During 2002, our country suffered one of the worst crises in its history. The financial system imploded, generating a chain effect that paralyzed the Uruguayan economy during the second half of 2002. Like any difficult situation, this created the possibility of rethinking what was done and learning from mistakes.
In the specific case of the administration, many companies were left adrift because they could not anticipate the effects that were coming. The events of the previous year made many think that theory and practice should be more closely related.
Indissolubly linked to this is the role of educational institutes as agents of social change. It is known that the optimal interaction between the theoretical and the practical of a discipline takes many years. In almost all cases, the theory arises as an attempt to give consistency and predictability to what happens in reality. In Uruguay, management sciences are not yet fully developed and university careers aimed at training professionals in this area are in full growth.
Observing this process, we note that the necessary maturity has not been reached, a stage in which society will perceive in a more profound way the advantages of a true administrative science.
Undoubtedly, the normal operation of a company prevents thinking about a strategic vision, much less if you do not have a strategic culture. 2002 was a year of transition, where many stopped to think "What is happening?" The crisis operated as a motor of thought in various aspects of reality.
Within the administrative sciences, marketing has been the clearest reflection of this evolution. Of all the areas of administration, it is the one that is exposed directly to the consumer, it is constantly being evaluated and that is why in this paper we are going to make a brief reflection on the new paradigms that will govern the discipline of marketing in the future.
Marketing has undergone a remarkable evolution in the world, at first nobody thought about it. The inescapable reference is Henry Ford, who built cars thinking exclusively about reducing costs, leaving aside the consumer. The logic of the time was different, the vehicles were sold the same.
The postwar era brought radical changes in consumption. Demand ceased to exceed supply and producers were bombarded by new competitors. Here an illustrious unknown makes his entrance: marketing.
The rest is known history. Marketing became more and more concerned with the consumer, tried to discover it, stimulate it towards consumption, seduce it, seek brand loyalty.
Many models have tried to explain their behavior without reaching satisfactory overall conclusions. But the vast majority of models have been more concerned with supply than demand. Consumer orientation, following the classic definition of marketing, seemed to be a mere slogan in many cases.
It was necessary to readapt these classic models towards the true sovereign: everything begins and ends with the consumer, the point where the business is born and ends.
In this work we are going to introduce ourselves in the determinants of consumer behavior, we are going to focus on the sociological aspects that define behavior and to expose some models that serve to better understand market dynamics.
This approach from the demand side is intended to be a complement to the classical theory of marketing from supply, knowing in advance that there is no certain way to predict human behavior and that companies only have tools applicable from supply.
The first students of marketing were men with economic training. The new models require an active role from sociologists, psychologists and communicators.
The aspects that we are going to develop are: the symbolic aspects behind consumption, the power of brands, product communication, a review of the classical demand theory and a detailed analysis of the influence of the different Marketing variables..
We will present known models linked to this approach, as well as some that will complement the classical approaches.
The demand theory
For this research we are going from a critical analysis of the classical demand theory, starting from the basic premise that much has changed since its formulation.
In the first place, marketing as a discipline arises at a time in history in which economics from the supply side gives way to the in-depth study of demand. Before World War II, demand was higher than supply, so it was enough to put a product on "display" for it to be immediately sold. Say's Law seemed to be strictly adhered to, "Supply generates its own demand." In this context, Henry Ford develops its assembly line, putting aside the needs of its customers and focusing strongly on reducing costs. The end of the war brings substantial changes in business, the products of different companies began to multiply and the consumer began to demand more.It was no longer enough to carry out the process of transforming inputs into products to sell. The client demanded that they dedicate themselves to him.
At this moment the objective is to “satisfy the needs of the clients”, looking for mechanisms never before explored to do so. Marketing starts from the identification of an unsatisfied need, the product is designed based on it, the appropriate distribution channels are chosen, a price is selected that matches the perceived value and finally all of this is communicated through different mechanisms (advertising, promotions, direct marketing, etc).
These changes introduced new variables to seduce the consumer, which have left price as one more and perhaps the least important variable. The experiences of the countries of the Southern Cone seem to belie that idea, but it is no less true that marketing has developed loyalties that no price strategy can match. We will immediately delve into this basic concept: that the price variable is not the most important in the marketing mix.
Definitely, the consumer does not decide exclusively on the basis of price as the classical theory held, but on the basis of many other aspects fundamentally linked to the symbolic satisfaction that the products represent.
Let's not be so radical and let's keep working around the theory. The objectives to develop demand were, in a first stage, to “wait” for external stimuli that would allow a shift of the curve to the right and upwards.
