Microeconomics

The equity risk premium is the excess return required by investors to compensate risks of holding a stock rather than holding a “risk free” asset. Jason ,2011) Under the Capital Asset Pricing model: , risk free investments involve borrowing and lending among investors and borrowing positions offset by lending positions, therefore let Y = and representative investor’s risk aversion be . (Bodied, Kane and Marcus, 2011). We rearrange this equation , indicating the equity risk premium is influenced by average risk aversion and variance of the market portfolio.

It’s obvious that when risk aversion of investors and variance of market portfolio increase the equity risk premium will goes up, and vice-versa. There are many empirical evidences show that during the Global Financial Crisis the volatilities of market increase, for example Chewer (AAA) have recognized the increase of volatilities in stock markets during financial crisis. Besides, according to the research of Steven, Michael and Bob (2011) derived from trades in options on the S&P/ASX 200 index showed that the implied volatility climb up during the SGF and reach the peak in 2009.

The increase of stock market volatilities not only represent the increase of risks (Karol 2011 and Brooks 2001) but also have negative relationship with risk aversion. (Chewer 1989 and Carney 2000). There are some events can be summarized in mention of an increase in risk aversion, for example after the Lehman Brothers bankruptcy in September 2008 the stock market price hardly dropped and the bank lending dramatically decreased, consistent with this there was a overshooting of risk aversion. Paolo, John and Chairs,2011) In conclusion, during the SGF both average risk aversion and risks of market increased, therefore the equity risk premium went up. Part D The keenness in the distribution of returns has became important in asset pricing because the traditional mean-variance measurement cannot fully characterize return behaviors (Samuelsson 1970,Campbell and Hence 1992;Circler and Huber 2007).

This report will discusses the importance of keenness in returns in asset pricing with he respects of investors’ preference for positive keenness and aversion to negative keenness, which asset pricing factors may be a proxy for keenness, the distinction between keenness and co-keenness in returns, and some researches include behavioral finance researches will be provided. What is keenness and why it’s important Keenness is a measure of the asymmetry of probability distribution around its mean.

Positive keenness has more probability distribution towards positive value, while negative keenness has more probability distribution towards negative value. The skewed distribution of asset returns was first point out by Dominant(1985), and it caused by the asymmetrical reactions of investors to goods news and bad news from companies. Chem.., Hong and Stein (2001) argued that there was another reason The main reason for the increasing importance of keenness in returns is that the unrealistic assumptions of traditional mean-variance framework.

The mean-variance measurement assumes the returns are normally distribute and quadratic preference, however it rarely happened in real word, therefore the insemination of expect returns and risks may exhibit. According to the finding of Roll(1977) and Ross( 1977) that the portfolio used as a market proxy is inefficient, the Sharper’s CAMP have been suggested as invalid. It’s also supported by Bernard and Allotted(2000) that the (unadjusted) mean-variance measurement Sharpe ratio can lead misleading conclusions.

For overcoming this bias Parka’s and Bear (1986) and Leland (1999) have developed performance measure incorporating keenness. Besides, Harvey and Suicide (2002) and Krause and Litterbug (1976) have recognized the importance of keenness that systematic keenness and conditional keenness are important to asset pricing since hey characterize the true distribution of asset returns. Furthermore, in traditional mean-variance framework such as Capital Asset Pricing Model there is only a single efficiency risky asset portfolio.

While accounting for the mean-variance-keenness in returns, there are multiple efficient portfolios, which could be considered to provide diversification portfolios. (Harvey and Suicide,2000) Investor’s preference for positive keenness and aversion to negative keenness The positive skewed distribution has a longer tail on the higher-return side of the curve, while the negative skewed distribution has a longer tail in the lower-return did.

The asset with negative skewed returns distribution has greater risks that the returns will decrease than what the standard deviation measures, and for positive skewed distribution there are fewer risks the returns will decrease (Mini, 2011) Theoretically, investors have preference toward positive keenness and aversion toward negative keenness, since increasing positive keenness will decrease possibility of large negative rate of returns.

There are many literally evidences show the preference of positive keenness, for example in 1967 Aridity presented that rational investors with reasonable utility functions should prefer positive keenness in the distribution of investment returns”. Following Aridity (1976),Chinchilla et al. (1997) and Parka’s et al. (2003) have recognized investors’ preference for positive keenness as well. What’s more, investors show their preference toward positive keenness in gambling, lotteries and entrepreneurship (Thomas, Jose and LU-Santos, 2009).

Nevertheless, some investors exhibit preference for negative keenness in real life, here investor is not only represent individual but also economic agent. Prefer repertory investment is a an example of negative keenness preference, which with reasonable average yields but a small chance of heavy losses, to the opportunity of recouping the original cost(Maker, Nicholas, Dominic and Raymond addition, economic agents facing a stream of stochastic monetary payoffs will show preference for negative keenness (Nazism, 2004).

This also supported by Richard “economic agents may prefer negative keenness under some certain conditions” (Richard, 2010). From the research of Harvey and Suicide (2000) we can know that negative keenness receive higher return. In their research they assumed investors require payment for negative keenness, and excess returns could be result from the market inefficiency. The higher return of negative keenness may be a reason that in some circumstance investor will prefer negative keenness.

