliness-satisfaction 1 0.018
0.894 Satisfaction-loyalty 1 3.964 0.046 Table VI. Results of multigroup analysis IMDS
108,5 662 These conclusions offer a series of managerial implications. Firstly, companies
should invest in ICT to improve information flow management both internally and
throughout the supply chain. This is because, as we have shown, improved information
management is a key factor in improving LSQ for the customer. This, in turn, has an
impact on customer satisfaction and loyalty towards the company. Secondly, companies
who wish to improve the quality of their customer service must attend particularly to
improving the order process, making it easier and complying with the delivery terms
agreed with the customer. Finally, this study has shown the important role of customer
contact personnel in customer satisfaction. Therefore, companies should provide
employees with the training and resources necessary to provide good customer service.
In future works, we intend to study the importance of the human factor in B2B
relationships in greater depth. References Anderson, E.W., Fornell, C. and Lehrmann, D.R.
(1994), “Customer satisfaction, market share, and profitability: findings from Sweden”,
Journal of Marketing, Vol. 58, pp. 53-66. Anderson, J.C. and Narus, J.A. (1984), “A model of
the distributor’s perspective of distributor – manufacturer working relationships”,
Journal of Marketing, Vol. 48 No. 4, pp. 62-74. Anderson, J.C. and Gerbing, D.W. (1988),
“Structural equation modeling in practice: a review and recommended two-step
approach”, Psychological Bulletin, Vol. 103 No. 3, pp. 411-23. Angeles, R. (2000),
“Revisiting the role of internet-EDI in the current electronic commerce scene”, Logistics
Information Management, Vol. 13 No. 1, pp. 45-57. Ballou, R.H. (2004), Logı´stica.
Administracio´n de la cadena de suministro, Prentice-Hall, Pearson Educacio´n, Me´jico.
Bardi, E.J., Raghunathan, T.S. and Bagchi, P.K. (1994), “Logistics information systems: the
strategic role of top management”, Journal of Business Logistics, Vol. 15 No. 1, pp. 71-85.
Baron, R.M. and Kenny, D.A. (1986), “The moderator-mediator variable distinction in
social psychological research: conceptual, strategic, and statistical considerations”,
Journal of Personality and Social Psychology, Vol. 51 No. 6, pp. 1173-82. Bath, G.D. (2001),
“Business process improvement through electronic data interchange (EDI) systems: an
empirical study”, Supply Chain Management, Vol. 6 No. 2, pp. 60-73. Bentler, P. (1995),
EQS Structural Equations Program Manual, Multivariate Software, Encino, CA. Bienstock,
C.C., Mentzer, J.T. and Bird, M.M. (1997), “Measuring physical distribution service quality”,
Journal of the Academy of Marketing Science, Vol. 25 No. 1, pp. 31-44. Boulding, W., Kalra,
A., Staelin, R. and Zeithaml, V.A. (1993), “A dynamic process model of service quality:
from expectations to behavioral intentions”, Journal of Marketing Research, Vol. 30, pp. 7-
27. Bowersox, D.J. and Closs, D.J. (1996), Logistical Management: The Integrate Supply
Chain Management, McGraw-Hill, London. Buttle, F. and Burton, J. (2002), “Does service
failure influence customer loyalty?”, Journal of Consumer Behavior, Vol. 1 No. 3, pp. 217-
27. Casanovas, A. and Cuatrecasas, L. (2001), Logı´stica Empresarial, Gestio´n 2000,
Barcelona. Chapman, R.L., Soosay, C. and Kandampully, J. (2003), “Innovation in logistic
services and the new business model”, International Journal of Physical Distribution &
Logistics

Qus -3. Explain the difference between surge and base demands.

Ans - Overview[edit]

A voltage spike is a transient event, typically lasting 1 to 30 microseconds, that may reach
over 1,000 volts. Lightning that hits a power line can give many thousands, sometimes
100,000 or more volts. A motor when switched off can generate a spike of 1,000 or more
volts. Spikes can degrade wiring insulation and destroy electronic devices like battery
chargers, modems and TVs.

Spikes can also occur on telephone and data lines when AC (alternating current) main
lines accidentally connect to them or lightning hits them or the telephone and data lines
travel near lines with a spike and the voltage is induced.

A long term surge, lasting seconds, minutes, or hours, caused by power transformer
failures such as a lost neutral or other power company error, are not protected by
transient protectors. Long term surges can destroy the protectors in an entire building or
area. Even tens of milliseconds can be longer than a protector can handle. Long term
surges may or may not be handled by fuses and over voltage relays.

A transient surge protector attempts to limit the voltage supplied to an electric device by
either blocking or shorting current to reduce the voltage below a safe threshold. Blocking
is done by using inductors which inhibit a sudden change in current. Shorting is done by
spark gaps, discharge tubes, zener-type semiconductors, and MOVs (Metal Oxide
Varistors), all of which begin to conduct current once a certain voltage threshold is
reached, or by capacitors which inhibit a sudden change in voltage. Some surge
protectors use multiple elements.
The most common and effective way is the shorting method in which the electrical lines
are temporarily shorted together until the voltage is reduced by the resistance in the
power lines. The spike's energy is dissipated in the power lines (and/or the ground),
converted to heat. Since a spike lasts only 10s of microseconds, the temperature rise is
minimal. However, if the spike is large enough, like a nearby hit by lightning, there might
not be enough power line or ground resistance and the MOV (or other protection
element) can be destroyed and power lines melted.

Surge protectors for homes can be in power strips used inside, or a device outside at the
power panel. A modern house has three wires, Line, Neutral, and Ground (L,N, and G).
Many protectors will connect to all three, in pairs, L-N,L-G,and N-G, since there are
conditions, like lightning, where both L and N have high voltage spikes that need to be
shorted to ground.

Definitions[edit]

The terms surge protection device (SPD) and transient voltage surge suppressor (TVSS) are
used to describe electrical devices typically installed in power distribution
panels, process control systems, communications systems, and other heavy-duty
industrial systems, for the purpose of protecting against electrical surges and spikes,
including those caused by lightning. Scaled-down versions of these devices are sometimes
installed in residential service entrance electrical panels, to protect equipment in a
household from similar hazards.

Many power strips have basic surge protection built in; these are typically clearly labeled
as such. However, in unregulated countries there are power strips labelled as "surge" or
"spike" protectors that only have a capacitor or RFI circuit (or nothing) that
do not provide true (or any) spike protection. Important specifications[edit]

These are some of the most prominently featured specifications which define a surge
protector for AC mains, as well as for some data communications protection applications.

UK type G socket adapter with surge protector

Clamping voltage[edit]
Also known as the let-through voltage, this specifies what spike voltage will cause the
protective components inside a surge protector to short or clamp.[3] A lower clamping
voltage indicates better protection, but can sometimes result in a shorter life expectancy
for the overall protective system. The lowest three levels of protection defined in the UL
rating are 330 V, 400 V and 500 V. The standard let-through voltage for 120 V AC devices
is 330 volts.[4]

Underwriters Laboratories (UL),[5] a global independent safety science company, defines

how a protector may be used safely. UL 1449 became compliance mandatory[where?] with
the 3rd edition in September 2009 to increase safety compared to products conforming
to the 2nd edition. A measured limiting voltage test, using six times higher current (and
energy), defines a voltage protection rating (VPR). For a specific protector, this voltage
may be higher compared to a Suppressed Voltage Ratings (SVR) in previous editions that
measured let-through voltage with less current. Due to non-linear characteristics of
protectors, let-through voltages defined by 2nd edition and 3rd edition testing are not
comparable.[4][6]

A protector may be larger to obtain a same let-through voltage during 3rd edition testing.
Therefore, a 3rd edition or later protector should provide superior safety with increased
life expectancy.

A protector with a higher let-through voltage, e.g.400v vs 330v, will pass a higher voltage
to the connected device. The design of the connected device determines whether this
pass-thorough spike will cause damage. Motors and mechanical devices are usually not
affected. Some (especially older) electronic parts, like chargers, LED or CFL bulbs and
computerized appliances are sensitive and can be compromised and have their life
reduced.

Joule rating[edit]

The Joule rating number defines how much energy a MOV-based surge protector can
theoretically absorb in a single event, without failure. Better protectors exceed ratings of
1,000 joules and 40,000 amperes. Since the actual duration of a spike is only about 10
microseconds, the actual power dissipated in the MOV is only 1 to 20 watts. Any more
than that and the MOV will fuse, or sometimes short and melt, hopefully blowing a fuse,
disconnecting itself from the circuit.
The MOV (or other shorting device) requires resistance in the supply line in order to limit
the voltage. If you have big, low resistance, power lines you need a bigger, larger joule
rated MOV. Inside a house, with smaller wires that have more resistance, you can use
lower ratings.

Every time a MOV shorts, its internal structure is changed and its threshold voltage
reduced slightly. After many spikes the threshold voltage can reduce enough to be near
the line voltage, i.e. 120 vac or 240 vac. At this point the MOV will partially conduct and
heat up and eventually fail, sometimes in a dramatic meltdown or even a fire. Most
modern surge protectors have circuit breakers and temperature fuses to prevent serious
consequences. Many also have a LED light to indicate if the MOVs are still functioning.

The joule rating is commonly quoted for comparing MOV-based surge protectors. An
average surge (spike) is of short duration, lasting for nanoseconds to microseconds, and
experimentally modeled surge energy can be less than 100 joules.[7] Well-designed surge
protectors consider the resistance of the lines that supply the power, the chance of
lightning or other seriously energetic spike, and specify the MOVs accordingly. A little
battery charger might include a MOV of only 1 watt, whereas a surge strip will have a 20
watt MOV or several of them in parallel. A house protector will have a large block-type
MOV.

Some manufacturers commonly design higher joule-rated surge protectors by connecting

multiple MOVs in parallel and this can produce a misleading rating. Since individual
MOVs have slightly different voltage thresholds and non-linear responses when exposed
to the same voltage curve, any given MOV might be more sensitive than others. This can
cause one MOV in a group to conduct more (a phenomenon called current hogging),
leading to possible overuse and eventual premature failure of that component. However
the other MOVs in the group do help a little as they start to conduct as the voltage
continues to rise as it does since a MOV does not have a sharp threshold. It may start to
short at 270 volts but not reach full short until 450 or more volts. A second MOV might
start at 290 volts and another at 320 volts so they all can help clamp the voltage, and at
full current there is a series ballast effect that improves current sharing, but stating the
actual joule rating as the sum of all the individual MOVs does not accurately reflect the
total clamping ability. The first MOV may bear more of the burden and fail earlier. One
MOV manufacturer recommends using fewer but bigger MOVs (e.g.60mm vs 40mm
diameter) if they can fit in the device and to match them and derate them. In some cases it
may take four 40 mm MOVs to be equivalent to one 60 mm MOV.[8]
A further problem is that if a single inline fuse is placed in series with a group of
paralleled MOVs as a disconnect safety feature, it will open and disconnect all remaining
working MOVs.

The effective surge energy absorption capacity of the entire system is dependent on the
MOV matching so derating by 20% or more is usually required. This limitation can be
managed by using carefully matched sets of MOVs, matched according to manufacturer's
specification.[9][8]

According to industry testing standards, based on IEEE and ANSI assumptions, power line
surges inside a building can be up to 6,000 volts and 3,000 amperes, and deliver up to 90
joules of energy, including surges from external sources not including lightning strikes.

The common assumptions regarding lightning specifically, based ANSI/IEEE C62.41 and
UL 1449 (3rd Edition) at time of this writing, are that minimum lightning-based power
line surges inside a building are typically 10,000 amperes or 10 kiloamperes (kA). This is
based on 20 kA striking a power line, the imparted current then traveling equally in both
directions on the power line with the resulting 10 kA traveling into the building or home.
These assumptions are based on an average approximation for testing minimum
standards. While 10 kA is typically good enough for minimum protection against
lightning strikes it is possible for a lightning strike to impart up to 200 kA to a power line
with 100 kA traveling in each direction.

Lightning and other high-energy transient voltage surges can be suppressed with pole
mounted supressors by the utility, or with an owner supplied whole house surge
protector. A whole house product is more expensive than simple single-outlet surge
protectors and often needs professional installation on the incoming electrical power
feed; however, they prevent power line spikes from entering the house. Damage from
direct lightning strikes via other paths must be controlled separately.

Response time[edit]

Surge protectors don't operate instantaneously; a slight delay exists, some few
nanoseconds. The longer the response time and depending on system impedance, the
connected equipment maybe exposed to some of the surge. However, surges typically are
much slower and take around a few microseconds to reach their peak voltage, and a
surge protector with a nanosecond response time would kick in fast enough to suppress
the most damaging portion of the spike.[10]
Thus response time under standard testing is not a useful measure of a surge protector's
ability when comparing MOV devices. All MOVs have response times measured in
nanoseconds, while test waveforms usually used to design and calibrate surge protectors
are all based on modeled waveforms of surges measured in microseconds. As a result,
MOV-based protectors have no trouble producing impressive response-time specs.

Slower-responding technologies (notably, GDTs) may have difficulty protecting against

fast spikes. Therefore, good designs incorporating slower but otherwise useful
technologies usually combine them with faster-acting components, to provide more
comprehensive protection

Standards[edit]

Some frequently listed standards include:

IEC 61643-11 Low-voltage surge protective devices - Part 11: Surge protective devices
connected to low-voltage power systems - Requirements and test methods (replaces IEC
61643-1)

IEC 61643-21 Low voltage surge protective devices - Part 21: Surge protective devices
connected to telecommunications and signalling networks - Performance requirements
and testing methods

IEC 61643-22 Low-voltage surge protective devices - Part 22: Surge protective devices
connected to telecommunications and signalling networks - Selection and application
principles

EN 61643-11, 61643-21 and 61643-22

Telcordia Technologies Technical Reference TR-NWT-001011

ANSI/IEEE C62.xx

Underwriters Laboratories (UL) 1449.

AS/NZS 1768

Each standard defines different protector characteristics, test vectors, or operational

purpose.
The 3rd Edition of UL Standard 1449 for SPDs was a major rewrite of previous editions,
and was also accepted as an ANSI standard for the first time.[12][13] A subsequent revision
in 2015 included the addition of low-voltage circuits for USB charging ports and
associated batteries.[14][15]

EN 62305 and ANSI/IEEE C62.xx define what spikes a protector might be expected to
divert. EN 61643-11 and 61643-21 specify both the product's performance and safety
requirements. In contrast, the IEC only writes standards and does not certify any
particular product as meeting those standards. IEC Standards are used by members of the
CB Scheme of international agreements to test and certify products for safety compliance.

None of those standards guarantee that a protector will provide proper protection in a
given application. Each standard defines what a protector should do or might accomplish,
based on standardized tests that may or may not correlate to conditions present in a
particular real-world situation. A specialized engineering analysis may be needed to
provide sufficient protection, especially in situations of high lightning risk.

Primary components[edit]

Systems used to reduce or limit high-voltage surges[16][17] can include one or more of the
following types of electronic components. Some surge suppression systems use multiple
technologies, since each method has its strong and weak points.[11][18][19] The first six
methods listed operate primarily by diverting unwanted surge energy away from the
protected load, through a protective component connected in a parallel (or shunted)
topology. The last two methods also block unwanted energy by using a protective
component connected in series with the power feed to the protected load, and
additionally may shunt the unwanted energy like the earlier systems.

Metal oxide varistor[edit]

Further information: Varistor

A metal oxide varistor (MOV) consists of a bulk semiconductor material
(typically sintered granular zinc oxide) that can conduct large currents (effectively short-
circuits) when presented with a voltage above its rated voltage.[4][20] MOVs typically limit
voltages to about 3 to 4 times the normal circuit voltage by diverting surge current
elsewhere than the protected load. MOVs may be connected in parallel to increase
current capability and life expectancy, providing they are matched sets. (Unmatched
MOVs have a tolerance of approximately ±10% on voltage ratings, which may not be
sufficient [8].) For more details on the effectiveness of parallel-connected MOVs, see the
section on Joules rating elsewhere in this article.

MOVs have finite life expectancy and "degrade" when exposed to a few large transients,
or many small transients.[21][22]. Every time a MOV activates (shorts,) its threshold voltage
reduces slightly. After many spikes the threshold voltage can reduce enough to be near
the protection voltage, either mains or data. At this point the MOV conducts more and
more often, heats up and finally fails. In data circuits, the data channel becomes shorted
and non-functional. In a power circuit, you may get a dramatic meltdown or even a fire if
not protected by a fuse of some kind.[23]

Most modern surge strips and house protectors have circuit breakers and temperature
fuses to prevent serious consequences. A thermal fuse disconnects the MOV when it gets
too hot. Only the MOV is disconnected leaving the rest of the circuit working but not
protected. Often there is a LED light to indicate if the MOVs are still functioning. Older
surge strips had no thermal fuse and relied on a 10 or 15 amp circuit breaker which
usually blew only after the MOVs had smoked, burned, popped, melted and permanently
shorted.

A failing MOV is a fire risk, which is a reason for the National Fire Protection Association's
(NFPA)[24] UL1449 in 1986[25] and subsequent revisions in 1998, 2009 and 2015. NFPA's
primary concern is protection from fire.[4][26]

Therefore, all MOV-based protectors intended for long-term use should have an indicator
that the protective components have failed, and this indication must be checked on a
regular basis to ensure that protection is still functioning.[27]

Because of their good price/performance ratio, MOVs are the most common protector
component in low-cost basic AC power protectors.

Transient voltage suppression (TVS) diode[edit]

A TVS diode is a type of Zener diode, also called an avalanche diode or silicon avalanche
diode (SAD), which can limit voltage spikes. These components provide the fastest
limiting action of protective components (theoretically in picoseconds), but have a
relatively low energy-absorbing capability. Voltages can be clamped to less than twice the
normal operation voltage. If current impulses remain within the device ratings, life
expectancy is exceptionally long.[clarification needed] If component ratings are exceeded, the
diode may fail as a permanent short circuit; in such cases, protection may remain but
normal circuit operation is terminated in the case of low-power signal lines. Due to their
relatively limited current capacity, TVS diodes are often restricted to circuits with smaller
current spikes. TVS diodes are also used where spikes occur significantly more often than
once a year, since this component will not degrade when used within its ratings. A unique
type of TVS diode (trade names Transzorb or Transil) contains reversed
paired series avalanche diodes for bi-polar operation.

TVS diodes are often used in high-speed but low-power circuits, such as occur in data
communications. These devices can be paired in series with another diode to provide low
capacitance[28] as required in communication circuits.

Thyristor surge protection device (TSPD)[edit]

Further information: Thyristor

A Trisil is a type of thyristor surge protection device (TSPD), a specialized solid-state

electronic device used in crowbar circuits to protect against overvoltage conditions.
A SIDACtor is another thyristor type device used for similar protective purposes.

These thyristor-family devices can be viewed as having characteristics much like a spark
gap or a GDT, but can operate much faster. They are related to TVS diodes, but can "break
over" to a low clamping voltage analogous to an ionized and conducting spark gap. After
triggering, the low clamping voltage allows large current surges while limiting heat
dissipation in the device.

Gas discharge tube (GDT)

A gas discharge tube (GDT) is a sealed glass-enclosed device containing a special gas
mixture trapped between two electrodes, which conducts electric current after
becoming ionized by a high voltage spike.[29] GDTs can conduct more current for their size
than other components. Like MOVs, GDTs have a finite life expectancy, and can handle a
few very large transients or a greater number of smaller transients. The typical failure
mode occurs when the triggering voltage rises so high that the device becomes
ineffective, although lightning surges can occasionally cause a dead short.

GDTs take a relatively long time to trigger, permitting a higher voltage spike to pass
through before the GDT conducts significant current. It is not uncommon for a GDT to let
through pulses of 500 V or more of 100 ns in duration. In some cases, additional
protective components are necessary to prevent damage to a protected load, caused by
high-speed let-through voltage which occurs before the GDT begins to operate.

GDTs create an effective short circuit when triggered, so that if any electrical energy
(spike, signal, or power) is present, the GDT will short this. Once triggered, a GDT will
continue conducting (called follow-on current) until all electric current sufficiently
diminishes, and the gas discharge quenches. Unlike other shunt protector devices, a GDT
once triggered will continue to conduct at a voltage less than the high voltage that initially
ionized the gas; this behavior is called negative resistance. Additional auxiliary circuitry
may be needed in DC (and some AC) applications to suppress follow-on current, to
prevent it from destroying the GDT after the initiating spike has dissipated. Some GDTs
are designed to deliberately short out to a grounded terminal when overheated, thereby
triggering an external fuse or circuit breaker.[30]

Many GDTs are light-sensitive, in that exposure to light lowers their triggering voltage.
Therefore, GDTs should be shielded from light exposure, or opaque versions that are
insensitive to light should be used.

The CG2 SN series of surge arrestors, formerly produced by C P Clare, are advertised as
being non-radioactive, and the datasheet for that series states that some members of the
CG/CG2 series (75-470V) are radioactive.[31]

Due to their exceptionally low capacitance, GDTs are commonly used on high frequency
lines, such as those used in telecommunications equipment. Because of their high
current-handling capability, GDTs can also be used to protect power lines, but the follow-
on current problem must be controlled.
An "overvoltage clamping" bulk semiconductor similar to an MOV, though it does not
clamp as well. However, it usually has a longer life than an MOV. It is used mostly in high-
energy DC circuits, like the exciter field of an alternator. It can dissipate power
continuously, and it retains its clamping characteristics throughout the surge event, if
properly sized.

Carbon block spark gap overvoltage suppressor

A spark gap is one of the oldest protective electrical technologies still found in telephone
circuits, having been developed in the nineteenth century. A carbon rod electrode is held
with an insulator at a specific distance from a second electrode. The gap dimension
determines the voltage at which a spark will jump between the two parts and short to
ground. The typical spacing for telephone applications in North America is 0.076
mm (0.003 inches).[32] Carbon block suppressors are similar to gas arrestors (GDTs) but
with the two electrodes exposed to the air, so their behavior is affected by the
surrounding atmosphere, especially the humidity. Since their operation produces an open
spark, these devices should never be installed where an explosive atmosphere may
develop.

Quarter-wave coaxial surge arrestor[edit]

Used in RF signal transmission paths, this technology features a tuned quarter-

wavelength short-circuit stub that allows it to pass a bandwidth of frequencies, but
presents a short to any other signals, especially down towards DC. The passbands can be
narrowband (about ±5% to ±10% bandwidth) or wideband (above ±25% to ±50%
bandwidth). Quarter-wave coax surge arrestors have coaxial terminals, compatible with
common coax cable connectors (especially N or 7-16 types). They provide the most
rugged available protection for RF signals above 400 MHz; at these frequencies they can
perform much better than the gas discharge cells typically used in the
universal/broadband coax surge arrestors. Quarter-wave arrestors are useful
for telecommunications applications, such as Wi-Fiat 2.4 or 5 GHz but less useful for
TV/CATV frequencies. Since a quarter-wave arrestor shorts out the line for low
frequencies, it is not compatible with systems which send DC power for a LNB up the
coaxial downlink.

Series mode (SM) surge suppressors[edit]

These devices are not rated in joules because they operate differently from the earlier
suppressors, and they do not depend on materials that inherently wear out during
repeated surges. SM suppressors are primarily used to control transient voltage surges
on electrical power feeds to protected devices. They are essentially heavy-duty low-pass
filtersconnected so that they allow 50 or 60 Hz line voltages through to the load, while
blocking and diverting higher frequencies. This type of suppressor differs from others by
using banks of inductors, capacitors and resistors that suppress voltage surges and
inrush current to the neutral wire, whereas other designs shunt to the ground
wire.[33] Surges are not diverted but actually suppressed. The inductors slow down the
energy. Since the inductor in series with the circuit path slows the current spike, the peak
surge energy is spread out in the time domain and harmlessly absorbed and slowly
released from a capacitor bank.[34]

Experimental results show that most surge energies occur at under 100 joules, so
exceeding the SM design parameters is unlikely. SM suppressors do not present a fire risk
should the absorbed energy exceed design limits of the dielectric material of the
components because the surge energy is also limited via arc-over to ground
during lightning strikes, leaving a surge remnant that often does not exceed a theoretical
maximum (such as 6000 V at 3000 A with a modeled shape of 8 × 20 microsecond
waveform specified by IEEE/ANSI C62.41). Because SMs work on both the current rise
and the voltage rise, they can safely operate in the worst surge environments.

SM suppression focuses its protective philosophy on a power supply input, but offers
nothing to protect against surges appearing between the input of an SM device and data
lines, such as antennae, telephone or LAN connections, or multiple such devices cascaded
and linked to the primary devices. This is because they do not divert surge energy to the
ground line. Data transmission requires the ground line to be clean in order to be used as
a reference point. In this design philosophy, such events are already protected against by
the SM device before the power supply. NIST reports that "Sending them [surges] down
the drain of a grounding conductor only makes them reappear within a microsecond
about 200 meters away on some other conductor."[35] So having protection on a data
transmission line is only required if surges are diverted to the ground line.
In comparison to devices relying on 10-cent components that operate only briefly (such
as MOVs or GDTs), SM devices tend to be bulkier and heavier than those simpler spike
shunting components. The initial costs of SM filters are higher, typically 130 USD and up,
but a long service life can be expected if they are used properly. In-field installation costs
can be higher, since SM devices are installed in series with the power feed, requiring the
feed to be cut and reconnected.

Q-4. What are the Advantages and Disadvantages of Partnerships?

Ans- A partnership is commonly formed where two or more people wish to come to
together to form a business. Perhaps they have a common business idea that they
wish to put to the test or have realised that their skills and talents compliment each
others in such a way that they might make a good business team. Forming a
partnership seems like the most logical option and, in some cases, it is. Running a
small business with a reasonably low turnover, a partnership is quite often a good
choice of legal structure for a new business. The way a partnership is set up and run
as well as the way it is governed and taxed often make it the most appealing form of
business. However, there are circumstances where this isn’t the case.

Being a partnership, the business owners necessarily share the profits, the liabilities
and the decision making. This is one of the advantages of partnership, especially
where the partners have different skills and can work well together. However, it can
obviously present some problems. Over the years, many partnerships have turned
sour. Family and friends go into business together and end up falling out on a
personal or business level and it all ends badly. This is one of the major
disadvantages of partnerships over other business models, but it’s important to be
able to balance the advantages and disadvantages.

Advantages of Partnership

Capital – Due to the nature of the business, the partners will fund the business with
start up capital. This means that the more partners there are, the more money they
can put into the business, which will allow better flexibility and more potential for
growth. It also means more potential profit, which will be equally shared between
the partners.
Flexibility – A partnership is generally easier to form, manage and run. They are less
strictly regulated than companies, in terms of the laws governing the formation and
because the partners have the only say in the way the business is run (without
interference by shareholders) they are far more flexible in terms of management, as
long as all the partners can agree.

Shared Responsibility – Partners can share the responsibility of the running of the
business. This will allow them to make the most of their abilities. Rather than
splitting the management and taking an equal share of each business task, they
might well split the work according to their skills. So if one partner is good with
figures, they might deal with the book keeping and accounts, while the other partner
might have a flare for sales and therefore be the main sales person for the busines s.

Decision Making – Partners share the decision making and can help each other out
when they need to. More partners means more brains that can be picked for
business ideas and for the solving of problems that the business encounters.

Disadvantages of Partnership

Disagreements – One of the most obvious disadvantages of partnership is the danger

of disagreements between the partners. Obviously people are likely to have different
ideas on how the business should be run, who should be doing what and what t he
best interests of the business are. This can lead to disagreements and disputes which
might not only harm the business, but also the relationship of those involved. This is
why it is always advisable to draft a deed of partnership during the formation p eriod
to ensure that everyone is aware of what procedures will be in place in case of
disagreement and what will happen if the partnership is dissolved.

Agreement – Because the partnership is jointly run, it is necessary that all the
partners agree with things that are being done. This means that in some
circumstances there are less freedoms with regards to the management of the
business. Especially compared to sole traders. However, there is still more flexibility
than with limited companies where the directors must bow to the will of the
members (shareholders).
Liability – Ordinary Partnerships are subject to unlimited liability, which means that
each of the partners shares the liability and financial risks of the business. Which
can be off putting for some people. This can be countered by the formation of a
limited liability partnership, which benefits from the advantages of limited liability
granted to limited companies, while still taking advantage of the flexibility of the
partnership model.

Taxation – One of the major disadvantages of partnership, taxation laws mean that
partners must pay tax in the same way as sole traders, each submitting a Self
Assessment tax return each year. They are also required to register as self employed
with HM Revenue & Customs. The current laws mean that if the partnership (and the
partners) bring in more than a certain level, then they are subject to greater levels of
personal taxation than they would be in a limited company. This means that in most
cases setting up a limited company would be more beneficial as the taxation laws are
more favourable (see our article on the Advantages and Disadvantages of a Limited
Company).

Profit Sharing – Partners share the profits equally. This can lead to inconsistency
where one or more partners aren’t putting a fair share of effort into the running or
management of the business, but still reaping the rewards.

As you can see, there are several advantages and disadvantages of partnership in
terms of a business undertaking. The two main disadvantages are the levels of
taxation and the liability. The latter being negated by the ability to form a Limited
Liability Partnership (a type of body only available since 2000). The Company
Warehouse has a Limited Liability Partnership formation service that we have been
running for a number of years, helping people set up their new partnerships. Our
specialist team have a good working knowledge of the law and the current
advantages of partnership over the other legal forms of business. So they can advise
you on the best choice for your new enterprise.