This displacement is generated by changes in consumer tastes. These changes may be generated by a multiplicity of factors, such as the income of consumers, the prices of substitute goods, a change in preferences, among others. If we start from the basis that needs are satisfied and not created, an increase in demand would not be generated by business stimuli (unless the company that generates it has a very important market share).
With the irruption of modern marketing techniques, there was a second phase where the objective –now generated by the company- was to reduce the price elasticity of demand. That is to say that before a given variation in price, the variation in the quantity consumed was less than proportional. For this, marketing had a series of tools that generated changes in consumer behavior.
A company that achieves that its product represents an irreplaceable advantage with respect to the competition, would become less vulnerable to possible price counter-strategies from the competition or to changes in market prices.
In graph 2 we observe two companies, A and B, that operate in the same market. Company A has positioned its product on the basis of price, oriented in the same sense as classical theory. Company B has carried out marketing strategies, targeting factors other than price, and has already managed to be less vulnerable to its fluctuations.
We are going to maintain the criteria of classical theory to analyze a particular case, which in some way was the precursor of the review that we are going to present.
Nicholas Kaldor proposed that the demand curve would have a break where the price elasticity would vary. The hypothesis was that at higher prices the curve is relatively elastic since price would become a fundamental element in consumer purchasing decisions. At the lowest prices, the curve becomes inelastic since prices have less incidence.
If we introduce the aforementioned marketing tactics, we can see that those with high prices will try to reduce price elasticity by seeking to differentiate themselves in other ways. Those with low prices continue with their strategy since they do not suffer great variations.
So those expensive products try to incorporate the marketing system into their operations and are favored. Cheap products do not seek differentiation alternatives because they do not have competitive threats.
If the objective of a company is to obtain profitability, it must promote the added value that marketing provides. This discipline operates as a driving force, acts as a strategic lever and those who use it gain important advantages over those who do not.
In the classical theory of Demand, a market-total approach was carried out. This vision is very useful for economists and not so much for those who design marketing strategies. In our case, the demand curve is analyzed for the target segment to which the company is oriented. It is more useful to evaluate responses to marketing stimuli in the segment and not in the global market.
We believe that this theory can be adapted with a more “marketing” approach that allows a better visualization of how markets currently operate.
By way of conclusion we are going to add some important elements to the classical theory. In the first place, the space where the supply and demand curves converge is the company's target segment, not the total market. Second, it must tend to differentiate the product through a set of aspects, not based exclusively on price. And finally, it is necessary to study the respective elasticities for each business stimulus: the product, the distribution and the advertising. In other words, each variable in the mix has a different effect on the propensity to consume and the one with the least elasticity will be more efficient.
Demand must be studied by stimulus and by segment.
Consumer behavior
Many theories have tried to get closer to the essence of behavior, but none of them have met with the full satisfaction of researchers. Human behavior is extremely difficult to predict since there are a multiplicity of aspects that affect behavior. However, it is possible to identify which are the aspects that most influence each segment. In fact, advertising communication has taken a substantial step in this direction, since it has gone from focusing on the product to placing the consumer at the center of its strategy. Advertising has made a difference and judging by the millions that are invested in this area, it does not seem that they are so wrong.
Many theories have tried to get closer to what are the reasons for buying an individual, without reaching definitive conclusions. Of course, there are not, although for this work we are going to focus on the aspects that we consider most important, in order to promote an area of discussion that will undoubtedly be very enriching.
The sociological and psychological approach are the ones that will prevail in this research. We are far from the times when the consumer acquired a "product"; today he wants to satisfy his symbolic needs. The customer buys the physical product plus the satisfaction of using it. Many may think that a demand-side approach greatly limits a company's ability to maneuver. We believe that those who know how to better interpret what their clients' real motivations are will be better able to face the competition.
We believe that traditional segmentation is over. That classic idea of dividing the market into measurable parts, where demographic and socioeconomic aspects were the most relevant, has been left behind. Today they represent a complement to the most modern segmentation criteria, which take into account aspects such as lifestyle, the self-concept of each one, the belonging and reference groups and others more extracted from the social sciences.
In this approach, the symbolic satisfier is represented by the product plus all the stimuli that the company uses to reach the customer. In other words, the company has a broad participation in the results it obtains.
There are two major tasks that the company performs and that make up the planning phase before the product reaches the consumer. A first phase, which Alberto Levy calls conversion, consists simply in the transformation of the inputs into the physical product. In case of having access to research, this product should have the attributes that are considered relevant by potential customers. The second phase consists of the transformation of the physical product into a symbolic satisfier, what Levy calls focus. The task then does not end with having the tangible product that the consumer wants, it must also be communicated properly so that it is preferred over others.