Although investors expect the returns of asset exhibit positive skewed distribution, commonly the returns are negatively skewed distribution, since investors react to good news and bad news from corporations asymmetrically. It’s explained by Dominant (1985) who first pointed out the skewed distribution of asset returns, and he reposed that the increase of stock price caused by good news is to some extent offset by the increase in the risk premium, which is required by higher volatility.

For the decreased stock price caused by bad news is amplified further by the increased in the risk premium. Which asset pricing factors may act as a proxy for keenness The traditional mean-variance CAMP use beta to measure the systematic risks, and there are lots of studies suggest that the beta can’t fully capture the systematic risks. Ban (1981) suggested market capitalization ,and Fame and French (1992) proposed kook- to-market ratio have relationship with the cross-section of stock returns(Chi- Hoist ,2006).

There are many debates about whether asset pricing factors such as size and book-to market ratio may be acting as a proxy for keenness. The SMB factor measures the spread in asset returns between small and large size firms, and the HIM factor measures the spread asset returns between high book-to-market ratio and low book-to-market ration assets. In the research of Harvey and Suicide(2000) they found that when adding keenness alone or Jointly with HIM and SMB to portfolios had similar results, therefore they lamed that book market ratio (HIM) and size (SMB) factors can be act as a proxy for keenness.

Recently, Chunk Johnson and Shill (2007) also proposed that SMB and HIM are proxies for higher-order moments, and the Fame and French factors could be superior. However, there were some probabilities of errors in variables in their research. Conversely, Smith (2007) applied the condition three-model factor, which was proposed by Harvey and Suicide (2000), he argued that there was little impact on the price of market beta after adding the size(SMB) and the book-to-market(HIM) actors when the conditional keenness has already included in the model.

The study of Jail(2004) showed that the conditional keenness plays an important role in stock market (HIM) factors. Even though there are many arguments about the extent those SMB and HIM assets pricing factors act as a proxy for keenness, as least from the studies of Chunk Johnson and Shill (2007) and Jail (2004) we can conclude that the SMB and HIM those non-market factors can’t completely act as a proxy for keenness.

Distinction between keenness and co-keenness in returns Keenness is a measure of the asymmetry of probability distribution around its mean or a single asset, while co-keenness measures the symmetry of a variable’s probability distribution in relation to another variable’s probability distribution symmetry, which provide estimation of risks of assets connect to market risks. Theoretically, investors show their preference towards positive conciseness that present the asset has higher possibility of extreme positive returns than market returns.

Thus, jocoseness also plays an important role in asset pricing, and there are many studies support it. The studies of Harvey and Suicides (2000), Smith (2005) and Errand and Sys (2005) provided evidence that the conditional jocoseness can help explain the cross-section of stock returns. Baron-Ideas (1985) and Limit (1989) suggested the pricing of jocoseness. Moreover, jocoseness extends capital asset pricing theory to some extent.

The study by Krause and Litterbug provided the evidence that jocoseness can be regarded as a supplement to the covariance measurement of risks in explaining the returns on individual NYSE stocks and in the process to interpret the other discrepancies between returns, and the returns when take the NYSE stocks on the whole. Conclusion In conclusion, keenness in returns plays an important role in asset pricing, and there are many researches can provide evidence for it. For example, the studies conducted by Campbell and Hence (1992) and Harvey and Suicide (2000).

Introduction

Navana Limited stands as the authorized distributor of Toyota cars in Bangladesh, so we have chosen them to make a successful marketing plan on Toyota cars. Our area of concentration was centered on the new model of Toyota Corolla-GLi. This is the latest car of Toyota Corolla that has been recently launched in Bangladesh by Navana Limited in November 2007 at Japan trade fair in Bangladesh. The brand name Corolla of Toyota is well known for producing cars for the common people but this car is an upgraded model of Corolla.

Company Overview

Toyota Motor Corporation is a multinational corporation headquartered in Japan. Today, Toyota is the world’s third largest manufacturer of automobiles. Providing the most reliable automobile for its customer is the Toyota’s specialty. Toyota Motor Corporation recently celebrated its 70 years both as a carmaker and half a century of selling cars in America. In 2007 Toyota sold 8. 52m vehicles and its net income rose by 20% and become $14 billion. Moreover Toyota is aiming to sell 10. 4m vehicles in 2009. In Bangladesh it is the most popular automobile company to the car user and it has almost 70% market share in our country.

It is always interested to get the attention of the young generation, family people, working executives, service holders, business people, in one word all kind of people. “Its mission” is to predict consumer trends and create a lineup of cars and trucks to capitalize on them. Each professional is expected to spend time out in the field talking to car buyers. The Japanese have a name for it: genchi genbutsu – go to the scene and confirm the actual happenings. With Toyota, one thing has never changed that their commitment to the communities where they do business.

Toyota spends over billions of billion on R, design, manufacturing, sales and marketing operations. Over the world they have sales /service offices, financial service offices, R centers, holding company, manufacturing facilities, design centers, Hino operation facilities, Supplier state etc.