If you're considering a business partnership as a way to grow your company, you may
want to weigh the advantages and disadvantages of a partnership.

A business partnership may be one of the paths you've considered to help grow your
business or to answer your current business needs. Becoming aware of the advantages
and disadvantages of a business partnership is a crucial first step if you're thinking of
venturing into a partnership. The following pointers might provide some useful insights
into the advantages and disadvantages of a partnership.
Advantages

To do a thorough analysis of the advantages and disadvantages of a partnership, start by

looking at all the possible advantages that might apply to your situation. A partnership
may offer many benefits for your particular business.

1. Bridging the Gap in Expertise and Knowledge

Partnering with someone can give you access to a wider range of expertise for different
parts of your business. A good partner may also bring knowledge and experience you
may be lacking, or complementary skills to help you grow the business.

For example, you may be great at generating new ideas, but not so good at selling your
ideas. You may be a technology whiz but a fish out of water when it comes to building
relationships and taking care of the operations side. That's where a partner with skill and
acumen can step in and fill those gaps. This may be one of your first considerations when
you examine the advantages and disadvantages of a partnership.

2. More Cash

A prospective partner can bring an infusion of cash into the business. The person may
also have more strategic connections than you do. This may help your company attract
potential investors and raise more capital to grow your business.

The right business partner may also enhance your ability to borrow money to finance the
growth of the business. It helps to keep these money issues in mind as part of the criteria
in evaluating a potential partner.

3. Cost Savings

Having a business partner would allow you to share the financial burden for expenses
and capital expenditures needed to run the business. This could result in more
substantial savings than by going it alone.

4. More Business Opportunities

One of the advantages of having a business partner is sharing the labor. Having a partner
can not only make you more productive, but it may afford you the ease and flexibility to
pursue more business opportunities. It might even eliminate the downside of opportunity
costs.
Opportunity costs are potential advantages or business opportunities that you may be
forced to let go while you pursue other avenues. After all, as a one-person band, you have
to decide where you choose to focus your time and talents. A partner who shares in the
labor may free up time to explore more opportunities that come your way.

5. Better Work/Life Balance

By sharing the labor, a partner may also lighten the load. It may allow you to take time off
when needed, knowing that there's a trusted person to hold the fort. This can have a
positive impact on your personal life.

6. Moral Support

Everyone needs to be able to bounce off ideas or debrief on important issues. And we may
need moral support when we encounter setbacks or have to cope with work and
everyday frustrations.

Ask yourself what growth goals can a partnership help you achieve that you could not do
alone.

At other times, it's simply the need to celebrate after having achieved a goal, or even the
need to vent from time to time. Avenues for doing this may not be so readily available to a
solopreneur or a small-business owner. Running a business on your own can be lonely. A
trusted partner can be a valued business companion.

7. New Perspective

It's easy to have blind spots about the way we conduct our business. A partnership can
bring in a set of new eyes that can help us spot what we may have missed. It may help us
adopt a new perspective or gain a different outlook about what we do, who we deal with,
what markets we pursue and even how we price our products and services.

A partner can inspire us and even move us from apathy, or the status quo, to the
exhilaration of exploring new possibilities. We cannot attach a price on everything and
inspiration is one of these intangibles that may be priceless.

8. Potential Tax Benefits

A possible advantage of a general partnership may be a tax benefit. A general partnership

may not pay income taxes. Instead, as indicated on the IRS Partnership website, a general
partnership "passes through" any profits or losses to its partners.
As the IRS site explains, "each partner includes his or her share of the partnership's
income or loss on his or her tax return." This may allow partners to deduct any business
losses from their individual tax return. It's important to consult with a legal and tax
expert for professional guidance.

Disadvantages

In examining the advantages and disadvantages of a partnership, it's important to pay

particular attention to any possible disadvantages. Let's take a look at some of the
downsides of a partnership.

1. Liabilities

In addition to sharing profits and assets, a partnership also entails sharing any business
losses, as well as responsibility for any debts, even if they are incurred by the other
partner. This can place a burden on your personal finances and assets. Basically, you may
be responsible for decisions your partner makes in connection with the business. In
looking at the advantages and disadvantages of a partnership, this may be one of the top
issues to consider.

2. Loss of Autonomy

While you likely enjoy being in total control of your business, in a partnership, you would
now share control with a partner and important decisions would be made jointly.

When you start exploring the advantages and disadvantages of a partnership, ask
yourself this: Are you able to compromise and relinquish certain ways of doing business,
if you have to? This may require a change in mindset, which may not be easily maintained
over the long haul. If you've worked on your own for a long time and are used to being
independent, you may find it stressful when you can't continue to do things your own
way.

3. Emotional Issues

A host of issues can surface that may make working with a partner difficult. For
example, conflicts can arise from differences of opinion or from unequal effort put into
the business. One partner may not pull his or her own weight. Relationships can sour.
Don't discount the emotions in weighing the advantages and the disadvantages of a
partnership.
But you may be able to prevent emotional problems by carefully choosing who you
partner with, looking for someone who shares in your vision, who has values similar to
yours, who has the same work ethic and where the chemistry is right. This can go a long
way towards preventing unexpected problems.

4. Future Selling Complications

As circumstances change in the future, you or your partner may wish to sell the business.
This could present difficulties if one of the partners isn't interested in selling.

You can deal with such an eventuality by including an exit strategy in the partnership
agreement. For example, you may include "a right of first refusal" should your partner
decide to sell his or her interest in the business to a third party. This ensures that you
retain the right to accept the offer, thus preventing a stranger from joining the business.
An exit strategy can address many other issues such as a partner's bankruptcy, disability
or desire to move out of the country.

5. Lack of Stability

When balancing the advantages and disadvantages of a partnership, you also need to
consider if you're able to cope with unpredictability. Even if you have a solid exit strategy
in your partnership agreement, the change triggered by a partner's situation can cause
instability in the business. Is riding the wave of instability one of your strengths?

In analyzing some of the advantages and disadvantages of a partnership, you may

conclude that the advantages outweigh the disadvantages. What's more, some of the
disadvantages of a partnership may be overcome with due diligence, proper investigation
and a detailed, written, business prenup.

Ultimately, make sure that you're comfortable yourself in a partner role. Ask yourself
what growth goals can a partnership help you achieve that you could not do alone. What
expertise can you attract in a partner that may be a competitive differentiator?

Carefully evaluate all the advantages and disadvantages of a partnership in relation to

your financial situation and mindset. Above all, take your time to evaluate your
prospective partner to ensure that he or she is a good match. A business partnership is a
marriage. And as with any long-lasting marriage, it's based on finding the right person,
someone you trust, and enjoying being together within four walls.

Joint Stock Company

The simplest way to describe a joint stock company is that it is a business organisation that
is owned jointly by all its shareholders. All the shareholders own a certain amount of stock
in the company, which is represented by their shares.

Professor Haney defines it as “a voluntary association of persons for profit, having the
capital divided into some transferable shares, and the ownership of such shares is the
condition of membership of the company.” Studying the features of a joint stock company
will clarify its structure.

Features of a Joint Stock Company

1] Artificial Legal Person

A company is a legal entity that has been created by the statues of law. Like a natural
person, it can do certain things, like own property in its name, enter into a contract, borrow
and lend money, sue or be sued etc. It has also been granted certain rights by the law which
it enjoys through its board of directors.

However, not all laws/rights/duties apply to a company. It exists only in the law and not in
any physical form. So we call it an artificial legal person.

2] Separate Legal Entity

Unlike a proprietorship or partnership, the legal identity of a company and its members are
separate. As soon as the joint stock company is incorporated it has its own distinct legal
identity. So a member of the company is not liable for the company. And similarly, the
company will not depend on any of its members for any business activities.

3] Incorporation

For a company to be recognized as a separate legal entity and for it to come into existence, it
has to be incorporated. Not registering a joint stock company is not an option. Without
incorporation, a company simply does not exist.

4] Perpetual Succession

The joint stock company is born out of the law, so the only way for the company to end is by
the functioning of law. So the life of a company is in no way related to the life of its
members. Members or shareholders of a company keep changing, but this does not affect
the company’s life.

5] Limited Liability
This is one of the major points of difference between a company and a sole
proprietorship and partnership. The liability of the shareholders of a company is limited.
The personal assets of a member cannot be liquidated to repay the debts of a company.

A shareholders liability is limited to the amount of unpaid share capital. If his shares are
fully paid then he has no liability. The amount of debt has no bearing on this. Only the
companies assets can be sold off to repay its own debt. The members cannot be made to pay
up.

6] Common Seal

A company is an artificial person. So its day-to-day functions are conducted by the board of
directors. So when a company enters any contract or signs an agreement, the approval is
indicated via a common seal. A common seal is engraved seal with the company’s name on
it.

So no document is legally binding on the company until and unless it has a common seal
along with the signatures of the directors.

7] Transferability of Shares

In a joint stock company, the ownership is divided into transferable units known as shares.
In case of a public company the shares can be transferred freely, there are almost no
restrictions. And in a public company, there are some restrictions, but the transfer cannot
be prohibited.

Advantages of a Joint Stock Company

One of the biggest drawing factors of a joint stock company is the limited liability of its
members. their liability is only limited up to the unpaid amount on their shares. Since
their personal wealth is safe, they are encouraged to invest in joint stock companies

The shares of a company are transferable. Also, in the case of a listed public company they
can also be sold in the market and be converted to cash. This ease of ownership is an
added benefit.

Perpetual succession is another advantage of a joint stock company. The

death/retirement/insanity/etc does affect the life of a company. The only liquidation
under the Companies Act will shut down a company.
A company hires a board of directors to run all the activities. Very proficient, talented
people are elected to the board and this results in effective and efficient management.
Also, a company usually has large resources and this allows them to hire the best talent
and professionals.

Disadvantages of a Joint Stock Company

One disadvantage of a joint stock company is the complex and lengthy procedure for
its formation. This can take up to several weeks and is a costly affair as well.

According to the Companies Act, 2013 all public companies have to provide their financial
records and other related documents to the registrar. These documents are then public
documents, which any member of the public can access. This leads to a complete lack of
secrecy for the company.

And even during its day to day functioning a company has to follow a numerous number of
laws, regulations, notifications etc. It not only takes up time but also reduces the freedom
of a company

A company has many stakeholders like the shareholders, the promoters, the board of
directors, the employees. the debenture holders etc. All these stakeholders look out for
their benefit and it often leads to a conflict of interest.

Qus-5. Explain why such models are useful in implementing logistics strategy.

Ans- ABSTRACT

This paper focuses the role of Information technology (IT) in supply chain management.
It also highlights the contribution of IT in helping to restructure the entire distribution
set up to achieve higher service levels and lower inventory and lower supply chain costs.
The broad strategic directions which need to be supported by the IT strategy are
increasing of frequency of receipts/dispatch, holding materials further up the supply
chain and crashing the various lead times. Critical IT contributions and implementations
are discussed. Fundamental changes have occurred in today's economy. These changes
alter the relationship we have with our customers, our suppliers, our business partners
and our colleagues. It also describes how IT developments have presented companies
with unprecedented opportunities to gain competitive advantage. So IT investment is the
pre-requisite thing for each firm in order to sustain in the market.
INTRODUCTION:

Supply chain management (SCM) is concerned with the flow of products and information
between supply chain members' organizations. Recent development in technologies
enables the organization to avail information easily in their premises. These technologies
are helpful to coordinates the activities to manage the supply chain. The cost of
information is decreased due to the increasing rate of technologies. In the integrated
supply chain model (Fig.1) bi-directional arrow reflect the accommodation of reverse
materials and information feedback flows. Manager needs to understand that information
technology is more than just computers. Except computer data recognition equipment,
communication technologies, factory automation and other hardware and services are
included.

Integrated supply chain model

Bi-directional arrow reflects the accommodation of reverse materials and information

feedback flows.

Managers need to understand that information technology is more than just computers.
Except computer, data recognition equipment, communication technologies, factory
automation and other hardware and services are included.

The importance of information in an integrated supply chain management environment:

Prior to 1980s the information flow between functional areas with in an organization and
between supply chain member organizations were paper based. The paper based
transaction and communication is slow. During this period, information was often over
looked as a critical competitive resource because its value to supply chain members was
not clearly understood. IT infrastructure capabilities provides a competitive positioning
of business initiatives like cycle time reduction, implementation, implementing
redesigned cross-functional processes. Several well know firms involved in supply chain
relationship through information technology. Three factors have strongly impacted this
change in the importance of information. First, satisfying in fact pleasing customer has
become something of a corporate obsession. Serving the customer in the best, most
efficient and effective manner has become critical. Second information is a crucial factor
in the managers' abilities to reduce inventory and human resource requirement to a
competitive level. Information flows plays a crucial role in strategic planning.

Supply chain organizational dynamics:

All enterprises participating in supply chain management initiatives accept a specific role
to perform. They also share the joint belief that they and all other supply chain
participants will be better off because of this collaborative effort. Power with in the
supply chain is a central issue. There has been a general shift of power from
manufacturers to retailers over the last two decade. Retailers sit in a very important
position in term of information access for the supply chain. Retailers have risen to the
position of prominence through technologies.

The Wal-Mart & P&G experiences demonstrate how information sharing can be utilized
for mutual advantage. Through sound information technologies Wal-Mart shares point of
sale information from its many retail outlet directly with P&G and other major suppliers.

The development of Inter organizational information system for the supply chain has
three distinct advantages like cost reduction, productivity, improvement and
product/market strategies.
Barrett and Konsynsik have identified five basic levels of participation of individual firms
with in the interorganizational system.

1. Remote Input/Output mode: In this case the member participates from a remote
location with in the application system supported by one or more higher-level
participants.

2. Application processing node: In this case a member develops and shares a single
application such as an inventory query or order processing system.

3. Multi participant exchange node : In this case the member develops and shares a
network interlinking itself and any number of lower level participants with whom it has
an established business relationship.

4. Network control node: In this case the member develops and shares a network with
diverse application that may be used by many different types of lower level participants.

5. Integrating network node: In this case the member literally becomes a data
communications/data processing utility that integrates any number of lower level
participants and applications in real times.

Four fundamental mistakes made when determining information requirements are as

follows:

1. Viewing system as functional instead of cross-functional.

2. Interviewing managers individually instead of jointly.
3. Not allowing for trial and error in detail design process.
4. Asking the wrong question during the interview

Information and Technology: Application of SCM:

In the development and maintenance of Supply chain's information systems both
software and hardware must be addressed. Hardware includes computer's input/output
devices and storage media. Software includes the entire system and application
programme used for processing transactions management control, decision-making and
strategic planning. Recent development in Supply chain management software is:

1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences
Inc. which is useful for computing freight costs, compares transportation mode rates,
analyze cost and service effectiveness of carrier.

2. A new software programme developed by Ross systems Inc. called Supply Chain
planning which is used for demand forecasting, replenishment & manufacturing tools for
accurate planning and scheduling of activities.

3. P&G distributing company and Saber decision Technologies resulted in a software

system called Transportation Network optimization for streamlining the bidding and
award process.

4. Logitility planning solution was recently introduced to provide a programme capable

managing the entire supply chain.

Electronic Commerce:

It is the term used to describe the wide range of tools and techniques utilized to conduct
business in a paperless environment. Electronic commerce therefore includes electronic
data interchange, e-mail, electronic fund transfers, electronic publishing, image
processing, electronic bulletin boards, shared databases and magnetic/optical data
capture. Companies are able to automate the process of moving documents electronically
between suppliers and customers.

Electronic Data Interchange:

Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business
documents in a standard format. EDI describe both the capability and practice of
communicating information between two organizations electronically instead of
traditional form of mail, courier, & fax. The benefits of EDI are:

1. Quick process to information.

2. Better customer service.
3. Reduced paper work.
4. Increased productivity.
5. Improved tracing and expediting.
6. Cost efficiency.
7. Competitive advantage.
8. Improved billing.

Though the use of EDI supply chain partners can overcome the distortions and
exaggeration in supply and demand information by improving technologies to facilitate
real time sharing of actual demand and supply information.

Bar coding and Scanner:

Bar code scanners are most visible in the check out counter of super market. This code
specifies name of product and its manufacturer. Other applications are tracking the
moving items such as components in PC assembly operations, automobiles in assembly
plants.

Data warehouse:

Data warehouse is a consolidated database maintained separately from an organization's

production system database. Many organizations have multiple databases. A data
warehouse is organized around informational subjects rather than specific business
processes. Data held in data warehouses are time dependent, historical data may also be
aggregated.

Enterprise Resource planning (ERP) tools:

Many companies now view ERP system (eg. Baan, SAP, People soft, etc.) as the core of
their IT infrastructure. ERP system have become enterprise wide transaction processing
tools which capture the data and reduce the manual activities and task associated with
processing financial, inventory and customer order information. ERP system achieve a
high level of integration by utilizing a single data model, developing a common
understanding of what the shared data represents and establishing a set of rules for
accessing data.

Conclusion:

World is shrinking day by day with advancement of technology. Customers' expectations

are also increasing and companies are prone to more and more uncertain environment.
Companies will find that their conventional supply chain integration will have to be
expanded beyond their peripheries. The strategic and technological innovations in supply
chain will impact on how organizations buy and sell in the future. However clear vision,
strong planning and technical insight into the Internet's capabilities would be necessary
to ensure that companies maximize the Internet's potential for better supply chain
management and ultimately improved competitiveness. Internet technology, World Wide
Web, electronic commerce etc. will change the way a company is required to do business.
These companies must realize that they must harness the power of technology to
collaborate with their business partners. That means using a new breed of SCM
application, the Internet and other networking links to observe past performance and
historical trends to determine how much product should be made as well as the best and
cost effective method for warehousing it or shipping it to retailer.

When a company creates a logistics strategy it is defining the service levels at which its
logistics organization is at its most cost-effective. Because supply chains are constantly
changing and evolving, a company may develop a number of logistics strategies for
specific product lines, specific countries, Remember, the ultimate goal of any logistics
strategy is to deliver what your customers want and when they want it—and getting that
done by spending as little money as possible. That means working with your logistics
partners throughout your supply chain.

Why Implement a Logistics Strategy?

The supply chain constantly changes and that will affect any logistics organization. To
adapt to the flexibility of the supply chain, companies should develop and implement a
formal logistics strategy. This will allow a company to identify the impact of imminent
changes and make organizational or functional changes to ensure service levels are not
reduced.

What Is Involved in Developing a Logistic Strategy?

A company can start to develop a logistics strategy by looking at four distinct levels of
their logistics organization.

Strategic: By examining the company’s objectives and strategic supply chain decisions,
the logistics strategy should review how the logistics organization contributes to those
high-level objectives.

Structural: The logistics strategy should examine the structural issues of the logistics
organization, such as the optimum number of warehouses and distribution centers, or
what products should be produced at a specific manufacturing plant.

Functional: Any strategy should review how each separate function in the logistics
organization is to achieve functional excellence.

Implementation: The key to developing a successful logistics strategy is how it is to be

implemented across the organization. The plan for implementation will include
development or configuration of an information system, introduction of new policies, and
procedures and the development of a change managementplan.

Components to Examine When Developing a Logistics Strategy

When examining the four levels of logistics organization, all components of the operation
should be examined to ascertain whether any potential cost benefits can be achieved.
There are different component areas for each company but the list should at least include
the following:

Transportation: Does the current transportation strategies help service levels?

Outsourcing: What outsourcing is used in the logistics function? Would a partnership

with a third party logistics company improve service levels?

Logistics Systems: Do the current logistics systems provide the level of data that is
required to successfully implement a logistics strategy or are new systems required?
Competitors: Review what the competitors offer. Can changes to the company’s customer
service improve service levels?

Information: Is the information that drives the logistics organization real-time and
accurate? If the data is inaccurate then the decisions that are made will be in error.

Strategy Review: Are the objectives of the logistics organization in line with company
objectives and strategies?

A successfully implemented logistics strategy is important for companies who are

dedicated to keeping service levels at the highest levels possible despite changes that
occur in the supply chain.

The goal of any formal logistics or supply chain strategy is to make sure you and your
company are delivering to your customers what they want. And delivering to them when
they want it. And accomplish all of that by spending as little money as possible.

By following these guidelines, you can ensure that your logistics are aligned with your
customers' needs, your inventory targets, and your company's cost reduction goals.

Remember, your company may need to review its logistics strategy from time to time, as
supply chains and supply chain priorities change. If your supplier base had been
primarily located in the United States and Mexico, and now, because of a change in your
supply chain, your suppliers are now primarily located in Asia, you'll need to review your
existing logistics strategy.

The same transportation and freight forwarding providers you were using may not be the
right strategic partners for that kind of supply chain realignment.