What does the consumer perceive?
First of all, the consumer does not always carry out a message decoding process since his perception selects the stimuli he receives. In other words, there is an initial barrier to generating consumer attention before they compare the differentiations offered by the offer.
In the following figure, proposed by Kotler and Levy, we can see how this phenomenon occurs.
Circle C represents the point of view of the consumer and Q, the differentiation devised by the company. The space where the 1 is located is what the consumer perceives that the company is communicating to him and that it attracts him. We call space 2 the zone of indifference, it is some attribute that the consumer perceives but does not interest him - he is indifferent, he does not consume it. And space 3 is a perceived attribute that generates consumer rejection.
The strategy for these cases is to try to increase zone 1 and reduce zone 3, since the interaction between attraction and rejection is where the action of consumption is found. The zone of indifference can be a subject of conflict. Some authors argue that it is not possible to reach the consumer from this point because from the beginning they show absolute disinterest. Others propose that the degree of indifference should be assessed and divided between potential and excluded. Indifference is not homogeneous, some consumers may be more prone to acceptance or rejection. As perception is dynamic, it is necessary to be very attentive to changes in the evolution of products and their respective communication.
When the stimulus is accepted by the consumer, the process that we are going to describe next occurs, which is generated by the physical product and by the marketing tactics of the company. Among the latter are price, distribution and drive.
In the following drawing we are going to observe how this process is carried out.
This image arises from the perception of the consumer. It is created exclusively in your mind and is a decisive element in the consumer choice. In this communication process, the consumer also creates an institutional image, generated especially when the act of purchase is repeated. The consumer identifies the product offered by each company, also perceives the tactical and strategic variants of each one and creates, in his mind, an image of that whole that we choose to call the institutional image.
The company combines its conversion and focus efforts by forming a product configuration, in order to differentiate itself from the competition. Each differentiation faces consumers grouped around their different symbolic needs. The segments will then be distinguished by the different configurations they perceive.
These are the aspects that, consciously or unconsciously, the consumer takes into account when choosing one product or another. Many companies close this process in the conversion phase. If the product is what my potential customers want, that's it. Nothing is further from reality, the weighting of the tactical aspects of marketing plus the business image generated by the consumer are much more relevant than the physical characteristics of the product.
It can be concluded in a primary way that the offer has a very important impact on this whole process since it has caused consumers to buy “marketing strategies” and that they miss them when they are not there.
From the point of view of competitive strategy, they will be more effective in predicting the evolution of consumer preferences regarding token satisfiers. As an example, it would be very important to know who is most frequently exposed to the purchase decision and what are the factors that influence such a decision.
It is possible that some consumers choose based on the advertising communication because they feel identified with the proposal, others decide based on the geographical proximity of the product. Each segment values the stimuli of business strategy differently and it is necessary to monitor them to achieve greater efficiency in investment in positioning.
A fundamental element in the decision to consume is the self-concept that people have. The product is no longer a mere object or a separate set of attributes, it is now part of the buyer's personality. The consumer chooses based on what he "believes" about himself and his environment. Consumption tends to be greater indicators of belonging than income itself in many segments. Even in higher income buyer groups, items are often indicators of status, rather than money itself.
From last year's crisis, a positioning boom has emerged in our country based exclusively on price. "Consumers buy based on price," is heard insistently. Undoubtedly, any strategy must take into account people's capacity to consume, but with the same certainty we affirm that long-term low-price strategies are not effective. The price must be managed as one more variable within the mix, a variable that can be decisive in situations like the ones we currently live in. In any case, the focus on products as symbolic satisfiers concludes that price is one of the variables and perhaps the least important. History has shown that those who have developed products based on a varied set of stimuli,they have been much more successful than those who have done them from the exclusive perspective of the low price.
The crisis is also likely to have shown its lessons in this regard. Perhaps those who buy based on status have adjusted their budget on "hidden consumption" more radically than on "visible consumption". In other words, those products that represent their personality, lifestyle and belonging to certain groups have continued to be consumed, while those that are not linked to social life have been replaced by cheaper ones.
On the previous statement, there are interesting works that are presented in the bibliography that served as support for this short essay. As an example, public consumption is distinguished from private consumption and what are the guidelines that guide both. Public consumption is that which is usually "seen and known" by the members of a certain social group. Private consumption, on the other hand, is known only to the family. An example of the former might be clubbing and an example of the latter might be toiletries.