History

Kiichiro Toyoda, founder of the toyota Motor Corporation, was born in 1894. His father Sakichi Toyoda became famous as he inventor of the automatic loom. Inheriting the spirit of research and creation from his father, Kiichiro devoted his entire life to the manufacturing of cars, which was an unknown frontier at that time.

In 1933, Toyoda Automatic Loom Works created a new division devoted to the production of automobiles under the direction of the founder’s son, Kiichiro Toyoda. Kiichiro Toyoda had traveled to Europe and the United States in 1929 to investigate automobile production. After years of hard work, he finally succeeded in completing the A1 prototype vehicle in 1935. That was the beginning of the history of the Toyota Motor Corporation. Toyoda Automatic Loom Works was encouraged to develop automobile production by the Japanese government and Model AA passenger car was the first production model of Toyota in 1936.

Replica of the Toyota Model AA, the first production model of Toyota in 1936 Toyota Motor Co. was established as an independent and separate company in 1937. The company was founded by Kiichiro Toyoda as a spinoff from his father’s company Toyota Industries to create automobiles. Toyota also owns and operates Lexus and Scion brands. Toyota is headquartered in Aichi, Nagoya and in Tokyo. In addition to manufacturing automobiles, Toyota provides financial services through its division Toyota Financial Services and also creates robots.

Current marketing situation

There is a huge market for automobile industry worldwide. In this global earth people need to communicate with others each and every minute. Transportation is one way that facilitates communication.

The market demand for cars rise and fall time to time, but the demand never fell to the ground. The current market situation of cars is a little unstable for the fact that oil price has risen significantly worldwide that has resulted in a decrease of car sale worldwide. The same has also affected the Bangladeshi market. Different car dealers have reported that car sale has dropped significantly from last year, 2006-2007. There is also a rise in the car due to increase in cost of production. The steel price has risen significantly worldwide. Japan, Taiwan, importers of steel, are giving 27 to 30% more for buying steels.

In Bangladesh, the government’s rules and regulation imposed on import, duty and tax has also caused the market of cars to decrease.

Mission, Vision, Objectives & Goal

• Mission: The mission is to create a luxury vehicle that could go head to head with the world’s best automobiles.
• Vision: Setting new industry standards in operational excellence, market penetration, customer satisfaction and community commitment.
• Objective: Corolla GLi is clear in its objective to produce the segments most engaging driving dynamics while maintaining the brands traditional ride quality.
• Goal: From the outset, it is their goal to develop a luxury flagship vehicle that would be recognized as one of the finest cars in the world.

Products quality and features, design, packaging, brand name, extra services

• Brand name: Corolla GLi Features And Quality:
• Powerful performance: Responsive and quick to please, the Corolla effortlessly generates the power for driving pleasure, delivering subtly smooth and stable performance.
• Advanced technology: The Corolla generates outstanding power, minimizes its environmental impact, and provides warm reassurance.
• Wti technology: Based on driving conditions, it optimally changes the open/close timing of the intake valve, contributing to increased torque and output, better fuel economy and reduced Nitrogen oxides and hydrocarbon emissions.
• Crash safety body: It is comprised of a high integrity cabin with front and rear crumple zones that help absorb impact energy in a collision.
• Suspension: The Macpherson strut suspension on the front and torsion beam suspension on the rear were fine-tuned to provide excellent stability and control, and ride comfort.
• Keyless entry system: It lets to lock and unlock the doors from a distance.
• Moon roof: It incorporates one touch mode and a jam-protected system.
• Rear spoiler: The rear spoiler integrated into the trunk lid adds a sporty touch.
• Anti corrosion steel sheeting: The extensive use of anti corrosion steel sheeting protects the Corolla from rust, helping it to keep its goods looks for years to come.
• Immobiliser system: It provides security against theft. The car can only be started when the ID in the electronic matches the ID code in the engine immobiliser system.
• Dynamic and advanced: With its dynamic and advanced design creating a high quality feeling, the Corolla continues winning hearts and minds right around the world.
• Sophisticated presence: First impressions are compelling. The short-nose, long-deck proportions highlight the advanced sedan styling. Together with its expensive cabin space, it exudes a distinctive presence.
• Generous appearance: The captivating design creates a feeling of great possibility. The wide tread and generous appearance set the stage for the spacious cabin.
• Refined interior details: The Corolla’s attention to details includes the distinctive curved design of the center console, the use of colors and textures, and the quality finish.
• Brakes: Disc brakes on all four wheels, ventilated on the front, are standard for all grades, giving sure stopping performance.

According to our observation, Crown falls into Dogs position in the matrix table. This is the model, which has less demand in Bangladesh that is why their market share is also low.

Market segmentation process

Market segments are large identifiable groups within a market. There are four basic bases for segmenting consumer market. These variables can be used singly or in combination. These are

1. Geographic segmentation
2. Demographic segmentation
3. Behavioral segmentation
4. Psychographic segmentation

Now, considering Corolla GLi, we find that they also segment their market into groups based on the above segmentations. For this segmentation process, firstly they study the market and customers demand.