Define your service level goals and map your current logistics landscape. Are you meeting
your service level goals? If not, it's time to take a close look at your logistics strategy.
Introduction: LOGISTICS International marketing is becoming more important to
companies as the world shifts from distinct national markets to linked global markets.
Globalization brings homogenization of consumer needs, liberalization of trade, and
competitive advantages of operating in global markets. Companies are forced to think and
act globally in order to survive in such a dynamic environment. All these elements have a
deep impact on the development and the positioning of companies on international
marketplaces where competition is cruel. Furthermore, another significant change
concerns the customers since they are more demanding in term of quality, lead time and
order fulfilment. In this context, firms must be more and more flexible and reactive to
anticipate and to adapt to such changes. This quest for flexibility and reactivity affects the
conception and the management of firms and more generally their logistic systems and
contributes to the development of partnership relations, to the emergence of mergers or
strategic allian 2 firm can no longer be considered as an isolated entity but as a
component of a wider supply network. International Firms have begun to implement
various strategies in order to remain competitive in world market. Logistics is one of the
key areas in the process of international marketing as the delivery of goods to the buyer
is as important as any other activity in business and marketing. Quite often, the most
crucial part in International trade is the timely delivery of goods at a reasonable cost by
the exporter to the importer. In fact, the prospective buyer may be willing to pay even
higher price for timely supplies. The emergence of logistics as an integrative activity, with
the movement of raw materials from their sources of supply to the production line and
ending with the movement of finished goods to the customer has gained special
importance. Earlier on, all the functions comprising logistics were not viewed as
components of a single system. But, with emergence of logistic as an important part of
corporate strategy due to certain developments in the field of international marketing
has gained special significance. Before discussing the various aspects of logistics, let us
look at its definition: According to Council of logistics management: “Logistics is the
process of planning, implementing and controlling the efficient, effective flow and storage
of goods, services and related information from point of origin to point of consumption
for the purpose of conforming the customer requirement”. This definition clearly points
out the inherent nature of logistics and it conveys that Logistics is concerned with getting
products and services where they are needed whenever they are desired. In trade
Logistics has been performed since the 3 beginning of civilization: it‟s hardly new.
However implementing best practice of logistics has become one of the most exciting and
challenging operational areas of business and public sector management. Logistics is
unique, it never stops! Logistics is happening around the globe 24 hours a days Seven
days a week during fifty-two weeks a year. Few areas of business involve the complexity
or span the geography typical of logistics. I - CONCEPT OF INTERNATIONAL MARKETING
LOGISTICS Word, ‟Logistics‟ is derived from French word „loger‟, which means art of war
pertaining to movement and supply of armies. Basically a military concept, it is now
commonly applied to marketing management. Fighting a war requires the setting of an
object, and to achieve this objective meticulous planning is needed so that the troops are
properly deployed and the supply line consisting, interalia, weaponary, food, medical
assistance, etc. is maintained. Similarly, the plan should be each that there is a minimum
loss of men and material while, at the same time, it is capable of being altered if the need
arises. As in the case of fighting a war in the battle-field, the marketing managers also
need a suitable logistics plan that is capable of satisfying the company objective of
meeting profitably the demand of the targeted customers. From the point of view of
management, marketing logistics or physical distribution has been described as
„planning, implementing and controlling the process of physical flows of materials and
final products from the point of origin to the point of use in order to meet customer‟s
needs at a profit. As a concept it means the art of managing the flow of raw materials and
finished goods from the source of supply to their users. In other words, primarily it
involves efficient management of goods from the end of product line to the consumers
and in some cases, include the 4 movement of raw materials from the source of supply to
the beginning of the production line. These activities include transportation warehousing,
inventory control, order processing and information monitoring. These activities are
considered primary to the effective management of logistics because they either
contribute most to the total cost of logistics or they are essential to effective completion
of the logistics task. However, the firms must carry out these activities as essential part of
providing customer with the goods and services they desire. ii) - SIGNIFIGANCE OF
MARKETING LOGISTICS The important of a logistics systems lies in the fact that it leads
to ultimate consummation of the sales contract. The buyer is not interested in the
promises of the seller that he can supply goods at competitive price but that he actually
does so. Delivery according to the contract is essential to fulfilling the commercial and
legal requirements. In the event of failure to comply with the stipulated supply of period,
the seller may not only get his sale amount back, but may also be legally penalized, if the
sales contract so specifies. There is no doubt that better delivery schedule is a good
promotional strategy when buyers are reluctant to invest in warehousing and keeping
higher level of inventories. Similarly, better and/or timely delivery helps in getting repeat
orders through creation of goodwill for the supplier. Thus, as effective logistics system
contributes immensely to the achievements of the business and marketing objectives of a
firm. It creates time and place utilities in the products and thereby helps in maximizing
the value satisfaction to consumers. By ensuring quick deliveries in minimum time and
cost, it relieves the customers of 5 holding excess inventories. It also brings down the cost
of carrying inventory, material handling, transportation and other related activities of
distribution. In nutshell, an efficient system of physical distribution/logistics has a great
potential for improving customer service and reducing costs. Logistics has gained
importance due to the following trends  Raise in transportation cost.  Production
efficiency is reaching a peak  Fundamental change in inventory philosophy  Product
line proliferated  Computer technology  Increased use or computers  Increased public
concern of products Growth of several new, large retail chains or mass merchandise with
large demands & very sophisticated logistics services, by pass traditional channel &
distribution.  Reduction in economic regulation  Growing power of retailers 
Globalization As a result of these developments, the decision maker has a number of
choices to work out the most ideal marketing logistics system. Essentially, this system
implies that people at all levels of management think and act in terms of integrated
capabilities and adoption of a total approach to achieve pre-determined logistics
objectives. 6 Logistics is also important on the global scale. Efficient logistics systems
throughout the world economy are a basis for trade and a high standard of living for all of
us. Lands, as well as the people who occupy them, are not equally productive. That is, one
region often has an advantage over all others in some production specialty. An efficient
logistics system allows a geographical region to exploit its inherent advantage by
specializing its productive efforts in those products in which it has been an advantage by
specializing its productive to other regions. The system allows the products‟ landed cost
(production plus logistics cost) and quality to be competitive with those form any other
region. Common examples of this specialization have been Japan‟s electronics industry,
the agricultural, computer and aircrafts industries of United States and various countries
dominance in supplying raw materials such as oil, gold, bauxite, and chromium. Further
more Logistics has gained importance in the international marketing with the following
reasons: 1. Transform in the customers attitude towards the total cost approach rather
than direct cost approach . 2. Technological advancement in the fields of information
processing and communication. 3. Technological development in transportation and
material handling. 4. Companies are centralizing production to gain economies of scale. 5.
Most of the MNC organizations are restructuring their production facilities on a global
basis. 6. In many industries, the value added by manufacturing is declining as the cost of
materials and distribution climbs. 7. High volume data processing and transmission is
revolutionizing logistics control systems. 7 8. With the advancement of new technologies,
managers can now update sales and inventory planning faster and more frequently, and
factories can respond with more flexibility to volatile market conditions. 9. Product life
cycles are contracting. Companies that have gone all out to slash costs by turning to large
scale batch production regularly find themselves saddled with obsolete stocks and are
unable to keep pace with competitors‟ new-product introductions. 10. Product lines are
proliferating. More and more product line variety is needed to satisfy the growing range
of customer tastes and requirements, and stock levels in both field and factory inevitably
rise. 11. The balance of power in distribution chain is shifting from the manufacturers to
the trader. iii) - OBJECTIVES OF MARKETTING LOGISTICS The General objectives of the
logistics can be summarized as: 1. Cost reduction 2. Capital reduction 3. Service
improvement The specific objective of an ideal logistics system is to ensure the flow of
supply to the buyer, the:  right product  right quantities and assortments  right places
 right time  right cost / price and,  right condition This implies that a firm will aim at
having a logistics system which maximizes the customer service and minimizes the
distribution cost. However, one 8 can approximate the reality by defining the objective of
logistics system as achieving a desired level of customer service i.e., the degree of delivery
support given by the seller to the buyer. Thus, logistics management starts with as
curtaining customer need till its fulfillment through product supplies and, during this
process of supplies, it considers all aspects of performance which include arranging the
inputs, manufacturing the goods and the physical distribution of the products. However,
there are some definite objectives to be achieved through a proper logistics system.
These can be described as follows: 1. Improving customer service: As we know, the
marketing concept assumes that the sure way to maximize profits in the long run is
through maximizing the customer satisfaction. As such, an important objective of all
marketing efforts, including the physical distribution activities, is to improve the
customer service. An efficient management of physical distribution can help in improving
the level of customer service by developing an effective system of warehousing, quick and
economic transportation, all maintaining optimum level of inventory. But, as discussed
earlier, the level of service directly affects the cost of physical distribution. Therefore,
while deciding the level of service, a careful analysis of the customers‟ wants and the
policies of the competitors is necessary. The customers may be interested in several
things like timely delivery, careful handling of merchandise, reliability of inventory,
economy in operations, and so on. However, the relative importance of these factors in
the minds of customers may vary. Hence, an effort should be made to ascertain whether
they value timely delivery or economy in transportation, and so on. One the relative
weights are known, an analysis of what the competitors are offering in this regard should
also be made. This, together with an estimate about the cost of providing a particular
level of customer service, would help in deciding the level of customer service. 9 2. Rapid
Response: Rapid response is concerned with a firm's ability to satisfy customer service
requirements in a timely manner. Information technology has increased the capability to
postpone logistical operations to the latest possible time and then accomplish rapid
delivery of required inventory. The result is elimination of excessive inventories
traditionally stocked in anticipation of customer requirements. Rapid response capability
shifts operational emphasis from an anticipatory posture based on forecasting and
inventory stocking to responding to customer requirements on a shipment-to-shipment
basis. Because inventory is typically not moved in a time-based system until customer
requirements are known and performance is committed, little tolerance exists for
operational deficiencies 3. Reduce total distribution costs: Another most commonly
stated objective is to minimize the cost of physical distribution of the products. As
explained earlier, the cost of physical distribution consists of various elements such as
transportation, warehousing and inventory maintenance, and any reduction in the cost of
one element may result in an increase in the cost of the other elements. Thus, the
objective of the firm should be to reduce the total cost of distribution and not just the cost
incurred on any one element. For this purpose, the total cost of alternative distribution
systems should be analyzed and the one which has the minimum total distribution cost
should be selected. 4. Generating additional sales: Another important objective of the
physical distribution/logistics system in a firm is to generate additional sales. A firm can
attract additional customers by offering better services at lowest prices. For example, by
decentralizing its warehousing operations or by using economic and efficient modes of
transportation, a firm can 10 achieve larger market share. Also by avoiding the out-of-
stock situation, the loss of loyal customers can be arrested. 5. Creating time and place
utilities: The logistical system also aims at creating time and place utilities to the
products. Unless the products are physically moved from the place of their origin to the
place where they are required for consumption, they do not serve any purpose to the
users. Similarly, the products have to be made available at the time they are needed for
consumption. Both these purposes can be achieved by increasing the number of
warehouses located at places from where the goods can be delivered quickly and where
sufficient stocks are maintained so as to meet the emergency demands of the customers.
Moreover, a quicker mode of transport should be selected to move the products from one
place to another in the shortest possible time. Thus, time and place utilities can be
created in the products through an efficient system of physical distribution. 6. Price
stabilization: Logistics also aim at achieving stabilization in the prices of the products. It
can be achieved by regulating the flow of the products to the market through a judicious
use of available transport facilities and compatible warehouse operations. For example, in
the case of industries such as cotton textile, there are heavy fluctuations in the supply of
raw materials. In such cases if the market forces are allowed to operate freely, the raw
material would be very cheap during harvesting season and very dear during off season.
By stocking the raw material during the period of excess supply (harvest season) and
made available during the periods of short supply, the prices can be stabilized. 7. Quality
improvement: The long-term objective of the logistical system is to seek continuous
quality improvement. Total quality management (TQM) has become a major commitment
throughout all facets of industry. Overall commitment to TQM is one of the major 11
forces contributing to the logistical renaissance. If a product becomes defective or if
service promises are not kept, little, if any, value is added by the logistics. Logistical costs,
once expended, cannot be reversed. In fact, when quality fails, the logistical performance
typically needs to be reversed and then repeated. Logistics itself must perform to
demanding quality standards. The management challenge of achieving zero defect
logistical performance is magnified by the fact that logistical operations typically must be
performed across a vast geographical area at all times of the day and night. The quality
challenge is magnified by the fact that most logistical work is performed out of a
supervisor's vision. Reworking a customer's order as a result of incorrect shipment or in-
transit damage is far more costly than performing it right the first time. Logistics is a
prime part of developing and maintaining continuous TQM improvement. 8. Life-Cycle
support: A good logistical system helps to support the life cycle. Few items are sold
without some guarantee that the product will perform as advertised over a specified
period. In some situations. the normal value-added inventory flow toward customers
must be reversed. Product recall is a critical competency resulting from increasingly rigid
quality standards, product expiration dating and responsibility for hazardous
consequences. Return logistics requirements also result from the increasing number of
laws prohibiting disposal and encouraging recycling of beverage containers and
packaging materials. The most significant aspect of reverse logistical operations is the
need for maximum control when a potential health liability exists (i.e.. a contaminated
product). In this sense, a recall program is similar to a strategy of maximum customer
service that must be executed regardless of cost. Firestone classical response to the tyre
crisis is an example of turning adversity into advantage. The operational requirements of
reverse logistics range from lowest total cost, such as returning bottles for recycling, to
maximum performance solutions for 12 critical recalls. The important point is that sound
logistical strategy cannot be formulated without careful review of reverse logistical
requirements. 9. Movement consolidation: As the logistical system aims at cost reduction
through integration, consolidation One of the most significant logistical costs is
transportation. Transportation cost is directly related to. the type of product, size of
shipment, and distance. Many Logistical systems that feature premium service depend on
high-speed, smallshipment transportation. Premium transportation is typically high-cost.
To reduce transportation cost.. it is desirable to achieve movement consolidation. As a
general rule, the larger the overall shipment and the longer the distance it is transported,
the lower the transportation cost per unit. This requires innovative programs to group
small shipments for consolidated movement. Such programs must be facilitated by
working arrangements that transcend the overall supply chain. iv) - SCOPE OF THE
MARKETING LOGISTICS The development of interest in logistics after industrial
revolution and world war II contributed to the growth in scope of logistical activities. The
following areas are the major scope of logistics:  Demand forecasting  Distribution
communication  Inventory Control  Material Handling  Order Processing  Part &
Service Support  Plant and Warehouse side selection  Procurement  Packaging 13 
Salvage & scrap disposal  Traffic & transportation  Warehousing & Storage  Time &
Place Utility  Efficient Movement to Customer  Return goods handling  Customers
Service LOGISTICS MODEL v) - LOGISTICS SYSTEM ELEMENTS The following are the
system elements of logistics: 1. Order processing 2. Warehousing 3. Inventory control 4.
Transportation 5. Information monitoring 6. Facilities Let us discuss the above said
Elements in detail. 14 1. Order processing: The starting point of physical distribution
activities is the processing of customers‟ orders. In order to provide quicker customer
service, the orders received from customers should be processed within the least possible
time. Order processing includes receiving the order, recording the order, filling the order,
and assembling all such orders for transportation, etc. the company and the customers
benefit when these steps are carried out quickly and accurately. The error committed at
this stage at times can prove to be very costly. For example, if a wrong product or the
same product with different specifications is supplied to the customer, it may lead to
cancellation of the original order (apart from loss in the credibility of the firm). Similarly,
if the order is not executed within a reasonable time, it may lead to serious consequences.
High speed data processing techniques are now available which allow for rapid
processing of the orders. 2. Warehousing: Warehousing refers to the storing and
assorting products in order to create time utility. The basic purpose of the warehousing
activity is to arrange placement of goods, provide storage facility to store them,
consolidate them with other similar products, divide them into smaller quantities and
build up assortment of products. Generally, larger the number of warehouses a firm has
the lesser would be the time taken in serving customers at different locations, but greater
would be the cost of warehousing. Thus, the firm has to strike a balance between the cost
of warehousing and the level of customer service. 4. Inventory Control and Management:
Linked to warehousing decisions are the inventory decisions which hold the key to
success of physical distribution especially where the inventory costs may be as high 15 as
30-40 per cent (e.g., steel and automobiles). No wonder, therefore, that the new concept
of Just-in-Time-Inventory decision is increasingly becoming popular with a number of
companies. The decision regarding level of inventory involves estimate of demand for the
product. A correct estimate of the demand helps to hold proper inventory level and
control the inventory costs. This is not only helps the firm in terms of the cost of
inventory and supply to customers in time but also to maintain production at a consistent
level. The major factors determining the inventory levels are: The firm‟s policy regarding
the customer service level, Degree of accuracy of the sales forecasts, Responsiveness of
the distribution system i.e., ability of the system to transmit inventory needs to the
factory and get the products in the market. The cost inventory consists of holding cost
(such as cost of warehousing, tied up capital and obsolescence) and replenishment cost
(including the manufacturing cost). 4. Transportation: Transportation seeks to move
goods from points of production and sale to points of consumption in the quantities
required at times needed and at a reasonable cost. The transportation system adds time
and place utilities to the goods handled and thus, increases their economic value. To
achieve these goals, transportation facilities must be adequate, regular, dependable and
equitable in terms of costs and benefits of the facilities and service provided. 5.
Information monitoring: The physical distribution managers continuously need up-to-
date information about inventory, transportation and warehousing. For example, in
respect on inventory, information about present stock position at each location, future
commitment and replenishment capabilities are constantly required. Similarly, before
choosing a 16 carrier, information about the availability of various modes of transport,
their costs, services and suitability for a particular product is needed. About warehousing,
information with respect to space utilization, work schedules, unit load performance, etc.,
is required. In order to receive all the information stated above, an efficient management
information system would be of immense use in controlling costs, improving services and
determining the overall effectiveness of distribution. Of course, it is difficult to correctly
assess the cost of physical distribution operations. But if correct information is available
it can be analyzed systematically and a great deal of saving can be ensured. 6. Facilities:
The Facilities logistics element is composed of a variety of planning activities, all of which
are directed toward ensuring that all required permanent or semipermanent operating
and support facilities (for instance, training, field and depot maintenance, storage,
operational, and testing) are available concurrently with system fielding. Planning must
be comprehensive and include the need for new construction as well as modifications to
existing facilities. Facility construction can take from 5 to 7 years from concept
formulation to user occupancy. It also includes studies to define and establish impacts on
life cycle cost, funding requirements, facility locations and improvements, space
requirements, environmental impacts, duration or frequency of use, safety and health
standards requirements, and security restrictions. Also included are any utility
requirements, for both fixed and mobile facilities, with emphasis on limiting
requirements of scarce or unique resources. II - RELEVANCE OF LOGISTICS
INTERNATIONAL MARKETING Let us discuss the relevance of marketing and logistics in .
Logistics is some time referred as other half of marketing. Marketing experts have
recognized that for 17 developing a position of sustainable competitive advantage, a
major source is superior logistics performance. Thus, it can be argued that instead of
viewing distribution, marketing and manufacturing as largely separate activities within
the business, they need to be unified, particularly at the strategic level. One might be
tempted to describe such an integrated approach to strategy and planning as „Marketing
Logistics‟. Business can only compete and survive either by winning a cost advantage or
by providing superior value and benefit to the customer. In recent years, numbers of
companies have become aware that the market place encompasses the world, not just the
India .As a practical matter, marketing managers are finding that they need to do much
work in terms of conceptualizing , designing , and implementing logistics initiatives to
market effective globally. Following are the reasons behind the extension of logistics
activities at global level to do business internationally. The magnitude of global business
are:  Increase in the magnitude global business.  Business are relying on foreign
countries to provide a source of raw materials and markets for finished goods.  Fall of
global trade barriers.  Increase in Global competition . A perspective change in business
and marketing urged the necessity of integrating logistics in marketing activities.
Increasingly, the power of the brand is diminishing as technologies of competing product
converge, making product differences less apparent. Faced with situations, the customer
may be influenced by price or image perceptions, but over-riding these aspects the
availability of product in stock may become the major consideration. A second change is
that the customer‟ expectations of service have increased. The customer is now more
demanding and more sophisticated. Industrial buyers are more professional in their 18
approach. Increasing use is made of formal vendor appraisal systems and suppliers are
now confronted with the need to provide just-in-time delivery performance. Another
change that has had serve impact in many industries is the trend for product life cycles to
become shorter. Rapid development in technology which have created markets where
none existed and have rendered themselves obsolete as the next generation of product is
announced. Such shortening life cycles create substantial problems for logistics
management. In particular, shorter life cycles demand shorter lead times. Lead time is
traditionally defined as the elapsed period from receipt of customer order due to the
actual delivery. In today‟s environment there is a second aspect to lead time i.e., how long
does it take from procurement of raw materials, sub-assemblies, etc. to the delivery of the
final product of the customer?. What we are now witnessing is a situation where the
product life cycle, in some cases, is in danger of becoming shorter than the procurement-
to-delivery lead time with all the consequent problems for planning and operations that
such a situation will create. From the above points one can understand the role of
logistics in marketing especially at the global level. MARKETING AND LOGISTICS
INTERFACE Marketing activities Logistics activities Marketing logistics interface 
Marketing research  Product mix  pricing  promotion  sales force management 
Forecasting  Transportation  Storage  Packing  Order fulfillment  Customer service 
Transport  Inventory processing  Material handling  Information

MBA 541 (RETAIL SALES TECHNIQUES & PROMOTION)

Qus-1. Explain the difference types of prize promotions

Ans- Promotion

Imagine a new phone was being launched. The company was very confident about the
quality of their product and very bullish about their sales. Except how do they convey to the
public about this amazing phone? Well they promote it. Let us understand the concept and
the types of promotion.

Promotion is a type of communication between the buyer and the seller. The seller tries to
persuade the buyer to purchase their goods or services through promotions. It helps in
making the people aware of a product, service or a company. It also helps to improve the
public image of a company. This method of marketing may also create interest in the minds
of buyers and can also generate loyal customers.

It is one of the basic elements of the market mix, which includes the four P’s: price, product,
promotion, and place. It is also one of the elements in the promotional mix or promotional
mix or promotional plan. These are personal selling, advertising, sales promotion, direct
marketing publicity and may also include event marketing, exhibitions, and trade shows.

Types of Promotion
Advertising

Advertising means to advertise a product, service or a company with the help of television,
radio or social media. It helps in spreading awareness about the company, product or
service. Advertising is communicated through various mass media, including traditional
media such as newspapers, magazines, television, radio, outdoor advertising or direct mail;
and new media such as search results, blogs, social media, websites or text messages.

Direct Marketing

Direct marketing is a form of advertising where organizations communicate directly

to customers through a variety of media including cell phone text messaging, email,
websites, online adverts, database marketing, fliers, catalog distribution, promotional
letters and targeted television, newspaper and magazine advertisements as well as outdoor
advertising. Among practitioners, it is also known as a direct response.

Sales Promotion

Sales promotion uses both media and non-media marketing communications for a pre-
determined, limited time to increase consumer demand, stimulate market demand or
improve product availability.

Personal Selling

The sale of a product depends on the selling of a product. Personal Selling is a method
where companies send their agents to the consumer to sell the products personally. Here,
the feedback is immediate and they also build a trust with the customer which is very
important.

Public Relation

Public relation or PR is the practice of managing the spread of information between an

individual or an organization (such as a business, government agency, or a nonprofit
organization) and the public. A successful PR campaign can be really beneficial to the brand
of the organization.
Definition: Promotions refer to the entire set of activities, which communicate the
product, brand or service to the user. The idea is to make people aware, attract and
induce to buy the product, in preference over others.

Description: There are several types of promotions. Above the line promotions include
advertising, press releases, consumer promotions (schemes, discounts, contests), while
below the line include trade discounts, freebies, incentive trips, awards and so on. Sales
promotion is a part of the overall promotion effort.

There are also:

1. Personal selling: one of the most effective ways of customer relationship. Such selling
works best when a good working relationship has been built up over a period of time.
This can also be expensive and time consuming, but is best for high value or premium
products.

2. Sales promotions: this includes freebies, contests, discounts, free services, passes,
tickets and so on, as distinct from advertising, publicity and public relations.

3. Public relations: PR is the deliberate, planned and sustained effort to establish and
maintain mutual understanding between the company and the public.

Good pricing strategy helps you determine the price point at which you can maximize
profits on sales of your products or services. When setting prices, a business owner needs
to consider a wide range of factors including production and distribution costs,
competitor offerings, positioning strategies and the business’ target customer base.

While customers won’t purchase goods that are priced too high, your company won’t
succeed if it prices goods too low to cover all of the business’ costs. Along with product,
place and promotion, price can have a profound effect on the success of your small
business.

Here are some of the various strategies that businesses implement when setting prices on
their products and services.

1. Pricing at a Premium

With premium pricing, businesses set costs higher than their competitors. Premium
pricing is often most effective in the early days of a product’s life cycle, and ideal for small
businesses that sell unique goods.
Because customers need to perceive products as being worth the higher price tag, a
business must work hard to create a value perception. Along with creating a high-quality
product, owners should ensure their marketing efforts, the product’s packaging and the
store’s décor all combine to support the premium price.

2. Pricing for Market Penetration

Penetration strategies aim to attract buyers by offering lower prices on goods and
services. While many new companies use this technique to draw attention away from
their competition, penetration pricing does tend to result in an initial loss of income for
the business.

Over time, however, the increase in awareness can drive profits and help small
businesses to stand out from the crowd. In the long run, after sufficiently penetrating a
market, companies often wind up raising their prices to better reflect the state of their
position within the market.

3. Economy Pricing

Used by a wide range of businesses including generic food suppliers and discount
retailers, economy pricing aims to attract the most price-conscious of consumers. With
this strategy, businesses minimize the costs associated with marketing and production in
order to keep product prices down. As a result, customers can purchase the products they
need without frills.

While economy pricing is incredibly effective for large companies like Wal-Mart and
Target, the technique can be dangerous for small businesses. Because small businesses
lack the sales volume of larger companies, they may struggle to generate a sufficient
profit when prices are too low. Still, selectively tailoring discounts to your most loyal
customers can be a great way to guarantee their patronage for years to come.

4. Price Skimming

Designed to help businesses maximize sales on new products and services, price
skimminginvolves setting rates high during the introductory phase. The company then
lowers prices gradually as competitor goods appear on the market.
One of the benefits of price skimming is that it allows businesses to maximize profits on
early adopters before dropping prices to attract more price-sensitive consumers. Not
only does price skimming help a small business recoup its development costs, but it also
creates an illusion of quality and exclusivity when your item is first introduced to the
marketplace.

5. Psychology Pricing

With the economy still limping back to full health, price remains a major concern for
American consumers. Psychology pricing refers to techniques that marketers use to
encourage customers to respond on emotional levels rather than logical ones.

For example, setting the price of a watch at $199 is proven to attract more consumers
than setting it at $200, even though the true difference here is quite small. One
explanation for this trend is that consumers tend to put more attention on the first
number on a price tag than the last. The goal of psychology pricing is to increase demand
by creating an illusion of enhanced value for the consumer.

6. Bundle Pricing

With bundle pricing, small businesses sell multiple products for a lower rate than
consumers would face if they purchased each item individually. Not only is bundling
goods an effective way of moving unsold items that are taking up space in your facility,
but it can also increase the value perception in the eyes of your customers, since you’re
essentially giving them something for free.

Bundle pricing is more effective for companies that sell complimentary products. For
example, a restaurant can take advantage of bundle pricing by including dessert with
every entrée sold on a particular day of the week. Small businesses should keep in mind
that the profits they earn on the higher-value items must make up for the losses they take
on the lower-value product.