Perceived segmentation
The consumer creates his own perceptual map, where the satisfiers and also the respective buyers are located.
The consumer has a formed opinion of all companies and has its own perceptual map, where consumers and lifestyles are located instead of attributes. There is then, a segmentation perceived by the client.
This is a graph that represents the segmentation planned by the company on the X axis and the segmentation perceived by the customer on the Y axis. We call the perceptual map that each individual has regarding products and consumers. The 45-degree axis represents optimal segmentation, where the points planned by the company coincide with the actual points of segmentation perceived by consumers. Here we consider that the real is what the consumer perceives even though the company "believes" that it is real. In the example, the company directs product A to a segment but the consumer does not feel identified. The ideal point is to locate it on the 45 degree axis.
There are perceived configurations that are held for a long time as there are no strategic pressures to modify them. Companies should monitor how consumers perceive products with respect to the groups of people who consume them.
How to identify the consumer and how to reach him?
In the following table we are going to observe which is the strategic mechanism that companies use to identify and satisfy their consumers.
We take Porter's generic strategies to better explain the process, and we frame them within the theoretical framework that we are proposing.
Michael Porter presented in the early 1980s a model focused on the competitive forces of an industrial sector. This model focuses on the company and its relationship with the different participants in the industry. There, a mention is made of clients, emphasizing their negotiating capacity as a whole.
It then introduces a series of generic competition strategies, two of which are company-oriented (cost leadership and differentiation) and one is demand-driven (focus).
Cost leadership is a supply-oriented strategy. If we approach it from the demand we can ensure that the strategy to follow in this case is to differentiate itself by having lower costs. In our model, both product differentiation and focus or high segmentation are two sides of the same coin. Each product configuration (differentiation) is designed for a market segment (focus).
Therefore we conclude that there is only one strategy applying Porter's concepts to our model: differentiation. In this case, let's remember that we focus on the various settings that can be accessed through conversion and focus.
On the other hand, the company has several mechanisms, also perceived by the consumer, which are what define the purchasing action: the traditional 4 P's plus the institutional image (our fifth P).
We call all this communication. A company not only communicates with advertising, it communicates with all these marketing stimuli - those generated from the offer and, fundamentally, those perceived by consumers. That is why we have called the specific mechanism of diffusion of the product a drive. We distinguish it from our communication because the latter is generated by consumer perception.
The business key emerges from the confrontation of models: communicate the difference.
| • Cost leadership
• Differentiation • Focus or high segmentation |
• Price
• Product • Distribution • Drive • Image Institutional |
COMMUNICATION DIFFERENTIATION
"COMMUNICATE THE DIFFERENCE"
New models
Next we propose to adapt some conventional models to concepts that we have developed in this work.
The Ansoff matrix from the demand
In the classic Ansoff Matrix, it was possible to observe which strategy to follow vis-à-vis products (current or new) and vis-à-vis markets (current or new). There were 4 possible combinations that were: market penetration, product development, market development and diversification.
We have adapted that model following the criteria of this work: the consumer is the boss. From that point of view, products cease to be so and become differentiations and markets become segments.
Before this matrix, different strategic alternatives are presented to follow. The present situation occurs in the quadrant where the current differentiation converges in the current segment. The company does not need investments in conversion or positioning since it is well located.
In quadrant 2, the segmentation is the same but the differentiation is different. In this case, the company seeks to anticipate changes in consumer tastes. Surely there is a lot of research behind a company that acts in this way or perhaps it is a clear market leader looking to self-cannibalize.
Quadrant 3 shows us an opposite situation, the segment is new while the differentiation devised is the same. Here the product life cycle is staged. We hypothesize that the life cycle is of the symbolic satisfier and that it is being adopted by different groups of people. The satisfiers go first through those consumers who like innovation until successively it changes hands. If we adjust to the idea that lower-income consumers buy based on the reference group they have, we clearly note that this quadrant of the matrix corresponds to that case.
Finally, quadrant 4 shows us the risky task of innovation. The differentiation (or symbolic configuration) was modified to generate new groups of buyers. This quadrant reflects the central axis of the marketing approach from the demand point of view: each differentiation creates, in effect, a new group of buyers.
Levy's leadership matrix
FOCUS
This matrix was proposed by Alberto Levy and is oriented towards the consumer and the competition simultaneously. It considers both aspects together, which allows a more general diagnosis of the position that the company occupies in the market.
We have already defined focus as a synonym for positioning (which company or product is best positioned in the mind of the consumer). Dominance is similar to the concept of relative market share used by many authors (for example, in the BCG matrix), it is the market share of each company with respect to the main competitor.