They complete this process by analyzing the competitors’ products, segmentation as well as customers demand. The process is described below- Geographic segmentation: It is the process of dividing the market into different geographical units, such as country, city, nation, state, region etc. The company can operate in one or few geographic areas, or operate in all but pay attention to local variations. From Corolla GLi’s point of view that they segment their market based on

• Country: In order to cover the whole world’s market they launch their product in different countries. To do so, in 2007 they first launch this model in Bangladesh. City: After selecting the country, they target those cities where they find more customer demands and wants. They actually select the cities after analyzing the purchasing power, living standard and so on.
• Demographic Segmentation: In this segmentation the market is divided in to groups on the basis of variables such as age, family size, life cycle, gender, income, occupation, education etc. These variables are the most popular bases for distinguishing customer groups. From corolla GLi point of view, they segment their market depending on income and occupation mostly and others have less affect in this segmentation part. As we know that they firstly go for market study to know customers demand as well as their purchasing power. For this purpose, they target those customers who have high income as well as in top position in their occupation to match whether they can afford this car or not.

• Behavioral segmentation: In this segmentation buyers are divided in to groups on the basis of their knowledge, attitude toward the product, use of, or response to a product. The behavioral variables are occasions, benefit, user status etc. If we look at the Corolla GLi’s segmentation process, we can see that they mainly focus on benefit variables and customers attitude toward the products. In benefit variables consumers actually look for products quality, services, economy, and speed. Therefore, corolla GLi is providing high quality, extra ordinary services along with high economic value to meet the customer demands. Moreover some customer’s attitude is to prefer branded products. They are basically quality concern people not price sensitive.
• Psychographics segmentation: In this segmentation the market is divided in to groups on the basis of life style, personality and social class. As we have mentioned earlier that GLi is a branded product targeting the upper class people so social class, life style, and personality play an important role in this segmentation. The people who are in the upper class and lead a luxurious life style they want such type of car that represent their status, image and pride in the society. Here corolla GLi holds all the characteristics that make satisfy these groups of customers.

In addition, the customers who are ambitious, outgoing, demanding, compulsive and want to show a unique image may also buy this car as a symbol of attractiveness. Thus these four basic parts of segmentation process helps them to identify the proper customer demands and market.

Target market selection process

After the segmentation process marketers identify one or more selected areas to enter into the market, this is known as target market selection process. There are different patterns of target market selecting. These are

1. Single segment concentration: Producing one product for one selected market.
2. Selective specialization: Offering different product for different market. Here, one sector can be covered by other.
3. Product/service specialization: Offering one product for all groups of people in order to minimize cost.
4. Market specialization: Offering different product for one selected market.
5. Full market coverage: Marketers try to cover full market by offering different products for different market. After analyzing the five patterns of target market selection, we can say that Corolla GLi follows the Single segment concentration.

From Corolla GLi point of view, they select their target market by considering the customer’s demand like- what feature, design, and benefit they want. Last of all, they try to match these with the customer ability and purchasing power. As it is mentioned earlier that they are following single segment concentration so the benefits for selecting this pattern are mentioned below- ? Through the Single segment concentration, marketers gain a strong knowledge of the segments need and achieve a strong market presence. ? With the help of Single segment concentration they can increase their sale, which can earn a high return on its investment.

Types of Consumer behavior

Buying Behavior is the decision processes and acts of people involved in buying and using products.

There are four typical types of buying behavior based on the type of products that intends to be purchased.

These are

• Complex buying behavior: It is a buying behavior where the individual purchases a high value brand and seeks a lot of information before the purchase is made. In this process, buyer first develops belief about the product then develops attitude about the product and lastly makes a thoughtful choice.
• Variety-seeking buying behavior: It is a buying behavior where the individual likes to shop around and experiment with different products. Here brand switching occurs for the sake of variety rather than dissatisfaction and look for cheaper price.
• Dissonance-reducing buying behavior: It is a buying behavior when buyer is highly involved with the purchase of the product. There exists little difference between existing brands, so customers become confused.
• Habitual buying behavior: It is a buying behavior where the individual buys a product out of habit e. g. a daily newspaper, sugar or salt etc. After analyzing the above point it is quite clear that Corolla GLi car buyers are following complex buying behavior, because they are highly involved in purchase and aware of significant difference among brands. We know that this car is expensive, risky and self- expressive so buyer buy infrequently.

Furthermore, this type of customers buy car by differentiating the products with other significant brands like- Mercedes, BMW. Here, Corolla marketers also compare their product with BMW, Mercedes. Mainly, customers are concern about brand not price so they look for brand’s benefits and quality, which will show the symbol of pride, status in the society.

Post-purchase Behavior

After purchasing the product, consumers will experience some level of satisfaction or dissatisfaction. In the case of Corolla Gli, consumer may try to figure out their satisfaction level. Whether the car’s perceived performance is satisfactory or not. 4 h. Product Life cycle stage determination [pic] Corolla GLi was launched in November 2007 in Bangladesh it went through the introduction stage with great success and now it is in the growth stage the features, quality and brand name of the car are attracting more and more potential buyers day by day.

Each pricing strategy is different from the. Cost based pricing strategy is where the organization set prices based on cost of production with that amount a certain markup is added for the profit and the product is sold. Competitors based pricing strategy depends on the price of the competitors what they would charge for the product for this pricing strategy the organization either charges same or low price than the competitors. 5b. Pricing Corolla Gli Toyota mainly follows cost based pricing strategy for the entire car it manufactures for the luxurious car it follows both cost based pricing strategy and value based pricing strategy.