Pricing strategies are important, but it’s also important to not lose sight of the price itself.
Here are five things to consider, alongside your strategy, when pricing your products.
Qus-2. What are the marketing objectives of FMCG firms?
Ans- 1. INTRODUCTION: In today’s competitive environment where the customer has got
tremendous choice for selecting brands, it is a very challenging task for a marketer to
attract new and retain the old customer. To accomplish this objective the marketer uses
different types of marketing strategies to position their product in the mind framework of
the customer and establish their brand image in the market. Marketing strategies are a
method of utilizing the marketing mix to satisfy and attract consumers to make a profit
for the organization. The marketer should find out what the consumers wish to purchase
and how much they are willing to pay. The company should then decide whether the
desired product can be produced and sold at the price consumer will pay and at a profit
to the company. Modern marketing begins with the customer, not with production, sales
or technological advancements and last with the customer satisfaction and social well-
being. Under market-driven economy, buyer or customer is the king. With liberalisation
and globalisation the availability of products and services has increased. The customer
has wider choice and he is demanding more and more benefits and the competition is
increasing in the market place. The core of marketing concept is that the customer and
not the product shall be the axis of business systems. All business operations revolve
around customer service and satisfaction and many companies are following customer
oriented philosophy to ensure growth in sales, profits and market share. Fast moving
consumer goods are the products which are used by the consumer frequently and have a
small shelf life and are purchased at a fast rate thus marketer must focus on strategies to
make their customers satisfied which ultimately helps a marketer to bring in new
customers. FMCG are known as low involvement products as consumer spends less time
and energy in buying these goods. Now a day’s FMCG goods are purchased from various
retail stores. With the trend of shopping shifting to malls, the store culture has emerged
as a very important tool to 2 attract customers. Consumers prefer to visit a retail store
where they can purchase variety of products under one roof, not only consumers but
producers also prefer to sell their products through various retail stores. Earlier the
products were sold through local stores or Kirana stores where the shopkeeper only
provides those products which were asked by the consumer, but the store culture allow
them to have a look at all the various available options which they can compare and then
select the best among the lot. The word ‘Retail’ is derived from the French word ‘Retailer’
meaning to cut a piece off or to break bulk and involves direct interface with the
Customer. Retailing involves all activities directly related to the sale of goods and services
to the final Consumer for personal and non business use. Retailer is a person, agent,
Company or organisation engaged in reaching goods or services to the end-user or
ultimate Consumer. Retail trade may be defined as “A trade, which constitutes of selling
goods to ultimate consumers of a variety of products in small lots, distribution and he
satisfies recurrent needs of consumers. The retailer operates near residential area and he
sells directly to consumers. He is the relating link between the company and the
consumer. Retailers have personal contacts with the consumers and can provide valuable
information about changes in consumer wants and preferences to the distributors and
manufacturers. The Indian retail sector, though dominated through grocery shops/kirana
stores, has been witnessing emergence of corporate retail chains such as RPG Retail,
Pantaloon Retail, Shoppers stop, Reliance Fresh, Aditya Birla Groups More’, Croma (Tata).
These largeformat stores known as organized retail stores provide a wide range of pro 3
choice available to the consumers and this is slowly giving way to international format of
retailing. Today retailers are confronting a sharp aggressive market and are discovering it
progressively hard to make a differential favorable position on the premise of item
(stock), value, advancement, spot, individuals and area and as of right now the store itself
turn into a prolific and last open door for business sector separation. Today customers
have numerous shopping decisions, as the product is accessible effortlessly. Some shop
on the web they don't need to stress over the extend periods of time of operation, stop
‘getting product from market. So when contrasted with the past with advancement in
innovation retailers occupation have turned out to be more troublesome. Retailers need
to make an energizing store plan with creative marketing systems to make individuals
come and visit the stores. Here comes the part of advertiser who makes the store plan.
Advertiser likes to think about their store as theater. The dividers and floors speak to the
stage. The lighting, apparatuses, and visual interchanges, for example, signs speak to the
sets. Retail locations likewise give organizations an opportunity to pull in new purchasers
to buy their item by utilizing different store special strategies which make a brand picture
for the item. Because of the quick changes in the worldwide business sector and the
expanded rivalry experienced between FMCG firms, "Brand Management" has turn out to
be more essential. Great brand administration realizes clear separation between items,
guarantees customer steadfastness and inclinations and may prompt a more prominent
piece of the pie. The term brand has diverse importance connected to it; a brand can be
characterized as a name, logo, image and personality or a trademark. A capable brand will
improve customer’s attitude strength of the item relationship of a brand, which is
produced by involvement with the item. Brand name and what a brand remains for are
the centre qualities for most fast moving customer merchandise (FMCGs). The essential
trait of a Fast moving consumer goods are likewise vital for a FMCG brand to exceed
expectations in light of the fact that the quality of a brand normally give the crucial
strides to separating between a few contenders. Dominant part of the FMCG brands have
recognizable brand identifiers, for instance Lux soap, cadbury’s bournvita, thumbs up etc.
4 Branding is linked to a wider concept i.e. overall business strategy and only when
business strategy is defined can the brand values be developed. The connection between
branding and business strategy also means that branding strategies may need some
alteration as the basis of the business changes. By using various marketing strategies
companies creates a positive brand image which leads to brand loyalty. Loyalty is won
through delivery of superior customer experience. The symbolic aspects of branding can
also persuade brand loyalty. Brand loyalty refers to the consumer’s behaviour of time
after time purchase a specific brand over a definite period of time. This is based on the
past behaviour and the brand loyal consumer’s is expected to purchase a particular brand
at present and in the future, thus to make the experience of customer worth
remembering marketer must provide all possible facilities to convert a consumer into
brand loyal consumer. Brand loyalty is important for marketers because it helps in
retaining customers and often requires less marketing efforts than to acquire new ones. It
also has positive implications on brand equity. In today’s competitive world where the
customer is having varied choices in terms of brands, the customer is very choosy in
selecting a specific product or brand. Hence, the marketers have started using the concept
of store promotion to cater the immediate needs of the customers and make them
satisfied. Marketing professionals and specialist use many tactics to attract and retain
their customers. Sales Promotion strategies can help create that positive customer image
that leads to successful sales. Sales promotion spending plan covers very nearly 70% of
the aggregate customer deals special spending plan. It is additionally considered as a
brand differentiator by numerous huge players like Coca-Cola, Pepsi, Heinz and some
more. For some business specialists and scholastics, deals advancement is viewed as run
of the mill promoting strategies that increase the value of an item with a specific end goal
to accomplish particular advertising objectives. The main role of offers advancement is to
instigate the customers to settle on a speedy purchasing choice keeping in mind the end
goal to make expands deals. Commonplace sample of offers advancement is to offer
customers to take risk of winning a prize or offering some additional items with the same
cost. Deals advancement and advertising are between related yet do not have the
comparative reason. It is publicizing which makes a 5 stage for deals advancement where
clients can see the direct included benefit of purchasing a product. Then again, publicizing
is an impalpable advancement of the product to send the showcasing message to the
customer-base. Store promotion is a marketing strategy that is formed to bring people
into the store and to purchase specific items highlighted through store promotion. These
promotion strategies most often come directly from manufacturers, or they may be
offered by the store manager. The reason behind this is to generate additional revenue
due to the extra sales of the products, or even to encourage a brand switch when
presented by the manufacturer. These strategies help to drive traffic in the store, to
remove too much stock, or to generate additional revenues when sales are slumping. It
also helps in building the brand image and creates customers intention to buy a specific
product or brand. According to an article in economic times several ecommerce
companies are opening physical stores to give clients a touch and-feel experience of items
and emerge in the disorder of the inexorably overwhelmed online retail space. Flipkart,
Zivame, Pepperfry, FirstCry and Lenskart have begun logged off experience zones to
separate their offerings from their online adversaries and to build their validity.
FirstCry.com, an online children wear organization, decreased its showcasing spending
plan by 25% subsequent to opening 135 physical stores. Flipkart, the biggest Indian
ecommerce organization, has taken off 20 disconnected from the net stores crosswise
over 10 urban communities and would like to extend to 100 experience zones by March.
The organization dispatched the stores in conjunction with its logistics arm eKart — a
key component in its provincial development procedure. Lenskart began opening
disconnected from the net stores in January. As of now, the online eyewear retailer has
around 110 stores crosswise over India and targets 1,000 by 2020. Specialists said the
line in the middle of online and disconnected from the net is getting obscured as
organizations from one side traverse to the next and the other way around. Retailers
including Reliance, Tata and Future Group have wandered online as a major aspect of
their technique to draw in more clients. Thus store promotion has become a very
important tool for every company. This strategy of store promotion is widely used by the
manufacturers of FMCG products as these are the products which are consumed by the
customers frequently and regularly. 6 Also in case of Fast Moving Consumer Goods, large
numbers of variants are available which provide the marketer the scope to use such
promotional strategies which can convince the customer to purchase their products by
creating brand image. Brand image is the consciousness in the consumer’s mind of a
brand's total personality. It is developed over time through advertising campaign with a
constant theme, and is authenticated through the consumer’s direct experience which can
be formed using in store promotional activities. Thus the study aims to understand the
impact of each store promotion tool in building brand image of a FMCG product and also
the overall impact of store promotional tools on consumer buying decision in FMCG
products. 1.1.FMCG: Fast Moving Consumer Goods (FMCG) are also well-known as
consumer packaged goods (CPG) are products that are sold rapidly and usually consumed
at a habitual basis, as divergent to durable goods such as kitchen appliances that are
replaced less frequently. The FMCG industry mainly includes the production, distribution
and marketing operations of consumer packaged goods. Fast moving consumer goods are
consumed by the consumers for their own use and purchased repeatedly. Consumers
procure these products on regular intervals in small quantity. The price of such products
per unit is low. The consumption of such products is very high due to the consumer’s
necessity for Fast Moving Consumer Goods. FMCGs usually refer to as non-durable
products which are consumed in a short span of time, and are often consumed daily
Indian population is a huge population over 120 crore. A separate sector called FMCG
sector is well established in India. India has always been a country with a big part of
world population, be it the 1950’s or the twenty first century. Taking that into
consideration, the FMCG market potential has always been very big in India. However,
from the 1950’s to the 1980’s investments in the FMCG sector were very less due to
stumpy purchasing power and the government’s unconditional support to the small-scale
sector. FMCG sector is the fourth largest sector in the economy with a total market size in
excess of Rs 60,000 crore. 7 The giant players in this sector include Sara Lee, Nestle,
Unilever, Coca-Cola, Carlsberg, General Mills, Procter & Gamble, Pepsi, Reckitt Benckiser,
Kleenex, Mars and many more. In recent years, the fast moving consumer goods sector
(FMCG) has encountered increased use of marketing strategies all over the world. This
sector is characterized by products which have low unit value, require frequent
purchases and consumer behaviour reflecting a lesser amount of loyalty, impulse buying,
and less involvement on the part of a consumer. Every day, every minute, from the start
to the end of the day, we are bounded by products which make our life easier in a lot of
ways. And this is achievable due to the dedication and effort of FMCG companies.
Examples of FMCG products comprise toiletries, soap, cosmetics, oral hygiene, detergents,
packaged food products, soft drinks, shaving products, candy and chocolate bars, etc. This
industry essentially comprises Consumer Non Durable products which are required to
fulfil the everyday need of the population. A customer generally spends least amount of
effort to procure them. Based on the prime factor behind consumers buying, FMCG’s can
be divided into three classes: Figure 1.1: Types of Fast Moving Consumer Goods Source:
Product management in India by Ramanuj Majumdar, Page no- 36-37 Staples Goods -
Goods that consumer purchases on a regular basis. For example toilet soap, detergent,
sauce, toothpaste, biscuits etc. Impulse Goods- Goods which are purchased with any
planning or searching. These good are usually purchased due to external stimulus. For
example soft drink, potato chips which are displaced in the stores because shoppers may
not have thought of buying until spotting them. FMCG Staples Impulse Goods Emergency
Goods 8 Emergency Goods- Emergency Goods are those goods which are purchased when
the need for that particular product arises. For example the requirement of seasonal
products such as umbrella required at the time of monsoon or sweaters in winters. 1.1.1.
FMCG SECTOR IN INDIA: India is one amongst the fastest developing economies in the
world and its population and territory are big also. Population is nearly 120 crore and
territory is from J and K to Kerala, from Assam to Gujarat is very wide. The industries are
of different types and markets are of different types and can be segmented as urban, sub-
urban and rural markets. The rural market is very wide and still it is difficult to cover.
Nearly 70 percent of Indian population is living in rural areas. There is a great
opportunity for companies in Indian markets including FMCG sector for the companies in
Indian markets. Up to 1991 Indian economy was a protected economy and in this year
due to liberalization a good number of MNCs have entered in India market and mainly in
FMCG sector also. With a population of 1.28 billion, India is one amongst the largest
economies in the world in terms of purchasing power and growing consumer
expenditure, next to China. The Indian FMCG industry, with an approximate market size
of 2 trillion is the fourth largest sector in India. In the last few years, the FMCG sector has
grown-up at an average of 11% a year; in the span of five years, annual growth has
increased at a compounded rate of 17.3%. FMCG sector is characterized by strong
presence of global businesses, intense competition between organized and unorganized
companies, well recognized distribution network and less operational cost. Availability of
key raw materials, cheaper labor costs and existence across the whole value chain gives
India a competitive edge. During 2012, the country witnessed soaring inflation, muffled
salary hikes and slow economic growth, which affected the FMCG sector with companies
having reduction in volume growth which were seen in their quarterly results. However,
the trend seen in 2012 accelerated in 2013 as growth came from rural dwellers through a
rise in their disposable incomes. 9 There is tough competition from local and foreign
companies in Indian markets. They have started producing products like skin care,
toothpaste, toiletries, fast food, chocolates, cosmetics and many other products. The
FMCG sector is flooded by companies from India and abroad. In future the intensity of
competition would increase further. The situation in Indian economy is very favourable
for foreign companies. The major factors attracting them are availability of raw materials,
low labour cost, market potential for consumption and more disposable income of Indian
customers. More over the GDP in Indian economy is increasing every year so per capita
income increasing and there is scope for further development. At present large and small
companies are operating in Indian FMCG sector. Fast moving consumer goods comprise
of a large part of consumers’ income in all countries. The fast moving consumer goods
sector is an important contributor to India’s GDP. The Indian FMCG sector is extremely
fragmented with almost half the market covered by unbranded, unpackaged home made
products. The FMCG sector is the fourth largest constituent of Indian economy with a
market size of about Rs. 130,000 crore. India’s FMCG sector is the fourth largest sector in
the economy and provide employment to more than three million people in downstream
activities. The fast moving consumer goods market is expected to increase at a compound
annual growth rate of 14.7 per cent to touch US$ 110.4 billion in the period 2012- 2020
according to India brand equity foundation. FMCG sector is the most competitive and
growing sector as customers require these products on regular basis and their demand
for FMCG products keeps on increasing, thus the companies need to promote their
products so that they appear different and better from the competitor’s product. Indian
companies have their vicinity over the quality chain of FMCG segment, right from the
supply of crude materials to bundled merchandise in the nourishment preparing part. For
instance, Amul supplies milk and dairy items like cheese, butter, etc. 10 Figure 1.2:
Classification of Fast Moving Consumer Goods Source: Dabur, Aranca Research FMCG
product categories consist of food and dairy products, pharmaceuticals, consumer
electronics, packaged food products, household products, drinks and others. On the other
hand some common FMCG’s include coffee, tea, detergents, tobacco and cigarettes, soaps
and others. Fast moving consumer goods will get to be Rs 400,000-crore industry by
2020. A Booz and Company study discovers the patterns that will shape its future.
Another report by Booz and Company for the Confederation of Indian Industry (CII),
called FMCG Roadmap to 2020: The Game Changers, defines the key development drivers
for the Indian quick moving shopper merchandise (FMCG) industry in the previous ten
years and distinguishes the huge patterns and considers that will affect its future. It has
been evaluated that FMCG segment saw powerful year-on-year development of around
11 for each penny in the most recent decade, very nearly tripling in size from Rs 47,000
crore in 2000-01 to Rs 130,000 crore now (it represents 2.2 for every penny of the
nation's GDP). Development was significantly quicker in the previous five years — just
about 17 for 11 Furthermore, if a percentage of the components play out positively, say,
GDP grows somewhat speedier, the legislature evacuates bottlenecks, for example, the
merchandise and benefits charge, foundation ventures get, there is more productive
spending on government endowment et cetera, development can be essentially higher. It
could be as high as 17 for each penny, prompting a general industry size of Rs 620,000
crore by 2020. Abhishek Malhotra (2010) told that the Indian GDP per capita is low
however numerous Indian purchaser fragments which constitute rather vast outright
numbers are either near or have as of now come to the tipping purpose of fast
development. The segment is balanced for fast development throughout the following 10
years, and by 2020, the industry is required to be bigger, more dependable and more
tuned to its clients. Taking into account research on industry advancements in different
markets and talks with industry specialists and experts, Booz and Company has
recognized some essential patterns that will change the substance of the business
throughout the following ten years. 1.1.2. IMPACT OF THE FMCG SECTOR IN INDIA: The
fast-moving consumer goods sector is an important contributor to India’s GDP and it is
the fourth largest sector of the Indian economy. Products in this sector are meant for
repeated consumption and they usually yield a high return. The most familiar in the list
are toilet soaps, detergents, shampoos, toothpaste, shaving products, shoe polish,
packaged foodstuff, and extends to some electronic goods. The Indian FMCG sector which
is the fourth biggest sector in the India contributing to a market size of `2 trillion with
rural India contributing to one third of the sector’s revenues. FMCG companies have to
incur a lot of money in heavy advertising, marketing, packaging and distribution. The
pricing of the finished product also depends on the cost of raw material used in
production. The growth of the sector has been driven by both the rural and urban
markets. India is one of the most attractive markets for foreign FMCG players due to easy
accessibility of imported raw materials and cheap labour. 12 For years now, food items
have been the most extensively distributed FMCG products in the country. But the
scenario is changing. Indians are more likely to find more of personal care products in
comparison to food in a shop these days which is the result of consumer goods companies
pushing the distribution of an entire collection of their products in the hand of wary
consumer. Latest data from market research firm Nielsen reveals that on the list of the
top five FMCG product categories, only one food product i.e. biscuits finds place. The
category with the maximum penetration is shampoos at 79%, followed closely by biscuits
at 78%. The FMCG market is estimated to treble from its current situation in the future.
Penetration level as well as per capita consumption of most product categories like jams,
toothpaste, skin care and shampoo in our country is low, indicating the untapped market
potential. The growing population in our country, predominantly the middle class,
present an opportunity to makers of branded products to switch consumers to branded
products. Distribution of categories has undergone a remarkable transformation in the
past 15 years. According to D Shivakumar, chairman and CEO, PepsiCo India FMCG is
available in 8.8 million outlets and shampoo is available in 80% of those outlets. He also
added that "Skin creams have managed to get to the top 10 distributed products and
packaged tea, which was earlier the most distributed product, is now out of the top 10
list. Data suggests that most of this evolution is due to the shifting of consumption pattern
of consumer’s preference to branded products from non-branded products. For instance,
in utensil cleaners and edible oils incursion has amplified to 36% from 33% and 21% to
17% from 2012 to 2014, respectively. "Earlier, people would visit at shops with bottles to
buy mustard oil. That's changing with rising affluence levels and lower packaging costs.
In coming future, more unbranded to branded consumption in non-mature categories
such as, hair oils and hair conditioners will be seen," says Vijay Udasi, executive director,
Nielsen India. The discoveries likewise uncover a drop in infiltration levels of cleansers
cakes and banishes from 60% in 2012 to 59% in 2014 as more purchasers movement to
clothes 13 washers to do their clothing. Additionally, skin creams have likewise seen a
drop of 2% because of changes in purchaser conduct. "The portions inside of the skin
creams class have likewise changed. More individuals are purchasing developing items
like face washes, hostile to maturing and under-eye creams," says Udasi official chief,
Nielsen India. For HUL, next step now is to make its brands available utilizing pack sizes
and value focuses customized to win the nation over. "We have possessed the capacity to
keep up our authority position in a following so as to develop business sector a business
sector improvement approach. A standout amongst the best endeavors on this front has
been the Dove 'twin sachet', which offers a cleanser and conditioner together at a Rs 5
value point to impel trials," says Srirup Mitra, classification head - Hair Care, HUL.
However, the predominance of non-nourishment classifications on the top could change.
There are dismal signs. Take the salty snacks classification for occasion. Entrance has
ascended from 58% to 64%. Indeed, even a classification like noodles, which has still not
broken into the main ten rundown, has seen an increment in infiltration from 38% to
42%. "The following level of development exists in marked nourishments," says Udasi.
"There is a development of new sustenance classes in bread spreads, including nutty
spread and other flavours also. As opulence levels rise, country shoppers will spend more
on basic supply things and nourishment." The Indian FMCG sector stands as the fourth
largest sector in the economy with a market size of US$13.1 billion. The sector has well
established distribution networks, and also has intense competition between the
organised and unorganised sector. FMCG sector in our country has a tough and
competitive MNC existence across the entire value chain. It has been predicted that the
FMCG market will reach to US$ 33.4 billion in 2015 from US $ billion 11.6 in 2003. The
markets which have high potential and give brand makers the opportunity to influence
the customers to purchase branded products are the middle class and the rural segments.
In India most of the product categories like jams, toothpaste, skin care, shampoos, etc
which have low per capita consumption as well as low penetration level, but the potential
for growth is huge have a lot of demand. The 14 Indian Economy is rolling forward by
leaps and limits, keeping pace with swift urbanization, rising literacy levels, and growing
per capita income. The giant firms and small-time companies in FMGC sector are raising
higher and growing up fast. In a study conducted by AC Nielsen, 62 out of 100 brands
belong to MNCs, and the remaining by Indian companies. Fifteen companies own these 62
brands, and 27 of these belong to Hindustan Lever. Pepsi stands at number three and
next to it is Thums Up. Britannia occupies the fifth place, followed by Colgate (6), Nirma
(7), Coca-Cola (8) and Parle (9). Despite the fact that FMCG development has been
abating for quite a while, sliding by 8.1% from 2010 to 2013, Nielsen predicts that India's
FMCG industry will develop from $37 billion in 2013 to $49 billion in 2016.
Appropriation development and advancements around sachet offerings will assume real
parts in fuelling development, which had backed off in the most recent couple of years.
While the ascent of e-trade is by and large distinctly viewed, a few new models may
develop throughout the following couple of years. 1.1.3. Government Policies and
Regulatory Framework: The various policies Government of India's and its regulatory
frameworks such as reduction of license rules and sanction of more than 50 per cent
foreign direct investment in multi-brand retail and 100 per cent in single-brand retail
sector are several reason of growth in this sector. The government has also made some
changes the Sugarcane Control Order, 1966, and replaced the Statutory Minimum Price of
sugarcane with Fair and Remunerative Price and the State Advised Price (SAP). Goods
and Service Tax (GST): GST, which has filled the place of multiple indirect taxes levied on
FMCG sector with a uniform, simplified and single-pint taxation system, is likely to be
implemented soon (the benefits are likely to come in by the end of FY’14). The rate of GST
on services is likely to be 16% and on goods is proposed to be 20%. A swift move to the
proposed GST may reduce prices, bolstering consumption for FMCG products. Some
Government Policies and Regulatory Framework are mentioned below: 15 1.1.3.1. Food
Security Bill: The food security Bill has been approved recently in 2013 in the Union
Cabinet. According to the Bill, 5Kg of food grains per person per month will be made
available at reduced prices from State Governments under the targeted public
distribution system. With increased demand, the agriculture sector would have a boost
and this could lead to more investments in recovering agriculture productivity and
making it more competitive. 1.1.3.2. FDI in retail: The choice of Government of India allow
51% FDI in multi brand retail and 100% FDI in single brand retail responds well towards
the outlook of the FMCG sector in India. The decision has bolster employment, and supply
chains, apart from giving great visibility for FMCG brands in retail markets, bolstering
consumer spending, and encouraged a lot of product launches. FDI of 100% under the
automatic direction is authorized in the food processing sector, which is taken as a
priority sector. FMCG sector amounted to 1.9% of the nation’s total FDI inflows in April
2000- September 2012. FDI inflows into India from April 2000 to April 2013 in the food
processing sector was `9,000.33 crore, accounting for 0.96% of overall FDI inflows where
as that of soaps, cosmetics and toiletries was `3,115.54 crore in, accounting for 0.32%.
The food processing sector had total FDI inflows of `6,198 crore during April 2009 to
December 2012. 1.1.3.3. Relaxation of license rules: Industrial licenses are not necessary
for almost all food and agro-processing products, certain items which require licence are
beer, potable alcohol and wines, cane sugar, and hydrogenated animal fats and oils as
well as items reserved for exclusive manufacturing in the small-scale sector. 16 1.1.4.
New launches and product extension by FMCG companies to boost growth and market
share: New product launches, innovation and product expansion are many of the few
factors which motivate a FMCG company for increasing their profitability to a greater
extent. As Indian customers prefer purchasing global brands and their aspirations and
desires are always focused on products of global companies, their desire to consume
products is also increasing. Strong demand for already existing FMCG products is
motivating more FMCG companies to extend their brand umbrella and enlarge their
product range as well, strengthen the Indian FMCG space. Moreover to achieve higher
market share and maintain long-term growth, most of the FMCG companies are going for
brand extension strategy. Various gigantic industrial players have introduced new and
innovative products and ideas during FY’13. For instance, 1.1.4.1. HUL’s one of the largest
brands, Lifebuoy aims to change hand washing behavior of people by educating them
about their health and cleanliness. At the event of Mahakumbh Mela, Lifebuoy partnered
with over 100 restaurants to raise awareness about hand hygiene. Over 2.5 million Rotis
(carried the stamp “Lifebuoy se haath dhoye kya? and reminded people to wash their
hands before eating. 1.1.4.2. HUL’s Kissan strengthened its ‘natural’ advantage by re-
positioning itself on “Goodness of 100% real”. The idea was to give consumers a “real”
experience – in the products they buy and through participation in activities that help
them connect to nature. This inspired the launch of ‘Kissanpur’. 1.1.4.3. Marico entered a
new category by launching Saffola oats in various flavors. It has also launched new
products in the category of hair care and skin care. The takeover of Paras Healthcare last
year helped it extend into the male personal care segment where it covered a good
market and gained profit. 17 1.1.4.4. For Godrej, the major share of growth came in from
new launch, product innovation, and diversification across regions and development of
the distribution network. New products such as cream-based hair colour and extension of
Cinthol into new categories such as face wash and moisturizers gave an added advantage
to the overall business. HUL also went in for product extensions in brands such as Lux,
Pepsodent and Pureit. 1.1.4.5. In the year 2012 Dabur undertook a mega initiative to
substantially expand its distribution footprint and drive cost-effective growth. This
expansion was taken to increase the direct distribution coverage in rural markets,
customizing promotional activity and providing exclusive servicing through a dedicated
sales team in these markets. The FMCG sector has flourish a lot in recent years, with
market showing signs of broad revival. The retail market in our country is very
competitive in comparison to other sectors. There are no legal restrictions on entry, and
no discrimination against foreign companies. Prices in retail sector differentiate
considerably for a market operating on a very less profit margin. However, these
differences in price are likely to originate from cost differences. Any single retailer may
not seem to create a leading place in the retail market. However, the significant markets
in the retail sector should be described locally rather than at national level. These things
are likely to have a positive impression on product diversity and the quality of
products/services offered by retail stores. Conventional wholesalers are the in all
probability washouts, in light of the fact that vast retailers tend to purchase specifically
from suppliers. The change of the retail market is prone to have a durable effect on
wholesale exchange and the dispersion of FMCGs also. Logistics organizations that give
an extensive variety of correlative administrations will play an undeniably more
imperative part in the circulation of FMCGs. Piece of the pie developments show that
organizations, for example, Marico Ltd and Nestle India Ltd, with command in their key
classifications, have enhanced their pieces of the pie and beat companions in the FMCG
area. This has been additionally helped by the absence of rivalry in the individual classes.
Single item pioneers, for example, Palmolive India Ltd and Britannia Industries Ltd have
likewise seen quality in their separate classes, helped by 18 developments and solid
circulation. Solid players in the economy fragment like Godrej Consumer Products Ltd in
cleansers and Dabur in toothpastes have additionally posted piece of the pie change, with
restored development in semi-urban and rustic markets. Indian purchasers were a touch
progressive somewhat because of lesser extra cash and incompletely because of less
aggressive and more mixture of items. FMCG industry in India began to shape during the
last 50-odd years. The FMCG area is a foundation of the Indian economy, touching each
part of human life. India's Rs 460- billion FMCG business sector remains profoundly
divided with generally a large portion of the business sector being commanded by
unbranded, unpackaged, home-made items. This presents a huge open door for
advertisers of marked items to change over shoppers to purchase marked items. FMCGs
commonly require a wide circulation organize and are sold straightforwardly to the
buyers. FMCG sector in the Indian rural market is one of the most booming sectors in
Indian economy. The villages of India account for 12.2% of the world's population. The
farm sector has been one of the significant sectors which boosted the rural economy
resulting in the elevated consumption of FMCG products. The consumers in both rural
and urban sectors can afford high-priced branded products nowadays with the high
disposable income. 1.2.Marketing strategies: Marketing strategies serve as the
elementary reinforcement of marketing plans formed to fill market needs and reach
overall objectives of the company. Plans and objectives are generally tested for
measurable results. Commonly, marketing strategies are formed for a period of 12
months, with a deliberate plan detailing specific actions to be accomplished in the same
year. Time period included by the marketing plan vary by company, by industry, and by
nation, however, time spans are getting shorter as the speed of change in the business
environment increases. Marketing strategies are dynamic and communicative. A most
important objective of any marketing strategy for the various product categories is to
motivate consumers to repurchase the brand because of liking or association with the
brand. Purchase intention is the implied promise to one’s self to purchase the product
over again whenever one makes next trip to the store. It has a 19 substantial importance
because the companies want to increase the percentage of a specific product sold in the
market for the purpose to increase their profit. The intention of consumers to repurchase
a specific product can be promoted by the marketer through various marketing strategies
used in stores such as attractive product display, cash discount, floor advertisement, in
store television etc. All marketing strategies are formed on the basis of segmentation,
targeting and positioning. A company discovers different needs and groups in a selected
market, targets those needs and groups that it can satisfy in a superior way and then
positions its product so that the targeted audience identifies the company’s distinctive
offering and image (Kotler, 2003). Figure 1.3: Marketing strategy Market segmentation
Market positioning Target marketing Marketing planning Source: Doyle (1998),
Marketing management and Strategy”, 2nd edition, Prentice Hall,

Qus-3. What is the role of promotion in introducing new products?

Ans- Promotion (marketing)

In marketing, promotion refers to any type of marketing communication used to

inform or persuade target audiences of the relative merits of a product, service, brand
or issue. The aim of promotion is to increase awareness, create interest, generate
sales or create brand loyalty. It is one of the basic elements of the market mix, which
includes the four Ps, i.e., product, price, place, and promotion.[1]

Promotion is also one of the elements in the promotional mix or promotional plan.
These are personal selling, advertising, sales promotion, direct
marketing publicity and may also include event marketing, exhibitions and trade
shows.[2] A promotional plan specifies how much attention to pay to each of the
elements in the promotional mix, and what proportion of the budget should be
allocated to each element.

Promotion covers the methods of communication that a marketer uses to provide

information about its product. Information can be both verbal and visual.

Etymology and usage[edit]

The term promotion derives from the Old French, promocion meaning to "move
forward", "push onward" or to "advance in rank or position" which in turn, comes
from the Latin, promotionem meaning "a moving forward". The word entered the
English language in the 14th century. [3]

The use of the term promotion to refer to "advertising or publicity" is very modern and
is first recorded in 1925.[4] It may be a contraction of a related term, sales
promotion, which is one element in the larger set of tools used in marketing
communications. The terms, promotion and marketing communications can be used
synonymously, but in practice, the latter is more widely used.

Purpose[edit]

There are three objectives of promotion. These are:[6]

To present information to consumers and others.

To increase demand.

To differentiate a product.

The purpose of a promotion and thus its promotional plan can have a wide range,
including: sales increases, new product acceptance, creation of brand
equity, positioning, competitive retaliations, or creation of a corporate image.[2]

The term 'promotion' tends to be used internally by the marketing function. To the
public or the market, phrases like "special offer" are more common. Examples of a
fully integrated, long-term, and large-scale promotion are My Coke Rewards in the
USA or Coke Zone in the UK and Pepsi Stuff.

Types[edit]

There have been different ways to promote a product in person or with different
media. Both person and media can be either physically real or virtual/electronic.

In a physical environment[edit]
Promotions can be held in physical environments at special events such as concerts,
festivals, trade shows, and in the field, such as in grocery or department stores.
Interactions in the field allow immediate purchases. The purchase of a product can
be incentive with discounts (i.e., coupons), free items, or a contest. This method is
used to increase the sales of a given product. Interactions between the brand and the
customer are performed by a brand ambassador or promotional model who
represents the product in physical environments. Brand ambassadors or promotional
models are hired by a marketing company, which in turn is booked by the brand to
represent the product or service. Person-to-person interaction, as opposed to media-
to-person involvement, establishes connections that add another dimension to
promotion. Building a community through promoting goods and services can lead
to brand loyalty.

Traditional media[edit]

Examples of traditional media include print media such as newspapers and

magazines, electronic media such as radio and television, and outdoor media such as
banner or billboardadvertisements. Each of these platforms provide ways for brands
to reach consumers with advertisements.

Digital media[edit]

Digital media, which includes Internet, social networking and social media sites, is a
modern way for brands to interact with consumers as it releases news, information
and advertising from the technological limits of print and broadcast
infrastructures.[7] Digital media is currently the most effective way for brands to reach
their consumers on a daily basis. Over 2.7 billion people are online globally, which is
about 40% of the world's population.[8] 67% of all Internet users globally use social
media.[9]

Mass communication has led to modern marketing strategies to continue focusing on

brand awareness, large distributions and heavy promotions.[10] The fast-paced
environment of digital media presents new methods for promotion to utilize new tools
now available through technology. With the rise of technological advances,
promotions can be done outside of local contexts and across geographic borders to
reach a greater number of potential consumers. The goal of a promotion is then to
reach the most people possible in a time efficient and a cost efficient manner.
Social media, as a modern marketing tool, offers opportunities to reach larger
audiences in an interactive way. These interactions allow for conversation rather than
simply educating the
customer. Facebook, Snapchat, Instagram, Twitter, Pinterest, Google Plus, Tumblr, as
well as alternate audio and media sites like SoundCloud and Mixcloud allow users to
interact and promote music online with little to no cost. You can purchase and buy ad
space as well as potential customer interactions stores as Likes, Followers, and clicks
to your page with the use of third parties. As a participatory media culture, social
media platforms or social networking sites are forms of mass communication that,
through media technologies, allow large amounts of product and distribution of
content to reach the largest audience possible.[2] However, there are downsides to
virtual promotions as servers, systems, and websites may crash, fail, or become
overloaded with information. You also can stand risk of losing uploaded information
and storage and at a use can also be effected by a number of outside variables.

Brands can explore different strategies to keep consumers engaged. One popular tool
is branded entertainment, or creating some sort of social game for the user. The
benefits of such a platform include submersing the user in the brand's content. Users
will be more likely to absorb and not grow tired of advertisements if they are, for
example, embedded in the game as opposed to a bothersome pop-up ad.[11]

Personalizing advertisements is another strategy that can work well for brands, as it
can increase the likelihood that the brand will be anthropomorphized by the
consumer. Personalization increases click-through intentions when data has been
collected about the consumer.[12]

Brands must navigate the line between effectively promoting their content to
consumers on social media and becoming too invasive in consumers' lives. Vivid
Internet ads that include devices such as animation might increase a user's initial
attention to the ad. However, this may be seen as a distraction to the user if they are
trying to absorb a different part of the site such as reading text.[13] Additionally, when
brands make the effort of overtly collecting data about their consumers and then
personalizing their ads to them, the consumer's relationship with the advertisements,
following this data collection, is frequently positive. However, when data is covertly
collected, consumers can quickly feel like the company betrayed their trust.[12] It is
important for brands to utilize personalization in their ads, without making the
consumer feel vulnerable or that their privacy has been betrayed.
Promotions is the part of marketing that specifically involves communicating
company or product information to targeted customers. This is a key component of
the broader marketing system, because it is what usually makes customers aware of
you, attracted to your brand, interested in buying and ultimately, loyal customers.
Advertising, public relations and personal selling are three staple methods of
promotion, though some new techniques have emerged in the early 21st century.

Advertising

Advertising takes up a significant portion of a company's budget allocated toward

marketing and promotion. It includes the development and paid delivery of brand or
product messages through media. Companies usually have internal advertising
departments that design and develop ads, or they work with advertising firms who
specialize in the advertising process. Since you pay for ad placement in media such as
television, radio, newspapers and magazines, you generally have more control over
the message than you do through some other promotional methods.

Public Relations

Maintaining goodwill with the public is an important long-term strategy for both small
and large companies. A variety of public relations tactics are used to reach out to
customers through unpaid-for media messages. Press releases are one of the most
common and routine PR tactics. This is when a company sends an overview of a major
change or event, product launch or other news to various media outlets. Press
conferences, features news reports and newsletters are other common PR tools. A
general objective of PR is to keep your brand in front of people even beyond paid ads.
The challenge is you can't always control the way your PR messages are delivered or
received.

Selling

While business typically engage in some level of advertising and public relations, the
use of personal selling tactics varies considerably. Some small businesses don't
employ active sales associates based on the small-scale products or services they sell.
Companies with big-ticket items, such as electronics or appliances, more often use
sales associates to stress the benefits of products to customers and to overcome their
concerns. Selling is one of the most interactive forms of promotion.

Digital/Interactive
The evolution of the Internet and related technologies has given rise to digital and
interactive promotional methods. Email marketing, online advertising and mobile
advertising have all become common components of promotional campaigns. These
methods are often relatively affordable for small businesses and offer direct
connections to tech-savvy consumers who spend significant time online. Social media
portals such as Twitter, Facebook and YouTube also provide inexpensive ways to
interact with customers in real time.

4 Most Important Elements of Promotion Mix | Business Marketing

The promotional communication aims at informing and persuading the customer to

buy the product and informing him about the merits of the products.

Promotion mix:

It refers to all the decisions related to promotion of sales of products and services. The
important decisions of promotion mix are selecting advertising media, selecting
promotional techniques, using publicity measures and public relations etc.

There are various tools and elements available for promotion. These are adopted by
firms to carry on its promotional activities. The marketer generally chooses a
combination of these promotional tools.

ADVERTISEMENTS:

Following are the tools or elements of promotion. They are also called elements of
promotion mix:

1. Advertising

2. Sales promotion

3. Personal selling

ADVERTISEMENTS:

4. Public relation

1. Advertising:

Advertisement can be defined as the “paid form of non-personal presentation and

promotion of idea, goods or services by an identified sponsor”.
It is an impersonal presentation where a standard or common message regarding the
merits, price and availability of product or service is given by the producer or
marketer. The advertisement builds pull effect as advertising tries to pull the product
by directly appealing to customer to buy it.

From the above definition we can find that the three distinct features of advertising
are:

ADVERTISEMENTS:

1. Paid Form:

The sponsor has to pay for advertising he has to bear a cost to communicate with
customers.

2. Impersonality:

There is no face to face contact between customers and advertiser. It creates a

monologue and not a dialogue.

ADVERTISEMENTS:

3. Identified Sponsor:

Advertisement is given by an identified company or firm or individual.

Features of Advertising and Advantages/Merits of Advertisement:

(i) Reach:

Advertising can reach a large market. As through various media of advertising there is
benefit of mass reach for example, any message given on All India Radio or TV can
reach in different corners of the country wherever TV and Radio network is available.