In this matrix the ideal position is generated with a high level of focus and dominance. In other words, the company proposes the differentiation that its public wants and it is also a “better” differentiation than that of its competitors. This company undoubtedly occupies the clear leadership in the market.
It can happen that someone has a high level of focus and does not have the leadership in the market. In this case we are talking about a challenger or a follower. The first case is the classic example of one who disputes supremacy in the market. The case of the follower is different, it points to the same segment but does not dispute the leadership. It may be the typical case of Burger King.
Where there is a high level of dominance with a low level of focus, we find a somewhat particular leader. The leadership may be cyclical, or the market requirements may be highly fragmented (see above), or it may simply be a commodity, an item that has no possible differentiation.
In the latter case, we find the laggard, a company that does not lead the market and that also does not differentiate its product correctly. The downside to this company is considerable.
The model proposes a strategy to act according to what place it occupies. If the idea is to gain dominance, the way will be to attack the leader. If, on the other hand, the objective is to gain focus, the task will consist of resorting to a new differentiation, either by change in the physical characteristics of the product or in the symbolic characteristics.
Strategic matrix
The model is extremely useful to discover what is the sustenance of the position in the market. The classical models were merely descriptive of a competitive situation, without delving into its causes. With this matrix, we can conclude "Where are we?", "Where do we want to go?" and "How can we go?"
CONVERSION
This model brings together Levy's concepts of conversion and focus and shows us what the position of a company is in relation to its production and positioning capacity.
To create and sustain a true advantage our company must generate strategic superiority. This is achieved when the degree of transformation of our inputs into the product is optimal (when the company has the ability to reach the intended final product) and when the differentiation that we give to our product coincides with the satisfactory expected by our target audience.
In other words, there is a conversion of inputs to generate a product (internal task of the company) and there is a focus that is the product correctly positioned in the mind of our target audience.
When our company achieves superiority in conversion we say that it has operational advantages and when it does so in positioning it has strategic advantages. It can happen that there is a high level of coincidence between our product and what the consumer wants and not have a good degree of conversion. Such a case constitutes a strategic advantage of our company.
The ideal situation occurs in the first quadrant, where both business capabilities are efficiently combined and make a sustainable difference compared to other companies.
Conclusions
Marketing has definitely been installed in our lives. Companies have welcomed him and accepted his recipes for the achievement of business objectives. But the contrast of the discipline with our reality has left some lessons.
Marketing can no longer think only of "meeting needs." This would be, in any case, the final objective. But first you have to generate tools that allow you to properly identify the customer. Rare cases of loyalty programs have failed by not taking these aspects into account and by emphasizing other aspects rather than people.
In this context, the intervention of market research becomes the main ally before carrying out planning tasks. But human resources also come to play a privileged role, which are ultimately those who can directly interpret consumer concerns. It is necessary to combine all aspects for intelligence systems to function smoothly. Many strategies fail beforehand because they do not have complete information.
The classic models can no longer explain by themselves the growing role of the consumer. A suitable combination of these models with the updates required by the times will allow a better understanding of how the company-system works.
In this brief essay we have tried to expose some of the models that can complement the classics, with the certain expectation that Uruguay can investigate and reach its own conclusions about the dynamics of our market.
We start from the central idea that price is not the only nor the most important of the Marketing dimensions, not even in crisis situations as important as the one Uruguay is currently experiencing.
In summary, we resort to the idea that the consumer “creates” his own positioning map based on “who consumes such a product”
Our country has some advantages that facilitate research and should be taken advantage of. Few countries show rates of stability in consumer habits like ours and Marketing should be happy about it.
It is necessary to look for a valid support for the generation of new models that take two basic aspects into account: the growing importance (sovereign, I would say) that the consumer has in these times and the no less important influence of the cultural aspects that identify a country.
You have to explore, identify and then yes, satisfy.
Bibliography
- CLANCY, Kevin, The Marketing Revolution, Editorial Vergara, 1994. COSTA LIESTE, Enrique, Marketing, Ed. Sudamericana, 1975. LEÓN, José Luis and OLABARRÍA, Elena, Consumer behavior and Marketing, Ediciones Deusto, 1993. LEVY, Alberto, Advanced Marketing, Granica, 1994. LEVY, Alberto, Review of demand theory, Ed Macchi, 1976. WILENSKY, Alberto, Keys to competitive strategy, OSDE Foundation, E-Book WILENSKY, Alberto, Strategic Marketing, Ed. Norma, 1994.