They deliver the value promised by their value proposition and the customer perceives the value. To communicate and enhance perceived value in buyers mind Toyota uses other marketing mix elements such as advertising and sales force. Value based pricing depends on the product performance, quality, features, customer service, etc. For Corolla GLi Toyota uses both cost based and value based pricing strategy as this is one of the most luxurious cars of Toyota. Navana is the only importer in Bangladesh who buys Corolla GLi from Toyota. Initially when the car was launched it was sold at a price of 1950000 taka but now as duty fee has increased and international currency fluctuated the price of Corolla GLi is now 2250000 taka.

For the pricing of this car Toyota is also following other pricing strategies they are price skimming strategy which is they are charging maximum price as it is a new product, the demand of this car is already present in other countries and the buyers are also willing to pay any price to buy this car. It is following premium pricing which is charging high price for the high quality car . It is also following the optional product pricing e. g. for with the car Toyota is providing a luxorious comfortable interior with leather seats, cd player, etc. Therefore Final price is determined with all these strategies plus the cost of import, duty fee, the cost of shipment and the markup of Navana. pic] Distribution for Corolla Gliю

As Toyota uses Just-in-time approach to some extent they depend on their distributors as the distributors provide them information about customers demand or about the cars of the competitors and Toyota produce their cars accordingly. Toyota and Navana together follows the Vertical marketing system where they work as a unified team. If Toyota wants to launch a new car in Bangladesh they provide Navana with all the information about the car Navana then analyzes the current marketing situation about the competitors and orders as per demand which is then delivered after 5months through shipment. Navana is an exclusive distributor of Toyota they are given full authority to sell the cars of Toyota.

References

1. www. amartoyota. com
2. www. toyota. com
3. www. toyotahistory. com
4. www. toyotacarzone. com
5. Marketing Management-Philip Kotler 11th edition, Prentice Hall Advertising Principle & Practice – William Wells and Sandra Moriarty, 7th edition, Prentice Hall.
6. www. bdnewspaper. com

Industrial Analysis of Gap Inc.

Gap Inc.’s organization is augmented by a myriad of essential external factors, which are integrated in order to further maximize the potential of the company. Such factors beyond are beyond Gap Inc.’s boundaries yet they help shape the company as it is. Factors that act as performance catalysts for the company to function in an apt and efficient manner; the external environment of Gap Inc. is comprised of the legal environment, technology environment, political environment, social and cultural environment, economic environment, and stakeholder environment (Gap, 2008).. In order to mitigate and integrate each other, an industrial analysis is a requisite in order to initialize such. Porter’s five forces model is to be used in the apt industrial analysis of Gap Inc.:

Rivalry

            Gap Inc. strives to survive in a fierce and competitive industry through the aid of its competitive advantage. For the bevy of casual clothing companies, competition always matters in order to bolster profitability. Gap Inc. augments their marketing strategy by its charismatic and distinct approach to its advertising. The international casual apparel industry is highly competitive. The company has to compete with national and domestic retailers such as discount store chains, department stores, independent retail stores, and internet retailers that cater to a particular market segment of similar merchandise. The company has encountered stiff competition as well in Japanese, Canadian, and European markets, which range from regional to national chains. Gap Inc.’s competitive advantage depends on the sporadic change in consumer patterns as well (Gap, 2008).

Threat of Substitutes

            The apparent threat of alternative or substitute products is a common adversity for Gap Inc. A number of casual apparel companies have always attempted to overwhelm Gap Inc.’s market share through attempts in cheaper price movements in order for consumers to consider other brands aside from Gap Inc. The subject of price elasticity emerges whenever the price change of an alternative product affects as the demand for such product. The industry where Gap thrives is saturated by a bevy of substitute products, which to tend to constrained the ability of these companies to make an increase in prices. The casual apparel industry is always sporadic and innovative in terms of manufacturing products, which can entice consumers to patronize their products. This results to a letdown in sales for Gap Inc. (Gap, 2008).

Buyer Power

The buyer power is very strong in the casual clothing industry. Their buyer power is crucial, and has a deliberate impact on the industry itself. Gap Inc. and its consumers have a discreet mutual arrangement regarding the aspect of buyer power. The company itself empowers its consumers to augment their buyer power due to the fact that Gap Inc. makes its products aptly priced and affordable for all classes of people. The casual apparel industry has a market condition, in which the buyer (consumers) has a say on the price. This relative as well for a company like Gap Inc., which also opines for the price of raw materials it acquires from its suppliers. However, there a handful of discrepancies, which contribute to the asymmetry between the buyer and the manufacturing industry. This is evident from the notion that buyers are concentrated, yet producers hinder forward integration (Gap, 2008).