(ii) Choice:

There is wide variety of media available for advertising for video, audio, visual audio,
print media etc. Under each category large variety is available for example, in print
media we can select from magazines, newspaper, banner etc. This variety or choice
helps the marketer to select the media, keeping in mind the target customer.

(iii) Legitimacy:
In advertisement the messages regarding the product or service are given publicly to
customers so there is always a proof for it and customers believe that publicly the
company will not give false information of the product. The customer feels
comfortable to buy a product which is widely advertised.

(iv) Expressiveness:

Advertising provides enough opportunities to marketers to dramatize the message

with the help of drawings, colours, pictures, music, dance
etc. They can easily express the use of product through various techniques, and can
add multimedia effect also.

(v) Economy:

It is always felt that advertising increases the cost of product or service but
advertising is considered economical as compared to other promotional techniques
because it reaches masses and if we calculate cost per customer it is very low or
nominal.

(vi) Enhancing Customer Satisfaction and Confidence:

Customer feel more assured about quality and feel more comfortable if sponsors claim
these benefits in advertising.

Disadvantages of Advertising:

ADVERTISEMENTS:

(i) It is an Impersonal Communication/Less Forceful:

In advertising there is no direct communication between the customer and marketer.

The marketer assumes that the message is communicated but the audience or
customers do not pay any attention to impersonal messages conveyed through
advertising. The response of customer cannot be known in advertising.

(ii) Advertising is less effective:

In advertising there is only one way communication i. e., communication from seller
only, but two way communication is always more effective as in two way
communication the customer gets chance to clarify his or her queries. Sometimes
customers have many doubts regarding the use of product, these doubts can be
clarified only when there is two way communication.

ADVERTISEMENTS:
(iii) Difficulty in Media Choice:

In advertising various media are available. Each media have its own advantages and
disadvantages. So the effectiveness of advertisement depends to a great extent on the
right choice of media. When choice of media is faulty or wrong no matter how good the
advertisement is it will not reach the target customer.

(iv) Inflexibility:

It is very difficult to change advertisement as companies use standardised messages

which cannot be changed according to the need of customers.

(v) Lack of Feedback:

The evaluation of effectiveness of advertisement is very difficult as there is no

immediate and accurate feedback given by the customers.

Objections to Advertising or Criticism of Advertising:

Advertising has been subject to lot of criticisms. The following are main objections
raised on advertisements by a group of people. Along with objections the answers to
these objections are also mentioned below:

(i) Effect of Advertising on Values, Materialism and Life Styles:

The major objection on advertisement is that it promotes materialism. The

advertisements inform people about more and more products, the use of existing
products and the new products are shown dramatically to attract the customers.

This knowledge about more and more products induces the customers to buy more
and more products. They start demanding the products which they don’t even require.
If there was no advertising we would be less aware of material things and we can be
more contented.

We do not agree with this objection as it is wrong to say that a person who is least
informed is most contented or satisfied. The advertisement increases the knowledge
of customers by informing them about various products along with their utilities.

The advertisement only informs the customers, the final choice of buying or not, lies
with the customers only.

(ii) Advertising Encourages Sale of Inferior and Dubious Products:

The advertisements show all types of products irrespective of their quality. With the
help of advertising anything can be sold in the market.

The objection to sale of inferior goods is not correct because what is inferior and what
is superior depends upon the economic status and preference. Every one cannot
afford to buy superior quality expensive products but it does not mean they should
not use the product.

The lower income group people satisfy their needs with low cost inferior goods for
example; those who cannot afford to buy shoes of Nike or Reebok have to satisfy with
local brand only. So it is not advertisements which encourage sale of inferior goods; it
is one’s pocket or financial capacity which decides this.

The real criticism of advertisement is that it encourages sale of duplicate products.

Some producers exaggerate the use of products and innocent consumers get trapped
in and buy duplicate products.

(iii) Advertising Confuses Rather than Helps:

The number of advertisements shown in TV and Radio are increasing day by day for
example, if we take TV, there are so many advertisements of different companies
shown such as LG, Onida, Sony, BPL, Samsung, Videocon etc. each brand claiming they
are the best. These claims by different companies confuse the customer and it
becomes very difficult for him to make choice.

We do not agree with this objection because advertisements give wide choice to
customers and today’s customer is smart enough to know and select the most suitable
brand for him.

(iv) Some Advertisements are in Bad Taste:

Another objection to advertisements is that advertisements use bad language, the way
they are speaking may not appeal everyone, sometimes women are shown in the
advertisements where they are not required for example, a woman in after shave
lotion and in advertisements of suiting etc. Some advertisements distort relationship
between employer-employee, mother-in-law and daughter-in-law etc. for example, in
advertisement of Band Aid, Detergent Bar, Fevistick, etc.

Although those types of advertisements should be avoided but it can’t be an objection

because good or bad taste differs from person to person. It is a matter of personal
opinion as to what was not accepted by yesterday’s generation is accepted by today’s
generation and they may not find it of bad taste.
(v) Advertisement Costs are passed on to the Customers in the Form of Higher Price:

The most serious objection to advertisement is that it increases the price of product
because the firms spend a huge amount on advertisement and these expenses are
added to cost and consumer has to pay a higher price for the product or service.

This objection is also not correct because with advertisements the demand for
product increases which brings increase in sale and this leads to increase in
production. With increase in production the companies can get the economies of scale
which reduces the cost of production and thus the increase in cost due to expenses on
advertisements gets compensated. So if advertisement is used properly it brings
reduction in cost the in long run.

2. Sales Promotion:

Sales promotion refers to short term use of incentives or other promotional activities
that stimulate the customer to buy the product. Sales promotion techniques are very
useful because they bring:

(a) Short and immediate effect on sale.

(b) Stock clearance is possible with sales promotion.

(c) Sales promotion techniques induce customers as well as distribution channels.

(d) Sales promotion techniques help to win over the competitor.

Sales Promotion Techniques for Customers:

Some of the sales promotion activities commonly used by the marketer to increase the
sale are:

(i) Rebate:

It refers to selling product at a special price which is less than the original price for a
limited period of time. This offer is given to clear off the stock or excessive inventory
for example; coke announced 2 liter bottles at Rs 35 only.

(ii) Discounts:
This refers to reduction of certain percentage of price from list price for a limited
period of time. The discounts induce the customers to buy and to buy more. Generally
at the end of season big companies offer their products at discounted price to clear off
the stock e.g., season’s sale at Snow-White Jain Sons, Paul Garments, Bhuvan
Garments, etc.

(iii) Refunds:

This refers to refund or part of price paid by customer on presenting the proof of
purchase for example, Rs 2 off on presentation of empty pack of Ruffle Lays.

(iv) Premiums or Gifts/or Product Combination:

These are most popular and commonly used promotion tool. It refers to giving a free
gift on purchase of the product. Generally the free gift is related to product but it is not
necessary for example, Mug free with Bourn vita, Shaker free with Coffee, Toothbrush
free with Toothpaste, etc.

(v) Quantity Deals:

It refers to offer of extra quantity in a special package at less price or on extra

purchase some quantity free for example, buy three get one free e.g., this scheme of
buy three get one free scheme is available on soaps.

(vi) Samples:

It refers to distribution of free samples of product to the customers. These are

distributed when the seller wants the customer must try the product. Generally when
a new product is launched for example, when Hindustan Level launched Surf Excel it
distributed the samples as it wanted the customers to try it.

(vii) Contests:

It refers to participation of consumers in competitive events organised by the firm and

winners are given some reward for example, Camlin Company organizes painting
competition, Bourn vita quiz contest and some companies organise contest of writing
slogans and best slogan is awarded prize.

(viii) Instant Draws and Assigned Gifts:

It includes the offers like ‘scratch a card’ and win instantly a refrigerator, car, T-shirt,
computer etc.

(ix) Lucky Draw:

In this draws are taken out by including the bill number or names of customers who
have purchased the goods and lucky winner gets free car, computer, A.C., T.V., etc.
Draw can be taken out daily, weekly, monthly, etc.

(x) Usable Benefits:

This includes offers like ‘Purchase goods worth Rs 5000 and get a holiday package’ or
get a discount voucher, etc.

(xi) Full Finance @ 0%:

Many marketers offer 0% interest on financing of consumer durable goods like

washing machine, T.V. etc. e.g., 24 easy installments 6 paid as front payment and
remaining 18 with post-dated cheques. In these types of scheme customers should be
careful about the file charges etc.

(xii) Packaged Premium:

In this type of sales promotion the free gift is kept inside the pack. The gift is kept in
limited products but the excitement of getting the gift induces the customer to buy the
product for example, gold pendant in soap, gold coin in Tata tea etc.

(xiii) Container Premium:

This refers to use of special container or boxes to pack the products which could be
reused by the customer for example, Pet Bottles for Cold Drinks. This bottles can be
used for Steering Water, Plastic Jars for Bourn vita, Maltova, etc. which can be reused
by the housewives in kitchen.
Merits of Sales Promotion:

1. Attention Value:

The incentives offered in sales promotion attract attention of the people.

2. Useful in New Product Launch:

The sales promotion techniques are very helpful in introducing the new product as it
induces people to try new products as they are available at low price or sometimes as
free sample.

3. Synergy in Total Promotion Efforts:

Sales promotion activities supplement advertising and personal selling efforts of the
company. Sales promotion adds to the effectiveness of advertisement efforts.

4. Aid to other Promotion Tools:

Sales promotion technique makes other promotion techniques more effective.

Salesmen find it easy to sell products on which incentives are available.

Demerits of Sales Promotion:

1. Reflect Crisis:

If firm is offering sales promotion techniques again and again it indicates that there is
no demand of product which can create crisis situation.

2. Spoil Product Image:

Use of sales promotion tool may affect the image of product as buyer feel that product
is of low quality that is why firm is offering incentives.

3. Personal Selling:

Personal selling means selling personally. This involves face to face interaction
between seller and buyer for the purpose of sale.

The personal selling does not mean getting the prospects to desire what seller wants
but the concept of personal selling is also based on customer satisfaction.

Features of Personal Selling:

(i) Personal Interaction:

In personal selling the buyers and sellers have face to face interaction. This closeness
allows both the parties to observe each other’s action closely.

(ii) Two Way Communication:

In personal selling the sellers give information about the product, at the same time the
buyer get a chance to clarify his doubts. It is suitable for sale of complex products
where buyer wants to interact with the manufacturer.

(iii) Better Response:

When seller is personally explaining the utilities of product to the customers then
customer do pay some attention and listen to the information.

(iv) Relationship:

When the seller and buyer come together this may improve relation between the
customer and seller. Salespersons normally make friendly relations with the
customers.

(v) Better Convincing:

Personal selling is most effective form of promotion because with this the sales person
can convince the buyer by demonstrating the use of product and making changes in
the product according to the need of customer.

Qualities of a Good Salesman:

The qualities which are commonly found among effective salesman are described
below:

1. Physical Qualities:

A salesman must have good health and pleasing personality. He must be well built and
free from physical defects. A pleasing and charming personality boosts self-
confidence. Good grooming, appropriate dress, clean and tidy appearance and a good
posture will go a long way in creating a first impression. More importantly, a salesman
must always have a cheerful smile on his face.

2. Social Qualities:
A salesman must have good manners, courtesy in dealing with customers. The practice
of greeting and thanking customers, using polite expression are necessary for success
in personal selling. He should not be shy or reserved but an extrovert and a good
listener. He must have the ability to say the proper things and do the right thing
without offending others.

3. Mental Qualities:

A good salesman must have a high degree of intelligence, initiative and foresight. He
must be intelligent and imaginative enough to understand the customer quickly and
read his mind accurately.

Salesman must have two basic qualities i.e., empathy and ego drive. Empathy means
he must have ability to understand the problem from customer’s point of view. Ego
drive means salesman must pursue sale not just for money but for recognition and
personal success. A good salesman must have presence of mind and good common
sense.

4. Technical Quality:

The salesman must have full technical knowledge about the product.

5. Other Qualities:

Other qualities, a salesman must possess, are:

(i) A salesman must have a good power of memory and observation.

(ii) A salesman must be honest and should not try to win the customer through false
and misleading representation.

(iii) A salesman must be a man of sound character, loyal and dependable. He must
perform his duties sincerely.

(iv) The salesman must have wide knowledge about the product he is selling and
company he is representing.

(v) He must have capacity to inspire trust.

Role of Personal Selling:

Personal selling plays a very important role in marketing of goods and services. It is
important tool for businessmen, customers and society.

1. Importance to Businessmen:
Personal selling is an important tool to increase the sale. It is important for
businessman due to following reasons:

(i) Effective Promotion Tool:

Personal selling is an effective tool to increase the sale of product. Salesmen explain
the merits of products to customers.

(ii) Flexible Tool:

Personal selling efforts can be changed according to the type of customer salesmen
are attending. They may change the offer in varying purchase situations.

(iii) Minimum Wastage of Efforts:

As compared to other methods of promotion in personal selling the wastage of efforts

is minimum.

(iv) Consumer Attention:

Through personal selling it is easy to get the attention of customer as there is face to
face interaction between salesman and customers.

(v) Relationship:

Personal selling helps to create lasting relationship between customers and sales-
persons which help in increasing sale.

(vi) Personal Support:

Through personal selling salesmen can create personal support with the customers.
This can improve competitive strength of organisation.

(vii) Very Effective to Introduce New Product:

Personal selling is very effective to introduce a new product as salesman can explain
the merits, show the demonstration and clarify the doubts of customers.

(iv) Importance to Customers:

Personal selling is very important from customer’s point of view, as customers can get
required information about the product from customers. Customers are benefits by
personal selling in the following ways:

1. Helps in Identifying Needs:

Salesmen help the customers to discover their needs and wants and they also help
customers to know how these needs and wants can be satisfied.

2. Latest Market Information:

In personal selling salesmen provide information regarding the new products

available in market, uses of those products etc.

3. Expert Advice:

Customers can get expert advice and guidance in purchasing various goods and
services.

4. Induces Customers:

Personal selling induces customers to buy products for satisfying their needs.

(v) Importance to Society:

Personal selling brings following positive effects for society

1. Converts Latest Demand into Effective Demand:

Personal selling creates effective demand which results in increasing sale and more
income. With more income there will be more products and services which in turn
bring economic growth.

2. Employment Opportunities:

Unemployed youth can work as salesman and earn their livelihood.

3. Career Opportunities:

Personal selling offers attractive career with job satisfaction and security.

4. Mobility of Sales Persons:

Sales people move from one place to other, this promotes travel and tourism industry.

5. Product Standardisation:

With the help of personal selling there can be uniformity of consumption by supplying
standardised products.

4. Public Relations:
Apart from four major elements of marketing mix, another important tool of
marketing is maintaining Public Relations. In simple words, a public relations means
maintaining public relations with public. By maintaining public relations, companies
create goodwill.

Public relations evaluate public attitudes; identify the policies and procedures of an
organisation with the public interest to earn public understanding and acceptance.

Public does not mean only customers, but it includes shareholders, suppliers,
intermediaries, customers etc. The firm’s success and achievement depends upon the
support of these parties for example, firm needs active support of middle men to
survive in market, it must have good relations with existing shareholders who provide
capital. The consumers’ group is the most important part of public as success of
business depends upon the support and demand of customers only.

Role, Significance, advantages of public relations:

Public relations are significant in the following ways:

1. Help to convey the policies and programmes of the organisation.

2. Help to collect information about public opinion about the organisation,

management activities etc.

3. To overcome the complaints and dislikes of public.

4. To mould people’s attitude in favour of organisation.

5. To maintain goodwill and understanding between organisation and public.

6. To build an image of the organisation.

Ways/Methods and Tools of Public Relations:

The companies can use the following tools to improve their relations with public:

1. News:

Sometimes companies get involved in such kind of activities or make such policies so
that they get some positive coverage in news. For example, a company’s name may be
covered in news for reservation of jobs for women or for introducing new technology
etc.

2. Speeches:
The speeches given by the leaders of corporate sectors influence various members of
public specially banks, shareholders etc. Public relations department creates occasion
when the speeches are delivered by the leader of company.

3. Events:

Events refer to organizing press conferences, multimedia presentation, matches, stage

shows etc.

4. Written Materials:

Sometimes written materials such as Balance Sheet, Annual Reports, Special

documents, Brochures etc. are circulated to various parties to improve and maintain
public image of the company.

5. Public Service Activities:

Big business houses often associate themselves with various social service projects
such as women welfare programmes, charity shows, up-keeping of parks, planting
trees on road side, training schools, running schools, colleges, hospitals etc.

Qus-4. Explain the meaning and importance of Customer relationship management

(CRM)?

Ans- Importance of Customer Relationship Management (CRM)

Customer Relationship management is the strongest and the most efficient approach in
maintaining and creating relationships with customers. Customer relationship
management is not only pure business but also ideate strong personal bonding within
people. Development of this type of bonding drives the business to new levels of success.

Once this personal and emotional linkage is built, it is very easy for any organization to
identify the actual needs of customer and help them to serve them in a better way. It is a
belief that more the sophisticated strategies involved in implementing the customer
relationship management, the more strong and fruitful is the business. Most of the
organizations have dedicated world class tools for maintaining CRM systems into their
workplace. Some of the efficient tools used in most of the renowned organization are
BatchBook, Salesforce, Buzzstream, Sugar CRM etc.
Looking at some broader perspectives given as below we can easily determine why a
CRM System is always important for an organization.

A CRM system consists of a historical view and analysis of all the acquired or to be
acquired customers. This helps in reduced searching and correlating customers and to
foresee customer needs effectively and increase business.

CRM contains each and every bit of details of a customer, hence it is very easy for track a
customer accordingly and can be used to determine which customer can be profitable
and which not.

In CRM system, customers are grouped according to different aspects according to the
type of business they do or according to physical location and are allocated to different
customer managers often called as account managers. This helps in focusing and
concentrating on each and every customer separately.

A CRM system is not only used to deal with the existing customers but is also useful in
acquiring new customers. The process first starts with identifying a customer and
maintaining all the corresponding details into the CRM system which is also called an
‘Opportunity of Business’. The Sales and Field representatives then try getting business
out of these customers by sophistically following up with them and converting them into
a winning deal. All this is very easily and efficiently done by an integrated CRM system.

The strongest aspect of Customer Relationship Management is that it is very cost-

effective. The advantage of decently implemented CRM system is that there is very less
need of paper and manual work which requires lesser staff to manage and lesser
resources to deal with. The technologies used in implementing a CRM system are also
very cheap and smooth as compared to the traditional way of business.

All the details in CRM system is kept centralized which is available anytime on fingertips.
This reduces the process time and increases productivity.

Efficiently dealing with all the customers and providing them what they actually need
increases the customer satisfaction. This increases the chance of getting more business
which ultimately enhances turnover and profit.

If the customer is satisfied they will always be loyal to you and will remain in business
forever resulting in increasing customer base and ultimately enhancing net growth of
business.
In today’s commercial world, practice of dealing with existing customers and thriving
business by getting more customers into loop is predominant and is mere a dilemma.
Installing a CRM system can definitely improve the situation and help in challenging the
new ways of marketing and business in an efficient manner. Hence in the era of business
every organization should be recommended to have a full-fledged CRM system to cope up
with all the business needs.

CRM leverages and amplifies customer base of an organization through efficacious and
efficient marketing. In fact CRM has brought up new dimensions in the field of marketing
by significantly improving marketing functioning and execution. Intuitive CRM associated
marketing strategies like direct marketing, web marketing, e-mail marketing etc. have
been matured during the recent past. These marketing strategies are more promising as
compared to the traditional ways on marketing as they help delivering higher-up
performance and walloping business. They also help meliorating response rates in
marketing campaigns, cut cost on promotions due to low asset values and provide higher
scrutiny on organizational investments.

The various aspects of CRM oriented marketing are discussed below.

Web Marketing- With the growing popularity of web, customers are tending towards web
marketing or web shopping. This helps both customers and suppliers to transact in a real
time environment irrespective of their locations. Some of the major advantages of Web
Marketing are listed below:

It is relatively very inexpensive as it reduces the cost for physically reaching to the target
customers for interaction.

Suppliers can reach to more number of customers in lesser amount of time.

The online marketing campaigns can be easily tracked, traced, calculated and tested.

The selection process of any product or brand is simplified due to proven online research
and analysis techniques.

Online marketing campaigns are more promotional as compared to manual campaigns.

Email Marketing- Email marketing has turned out to be more efficacious and inexpensive
as compared to mail or phone based marketing strategies. Email marketing is direct
marketing which is data driven and leads to more accurate customer response and
effective fulfillment of customer needs. More attractive features include newsletters,
sending of eCoupons, eCards, provision of saving events into calendars etc.
Analyzing customers buying behavior online- A CRM system provides a platform to
analyze the customers buying behavior online. This interactive strategy provides great
accuracy with high speed which includes profiling services furnishing elaborated bits of
information regarding customers purchasing habits or behavior. Individualized analysis
of this behavior also helps to identify to which product or brand the customers are more
tended. For example an online selling website www.xyz.com can analyze the customers
buying behavior by installing an in-house service with the help of a full-fledged CRM that
checks what all products are being purchased by a particular customer and under which
specific group they fall. This is achieved by personalized analyzing the buying history of
customers in the past which predicts the future business with those customers also. This
accomplishes to build a long-term relationship with customers by properly canvassing
customer needs and resulting in customer satisfaction. Analyzing this particular buying
behavior of customers online also helps to fix or change of marketing techniques or
strategies to mould the system according to the future perspectives.

Forecasting future marketing strategies- Down the line marketing strategies keeps on
changing according to the emotional behavioral change of customers. CRM market
forecasting techniques help to understand this change through regression and statistical
analysis of customer behavior online. These are some complex but more accurate
analysis techniques provided by CRM system which are proved to be one of best
marketing strategies. This innovative approach is carried out with greater risks but is
believed to outturn astonishing rewards.

Building business impact models- It is important for an organization to have check on

marketing performance regularly so that the techniques never deteriorate and always
match to yield greater results. These CRM oriented models help in delivering accurate
measurement of marketing performance throughout the organization and to do better
every time.

These synergistic marketing strategies make a part of CRM system to develop high-end
marketing business. Hence it is very important for an organization to incorporate them
by carefully anticipating change, testing their performance and assembling the best
possible combination of these strategies to meet the needs of the customers and
maximize its marketing growth.

The better a business can manage the relationships it has with its customers the more
successful it will become. Therefore IT systems that specifically address the problems of
dealing with customers on a day-to-day basis are growing in popularity.
Customer relationship management (CRM) is not just the application of technology, but is
a strategy to learn more about customers' needs and behaviours in order to develop
stronger relationships with them. As such it is more of a business philosophy than a
technical solution to assist in dealing with customers effectively and efficiently.
Nevertheless, successful CRM relies on the use of technology.

This guide outlines the business benefits and the potential drawbacks of implementing
CRM. It also offers help on the types of solution you could choose and how to implement
them.

Why CRM?

Business benefits of CRM

Types of CRM solution

How to implement CRM

Potential drawbacks of CRM

Questions for CRM suppliers

Why CRM?

In the commercial world the importance of retaining existing customers and expanding
business is paramount. The costs associated with finding new customers mean that every
existing customer could be important.

The more opportunities that a customer has to conduct business with your company the
better, and one way of achieving this is by opening up channels such as direct sales,
online sales, franchises, use of agents, etc. However, the more channels you have, the
greater the need to manage your interaction with your customer base.

Customer relationship management (CRM) helps businesses to gain an insight into the
behaviour of their customers and modify their business operations to ensure that
customers are served in the best possible way. In essence, CRM helps a business to
recognise the value of its customers and to capitalise on improved customer relations.
The better you understand your customers, the more responsive you can be to their
needs.

CRM can be achieved by:

finding out about your customers' purchasing habits, opinions and preferences
profiling individuals and groups to market more effectively and increase sales

changing the way you operate to improve customer service and marketing

Benefiting from CRM is not just a question of buying the right software. You must also
adapt your business to the needs of your customers.

Business benefits of CRM

Implementing a customer relationship management (CRM) solution might involve

considerable time and expense. However, there are many potential benefits.

A major benefit can be the development of better relations with your existing customers,
which can lead to:

increased sales through better timing due to anticipating needs based on historic trends

identifying needs more effectively by understanding specific customer requirements

cross-selling of other products by highlighting and suggesting alternatives or

enhancements

identifying which of your customers are profitable and which are not

This can lead to better marketing of your products or services by focusing on:

effective targeted marketing communications aimed specifically at customer needs

a more personal approach and the development of new or improved products and
services in order to win more business in the future

Ultimately this could lead to:

enhanced customer satisfaction and retention, ensuring that your good reputation in the
marketplace continues to grow

increased value from your existing customers and reduced cost associated with
supporting and servicing them, increasing your overall efficiency and reducing total cost
of sales

improved profitability by focusing on the most profitable customers and dealing with the
unprofitable in more cost effective ways
Once your business starts to look after its existing customers effectively, efforts can be
concentrated on finding new customers and expanding your market. The more you know
about your customers, the easier it is to identify new prospects and increase your
customer base.

Even with years of accumulated knowledge, there's always room for improvement.
Customer needs change over time, and technology can make it easier to find out more
about customers and ensure that everyone in an organisation can exploit this
information.

Types of CRM solution

Customer relationship management (CRM) is important in running a successful business.

The better the relationship, the easier it is to conduct business and generate revenue.
Therefore using technology to improve CRM makes good business sense.

CRM solutions fall into the following four broad categories.

Outsourced solutions

Application service providers can provide web-based CRM solutions for your business.
This approach is ideal if you need to implement a solution quickly and your company
does not have the in-house skills necessary to tackle the job from scratch. It is also a good
solution if you are already geared towards online e-commerce.

Off-the-shelf solutions

Several software companies offer CRM applications that integrate with existing packages.
Cut-down versions of such software may be suitable for smaller businesses. This
approach is generally the cheapest option as you are investing in standard software
components. The downside is that the software may not always do precisely what you
want and you may have to trade off functionality for convenience and price. The key to
success is to be flexible without compromising too much.

Custom software

For the ultimate in tailored CRM solutions, consultants and software engineers will
customise or create a CRM system and integrate it with your existing software.

However, this can be expensive and time consuming. If you choose this option, make sure
you carefully specify exactly what you want. This will usually be the most expensive
option and costs will vary depending on what your software designer quotes.
Managed solutions

A half-way house between custom and outsourced solutions, this involves renting a
customised suite of CRM applications as a tailored package. This can be cost effective but
it may mean that you have to compromise in terms of functionality.

How to implement CRM

The implementation of a customer relationship management (CRM) solution is best

treated as a six-stage process, moving from collecting information about your customers
and processing it to using that information to improve your marketing and the customer
experience.

Stage 1 - Collecting information

The priority should be to capture the information you need to identify your customers
and categorise their behaviour. Those businesses with a website and online customer
service have an advantage as customers can enter and maintain their own details when
they buy.

Stage 2 - Storing information

The most effective way to store and manage your customer information is in a relational
database - a centralised customer database that will allow you to run all your systems
from the same source, ensuring that everyone uses up-to-date information.

Stage 3 - Accessing information

With information collected and stored centrally, the next stage is to make this
information available to staff in the most useful format.

Stage 4 - Analysing customer behaviour

Using data mining tools in spreadsheet programs, which analyse data to identify patterns
or relationships, you can begin to profile customers and develop sales strategies.

Stage 5 - Marketing more effectively

Many businesses find that a small percentage of their customers generate a high
percentage of their profits. Using CRM to gain a better understanding of your customers'
needs, desires and self-perception, you can reward and target your most valuable
customers.
Stage 6 - Enhancing the customer experience

Just as a small group of customers are the most profitable, a small number of complaining
customers often take up a disproportionate amount of staff time. If their problems can be
identified and resolved quickly, your staff will have more time for other customers.

Potential drawbacks of CRM

There are several reasons why implementing a customer relationship management

(CRM) solution might not have the desired results.

There could be a lack of commitment from people within the company to the
implementation of a CRM solution. Adapting to a customer-focused approach may require
a cultural change. There is a danger that relationships with customers will break down
somewhere along the line, unless everyone in the business is committed to viewing their
operations from the customers' perspective. The result is customer dissatisfaction and
eventual loss of revenue.

Poor communication can prevent buy-in. In order to make CRM work, all the relevant
people in your business must know what information you need and how to use it.

Weak leadership could cause problems for any CRM implementation plan. The onus is on
management to lead by example and push for a customer focus on every project. If a
proposed plan isn't right for your customers, don't do it. Send your teams back to the
drawing board to come up with a solution that will work.

Trying to implement CRM as a complete solution in one go is a tempting but risky

strategy. It is better to break your CRM project down into manageable pieces by setting
up pilot programs and short-term milestones. Consider starting with a pilot project that
incorporates all the necessary departments and groups but is small and flexible enough
to allow adjustments along the way.

Don't underestimate how much data you will require, and make sure that you can expand
your systems if necessary. You need to carefully consider what data is collected and
stored to ensure that only useful data is kept.

You must also ensure you comply with Québec’s An Act respecting the protection of
personal information in the private sector.

Avoid adopting rigid rules which cannot be changed. Rules should be flexible to allow the
needs of individual customers to be met.
Questions for CRM suppliers

For many businesses customer relationship management (CRM) can be a large

investment. Therefore it is vital to choose your supplier carefully. Making the wrong
choice could be expensive and even jeopardise your business. Before implementing a
solution based on CRM technology, you might want to ask any potential suppliers the
following questions:

How long has the supplier been established?

What are the specific costs associated with the product, i.e. a one-off purchase price, an
annual renewable license, a charge per user etc?

Does the supplier offer any form of evaluation software so that you can try before you
buy?

How much is charged for technical support?

Does the supplier provide consultancy and, if so, at what rates?

Is the system scalable? If your customer base grows will the system expand to cope?

Can the supplier recommend any third-party developers that make use of their core CRM
products?

Is there an active independent user group where experience and ideas can be freely
exchanged?

Can the supplier provide references for businesses in your industry sector using their
software?

Does it offer training in the CRM solution and, if so, at what typical cost?

Original document, Customer relationship management, © Crown copyright 2009

Source: Business Link UK (now GOV.UK/Business)
Adapted for Québec by Info entrepreneurs

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Q-5. Discuss push and pull strategies.

Ans- pull strategy - A channel partner term that is used to describe how products and
services move through channel partners to the consumer. A pull strategy is where
interest for a specific product or service is created within a target audience that then
demands the product from channel partners. This causes the product to be "pulled"
through the manufacturer's sales channel. Pull strategy is one of several types of channel
strategies.

push strategy - A channel partner term that is used to describe how products and services
move through channel partners to the consumer. A push strategy uses marketing
channels, such as trade promotions, to "push" a product or service through to the sales
channel. Push strategy is one of several types of channel strategies.

Difference Between Push & Pull Marketing

The primary difference between push and pull marketing lies in how consumers are
approached. In push marketing, the idea is to promote products by pushing them onto
people. For push marketing, consider sales displays at your grocery store or a shelf of
discounted products. On the other hand, in pull marketing, the idea is to establish a loyal
following and draw consumers to the products.
Push marketing takes the product to the consumer, whereas pull marketing brings the
consumer to the product.

What is Push Marketing?

Push marketing is a promotional strategy where businesses attempt to take their

products to the customers. The term push stems from the idea that marketers are
attempting to push their products at consumers. Common sales tactics include trying to
sell merchandise directly to customers via company showrooms and negotiating with
retailers to sell their products for them, or set up point-of-sale displays. Often, these
retailers will receive special sales incentives in exchange for this increased visibility.

Businesses often use push marketing when launching a new product, or when trying to
stand out in a niche or crowded market.

Example of Push Marketing

One common example of push marketing can be seen in department stores that sell
fragrance lines. The manufacturing brand of the fragrance will often offer sales incentives
to the department stores for pushing its products onto customers. This tactic can be
especially beneficial for new brands that aren't well-established or for new lines within a
given brand that need additional promotion. After all, for many consumers, being
introduced to the fragrance at the store is their first experience with the product, and
they wouldn't know to ask for it if they didn't know it existed.

What is Pull Marketing?

Pull marketing takes the opposite approach. The goal of pull marketing is to get the
customers to come to you, hence the term pull, where marketers are attempting to pull
customers in. Common sales tactics used for pull marketing include mass media
promotions, word-of-mouth referrals and advertised sales promotions. From a business
perspective, pull marketing attempts to create brand loyalty and keep customers coming
back, whereas push marketing is more concerned with short-term sales.

Businesses generally will use pull marketing when the customer knows what he is
looking for or what problem he needs to solve, but needs pulling towards your solution as
opposed to the solution offered by your competitors.

Example of Pull Marketing

You can often recognize pull marketing campaigns by the amount of advertising that's
being used. Pull marketing requires lots of advertising dollars to be spent on making
brand and products a household name. One example includes the marketing of children's
toys. In the first stage, the company advertises the product. Next, the children and parents
see the advertisement and want to purchase the toy. As demand increases, retailers begin
scrambling trying to stock the product in their stores. All the while, the company has
successfully pulled customers to them.

The two promotional strategy which is applied to get the product to the target market is
Push and Pull Strategy. While in Push strategy, the idea is to push the company’s product
onto customers by making them aware of it, at the point of purchase. Pull strategy, relies
on the notion, “to get the customers come to you”. The two types of strategies differ, in
the way consumers are approached.

The term is derived from logistics and supply chain management, however, their use in
marketing is not less. The movement of a product or information is the essence of push
and pull strategy. This article excerpt may help you in understanding the difference
between push and pull strategy.

Content: Push Strategy Vs Pull Strategy

Comparison Chart

Definition

Key Differences

Conclusion
Comparison Chart

BASIS FOR
PUSH STRATEGY PULL STRATEGY
COMPARISON

Meaning Push strategy is a strategy Pull strategy is a strategy that

that involves direction of involves promotion of
marketing efforts to marketing efforts to the final
channel partners. consumer.

What is it? A strategy in which third A strategy in which customers

party stocks company's demand company's product
product. from sellers.

Objective To make customer aware To encourage customer to seek

of the product or brand. the product or brand.

Uses Sales force, Trade Advertising, Promotion and

promotion, money etc. other forms of communication.

Emphasis on Resource Allocation Responsiveness

Suitability When the brand loyalty is When the brand loyalty is high.
low.

Lead Time Long Short

Definition of Push Strategy

The strategy wherein marketing channels are used to push the product or service to sales
channel is called push strategy. It explains the movement of products & services and
information through intermediaries to the final consumer. In this strategy, the company
takes their product to the customers, who are neither aware of it nor seeking it but the
product is introduced to them, through various promotional activities.
The strategy uses trade show promotion, the point of sale display, direct selling,
advertisement on radio, television, emails etc. to make an impact on consumers mind and
reducing the time between discovery of product and purchasing it.

Definition of Pull Strategy

The business strategy which aims at generating interest or demand for a particular
product or service of the target audience, in a way that they demand the product or
service from the channel partners, is called pull strategy. In this strategy, the consumer
demands are intensified by directing marketing strategies on them, which results in the
‘pulling’ of products. Pull strategy uses methods like social networking, blogging, word of
mouth, strategic placement of a product, media coverage and so on, for reaching a large
audience.

In finer terms, any methods which are used for creating consumer demand for the
product is called Pull strategy. It is one such strategy, in which customers actively seek
products of a particular brand, due to its goodwill, quality, reliability and reputation.

Key Differences Between Push and Pull Strategy

The differences between push and pull strategy, is provided in the points given below:

The type of marketing strategy which involves direction of marketing efforts to

intermediaries is called push strategy. On the other hand, the marketing strategy
involving the promotion of marketing efforts to the end user is called pull strategy.

In pull strategy, communication of products or information is demanded by the buyer,

while in push strategy, no such communication is demanded.

Push strategy aims at making customer aware of the product or brand. As against this,
pull strategy encourages the customer to seek the product or brand.

Push strategy uses sales force, trade promotion, money, etc. to induce channel partners,
to promote and distribute the product to the final customer. Conversely, pull strategy
uses advertising, promotion and any other form of communication to instigate customer
to demand product from channel partners.

Push strategy focuses on resource allocation whereas pull strategy is concerned with
responsiveness.
There is a long lead time in push strategy. However, it is just opposite in the case of pull
strategy.

Push strategy is best suited when there is low brand loyalty in a category. Unlike pull
strategy, is appropriate for the products with high brand loyalty, where the consumers
are well known about the differences in various brands, and they opt for a particular
brand before they go shopping.

Conclusion

Top multinational companies like Coca-cola, Intel, Nike and many others employ both
push and pull strategies effectively. When push strategy is implemented with a well
designed and executed pull strategy, the result is phenomenal, as it generates consumer
demand.

MBA 542 (DIRECT AND NETWORK MARKETING)

Q-1. Describe about various Relationship Marketing Strategies.

Ans- Relationship Marketing Strategies – In order to succeed in the market, there should
be a good product, good relationship marketing strategies and setting up of distribution
channels. For some companies sales process is completed with the sale and guarantee
terms. Thereafter, any customer query, complaints or suggestions may not get the desired
response from the management following which the customers could share it by word of
mouth to others and subsequently the company starts to score low on perception
of customer service or after sales service. Finally this will start showing in sales, income
and reflect in the bottom line.

According to leading business authors Emmett C Murphy and Mark A Murphy, acquiring a
new customer can cost five times more than retaining an existing consumer. Therefore,
developing and sustaining good relationship with customers/consumers is vital for any
business. It pays to adopt relationship marketing as the core of customer relationship
management (CRM) strategy.

What is Relationship Marketing?

Relationship Marketing refers to efforts by a company to build long term relationships
with customers with a view to engage them for a longer duration. Moreover, a company
may have different products and customers judge the merits of a company based on the
experience they get through the first purchase. If the satisfaction level is high, there is a
good possibility of repeat purchase of other products offered by the same company. On
the other hand, if satisfaction levels are low, the customer may look for competitive
offerings and thus the company loses valuable business.

There are compelling reasons to adopt relationship marketing for any business which
wants to grow their market share and better brand recall among consumers now.
Increased competition, globalization of business, recessionary trends in the market,
emergence of new technologies for customer relationship management (CRM), new
trends in social media all create an ideal atmosphere for companies to embrace
relationship marketing in a big way.

As already stated, new customer acquisition is a costly exercise while retaining existing
customers can decrease marketing costs by as much as 10%, analysts said.

Now with open economies, competition could come from anywhere in the world. It
applies to electronics, consumer goods, farm products, cosmetics, computers and
accessories, electrical equipments and so on. Therefore, companies need to constantly
engage with the consumer, get their feedback and make corrective strategies.

For the past seven years, recessionary trends created by the subprime crisis and US
financial crisis in 2008 has spread across the globe. So is Eurozone reeling under a crisis
which makes the relationship marketing companies vulnerable to sales fluctuations as
consumers cut back on spending. Therefore to stay afloat in business, they need to invest
in technology, get connected with the consumers on a sustained basis and get keep them
satisfied.

Companies thrive on multi-product and multi-service offerings, hence existing customers

are a captive market for them to grow and become market leaders. Establishing brand
loyalty therefore, become paramount for large businesses.

Strategies for relationship marketing

Invest in technology: ERP & CRM solutions

With the emergence of digital or electronic era, cumbersome paper work has been
minimized and the practice of storing data and information in simple excel sheets are also
long gone by. Now the trend is towards investing in customer relationship management
(CRM) solutions. The ideal strategy would be to install enterprise resource management
(ERP) software and associated CRM solutions.

ERP is about technology and business processes- integrating different functions of a

company into a single system that is accessible to key decision makers. Customer
Relationship Management (CRM) is all about recording, storing details about the
customer, his purchases, personal information and other details. ERP and CRM are two
sides of the same coin and the objective of both is to streamline operations and enable
more profits for the firm. ERP benefits organisations by reducing overhead costs, making
business processes more efficient and reduces capital spent. CRM increases profits with
greater sales and central repository of customer data which is accessible to the
relationship marketing and sales team.

Microsoft, SAP, Oracle, IBM, Peoplesoft are all leading players in ERP, CRM
implementations in small, medium and large companies. These days ERP packages are
available even for small and medium businesses and hence they need to utilize this to
keep ahead of competition.

Popular CRM systems such as Salesforce, Microsoft Dyanamics provide a standardized

method for collecting and sharing customer data and cataloging customer interactions.
CRM enables executives to create sales projections, sales officers to keep in touch with
clients, shipping clerks to verify address and by the billing department to create invoices.
The objective of CRM is to help the company store customer data which in turn can be
beneficial for increasing sales, retention of customers and enable better relatishonip with
them in an efficient manner.

Investing in technology solutions such as ERP and CRM may entail one time installation
costs and recurring licensing, upgradation costs which in any case provide good return on
investment (ROI). But cost sensitive companies can opt for cloud based solutions where
the entire application, software, servers and storage are managed by a service provider in
a secure environment in virtual space that can be accessed by the employees of the
company by logging through desktop internet or mobile devices. However, from the
security point of view it’s better to keep the database in the local servers.

The most streamlined businesses can’t do with out sales and hence implementation of
CRM needs to have priority over ERP solutions, analysts said.
Building Customer Relationship through loyalty points

Several companies now reward customers for being showing loyalty the company by
issuing bonus rewards points and cash back offers to customers on new purchases. They
are also given loyalty program cards that can be used at any of the retail outlets of the
company for repeat purchasing. The reward points can be redeemed or offset against
future purchasing. With a robust, ERP, CRM package at the backend, storage and retrieval
of customer data, their purchasing activity is lot more easier.

Such reward activity for loyalty towards company has been promoted by mobile phone
brands, watch brands, electronics consumer durable companies, book stores, oil
marketing companies and several other leading industry verticals.

Email marketing

Retention of customer data helps companies sent emailers from time time regarding new
product launches, exclusive offers, clarifications regarding some service issue, product
failures, exchange offers and so on. Care should be taken regarding the use of titles in
emailers and content so that more customers open and read what is being said. Email
software programs like Mailchimp enable companies to send information to large
number of people without being spammed. There should also be provision for
unsubscribing from future email newsletters, if the customer so requires.

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Website, online chats, toll free numbers

Now most companies have online presence through websites and listing in
directories. Websites have to be informative, interactive and must have user-friendly
navigation features. The websites should provide online chatting facility and display toll-
free numbers that enable customers to call any time of the day to resolve any complaints.

Websites should be mobile-friendy enabling vertical scrolling so that more people can
also access content on mobile devices.
They can also provide images, videos and important features of products and services. It
can also enable customers to book complaints online or use webforms to communicate
with the company. Toll free numbers have to be attended promptly and a back-end call
center manned by people with good communication skills can enhance the customer
satisfaction levels. The queries could range from information regarding nearest service
centre, warranty issues, recurring problem with a device and so on.

SMS Marketing

Short messaging relationship marketing campaigns (SMS) can be effectively used to

communicate new offers which are time bound, new product launches, new show room
openings, and any other schemes beneficial for the consumer. SMS campaigns work best
on holidays, early morning and evenings as users have more free time to read the
messages. Most often the intention of SMS marketing is to engage the consumers on a
regular basis and retain the consumer. Discount offers and bonus reward point offers can
also be communicated.

Include social media for relationship marketing

Socialmedia has emerged as a really viable digital platform to communicate with existing
consumers and also generate new leads. FaceBook, Twitter, LinkedIn, Pinterest, Google
Plus and other media can be effectively utilized for promoting the company and its
brands.

Care must be taken not to post too much or too little content in FaceBook or Twitter. It is
better to have FB accounts for the corporate level and for brands. The corporate FB page
would cater to important events, appointments, postings relevant to the industry as a
whole while FB pages of the company brand should focus only on the products and
features, have contests or solicit opinion of users. The more the likes and shares
generated, the more will be popularity of the social media pages.

The FB page may receive comments, queries and suggestions and they must be attended
to on a regular basis. Photos and words used must be original and concise. Videos
published on YouTube can also be promoted through FB. Companies should devote some
funds for paid promotion of postings that it reaches newer audiences and create
awareness of the company’s products.

FB users are motivated to like a page or posting for various reasons- to show support, to
get a free offer, for entertainment, to get product updates, to interact with the company,
Sending Greetings on festivals and New Year

It will not be a bad idea to send greetings to consumers through email and social media
pages in connection with important festivals, New Year. This will convey the message that
the company cares for its consumers. Offers related to that period can also be conveyed to
them.

Consumer campaigns & Referrals

Many large companies hold consumer campaigns to get in touch with the consumers
directly. An electronic appliance company may hold free service campaigns and
encourage its customers to bring the defective products that will be diagnosed free of
cost and spare parts charged at subsidized prices.

Referral campaigns are used by credit card companies, magazine publishers, banks,
finance companies, online marketing firms to get more business. Those who refer friends,
relatives and others to generate more business for the company are either rewarded in
cash, gifts or reward points which can be redeemed on future purchase.

Some globally famous examples of relationship marketing: When Swedishfirm Ikea

changed its font in the catalog, consumers objected and the company retraced their steps,
Direct Recruitment sends hand written birthday cards to customers thus making them
feel wanted, American airlines and other leading players give frequent flyer rewards to
passengers that may be in the form of free flights, discounts and upgrades, Dell provides
special online shop for corporate buyers who buy in large volumes while pharma
company Vyanase created an extensive online portal featuring videos, forums, expert
articles and mobile apps to help those who suffer from ADHD.

Conclusion

The capability of relationship marketing to gain new business and sustain existing
customers has been proved beyond doubt to work across industry and more so in
Business-to-Consumer (B2C) markets. The best of relationship marketing strategies will
fail if employees are not adequately trained on corporate ethics and best customer
interaction practices. For this, regular training sessions for employees will be beneficial.
There should be clear policies on how customers interact with customers on email,
phone, chat and social media. Their performance should be monitored and benchmarked
against best practices in the industry. All feedback received by the company should be
collected, analysed and incorporated into companies best practices. Conducting regular
polls and surveys will also help the marketing team to know the pulse of the market.
Effort should be taken to leverage on warm leads- customers who have already shown a
desire to buy the company’s product or service.

All the employees should be involved in customer satisfaction exercise but more
specifically marketing, sales, customer relationship managers, call center executives,
and public relations personnel.

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One of the most expensive and difficult tasks facing any business is acquiring new
customers. Earning a potential customer's attention, making a convincing pitch, and then
facilitating the accompanying sale can leads to huge expenses when every step is
considered. According to business authors Emmett C. Murphy and Mark A. Murphy,
acquiring a new customer can cost five times as much as retaining an existing customer.
his presents a serious dilemma for many companies. With finite resources, is it better to
attract new customers or try to hold onto the ones they already have? According to those
same authors, a 2% increase in customer retention can decrease costs by as much as
10%. No company can survive and grow if they are not constantly adding to their
customer base. Many companies separate the two functions and dedicate different areas
of their marketing department to work on one or the other. New customers are
considered transactional because the goal is to get them to buy, while existing customers
require different strategies.

To retain current customers, businsses engage in relationship marketing strategies to

continually attract repeat business. While both types of customer must be acknowledged
and respected, the goal, ultimately, is to turn every new customer into a returning
customer. Relationship marketing is about forming long-term relationships with
customers. Rather than trying to encourage a one-time sale, relationship marketing tries
to foster customer loyalty by providing exemplary products and services. This is different
than most normal advertising practices that focus on a single transaction; watch ad A and
buy product B. Relationship marketing, by contrast, is usually not linked to a single
product or offer. It involves a company refining the way they do business in order to
maximize the value of that relationship for the customer.

Relationship marketing mainly involves the improvement of internal operations. Many

customers leave a company not because they didn't like the product, but because they
were frustrated with the customer service. If a business streamlines its internal
operations to satisfy all service needs of their customers, customers will be happier even
in the face of product problems.

Technology also plays an important role in relationship marketing. The Internet has
made it easier for companies to track, store, analyze and then utilize vast amounts of
information about customers. Customers are offered personalized ads, special deals, and
expedited service as a token of appreciation for their loyalty.
Social media sites allow business to engage their customers in an informal and ongoing
way. In the past, it would have been impossible to keep useful records about every single
client, but technology makes it easy for companies to automate their marketing
efforts. (See also Analytical Marketing)

Branding is the final component of relationship marketing. A company can form a long-
term relationship with a client if that client feels like the brand they purchase reflects
who they are or who they want to be. Customers are less inclined to switch to a different
brand if they think that switch makes a statement about their identity.

Many types of companies have something to gain from developing long-term

relationships with their customers. Smaller businesses often serve a steady stream of
regulars, and make little effort to draw in new customers. Imagine a small restaurant that
sees a steady stream of business from the morning commute.Their daily presence is a
large part of the business that restaurant does every day.

Larger companies typically invest the most in carrying out sophisticated relationship
marketing campaigns. In some major companies, relationship marketing is a strategy that
affects every department with a client facing purpose (sales, customer service, shipping
etc). Industry leaders constantly face competition from new companies who claim to
provide similar goods with a higher-quality level of service. Holding onto their existing
customers is the only way they can maintain their position at the top of their industry.
This is true for businesses in all industries, from cell phones to baby food

Qus-2. Discuss about causes of development in direct and digital marketing?

Ans- Relationship marketing

Relationship marketing was first defined as a form of marketing developed from direct
response marketing campaigns which emphasizes customer retention and satisfaction,
rather than a focus on sales transactions.[1][2]

Relationship marketing differs from other forms of marketing in that it recognizes the
long term value of customer relationships and extends communication
beyond intrusive advertising and sales promotional messages.[3]
With the growth of the internet and mobile platforms, relationship marketing has
continued to evolve as technology opens more collaborative and social communication
channels. This includes tools for managing relationships with customers that goes beyond
demographic and customer service data. Relationship marketing extends to include
inbound marketing efforts, (a combination of search optimization and strategic
content), PR, social media and application development.

Development[edit]

Relationship marketing refers to an arrangement where both the buyer and seller have
an interest in providing a more satisfying exchange. This approach tries to transcend the
post purchase-exchange process with a customer to make richer contact by providing a
more personalized purchase, and uses the experience to create stronger ties.Relationship
marketing is different from other marketing techniques as it mainly focuses on long-term
relationship with customers.
Relationship marketing first appeared in the 1980s. It was proposed by American
marketing scholars Berry(1983) and Jackson(1985).Berry(1983) argued in a conference
on the field of service marketing that relationship marketing is a marketing activity for
enterprises to obtain, maintain and promote effective relationships with customers.After
a long-term follow-up study on the marketing process of the service industry, it was
concluded that the ultimate goal of enterprise marketing is not only to develop new
customers, but also focus on maintaining existing customers. Ultimately, the goal is to
improve the long-term interests of both parties through cooperative relationships.It also
argues that the cost of maintaining an old customer is far lower than the cost of
developing a new customer. and that the marketing concept of maintaining the
relationship with old consumers is more economical than the marketing concept of
developing new customers. Jackson (1985) in the aspect of industry marketing added
further modified the concept. He argued that the essence of relationship marketing is to
attract, establish and maintain close relationship with enterprise customers. The
relationship marketing scholars are found in obtains the profit obtained by keeping the
customer review rate than the profit obtained by developing new customers higher
phenomenon, has launched a research on the essence of relationship marketing,
concluded that relationship marketing is through the actual maintenance of existing
customers, thus creating long-term interests to maximize a way of marketing.This
research conclusion has been generally recognized later, but the research scope is only
limited to the relationship with old customers, which is easy to ignore the dynamic
development of customers, because the formation of customer loyalty customers are
from the development of new customers, so we should pay attention to the development
of new customers.If the enterprise is limited to the maintenance of existing customers,
then it is impossible for the enterprise to achieve any progress and cannot cope with the
current market competition.

From a social anthropological perspective, relationship marketing theory and practice

can be interpreted as commodity exchange that instrumentalise features of gift
exchange.[4] It seems that marketers — consciously or intuitively — are recognizing the
power contained in 'pre-modern' forms of exchange and have begun to use it. This
perspective on marketing opens up fertile ground for future research, where marketing
theory and practice can benefit from in-depth research of the principles governing gift
exchange.

According to Liam Alvey,[5] relationship marketing can be applied when there are
competitive product alternatives for customers to choose from; and when there is an
ongoing desire for the product or service.
Relationship marketing revolves around the concept of gaining loyal customers. Research
conducted to developing relationship marketing suggests that firms can best do this
through having one of the three value strategies; best price, best product, or best service.
Firms can relay their relationship marketing message through value statements.[6]

The practice of relationship marketing has been facilitated by several generations of

customer relationship management software that allow tracking and analyzing of each
customer's preferences, activities, tastes, likes, dislikes, and complaints. For example, an
automobile manufacturer maintaining a database of when and how repeat customers buy
their products, the options they choose, the way they finance the purchase etc., is in a
powerful position to develop one-to-one marketing offers and product benefits.

In web applications, the consumer shopping profile can be built as the person shops on
the website. This information is then used to compute what can be his or her likely
preferences in other categories. These predicted offerings can then be shown to the
customer through cross-sell, email recommendation and other channels.

Relationship marketing has also migrated back into direct mail, allowing marketers to
take advantage of the technological capabilities of digital, toner-based printing presses to
produce unique, personalized pieces for each recipient through a technique called
"variable data printing". Marketers can personalize documents by any information
contained in their databases, including name, address, demographics, purchase history,
and dozens (or even hundreds) of other variables. The result is a printed piece that
(ideally) reflects the individual needs and preferences of each recipient, increasing the
relevance of the piece and increasing the response rate.

Scope[edit]
Relationship marketing has also been strongly influenced by reengineering. According to
(process) reengineering theory, organizations should be structured according to
complete tasks and processes rather than functions. That is, cross-functional
teams should be responsible for a whole process, from beginning to end, rather than
having the work go from one functional department to another. Traditional marketing is
said to use the functional (or 'silo') department approach. The legacy of this can still be
seen in the traditional four P's of the marketing mix. Pricing, product
management, promotion, and placement. According to Gordon (1999), the marketing mix
approach is too limited to provide a usable framework for assessing and developing
customer relationships in many industries and should be replaced by the relationship
marketing alternative model where the focus is on customers, relationships and
interaction over time, rather than markets and products.

In contrast, relationship marketing is cross-functional marketing. It is organized around

processes that involve all aspects of the organization. In fact, some commentators prefer
to call relationship marketing "relationship management" in recognition of the fact that it
involves much more than that which is normally included in marketing.

Because of its broad scope, relationship marketing can be effective in many contexts. As
well as being relevant to 'for profit' businesses, research indicates that relationship
marketing can be useful for organizations in the voluntary sector[7] and also in the public
sector.[8][9]

Martin Christopher, Adrian Payne, and David Ballantyne[10] at the Cranfield School of
Management claim that relationship marketing has the potential to forge a new synthesis
between quality management, customer service management, and marketing.

Approaches[edit]

Satisfaction[edit]
Relationship marketing relies upon the communication and acquisition of consumer
requirements solely from existing customers in a mutually beneficial exchange usually
involving permission for contact by the customer through an "opt-in" system.[11] With
particular relevance to customer satisfaction the relative price and quality of goods and
services produced or sold through a company alongside customer service generally
determine the amount of sales relative to that of competing companies. Although groups
targeted through relationship marketing may be large, accuracy of communication and
overall relevancy to the customer remains higher than that of direct marketing, but has
less potential for generating new leads than direct marketing and is limited to Viral
marketing for the acquisition of further customers.[citation needed]

Retention[edit]

A principle of relationship marketing is the retention of customers through varying

means to ensure repeated trade from preexisting customers by satisfying requirements
above those of competing companies through a mutually beneficial
relationship[11][12] This technique is counterbalancing new customers and opportunities
with current and existing customers as a means of maximizing profit and counteracting
the "leaky bucket theory of business" in which new customers gained in older direct
marketing oriented businesses were at the expense of or coincided with the loss of older
customers.[13][14] This process of "churning" is less economically viable than retaining all
or the majority of customers using both direct and relationship management as lead
generation via new customers requires more investment.[15]

Many companies in competing markets will redirect or allocate large amounts of

resources or attention towards customer retention as in markets with increasing
competition it may cost 5 times more to attract new customers than it would to retain
current customers, as direct or "offensive" marketing requires much more extensive
resources to cause defection from competitors.[15] However, it is suggested that because
of the extensive classic marketing theories center on means of attracting customers and
creating transactions rather than maintaining them, the majority usage of direct
marketing used in the past is now gradually being used more alongside relationship
marketing as its importance becomes more recognizable.[15]
It is claimed by Reichheld and Sasser[16] that a 5% improvement in customer
retention can cause an increase in profitability of between 25 and 85 percent (in terms
of net present value) depending on the industry. However Carrol, P. and Reichheld,
F.[17] dispute these calculations, claiming they result from faulty cross-sectional analysis.
Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7
times more revenue than normal customers, while having engaged employees and
engaged customers returns a revenue gain of 3.4 times the norm.

According to Buchanan and Gilles,[18] the increased profitability associated with customer
retention efforts occurs because of several factors that occur once a relationship has been
established with a customer.

The cost of acquisition occurs only at the beginning of a relationship, so the longer the
relationship, the lower the amortized cost.

Account maintenance costs decline as a percentage of total costs (or as a percentage of

revenue).

Long-term customers tend to be less inclined to switch, and also tend to be less price
sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.

Long-term customers may initiate free word of mouth promotions and referrals.

Long-term customers are more likely to purchase ancillary products and

high margin supplemental products.

Customers that stay with you tend to be satisfied with the relationship and are less likely
to switch to competitors, making it difficult for competitors to enter the market or gain
market share.

Regular customers tend to be less expensive to service because they are familiar with the
process, require less "education", and are consistent in their order placement.

Increased customer retention and loyalty makes the employees' jobs easier and more
satisfying. In turn, happy employees feed back into better customer satisfaction in
a virtuous circle.
Relationship marketers speak of the "relationship ladder of customer loyalty". It groups
types of customers according to their level of loyalty. The ladder's first rung consists of
"prospects", that is, people that have not purchased yet but are likely to in the future. This
is followed by the successive rungs of "customer", "client", "supporter", "advocate", and
"partner". The relationship marketer's objective is to "help" customers get as high up the
ladder as possible. This usually involves providing more personalized service and
providing service quality that exceeds expectations at each step.

Customer retention efforts involve considerations such as the following:

Customer valuation – Gordon (1999) describes how to value customers and categorize
them according to their financial and strategic value so that companies can decide where
to invest for deeper relationships and which relationships need to be served differently
or even terminated.

Customer retention measurement – Dawkins and Reichheld (1990) calculated a

company's "customer retention rate". This is simply the percentage of customers at the
beginning of the year that are still customers by the end of the year. In accordance with
this statistic, an increase in retention rate from 80% to 90% is associated with a doubling
of the average life of a customer relationship from 5 to 10 years. This ratio can be used to
make comparisons between products, between market segments, and over time.

Determine reasons for defection – Look for the root causes, not mere symptoms. This
involves probing for details when talking to former customers. Other techniques include
the analysis of customers' complaints and competitive benchmarking (see competitor
analysis).