Supplier Power

The casual clothing industry is considered a manufacturing industry. With this in mind, Gap Inc. is required to have suppliers, which will make raw materials available in order to produce their products.  Supplier power is one aspect, which is a requisite in shaping a manufacturing company’s profile. While Gap Inc. generates revenues and maintains a rate of profitability from its products, the company is compelled to allocate budget for its raw materials. Suppliers like buyers, have a deliberate influence and effect on the industry’s profits. The industry will not be present without the raw materials, which Gap Inc. uses to produce its products. Furthermore, suppliers tend to place a high price on raw materials. Gap Inc. compensates for such by initiating the rapid proliferation of its stores worldwide (Gap, 2008).

Barriers and Threats of Entry

Perennial competitors of Gap Inc. are not the only ones who pose a threat for the company. New firms attempting penetrate the industry will also have a deliberate effect in the industry. This will result to the fluctuation in percentage of the market share of casual clothing companies. Gap Inc. does its part through studying potential market segments to lure. Firms that tend to enter and exit a market are subjected to nominal profits (Gap, 2008).

References

Gap.(2008). About us. Retrieved April 15, 2008, from

http://www.gapinc.com/public/About/about.shtml

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Implications for Marketers Marketing strategies (Marketing mix elements – price, product, distribution, and promotions) has to reflect the brand and its image appropriately. Marketers should constantly be up to date with the changes in consumer’s demographic, lifestyles, and trends in order to develop marketing programs that appeals to them, so that they are able to be more adaptive to the marketing programs to the brand to achieve brand awareness.

Marketers should always develop marketing programs that fits the image of the brand in order to achieve consumers association with the brand. Fast and effective strategies need to be implemented whenever there are negative news and views regarding the brand before it spreads further and tarnishes the brand’s and corporate image. Marketers need to avoid manipulation of the benefits of the product in order to avoid any boycotts, protest and suing by health organisations and various parties, which will generate negative publicity that will tarnish the brand and company.

Advertising message and strategies has to reflect the brand’s image in order for consumer to associate better with the brand. The candidate (celebrity) selected as the brand’s ambassador must reflect the image of the brand and connects well with brand in order for consumers to associate well with the product, hence achieving brand association. Marketer s has to ensure that congruence (resemblance) of brand association exists to ensure that consumers (with little knowledge regarding the brand) do not get confused with the meaning of the brand.

Furthermore, it is to ensure that brand associations do not get easily changed by competitive actions. Lastly, to ensure that consumers will not overlook or discount some potentially relevant brand associations in making brand decisions. Marketers must ensure the marketing programs are executed in a right manner in order to build long term brand knowledge and to ensure the success of its marketing strategies in the long run, which will then generate repeat business, triggering customer loyalty and sales.

• Store layout and location has to reflect the brand’s target market in order to enhance brand association.
• Marketing strategies should be executed extensively in order to ensure consumers are constantly being exposed to the brand to increase brand awareness.
• Appropriate leveraging strategies should be implemented in order to enhance the brand extension, which then creates a positive brand image.
• Marketers have to ensure that the right licensors is selected in its licensing strategy. The licensor selected is able to carry the brand without altering the significance of the brand and its image to ensure consistency in the brand’s image so that it does not confuse consumers.
• Marketers must ensure they are constantly exceeding and satisfying consumers expectations in developing its marketing programs (marketing mix elements) in order to gain favourability and positive reviews from consumers regarding the brand, gaining a sustainable competitive advantage.
• Marketers must ensure they are constantly exceeding and satisfying consumers’ expectations in order to gain a favourable brand and corporate image.
• To foster profitable customer relationships.
• Foster relationship marketing with various firms to get further in the market place and in order to form more strategic alliance with other strong powerful firms out there in order to gain competitive advantage over competitors.

There is now a growing trend in the field of Marketing. And it is called customerization. But what is customerization? How it works? And why it is needed in this field? Customerization now focus on what the buyer or customer wants. Companies are now focusing on being buyer or customer centered than being seller centered as a way to entice more customers and provide better service to their clients. Customerization allows the seller to know more what the customer wants in a specific and detailed manner.

In this way the customer will get exactly what he wants and that the service will be satisfactory to his liking. The service is one – on – one to make the communication process between both parties understandable to each other. The service be personalized to the customer’s liking. As it may be easier to the customer this way but it it will be difficult to the buyer or the company that will offer this service. Why?

The company must get every information about the client or customer, the expectation on meeting the client’s specific demands and to deliver according to the client’s wishes. It will very because the information process is “complex” and time consuming to say the least. Pricing of the service will now vary from customer to customer now that the service is personalized from customer to customer. Accounting for these will be difficult and time consuming.

But what caught companies to this trend is that now they know what their client need, how they want the service to be completed and how to met the demands and expectations of the customer. Now that is being service oriented,. That somehow create more customer turnout because now people will know how they can the best value of their money for the services they are paying. Reference Marketing Science Institute. (2000) Customerization: The Next Revolution in Mass Customization Retrieved November 27, 2007 from Http://www. msi. org/publications/publication. cfm? pub=10

Coach, Inc is a marketer of fine accessories and gifts for women and men. The company is engaged in designing, wholesaling and retailing of handbags and accessories. Its product portfolio includes handbags, women’s and men’s accessories, footwear, jewelry, apparels, business cases, eyewear, and related products. Coach is involved in the sale related activities of its merchandise through factory stores and retail stores in the US and Canada.