Develop and implement a corrective plan – This could involve actions to improve
employee practices, using benchmarking to determine best corrective practices, visible
endorsement of top management, adjustments to the company's reward and recognition
systems, and the use of "recovery teams" to eliminate the causes of defections.

A technique to calculate the value to a firm of a sustained customer relationship has been
developed. This calculation is typically called customer lifetime value.
Retention strategies may also include building barriers to customer switching. This can
be done by product bundling (combining several products or services into one "package"
and offering them at a single price), cross-selling (selling related products to current
customers), cross promotions (giving discounts or other promotional incentives to
purchasers of related products), loyalty programs (giving incentives for frequent
purchases), increasing switching costs (adding termination costs, such as mortgage
termination fees), and integrating computer systems of multiple organizations (primarily
in industrial marketing).

Many relationship marketers use a team-based approach. The rationale is that the more
points of contact between the organization and customer, the stronger will be the bond,
and the more secure the relationship.

Application[edit]
Relationship marketing and traditional (or transactional) marketing are not mutually
exclusive and there is no need for a conflict between them. In practice, a relationship-
oriented marketer still has choices, depending on the situation. Most firms blend the two
approaches to match their portfolio of products and services.[citation needed] Many products
have a service component to them and this service component has been getting larger in
recent decades.Social bond refers to the relationship established through the collective
blood relationship between people. Relationship marketing is to establish and strengthen
these two kinds of bonds, especially the structural bond, so as to strengthen the
relationship with clients and lock them in.Morgan and Hunt(1994) made a distinction
between economic and social exchange on the basis of exchange theory and concluded
that the basic guarantee of social exchange was the spirit of the contract of trust and
commitment.The traditional marketing concept of one-time transaction begins to transfer
to the concept of relationship marketing.This is the transition from economic exchange
theory to social exchange theory. The theoretical core of enterprise relationship
marketing in this period is the cooperative relationship based on commitment.They
define the concept of relationship marketing from the perspective of exchange theory,
and emphasize that relationship marketing is an activity related to the progress,
maintenance and development of all marketing activities.Shows that trust and
commitment is a trading enterprise and the basis of marketing activities to establish a
long term good relations, also is the factors affecting the basis of cooperation for both
sides, moreover the relationship effect of other factors include: communication, power,
cost and benefit, opportunism behavior and so on, but the deal the relationship effect is
mainly by trust and commitment of the two dominant factors.Coptics and Wolf(1990)
believe that relational marketing is the marketing of databases.They think, the enterprise
want to be able to continue to improve the effect of relationships with customers, when
access to the data and information to improve the effect of relationship with the
customer's cost is low, enterprises will pay the cost to improve relations with customers,
at present, due to tell the development of communication technology and Internet
technology, makes the information costs have dropped substantially, so the argument
that relationship marketing is for database marketing is increasingly valued, this view
emphasizes the relationship marketing is through the Internet technology database data
lock with the customers, to establish and maintain good relationship with
customers.Liker and Klamath(1998) introduced the relationship between enterprises
and suppliers into the scope of relational marketing, believing that in the marketing
process, manufacturers make suppliers assume corresponding responsibilities, and
enable them to give play to their technological and resource advantages in the production
process, which can improve the marketing innovation ability of manufacturers.Lukas and
Bryan a. Ferrell(2000) believe that the implementation of customer-oriented marketing
concept can greatly promote the innovation ability of marketing, and at the same time
encourage enterprises to break through the traditional relationship model between
enterprises and customers and propose new product Suggestions with technical
feasibility.Lethe (2006) through the observation of the benchmarking customer research,
to confirm the relationship between enterprises and customers to enterprise's product
innovation capacity there is a positive correlation, the enterprise can in the development
and in the process of benchmarking customer good relationship, to identify those more
market potential for development of new products, it can save a lot of for the enterprise
cost of new product development and market acceptance of this kind of product is high.In
addition, he also proposed that all the relationships established with relevant parties to
enterprise marketing activities are centered on the establishment of good customer
relations, that is, the core relationship of relationship marketing is the relationship with
customers.Guinness(1994) believes that relationship marketing is essentially a
consciousness that regards the marketing process as the interaction between enterprises
and various aspects of relationships and networks.According to his research, relationship
is the relationship between two or more subjects, network is a larger set of relationships,
and interactive interaction between people in the relationship or network process.They
found, by further empirical research activities in the enterprise faces four relations
including its relationship with macro environment, and micro environment, market
relations and relations with special market/in addition, the enterprises in the
implementation of relationship marketing is often able to "relationships, networks and
interaction" mode to promote all aspects of relationship coordination and progress.[citation
needed]

Internal marketing[edit]
Relationship marketing stresses what it calls internal marketing, or using a marketing
orientation within the organization itself. It is claimed that many of the relationship
marketing attributes like collaboration, loyalty and trust determine what "internal
customers" say and do. According to this theory, every employee, team, or department in
the company is simultaneously a supplier and a customer of services and products. An
employee obtains a service at a point in the value chain and then provides a service to
another employee further along the value chain. If internal marketing is effective, every
employee will both provide and receive exceptional service from and to other employees.
It also helps employees understand the significance of their roles and how their roles
relate to others'. If implemented well, it can also encourage every employee to see the
process in terms of the customer's perception of value added, and the organization's
strategic mission. Further it is claimed that an effective internal marketing program is a
prerequisite for effective external marketing efforts.(George, W. 1990)

The six markets model[edit]

Christopher, Payne and Ballantyne (1991)[10] identify six markets which they claim are
central to relationship marketing. They are: internal markets, supplier markets,
recruitment markets, referral markets, influence markets, and customer markets.

Referral marketing is developing and implementing a marketing plan to stimulate

referrals. Although it may take months before you see the effect of referral marketing,
this is often the most effective part of an overall marketing plan and the best use of
resources[citation needed].

Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in

which all parties understand each other's needs and exceed each other's expectations.
Such a strategy can reduce costs and improve quality.

Influence markets involve a wide range of sub-markets including: government regulators,

standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts,
stockbrokers, consumer associations, environmental associations, and labor associations.
These activities are typically carried out by the public relations department, but
relationship marketers feel that marketing to all six markets is the responsibility of
everyone in the organization. Each market may require its own explicit strategies and a
separate marketing mixfor each.

Live-in marketing[edit]
Live-in marketing (LIM) is a variant of marketing and advertising in which the target
consumer is allowed to sample or use a brands product in a relaxed atmosphere over a
longer period of time. Much like product placement in film and television LIM was
developed as a means to reach select target demographics in a non-invasive and much
less garish manner than traditional advertising.

History[edit]

While LIM represents an entirely untapped avenue of marketing for both big and small
brands alike it is not an all that novel an idea. With the rising popularity of experiential
and event marketing[19] in North America and Europe, as well as the relatively high ROI in
terms of advertising dollars spent on experiential marketing compared to traditional big
media advertising, industry analysts see LIM as a natural progression.

Premise[edit]

LIM functions around the premise that marketing or advertising agencies go out on behalf
of the brand in question and find its target demographic. From that point forward
avenues such as sponsorship or direct product placement and sampling are explored.
Unlike traditional event marketing, LIM suggests that end-users will sample the product
or service in a comfortable and relaxed atmosphere. The idea behind this technique is
that the end-user will have as positive as possible an interaction with the given brand
thereby leading to word-of-mouth[20] communication and potential future purchase. If the
success of traditional event and experiential marketing is shared with LIM, then it could
indicate a lucrative and low-cost means of product promotion. However, this means of
advertising is still in its infancy and more research is required to determine the true
success of such campaigns. The first company to explicitly offer LIM services was Hostival
Connect in late 2010.

10 reasons you need a digital marketing strategy in 2019

The importance of creating and using a digital marketing plan to support digital
transformation and company growth

Where do you start if you want to develop a digital marketing strategy? It's a common
challenge since many businesses know how vital digital and mobile channels are today
for acquiring and retaining customers. Yet they don't have an integrated plan to grow and
engage their audiences effectively. They suffer from the 10 problems I highlight later in
this article and are losing out to competitors.
The challenges of creating a digital marketing strategy?

In my experience, a common challenge is where to start drawing up your digital

marketing plan. I think there is a fear that a massive report is required, but we believe
that lean planning works best. Your plan doesn't need to be a huge report, a strategy can
best be summarized in two or three sides of A4 in a table linking digital marketing
strategies to SMART objectives within our RACE planning framework. We recommend
creating a lean digital plan based on our 90-day planning templates to implement your
digital plan rapidly to gain traction. You can learn more in our free download.

Another challenge is the sheer scope and scale of digital marketing. There are so many
great digital marketing techniques ranging from search, social and email marketing
to improve the digital experience of your website. Our article, What is digital
marketing? shows how by using our RACE planning framework you can define a more
manageable number of digital marketing activities which cover the full customer
journey. Within each digital marketing technique, there are lots of detailed tactics that are
important to success, so they need to be evaluated and prioritized, for example from
dynamic content for email automation, website personalization to programmatic,
retargeting and skyscraper content for organic search.

A recommended approach for developing a digital strategy

Whether you have a strategy or not, at the heart of the Smart Insights 'Opportunity,
Strategy, Action' approach to improving digital marketing, is benchmarking to compare
where you are now to assess the potential against where you need to be in the future.
To help you get started we have created a free digital marketing benchmarks
download with a series of benchmarks covering overall digital strategy and the key
tactics like Search, Social Media, Email marketing and site/experience design.

But what if you're one of the companies that don't have a digital strategy yet? Well, I think
the two simple alternatives for creating a plan may suggest a way forward:

Start with a separate digital marketing plan defining transformation needed and making
the case for investment and changes to your digital marketing

Then, following approval, create an integrated digital plan which is part of the
overall marketing plan - digital is fully aligned and becomes part of business as usual.

So, what are the takeaways to act on here? It seems to me that:

Using digital marketing without a strategic approach is still commonplace. I'm sure many
of the companies in this category are using digital media effectively and they could
certainly be getting great results from their search, email or social media marketing. But
I'm equally sure that many are missing opportunities for better targeting or optimization,
or are suffering from the other challenges I've listed below. Perhaps the problems below
are greatest for larger organizations who most urgently need governance.

The majority of companies in our research do take a strategic approach to digital. From
talking to companies, I find the creation of digital plans often occurs in two stages. First, a
separate digital marketing plan is created. This is useful to get agreement and buy-in by
showing the opportunities and problems and map out a path through setting goals and
specific strategies for digital including how you integrated digital marketing into other
business activities. Second, digital becomes integrated into marketing strategy, it's a core
activity, "business-as-usual", but doesn't warrant separate planning, except for the tactics.

If you don't have a strategy, or maybe you want to review which business issues are
important to include within a strategic review, we've set out the 10 most common
problems, that in our experience arise if you don't have a strategy.

Do you have a digital marketing strategy?

Since 2012 we have run an informal poll to see how widely used digital marketing
strategies are. The results have shown some big improvements over the years. A few
years ago we found around two-thirds to three-quarters did not have a digital marketing
plan. Now that number has shrunk to 45% in latest survey, although that is still quite
high, and means almost half are still doing digital with no strategy in place.
When we did the research for our Managing Digital Marketing report we were interested
to see how this percentage looked for a defined sample.

10 reasons why you may need a digital channel strategy?

1. You're directionless

I find that companies without a digital strategy (and many that do) don't have a clear
strategic goal for what they want to achieve online in terms of gaining new customers or
building deeper relationships with existing ones. And if you don't have goals with SMART
digital marketing objectives you likely don't put enough resources to reach the goals and
you don't evaluate through analytics whether you're achieving those goals.

2. You won't know your online audience or market share

Customer demand for online services may be underestimated if you haven"t researched
this. Perhaps, more importantly, you won't understand your online marketplace: the
dynamics will be different to traditional channels with different types of customer profile
and behaviour, competitors, propositions, and options for marketing
communications. There are great tools available from the main digital platforms where
we can find out the level of customer demand, we recommend doing a search gap
analysis using Google's Keyword planner to see how you are tapping into the intent of
searchers to attract them to your site, or see how many people interested in products or
services or sector you could reach through Facebook IQ.

3. Existing and start-up competitors will gain market share

If you're not devoting enough resources to digital marketing or you're using an ad-hoc
approach with no clearly defined strategies, then your competitors will eat your digital
lunch!

4. You don't have a powerful online value proposition

A clearly defined online customer value proposition tailored to your different target
customer personas will help you differentiate your online service encouraging existing
and new customers to engage initially and stay loyal. Developing a competitive content
marketing strategy is key to this for many organizations since the content is what
engages your audiences through different channels like search, social, email marketing
and on your blog.

5. You don't know your online customers well enough

It's often said that digital is the "most measurable medium ever". But Google Analytics
and similar will only tell you volumes of visits, not the sentiment of visitors, what they
think. You need to use other forms of website user feedback tools to identify your weak
points and then address them.

6. You're not integrated ("disintegrated"•)

It's all too common for digital marketing activities to be completed in silos whether that's
a specialist digital marketer, sitting in IT or a separate digital agency. It's easier that way
to package digital marketing into a convenient chunk. But of course, it's less effective.
Everyone agrees that digital media work best when integrated with traditional media and
response channels. We always recommend developing an integrated digital marketing
strategy and once Digital Transformation is complete digital marketing activities will be
part of your marketing plan and part of business as usual.

7. Digital doesn't have enough people/budget given its importance

Insufficient resource will be devoted to both planning and executing e-marketing and
there is likely to be a lack of specific specialist e-marketing skills which will make it
difficult to respond to competitive threats effectively.

8. You're wasting money and time through duplication

Even if you do have sufficient resource it may be wasted. This is particularly the case in
larger companies where you see different parts of the marketing organization purchasing
different tools or using different agencies for performing similar online marketing tasks.

9. You're not agile enough to catch up or stay ahead

If you look at the top online brands like Amazon, Dell, Google, Tesco, Zappos, they're all
dynamic - trialling new approaches to gain or keep their online audiences.

10. You're not optimizing

Every company with a website will have analytics, but many senior managers don't
ensure that their teams make or have the time to review and act on them. Once a strategy
enables you to get the basics right, then you can progress to continuous improvement of
the key aspects like search marketing, site user experience, email and social media
marketing. So that's our top 10 problems that can be avoided with a well thought-through
strategy.
So, the good news is that there are powerful reasons for creating a digital strategy and
transforming your marketing which you can use to persuade your colleagues and clients.
There is also now a lot of experience from how other businesses have successfully
integrated digital marketing into their activities as explained in the example digital plans,
templates and best practices in our digital marketing strategy toolkit.

Q-3. Describe the advantages and disadvantages of network marketing.

Ans- Network marketing refers to that marketing in which marketing is done by

individuals for companies through the network of individual and not through the
network of the company. Hence in case of network marketing companies do not market
their products through channels like television, newspaper, pamphlets and so on rather it
is the individuals who market their products through individuals own network that is
family, friends, neighbors and people in the workplace. In order to understand this
concept better let’s look at some of the advantages and disadvantages of network
marketing –

Advantages of Network Marketing

The first and foremost advantage of it is that company saves a lot of costs due to
networking marketing because marketing is done through individuals which is less
expensive as compared to traditional method of advertising like television, online
medium, newspaper and so on.

As far as individuals are concerned they also benefit from this marketing because they get
the opportunity to work from home and be their own boss. Hence individuals who have
the strong network of friends and family can make a lot of money by just selling or
marketing the product to their network. Hence in a way this marketing helps the
individuals to become entrepreneurs without too much investment as this type of
marketing requires strong network rather than capital or money.

Another benefit of it is that it does not require any professional degree or experience like
MBA to start network marketing and hence it gives the opportunity to all types of people
whether they are pensioners or students or housewives and even working people can
start it on part time basis. Hence in a way network marketing gives flexibility to people
thinking of earning extra income without doing too much effort.

Disadvantages of Network Marketing

The biggest disadvantage of this type of marketing is that majority of companies and
schemes are fraud and it is very difficult to trust on such schemes and companies which
in turn make the task of genuine companies also difficult as individuals treat every
company as fraud and therefore they will not market the products of the companies
easily to their networks.

Another disadvantage of it is that individuals who do network marketing are amateur and
not professionals and that results in even good products being marketed badly resulting
in overall bad impression about the company and in case of marketing 1 dissatisfied
customer will lead to company losing 10 customers and hence in a way network
marketing can create more bad image than good image due to lack of experience and
expertise of individuals doing network marketing.

Another limitation of it is that people believe what they see and since in the case of
network marketing there is no use of marketing channels like television, newspapers and
internet people are uncomfortable with products which are sold through network
marketing as they have never seen the products before. Hence in simple words, lack of
awareness about the products make this type of marketing a tough job for the companies
doing this marketing.

As one can see from the above that network marketing has advantages as well as
disadvantages and any individual thinking of doing it should first check the authenticity
of company as there is no easy way of earning money and those network marketing
which promises to get rich quickly are scam, hence one should be careful while doing this
type of marketing.

Read this article to learn about the concept, advantages and limitations of network
marketing.

Concept of Network Marketing:

Network marketing is a new concept of marketing products pioneered by Amway

Corporation (manufacturing household goods, personal care and nutritional products).

Network approach to marketing (also called multi-level marketing) consists in recruiting

independent business persons by the manufacturer, who act as distributors of company’s
products; these distributors, in turn, recruiting sub-distributors and sub-distributors
recruiting sub-sub distributors to sell products, usually in the home of customers.

ADVERTISEMENTS:
In network marketing, each distributor can further engage sub-distributors and so on.
Hence, it is also called multi-level marketing. The product reaches customers (usually in
homes) from manufacturer via distributors at different stages. It is a mode of direct
marketing by the manufacturer completely by-passing the conventional retail route of
selling to customers.

We can depict network marketing, by means of the following chart:

Explanation to the Chart:

ADVERTISEMENTS:

At the first level, the company is selling directly to customers and distributors. At the
second level, the distributors are selling directly to customers and to sub-distributors. At
the third level, the sub-distributors are selling directly to customers and to sub-sub
distributors. In fact, there may be many levels of marketing; and not just three, as
depicted in the chart.

Advantages of Network Marketing:

Following are some advantages of network marketing:

(i) No formal marketing infrastructure is required. There is also no need for advertising.
Hence, overhead marketing costs are lower.

(ii) Distribution network grows continuously; and it is quick and easy to enter new
markets.

ADVERTISEMENTS:

(iii) Because of direct selling approach, new and innovative products of the manufacturer
can be easily pushed through the market, at high margins of profits.

Limitations of Network Marketing:

Following are some limitations of network marketing:

(i) In theory, we may say that network marketing does not require advertising. However,
in reality, it is not possible for any manufacturer to promote ‘brand-building’ and ‘brand-
loyalty’, in the absence of advertising. When, therefore, network marketing is coupled
with advertising, the advantage of lower marketing overheads may be considerably
reduced.

(ii) Because of multi-level system of marketing, sales forecasting is a problem.

ADVERTISEMENTS:

(iii) A danger associated with multi-level marketing is that distributors (who often
become largest customers) may take over control of the company.

Points of Comment:

Certain additional observations on the concept of network marketing are as follows:

(i) Under network marketing, a distributor’s compensation includes

(a) Earnings on direct sales to customers and

ADVERTISEMENTS:

(b) Certain percentage of sales of sub-distributors recruited by him.

(ii) For network marketing, the products which are suitable are products of a household
nature and which are not very costly e.g. cosmetics, educational toys, household goods
like water purifiers and vacuum cleaners, personal care products, children’s books,
cassettes and records etc.
Qus-4. Describe the process of Measuring and Managing customer Satisfaction.

Ans- Customer satisfaction (often abbreviated as CSAT, more correctly CSat) is a term
frequently used in marketing. It is a measure of how products and services supplied by a
company meet or surpass customer expectation. Customer satisfaction is defined as "the
number of customers, or percentage of total customers, whose reported experience with
a firm, its products, or its services (ratings) exceeds specified satisfaction goals."[1]

The Marketing Accountability Standards Board (MASB) endorses the definitions,

purposes, and constructs of classes of measures that appear in Marketing Metrics as part
of its ongoing Common Language in Marketing Project.[2] In a survey of nearly 200 senior
marketing managers, 71 percent responded that they found a customer satisfaction
metric very useful in managing and monitoring their businesses.[1]

It is seen as a key performance indicator within business and is often part of a Balanced
Scorecard. In a competitive marketplace where businesses compete for customers,
customer satisfaction is seen as a key differentiator and increasingly has become a key
element of business strategy.[3]

Purpose[edit]

A business ideally is continually seeking feedback to improve customer satisfaction.

"Customer satisfaction provides a leading indicator of consumer purchase

intentions and loyalty." [1] "Customer satisfaction data are among the most frequently
collected indicators of market perceptions. Their principal use is twofold:" [1]

"Within organizations, the collection, analysis and dissemination of these data send a
message about the importance of tending to customers and ensuring that they have a
positive experience with the company's goods and services."[1]
"Although sales or market share can indicate how well a firm is performing currently,
satisfaction is perhaps the best indicator of how likely it is that the firm’s customers will
make further purchases in the future. Much research has focused on the relationship
between customer satisfaction and retention. Studies indicate that the ramifications of
satisfaction are most strongly realized at the extremes."

On a five-point scale, "individuals who rate their satisfaction level as '5' are likely to
become return customers and might even evangelize for the firm. (A second important
metric related to satisfaction is willingness to recommend. This metric is defined as "The
percentage of surveyed customers who indicate that they would recommend a brand to
friends." When a customer is satisfied with a product, he or she might recommend it to
friends, relatives and colleagues. This can be a powerful marketing advantage.)
"Individuals who rate their satisfaction level as '1,' by contrast, are unlikely to return.
Further, they can hurt the firm by making negative comments about it to prospective
customers. Willingness to recommend is a key metric relating to customer satisfaction."[1]

Theoretical Ground[edit]

In literature antecedents of satisfaction are studied from different aspects. The

considerations extend from psychological to physical and from normative to positive
aspects. However, in most of the cases the consideration is focused on two basic
constructs as customers expectations prior to purchase or use of a product and his
relative perception of the performance of that product after using it.

A customer's expectations about a product tell us how he or she anticipates how that
product will perform. As it is suggested in the literature, consumers may have various
"types" of expectations when forming opinions about a product's anticipated
performance. For example, four types of expectations are identified by Miller (1977):
ideal, expected, minimum tolerable, and desirable. While, Day (1977) indicated among
expectations, the ones that are about the costs, the product nature, the efforts in
obtaining benefits and lastly expectations of social values. Perceived product
performance is considered as an important construct due to its ability to allow making
comparisons with the expectations.
It is considered that customers judge products on a limited set of norms and attributes.
Olshavsky and Miller (1972) and Olson and Dover (1976) designed their researches as to
manipulate actual product performance, and their aim was to find out how perceived
performance ratings were influenced by expectations. These studies took out the
discussions about explaining the differences between expectations and perceived
performance." [4]

In some research studies, scholars have been able to establish that customer satisfaction
has a strong emotional, i.e., affective, component.[5] Still others show that the cognitive
and affective components of customer satisfaction reciprocally influence each other over
time to determine overall satisfaction.[6]

Especially for durable goods that are consumed over time, there is value to taking a
dynamic perspective on customer satisfaction. Within a dynamic perspective, customer
satisfaction can evolve over time as customers repeatedly use a product or interact with a
service. The satisfaction experienced with each interaction (transactional satisfaction)
can influence the overall, cumulative satisfaction. Scholars showed that it is not just
overall customer satisfaction, but also customer loyalty that evolves over time.[7]

The Disconfirmation Model[edit]

"The Disconfirmation Model is based on the comparison of customers’ [expectations] and

their [perceived performance] ratings. Specifically, an individual’s expectations are
confirmed when a product performs as expected. It is negatively confirmed when a
product performs more poorly than expected. The disconfirmation is positive when a
product performs over the expectations(Churchill & Suprenant 1982). There are four
constructs to describe the traditional disconfirmation paradigm mentioned as
expectations, performance, disconfirmation and satisfaction." [4] "Satisfaction is
considered as an outcome of purchase and use, resulting from the buyers’ comparison of
expected rewards and incurred costs of the purchase in relation to the anticipated
consequences. In operation, satisfaction is somehow similar to attitude as it can be
evaluated as the sum of satisfactions with some features of a product." [4] "In the
literature, cognitive and affective models of satisfaction are also developed and
considered as alternatives(Pfaff, 1977). Churchill and Suprenant in 1982, evaluated
various studies in the literature and formed an overview of Disconfirmation process in
the following figure:" [4]

Construction[edit]
Organizations need to retain existing customers while targeting non-
customers.[8] Measuring customer satisfaction provides an indication of how successful
the organization is at providing products and/or services to the marketplace.

"Customer satisfaction is measured at the individual level, but it is almost always

reported at an aggregate level. It can be, and often is, measured along various dimensions.
A hotel, for example, might ask customers to rate their experience with its front desk and
check-in service, with the room, with the amenities in the room, with the restaurants, and
so on. Additionally, in a holistic sense, the hotel might ask about overall satisfaction 'with
your stay.'"[1]

As research on consumption experiences grows, evidence suggests that consumers

purchase goods and services for a combination of two types of benefits: hedonic and
utilitarian[9]. Hedonic benefits are associated with the sensory and experiential attributes
of the product. Utilitarian benefits of a product are associated with the more instrumental
and functional attributes of the product (Batra and Athola 1990).[10]

Customer satisfaction is an ambiguous and abstract concept and the actual manifestation
of the state of satisfaction will vary from person to person and product/service to
product/service. The state of satisfaction depends on a number of both psychological and
physical variables which correlate with satisfaction behaviors such as return and
recommend rate. The level of satisfaction can also vary depending on other options the
customer may have and other products against which the customer can compare the
organization's products.

Work done by Parasuraman, Zeithaml and Berry (Leonard L)[11] between 1985 and 1988
provides the basis for the measurement of customer satisfaction with a service by using
the gap between the customer's expectation of performance and their perceived
experience of performance. This provides the measurer with a satisfaction "gap" which is
objective and quantitative in nature. Work done by Cronin and Taylor propose the
"confirmation/disconfirmation" theory of combining the "gap" described by
Parasuraman, Zeithaml and Berry as two different measures (perception and expectation
of performance) into a single measurement of performance according to expectation.

The usual measures of customer satisfaction involve a survey[12] using a Likert scale. The
customer is asked to evaluate each statement in terms of their perceptions and
expectations of performance of the organization being measured.[1][13]
Good quality measures need to have high satisfaction loadings, good reliability, and low
error variances. In an empirical study comparing commonly used satisfaction measures it
was found that two multi-item semantic differential scales performed best across
both hedonic and utilitarian service consumption contexts. A study by Wirtz & Lee
(2003),[14] found that a six-item 7-point semantic differential scale (for example, Oliver
and Swan 1983), which is a six-item 7-point bipolar scale, consistently performed best
across both hedonic and utilitarian services. It loaded most highly on satisfaction, had the
highest item reliability, and had by far the lowest error variance across both studies. In
the study,[14] the six items asked respondents’ evaluation of their most recent experience
with ATM services and ice cream restaurant, along seven points within these six items:
“pleased me to displeased me”, “contented with to disgusted with”, “very satisfied
with to very dissatisfied with”, “did a good job for me to did a poor job for me”, “wise
choice to poor choice” and “happy with to unhappy with”. A semantic differential (4 items)
scale (e.g., Eroglu and Machleit 1990),[15] which is a four-item 7-point bipolar scale, was
the second best performing measure, which was again consistent across both contexts. In
the study, respondents were asked to evaluate their experience with both products, along
seven points within these four items: “satisfied to dissatisfied”, “favorable to unfavorable”,
“pleasant to unpleasant” and “I like it very much to I didn’t like it at all”.[14] The third best
scale was single-item percentage measure, a one-item 7-point bipolar scale (e.g.,
Westbrook 1980).[16] Again, the respondents were asked to evaluate their experience on
both ATM services and ice cream restaurants, along seven points within
“delighted to terrible”.[14]

Finally, all measures captured both affective and cognitive aspects of satisfaction,
independent of their scale anchors.[14] Affective measures capture a consumer’s attitude
(liking/disliking) towards a product, which can result from any product information or
experience. On the other hand, cognitive element is defined as an appraisal or conclusion
on how the product’s performance compared against expectations (or exceeded or fell
short of expectations), was useful (or not useful), fit the situation (or did not fit),
exceeded the requirements of the situation (or did not exceed).

Recent research shows that in most commercial applications, such as firms conducting
customer surveys, a single-item overall satisfaction scale performs just as well as a multi-
item scale.[17] Especially in larger scale studies where a researcher needs to gather data
from a large number of customers, a single-item scale may be preferred because it can
reduce total survey error.[18]

Methodologies[edit]
American Customer Satisfaction Index (ACSI) is a scientific standard of customer
satisfaction. Academic research has shown that the national ACSI score is a strong
predictor of Gross Domestic Product (GDP) growth, and an even stronger predictor
of Personal Consumption Expenditure (PCE) growth.[19] On the microeconomic level,
academic studies have shown that ACSI data is related to a firm's financial performance in
terms of return on investment (ROI), sales, long-term firm value (Tobin's q), cash flow,
cash flow volatility, human capital performance, portfolio returns, debt financing, risk,
and consumer spending.[20][21] Increasing ACSI scores have been shown to predict loyalty,
word-of-mouth recommendations, and purchase behavior. The ACSI measures customer
satisfaction annually for more than 200 companies in 43 industries and 10 economic
sectors. In addition to quarterly reports, the ACSI methodology can be applied to private
sector companies and government agencies in order to improve loyalty and purchase
intent.[22]

The Kano model is a theory of product development and customer satisfaction developed
in the 1980s by Professor Noriaki Kano that classifies customer preferences into five
categories: Attractive, One-Dimensional, Must-Be, Indifferent, Reverse. The Kano model
offers some insight into the product attributes which are perceived to be important to
customers.