The company also sells its merchandise through freestanding flagship, department store shop-in-shop locations, retail stores and factory stores in Japan, Hong Kong and China. It wholesales its merchandise through its distributors in 20 countries. The company principally operates in the US, Canada, Japan, Hong Kong, China and Macau. Coach is headquartered in New York. Coach Inc is a leading designer, producer and marketer of classic leather goods and accessories which was a spinoff of Sara Lee in the mid 1980’s These products include handbags, men’s and women’s accessories, business cases, leather outerwear, gloves, scarves, travel accessories, and personal planning products. Coach also sells fragrances and watches with its licensing partners.

The products are sold through direct mail catalogs, on-line store, e-commerce websites, 345 retail stores and its 143 factory outlets in North America, 169 stores in Japan and 66 stores in China. Coach focuses on continuous improvements and anticipating the needs of consumer’s lifestyles to maintain its stronghold of the market.

Key success factors for Coach as a manufacturer include matching key rivals in quality and styling while beating them on price by 50 percent as well as and the ongoing creative designs. Coach has an exceptionally large and loyal customer base mostly due in part to the outstanding product quality. Coach takes great pride in using skilled employees, quality natural materials, exceptional leathers, and only the finest hardware. Through the years Coach has earned a reputation for producing a product that is known for its durability, craftsmanship, and incomparable product quality. Coach has become one of the most well recognized brands in the United States and is rapidly gaining recognition internationally, especially in Japan.

The Apparel and Accessories Industry is very competitive because companies must find a way to constantly capture market share in a market that is constantly changing to fit consumers taste. Many companies that enter this market fail because they come out with a very popular style for their product for a limited period then go into rapid expansion only to have their product fall quickly out of style and become obsolete. The ability to keep up with changes in fashion trends and finding a niche in the market usually determines which companies can survive in this highly competitive industry.

Problem statement This industry is highly competitive; consumers in this industry have high demands of luxury, sustainable products with affordable prices. Most if not all of the products sold in this industry are considered luxury products, which means the market will be highly sensitive to economic fluctuations. All of these factors result in putting high pressure on the companies that are in this industry, therefore the key factor to guarantee long term success is to ensure a steady growth yielding a steady income.

In the case of Coach Inc the company goes through periods of high sales accompanied with high growth but fails to maintain a steady growth over the extended life due to the believe that the company had in their main strategy which relied upon limited products that are made with a very good quality and sell at 50 percent lower price than its competitor products, Coach Inc was correct in the fact that one of their main factors of success was their “accessible luxury” products to secure a good market share yet they failed to be pro-active in asking their customers what would their future expectation be and exceed that expectation by delivering up to date fashionable, high quality products with reasonable prices, in 1995 the company went through a rapid decline which was a near stale state, sales dropped from 40 percent to 5 percent this resulted in feeding the investors’ worries which made the whole company’s future to be questionable, this was effectively dealt with when Sara Lee took over and decided to revamp the design of the products based on her customers reviews provided by the extensive surveys that were done on hundreds of customers, that strategy allowed Coach inc to build a sizeable lead in the “accessible luxury” segment and it was evident in the very strong sales results which quadrupled the growth in annual sales from $555 Million in 1999 to more than $4.2 Billion in the year 2012.

Currently the company is going through a decline in the stock price which could be the result of investors mixed feelings of the economic instability and the fact that Coach Inc could fall behind its competitors, during the first six months in 2012 Coach Inc stock price fell $20. My analysis shows that the company is repeating the same pattern that happened in 1995, even though the company pays extra attention to making customer experience a differentiating aspect of the brand, yet they have failed to be a proactive company that drives the needs of its customers, the company should communicate more with its clients regarding their product expectations and anticipate their needs before they ask for it, by doing that Coach Inc would increase the brand loyalty and demonstrate that they are able to maintain a steady growth in this very competitive industry.

In the fiscal year 1999 net sales was approximately 500 million and there was an increase in net sales every year leading to 2.1 billion net sales in the fiscal year 2006. Reed Krofoff’s appointment and his approach to designing products based upon market research rather than designers’ instincts is one of the main and most important reasons behind Coach Inc’s success and tremendous revenue growth. Income statement shows a gradual steady increase in net income between the year 2007 – 2011 except for the year 2009 that had $623,369 which was mainly due to the economic distress, it would be very interesting to see the income statement for year 2013 and 2014 as it would be a clear indication of the company’s performance after the introduction of similar products by solid brands.

Balance sheet of the company shows the results from July 3, 2010 to July 2, 2011. As of July 2, 2011 cash and cash equivalents was $699,782 million and short term investments were $2,256 million, total assets as of July 2, 2011 was $2,635,116 which was better than total asset record for the prior year, this clearly shows that Coach Inc is more than capable of taking on new expansion initiatives i.e. greater expansion in Europe and emerging markets.

Five Forces Model Competitive Force 1: Current Competitors

Currently there are quite a few competitors that launched new accessible production lines to directly compete with Coach Inc’s main product, these competitors have the ability to compete aggressively and have a solid luxury brand name such as Michael Kors, Salvatore Ferragamo, Prada Giorgio Armani, Dolce & Gabbana and Versace.