SERVQUAL or RATER is a service-quality framework that has been incorporated into

customer-satisfaction surveys (e.g., the revised Norwegian Customer Satisfaction
Barometer[23]) to indicate the gap between customer expectations and experience.

Measuring customer satisfaction doesn't have to be complicated or expensive. In fact, it's

fairly simple to incorporate customer satisfaction measurement into your current
customer success strategy.

No matter how you cut it, measuring customer satisfaction comes down to
gathering customer feedback via surveys. To accurately gauge customer sentiment, we'll
simply need to ask them how their experience was.

Of course, there are multiple ways you can execute said survey, from the survey design to
timing, sample, and even how you analyze the data.

Let's briefly cover the five steps to easily measuring customer satisfaction.

1. Outline your goals, and make a plan.

When embarking on any sort of campaign, it's helpful to take a step back and ask, "Why
are we doing this?"

In business, one must weigh the value of additional information (i.e. the customer
satisfaction data) in relation to the cost of collecting it (i.e. the survey process). To be
honest, if you won't change anything after collecting your customer satisfaction data,
you're better off not collecting it. It's going to take time and effort, so you need to put it to
use.

Depending on your business or organizational capabilities, there is a lot you can do with
the information. One use is simply to wake you up to the reality of any business: A portion
of your customers is going to have an unsatisfactory experience. Every business faces this
problem.

When you wake up to that fact, you can choose from many routes to correction. You can:

Improve key UX bottlenecks that contribute to poor customer experience.

Expedite customer support interactions with the most frustrated customers.

Operationalize proactive support like a knowledge base and customer education.

Test different live chat scripts and support strategies.

The specific solution isn't necessarily the important part here. The important part is
stepping back and saying, "If we see that a segment of our customers is unsatisfied, what
will we do about it?"

You can also create an action based on your segment of highly satisfied customers, by the
way. Methodologies like NPS seek to segment your customers into promoters, passives,
and detractors for a few reasons. One, you can get an aggregate NPS score, thus providing
a health check and a longitudinal metric to track and improve over time.

But two, to give you the possibility of segmenting customers based on attitudinal metrics
like satisfaction. You can offer your promoters special perks or encourage them to spread
the word about their business; they're the most probable people to act as your "external
sales force" -- in other words, your willing and excited customer advocates.

Once you've sat down and discussed your goals with key stakeholders, you need to design
your survey.

2. Create a customer satisfaction survey.

What types of metrics measure customer satisfaction?

You can choose among a few different options for customer satisfaction surveys. There's
no unanimous agreement on which one is best. A few popular methods are:

Customer Satisfaction Score (CSAT)

Customer Effort Score (CES)

Net Promoter Score® (NPS)

These are all "one-question" methods that vastly simplify the process of collecting
customer insights.

While you may not think the survey methodology matters much, how you ask the
question does seem to measure slightly different things.

For instance, a 2010 study found twenty percent of "satisfied" customers said they
intended to leave the company in question; 28% of the "dissatisfied" customers intended
to stay. So "satisfied" doesn't necessarily equate to "loyal."

1. Customer Satisfaction Score (CSAT)

Customer Satisfaction Rating, or Customer Satisfaction Score (CSAT) measures how

satisfied or unsatisfied customers are, on average, with your product, services, or
customer success programming. Usually asked on a scale of 1-3, 1-5, or 1-7, your
customer satisfaction score can be calculated by adding up the sum of all scores and
dividing the sum by the number of respondents.

Customer Satisfaction Score (CSAT) is the most commonly used satisfaction method. You
just ask your customers to rate their satisfaction on a linear scale. Your survey scale can
be 1 – 3, 1 – 5, or 1 – 10, and there is no universal agreement on which scale is best to use.

CSAT is a metric used to immediately evaluate a customer's specific experience. Here's

how Vipin Thomas, Global Lead of Customer Success at Freshdesk, put it:

"CSAT is a transactional metric that is based on what's happening now to a user's

satisfaction with a product or service (we try and get a CSAT score within 15 minutes of
an interaction).

It is super helpful to improvise on the resolution, mode of delivery, channel, etc. It is ONE
(not the only) of the important metrics to evaluate the performance of the support desk.
In fact, we publish ours publicly as well."
2. Customer Effort Score (CES)

Customer Effort Score (CES) is very similar, but instead of asking how satisfied the
customer was, you ask them to gauge the ease of their experience.

You're still measuring satisfaction, but in this way, you're gauging effort (the assumption
being that the easier it is to complete a task, the better the experience). As it turns out,
making an experience a low-effort one is one of the greatest ways to reduce frustration
and disloyalty.

A CES survey may look something like this:

3. Net Promoter Score (NPS)

NPS asks the question, "How likely is it that you would recommend this company to a
friend or colleague?"

This attempts to measure customer satisfaction but also customer loyalty. In doing so,
you can come up with an aggregate score, but you can also easily segment your responses
into three categories: detractors, passives, and promoters.

You calculate your Net Promoter Score by subtracting the percentage of Detractors from
the percentage of Promoters.

NPS is often used as a more general indicator of customer loyalty and brand devotion.
Here's how Thomas explains it:

"NPS is consumed by various different teams to drive retention, sales, product

improvements & advocacy.

Some important things to consider would be the channel it is delivered (e.g. email, in-
product, phone, etc.), the frequency of delivery (may vary from business to business,
ideally a 6 months gap should be good), and the target audience within the customer base
(e.g. personas like influencers, decision makers, users, etc.)".

The above three are commonly used and simple, but that doesn't cover the scope of
customer satisfaction surveys. Depending on your goals you can also send longer email
surveys. Really, you can customize it to your desires (just remember that shorter surveys
tend to have better completion rates).

In general, don't ask questions if you won't do anything with the information.

Still, sometimes longer surveys can be useful.

You can, of course, use more than one methodology, as well (since they all measure
something very slightly different).

Thomas explains how you can combine multiple scores for a greater picture:

"We take CSAT And NPS very seriously both independently and in conjunction since a
single measure alone won't show the true picture of why customers are detractors or
promoters (NPS) or why you have a lesser than expected CSAT.

CSAT in conjunction with NPS help with a very targeted approach & often are more
accurate indicators to spot an advocate or a customer at-risk.

For example, a customer that has had 3 continuous negative CSAT scores over a period
and is also a detractor on NPS would be an immediate at-risk customer, while a customer
with positive CSAT and a promoter on NPS are potentially the best source of advocates &
candidates to cross-sell/upsell since they already have seen the value in their interactions
with the process & product."

In addition, I recommend always appending a qualitative open-ended question,

regardless of the customer satisfaction survey you use. Without an open-ended question,
you risk limiting your insight into "why" the dissatisfaction may be occurring. Qualitative
user feedback can give you tons of ideas when it comes to implementing solutions.

Here's how Luke Harris, Customer Success Director at Wayin, puts it:

"Qualitative data is the nirvana many of us are searching for, because it what provides us
with the most human version of customer satisfaction but with the added benefit of scale
and replicability.

To be able to unbiasedly, capture and track qualitative data helps - especially a scaling
business - to quickly ascertain where it should focus, both in terms of product support
and development."

3. Choose your survey's trigger and timing.

This step is all about to whom you send the survey and when you send it.

If you go back to your goals outline, this shouldn't be too hard to determine, at least
strategically. People tend to forget this step, though, but it's of crucial importance and
affects the quality and utility of your data.
Tactically, you can trigger a survey pretty much anywhere at any time and to anyone
nowadays, but strategically, it matters specifically when and where.

Here's how Curtis Morris, CEO at Qualaroo, looks at sending satisfaction surveys:

"Although there is no "one size fits all" approach to customer satisfaction surveys, there
are 3 factors that every company should consider before surveying: What event or action
took place before you asked for feedback (these can be time or action based events like
completing your onboarding campaign), the time since your last survey to the customer,
and is your team's ability to reply to feedback in a timely manner.

Good examples of event data that can be used to fire a survey are:

Time since signup

Key actions taken in your app (for instance, Qualaroo asks right after you receive your
10th survey response)

Complete user onboarding

Surveying too often will result in low response rates, we recommend a customer
satisfaction (NPS) survey seven days after signup, 30 days after the first survey and every
90 days during the customer lifecycle."

With all the options for triggering, though, let's start with some best practices:

The closer the survey is to the experience, the better.

People forget how they felt the longer you wait.

Who you survey changes what insights you get. If you survey website visitors about their
satisfaction, the respondents are anonymous and may be a customer -- or may not be.
This will bring you different data than sending an email to recent customers will. Keep
that in mind.

You should survey your customers more than once to see how things change
longitudinally. Especially if you operate a SaaS company or a subscription service, regular
NPS surveys can help you analyze trends both at the aggregate and individual level.

Survey people after a key moment of their customer journey.

If a respondent gives you a high score, think about adding a follow-up ask. For instance,
Tinder asks you to rate their app in the app store if you give them a high score.
In general, there are three primary methods by which you can send customer satisfaction
surveys:

In-App or On-Site Surveys

Post-Service or Post-Purchase Surveys

Long Email Surveys

Each of these may require a different software or tool. For instance, Usabilla or HotJar
specialize in triggered in-app surveys. But if you're sending post-purchase surveys, you
may need something that offers a web interface, like Typeform. Email surveys can usually
be performed with any survey tool, like SurveyMonkey or Google Forms.

Different business questions require different survey triggers. You also need to take into
account longitudinal data -- how customers' satisfaction scores change over time. Here's
how Nils Vinje, VP of Customer Success at Rainforest QA, put it:

"The best time to trigger/send a customer satisfaction survey is after a meaningful part of
the customer lifecycle is completed.

For example, sending a satisfaction survey at the end of the customer's onboarding will
help you capture valuable feedback on how to improve the onboarding experience. At this
point, the customer likely has made up their mind on whether or not your solution solves
their problem and if it doesn't, you need to know ASAP.

Another checkpoint to send a satisfaction survey is 6 months before renewal. The reason
I like the 6-month mark is that it gives you enough time to act on the feedback before you
get into the renewal phase.

You can always do something about a problem that you know about but you can't do
anything about a problem you don't know about."

Matt Hogan, Head of Customer Success at Intricately, also emphasizes the need to
collect continuous and real-time feedback, regardless of major feature launches or
company-based events:

"I recommend surveying in-app and on a rolling basis. This will keep the constant
feedback loop going. The technology available makes it easy to manage this.
This way you're getting a sense of people's feelings when you're not releasing products,
or doing anything. Most companies do it after releasing features or on a controlled
schedule, which will influence your responses."

4. Analyze the survey data.

Once you've collected your data, make sure it doesn't just sit there dormant and unused.
You've got all this customer insight, and it's just waiting to be uncovered!

Depending on the format you used, this could be a simple process or one that requires a
Ph.D. in statistics and survey design.

As I mentioned before, calculating Net Promoter Score (NPS) is straightforward. You just
subtract the percentage of Detractors from the percentage of Promoters.

Most NPS tools give you the ability to easily segment respondents based on their category
as well, and they usually integrate with products where you can take action based on that
category.

Competitors that are prospering in the new global economy recognize that measuring
customer satisfaction is key. Only by doing so can they hold on to the customers they
have and understand how to better attract new customers. Successful competitors
recognize that customer satisfaction is a critical strategic weapon that can bring
increased market share and increased profits.

The problem companies face, however, is exactly how to measure customer satisfaction
and do it well. They need to understand how to quantify, measure, and track customer
satisfaction. Without a clear and accurate sense of what needs to be measured and how to
collect, analyze, and use the data as a strategic weapon to drive the business, no firm can
be effective in this new business climate. Plans constructed using customer satisfaction
research results can be designed to target customers and processes that are most able to
extend profits.

Too many companies rely on outdated and unreliable measures of customer satisfaction.
They watch sales volume. They listen to sales reps describing their customers’ states of
mind. They track and count the frequency of complaints. And they watch aging accounts
receivable reports, recognizing that unhappy customers pay as late as possible — if at all.
While these approaches are not completely without value, they are no substitute for a
valid, well-designed customer satisfaction survey program.
It’s no surprise to find that market leaders differ from the rest of their industry in that
they have programs in place to hear the voice of the customer and achieve customer
satisfaction. In these companies:

Marketing and sales employees are primarily responsible for designing (with customer
input) customer satisfaction surveying programs, questionnaires, and focus groups.

Top management and marketing divisions champion the programs.

Corporate evaluations include not only their own customer satisfaction ratings but also
those of their competitors.

Satisfaction results are made available to all employees.

Customers are informed about changes brought about as the direct result of listening to
their needs.

Internal and external quality measures are often tied together.

Customer satisfaction is incorporated into the strategic focus of the company via the
mission statement.

Stakeholder compensation is tied directly to the customer satisfaction surveying

program.

A concentrated effort is made to relate the customer satisfaction measurement results to

internal process metrics.

To be successful, companies need a customer satisfaction surveying system that meets

the following criteria:

The system must be easy to understand.

It must be credible so that employee performance and compensation can be attached to

the final results.

It must generate actionable reports for management.

DEFINING CUSTOMER SATISFACTION

The concept of customer satisfaction is new to some companies, so it’s important to be

clear on exactly what’s meant by the term.
Customer satisfaction is the state of mind that customers have about a company when
their expectations have been met or exceeded over the lifetime of the product or service.
The achievement of customer satisfaction leads to company loyalty and product
repurchase. There are some important implications of this definition:

Because customer satisfaction is a subjective, nonquantitative state, measurement won’t

be exact and will require sampling and statistical analysis.

Customer satisfaction measurement must be undertaken with an understanding of the

gap between customer expectations and performance perceptions.

There is a connection between customer satisfaction measurement and bottom-line

results.

“Satisfaction” itself can refer to a number of different facts of the relationship with a
customer. For example, it can refer to any or all of the following:

Satisfaction with the quality of a particular product or service.

Satisfaction with an ongoing business relationship.

Satisfaction with the price-performance ratio of a product or service.

Satisfaction because a product/service met or exceeded the customer’s expectations.

Each industry could add to this list according to the nature of the business and the
specific relationship with the customer. Customer satisfaction measurement variables
will differ depending on what type of satisfaction is being researched. For example,
manufacturers typically desire on-time delivery and adherence to specifications, so
measures of satisfaction taken by suppliers should include these critical variables.

Clearly defining and understanding customer satisfaction can help any company identify
opportunities for product and service innovation and serve as the basis for performance
appraisal and reward systems. It can also serve as the basis for a customer satisfaction
survey program that can ensure that quality improvement efforts are properly focused on
issues that are most important to the customer.

OBJECTIVES OF A CUSTOMER SATISFACTION SURVEY PROGRAM

In addition to a clear statement defining customer satisfaction, any successful customer
survey program must have a clear set of objectives that, once met, will lead to improved
performance. The most basic objectives that should be met by any customer surveying
program include the following:

Understanding the expectations and requirements of your customers.

Determining how well your company and its competitors are satisfying these
expectations and requirements.

Developing service and/or product standards based on your findings.

Examining trends over time in order to take action on a timely basis.

Establishing priorities and standards to judge how well you’ve met these goals.

Before an appropriate customer satisfaction surveying program can be designed, the

following basic questions must be clearly answered:

How will the information we gather be used?

How will this information allow us to take action inside the organization?

How should we use this information to keep our customers and find new ones?

Careful consideration must be given to what the organization hopes to accomplish, how
the results will be disseminated to various parts of the organization, and how the
information will be used. There is no point asking customers about a particular service or
product if it won’t or can’t be changed regardless of the feedback.

Conducting a customer satisfaction survey program is a burden on the organization and

its customers in terms of time and resources. There is no point in engaging in this work
unless it has been thoughtfully designed so that only relevant and important information
is gathered. This information must allow the organization to take direct action. Nothing is
more frustrating than having information that indicates a problem exists but fails to
isolate the specific cause. Having the purchasing department of a manufacturing firm rate
the sales and service it received on its last order on a survey scale of 1 (terrible) to 6
(magnificent) would yield little about how to improve sales and service to the
manufacturer.
The lesson is twofold. First, general questions are often not that helpful in customer
satisfaction measurement, at least not without other more specific questions attached.
Second, the design of an excellent customer satisfaction surveying program is more
difficult than it might first appear. It requires more than just writing a few questions,
designing a questionnaire, calling or emailing some customers, and then tallying the
results.

UNDERSTANDING DIFFERING CUSTOMER ATTITUDES

The most basic objective of customer satisfaction surveys is to generate valid and
consistent customer feedback (i.e., to receive the voice of the customer), which can then
be used to initiate strategies that will retain customers and thus protect one of the most
valuable corporate assets — loyal customers.

As it’s determined what needs to be measured and how the data relate to loyalty and
repurchase, it becomes important to examine the mind-set of customers the instant they
are required to make a pre-purchase (or repurchase) decision or a recommendation
decision. Surveying these decisions leads to measures of customer loyalty. In general, the
customer’s pre-purchase mind-set will fall into one of three categories — rejection (will
avoid purchasing if at all possible), acceptance (satisfied, but will shop for a better deal),
and/or preference (delighted and may even purchase at a higher price).

This highly subjective system that customers themselves apply to their decisions is based
primarily on input from two sources:

The customers’ own experiences — each time they experience a product or service,
deciding whether that experience is great, neutral, or terrible. These are known as
“moments of truth.”

The experiences of other customers — each time they hear something about a company,
whether it’s great, neutral, or terrible. This is known as “word-of-mouth.”

There is obviously a strong connection between these two inputs. An exceptional

experience leads to strong word-of-mouth recommendations. Strong recommendations
influence the experience of the customer, and many successful companies have
capitalized on that link.
How does a customer satisfaction surveying program allow you to make the connection
between the survey response and the customer’s attitude or mind-set regarding loyalty?
Research conducted by both corporate and academic researchers shows a relationship
between customer survey measurements and the degree of preference or rejection that a
customer might have accumulated. When the customer is asked a customer satisfaction
question, the customer’s degree of loyalty mind-set (or attitude) will be an accumulation
of all past experiences and exposures that can be indicated as a score from 1 (very
dissatisfied) to 6 (very satisfied).

Q-5. Definition the direct and digital marketing. How it is effective is current business
scenario?

Ans- 5 Types of Digital Marketing: Which one is Right for Your Business

In today’s time, we frequently hear the term Digital Marketing and we all think that we
kind of know what actually it is. This thinking sometimes limits the scope and
opportunity that the complete Digital Marketing landscape can actually offer. This is why,
when it comes to nailing digital marketing down, we either turn dumbfounded or get
stuck.

To come out of such scenarios, it is very important to know the different types of Digital
Marketing opportunities that are available to your business.

According to Salesforce, 75% Of Total Marketing Budget Will Go To Digital Marketing by

2021.

Now that’s going to be a massive change. Digital marketing today depends upon different
types of audience interactions. It revolves around managing and harnessing of different
types of Digital Marketing Channels. And sometimes they might be a bit difficult to deal
with.

That is exactly why we came up with this post to help you know how many types of
Digital Marketing Channels are available to you. Once you know these channels, and the
optimal way to use each, you will be in a perfect position to craft a perfect Digital
Marketing Strategy and execute it well.

“Inspiration is the most important part of our digital strategy.” – Paull Young
Therefore, without further ado, let us go through below given five types of Digital
Marketing. We will answer your question of how many types of digital marketing tactics
are there and we will also make you understand which one will serve your business
objectives the best.

So, read on!

5 Types Of Digital Marketing

At Digital Vidya, we opine that the term Digital Marketing is an amalgam of using various
online visibility methods to promote products, services or the brand itself.

You may want to make people find your website, have a look at your products,
understand your services or get to know about your offers. For all this, you need
promotions of different sorts. When this promotion is in its totality done by a sphere of
online promotional activities, it is together called Digital Marketing.

So, in essence, various types of digital marketing channels & tactics come together to give
rise to Digital Marketing.

By now, you should be clear in your understanding of what Digital Marketing actually is.
And if it makes you feel excited to learn it in details, you can check out our digital
marketing course.

Now, let us explore each of these platforms that are used for online promotions &
visibility.

1. Search Engine Marketing & PPC

Search Engine Marketing (SEM) is one of the most primary types of Digital Marketing
activities that help businesses gain market online via Ads on search engines such as
Google, Bing or Yahoo.

SEM assists in optimizing the brand presence and conversions for businesses through
paid and unpaid advertising.

Unpaid SEM is SEO while Paid SEM is PPC.

PPC is one of the speediest types of Digital Marketing channels that drives targeted traffic
to your web pages and related services.

PPC can be understood as buying traffic via paid search listings that help marketers get
more web traffic through desktop and mobile web searches.
There are different synonyms and acronyms related to SEM such as Paid search ads, Paid
search advertising, PPC (pay-per-click), PPC (pay-per-call), CPC (cost-per-click), and CPM
(cost-per-thousand impressions).

The formula to calculate PPC is: Pay per click ($) = Advertising cost ($) ÷ Number of ad
clicks

PPC is from types of Digital Marketing tactics that helps marketers channelize an Online
Advertising System for driving online traffic to their websites by paying a certain price to
the publisher when their paid Ad is clicked.

Entities involved in PPC Advertising are:

Entities of PPC

Product Seller

PPC Marketer

Landing Page

Landing Page Provider

The viewer or the Visitor

PPC or Paid SEM works best for businesses that have a good spending plan and can afford
costlier ways to gain traffic and ensure better online recognition in the quickest
turnaround.

Using such types of Digital Marketing strategies needs AdWords experts who can exploit
the paid advertising in the most targeted and result driven campaigns.

2. Search Engine Optimization (SEO)

Search Engine Optimization helps marketers enhance the ranking of a site or website
page in the unpaid “organic” search lists. SEO is from the types of Digital Marketing
activities, businesses can make their website pages rank higher in the SERPs by
increasing visibility, reach, authority and Alexa scores.

In case you did not understand what a SERP means, its the short form for Search Engine
Results Page.

SEO helps you gain higher positions in search results naturally. It means that it helps you
to get more visitors, awareness, traffic, digital branding, leads, and conversions.

Search Engine Optimization works around some of the well-characterized set of

principles such as optimizing a page for specific keywords, and managing links from
different sites that also use similar kinds of keywords, and so forth.

Manipulating the Search Engine framework is no more a prudent practice as your site can
be penalized via Google’s Penguin update. So, you need to play it all clean.

Some Of The Most Notable SEO Practices Are:

High-Quality Content

Guest Blogging

Images and Videos

Public Relations

Direct Mail

Social Presence

Collateral Material

Meta Data
Brand Evangelism, etc.

Different Steps Involved In Making A Site SEO Friendly Are:

1. Choosing SEO Friendly Website Domain

2. Knowing SEO Tactics & Methods

White Hat SEO

Black Hat SEO (Never ever use these gray tactics)

3. Use of SEO friendly Design & Layout

4. Optimization of Keywords, Meta Tags, Title and Anchor

5. Link Building and Mobile SEO

6. Knowing activities performed by Search engines such as crawling, indexing, processing,

calculating relevancy and retrieving results

7. On Page and Off Page SEO

8. SEO Copywriting, etc

SEO is one of the most evergreen Digital Marketing types that help businesses enjoy great
recognition in front of their target base and the needed authority and reputation in the
eyes of Search Engines as well.

3. Social Media Marketing (SMM)

Social Media Marketing is from the youngest and most popular types of Digital Marketing
that help marketers advance their brand image in a most powerful and trendy manner.

SMM is nowadays preferred by different businesses for optimizing the image of a brand,
business, product, or an individual. We all are mostly aware of different social networks
around us such as Facebook, Google+, Twitter, Instagram, YouTube, LinkedIn, Snapchat
Pinterest, etc.

In addition to these, there are niche networks, discussions, forums, dynamic blog groups
and the places wherever two-way discussion happens comes under the radar of Social
Media Marketing.

Creating and distributing quality content in a well-targeted manner is the base of

successful SMM campaigns.
Different Steps To Successful Social Media Marketing

Research and know your audience

Pick your Social Platforms

Pick your KPIs

Write a Social Media Playbook

Align your company with your plan

Schedule an hour each week to Schedule post

Create a Content Bank

Post Relevant Content

Treat All Social Channels Separately

Do Reporting and Reanalyzing

The latest in Social Media Marketing is Social Media Ads that businesses should know
how to use to ensure better use of these platforms.

Let us understand different types of Ads that you can run on Social Channels.

Types Of Facebook Ads

Photo Ads

Video Ads

Carousel

Slideshow

Canvas

Types Of LinkedIn Ads

Display Ads

Sponsored InMail

Sponsored content
Text Ads

Dynamic Ads

Types Of Twitter Ads

Promoted Tweets

Promoted Account

Promoted Trends

Types Of Instagram Ads

Photo

Video

Carousel

Types Of Snapchat Ads

Snap Ads

Sponsored Geofilters (for larger companies) or on-demand Geofilters (for smaller

brands)

Sponsored lenses

Businesses that see their target audiences on Social networks should always opt for these
types of Digital Marketing techniques, as it quite easily widens the reach of businesses
and ensures better branding and recognition and hence conversions.

4. Email Marketing

Email marketing is one of the oldest types of Digital Marketing that is still highly
contemporary and fruitful. Marketers use emails for developing relationships with their
potential and existing customers that help them generate leads and ensure their
conversions.

Email Marketing includes the best ways to establish deeper relationships with a wider
audience for the nominal cost than your total spends on traditional media.

Goals of an Email Marketing Campaign are:

Driving new signups for specific products and services

Creating new and powerful leads for your sales team

Targeting more attendees for your event in a result driven manner

Converting more leads for your cause

Steps that You Need to use To Run Email Marketing Campaigns are:

Know the components of Email Campaigns

Know ways to get permission for Email Sign Up

Use effective Email Marketing Content & Landing Pages

Avoid being spammed and black-listed

Use best Email Automation Tools

Do Segmentation and utilize Email Marketing Metrics

Use Email Marketing Follow Ups

Different Email Marketing Components that You Can Use are:

Newsletter

Announcements

Event Invitation

Marketing Offer

Email Marketing is advisable for all kinds of businesses as it is highly cost-effective and
considered as the best types of Digital Marketing that ensure best conversions.

5. Content Marketing

Content Marketing is one of the most important types of Digital Marketing that revolve
around the management and execution of different written, engaging, downloadable and
visual Digital Media Content.

Content Marketing focuses on attracting and converting targeted audiences into

customers by designing, publishing, promoting, distributing and sharing valuable and
relevant free content on different digital marketing channels. According to Copyblogger:

Things To Pay Heed To When Making A Content Marketing Plan

Your target audiences

The problem your Content is going to solve

USP of your Content Marketing Campaign

Possible Content Marketing formats you can use

Possible channels to publish and share your content

Awareness about Content Management System, content creation, curation, and

publication

Best Content Marketing Techniques

Blogs

E-Books

Podcasts & Webinars

Workbooks & Templates

Landing Pages

Emails

Blogs

Infographics

Videos

Social Media

5 Steps To Do Content Marketing

Define your goal and conduct a persona research

Determine a Content Management System & brainstorm content ideas

Know which types of content would be the best fit for your Business

Start a blog and post at least once a week

Publish and manage your content

Content is the base of all types of Digital Marketing and having a proper Content
Marketing Strategy ensures better creation, channelization, and conversions for a
business.

Final Thoughts

Hopefully, this article has answered your question of how many types of digital
marketing activities are there.

Now the million dollar question to answer is, how to create a strategy that combines all
the different types of digital marketing activities and produces sure results?

We know that all Digital Marketing Channels produce results. But each of them needs to
be utilized well to produce ‘optimal’ results. Generally, only trained and experienced
Marketers can do that. Creating a perfect working strategy doesn’t come easy. You need
the expertise to craft one.

Which channel gives more ROI and which one is easier to execute can’t be ascertained by
common sense. For someone who has years of experience in the Digital Marketing
industry, the job might be easy. And even then, this industry keeps on changing and
evolving every single day.

Digital Marketing Strategies that worked a year ago are obsolete now. At times, you might
be even penalized by Search Engines for following old techniques that are now seen as
spammy.

As you have seen, there are different types of Digital Marketing Channels & each one
would require a different type of Digital Marketing Strategy. All this makes creating the
best working methodology a struggle, especially for a new entrant.

Importance of a Digital Marketing Course

In such a situation where creating a perfect Digital Marketing Strategy would require a lot
of hit and trial on the part of a newbie. Even when you know the basic strategies of using
a channel optimally, it is a lot more sensible to take a Digital Marketing Course and save
yourself a lot of testing budget.
Businesses entering the sphere of Digital Marketing should train their teams on the latest
in Digital Marketing. Similarly, to be an awesome practitioner of Digital Marketing,
professionals should invest time in learning it. The Digital Marketing Strategies, the Case
Studies & the demonstrated experience of the trainers is always going to help you in
creating the perfect Digital Marketing Strategy for your Business.

Over to You

On a concluding note, I hope this article guided you know different types of Digital
Marketing Channels that are a best fit for your business. Just in case, you are in a dilemma
about choosing the best Digital Marketing channel/s for your business, share specific
details of your business and we shall guide you through the process.

Thank you