Historically Coach Inc has done an excellent job of establishing their brand to consumers which is evident in the rapid increase of sales between 1999 and 2012. This has enabled Coach to constantly attract new customers while retaining current customers year after year. Also, unlike its competitors was able to drive their sales on rising prices which says that consumers are generally not concerned with the price of their products but more on product quality yet some competitors are showing the intent of developing strategies to establish similar “Accessible luxury” products, this means that Coach Inc will have to pay close attention to its customers needs and make sure that they are driving that need by forecasting and analyzing the needs and wants to maintain their competitive edge over their aggressive competitors.

Competitive Force 2: Threat of New Entrants

New entrants into the Apparel/Accessories industry pose an average risk to a company like Coach. Since brand image in this industry is very important, companies that have established themselves as leading brand have a distinct advantage over new companies. Coach has an even better advantage over new entrants into the “affordable luxury” because of the higher price range. This is true because when making expensive purchases people tend to stay with what they know and trust which means they are less likely to purchase a product they are unfamiliar with.

Coach also avoids having the one hot item by launching new collections every month based upon market research rather than designers’ instinct which helps them avoid falling in the one hot item category that falls out of favor within a year or less, this mistake usually happens with many new entrants as they attempt to quickly capture a market share. My analysis shows that by keeping their strategy of a constant line of quality products marketed to their more mature core group of customers, Coach will remain popular and will also continue to strive in their market and separate themselves from new entrants.

Competitive Force 3: Threat of Substitute Products

The threat of substitute products to a company such as Coach is relatively high. There are two types of substitute products that could pose a threat to the company: alternate brands and counterfeits. Brand name and product quality are what drive sales in the Apparel/Accessories industry which is why Coach was not threatened by other brand names. However, a few quarters of lousy product offerings or poor quality products can drive down the brand equity that Coach has created which means alternate brands could benefit and present challenges for the company.

The second substitute product that could cause a problem for Coach is counterfeit products. Coach works very hard to minimize the amount of counterfeits in the market place by prosecuting individuals that make the products and they also provide an online form so customers can report counterfeits if they are found. These products are usually of poor quality and are manufactured in a way that violates decent labor standards such as child labor. Coach is very adamant about stopping counterfeiting because they can reduce sales and brand equity that in turn are detrimental to the company.

Competitive Force 4: Bargaining Power of Buyers

The effect of Coach’s customers bargaining power on the company is relatively low. Their price sensitivity is low due to the fact that their customers buy these products because of the brand image that Coach possesses, the quality of the products and the popular styling of the products. This has been proven to be true in the past because of Coach’s ability to increase sales and customer base while raising prices at the same time; something that hardly any of their competitors have been able to accomplish. Coach’s customers also have a low relative bargaining power because they offer many different products at different prices to a very large, expanding customer base whose purchase volume is usually very small. Coach customers do have a few choices when it comes to alternative products but Coach’s popularity and continued success keep the customers loyal to their products.

Competitive Force 5: Bargaining Power of Suppliers

A very big positive advantage for Coach is that not only do their customers have minimal bargaining power but their suppliers also have limited power at the negotiating table. Coach’s main material used in manufacture is leather, which can be bought from many different suppliers around the world which gives the company options when purchasing raw materials. Coach also buys manufactured products independently from different countries including China, Costa Rica, Mexico, India, Italy, Spain, Hungary and Turkey. Because of the large amount of goods Coach buys from different suppliers they have the ability to negotiate prices with several different suppliers.

Business buyer Behavior| | | | In last Lesson we discussed the Consumer Buying behavior. Today We will discuss business buyer behaviour, types of buying situations, participants in the business buying process, and major influences on business buyers so our today’s topic is:BUSINESS MARKETS AND BUYING BEHAVIORThe business market includes firms that buy goods and services in order to produce products and services to sell to others. It also includes retailing and wholesaling firms that buy goods in order toects resell them at a profit.

Because asp of business-to-business marketing apply to institutional markets and government markets, we group these together. The business marketer needs to know the following: Who are the major participants? In what decisions do they exercise influence? What is their relative degree of influence? What evaluation criteria does each decision participant use? The business marketer also needs to understand the major environmental, interpersonal, and individual influences on the buying process. A. What is a Business Market?

The business market comprises all the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others. It also includes retailing and wholesaling firms that acquire goods for the purpose of reselling or renting them to others at a profit. In the business buying process business buyers determine which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands. Companies that sell to other business organizations must do their best to understand business markets and business buyer behavior.

B. Characteristics of Business MarketsIn some ways, business markets are similar to consumer markets. Both involve people who assume buying roles and make purchase decisions to satisfy needs. However, business markets differ in many ways from consumer markets. The main differences, are in the market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved. Business markets also have their own characteristics. In some ways, they are similar to consumer markets, but in other ways they are very different. The main differences include:1.

Market structure and demand. Business markets typically deal with far fewer but far larger buyers. They are more geographically concentrated. Business markets have derived demand (business demand that ultimately comes from or derives from the demand for consumer goods). Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes, especially in the short run. A drop in the price of leather will not cause shoe manufacturers to buy much more leather unless it results in lower shoe prices that, in turn, will increase consumer demand for shoes.

Finally, business markets have morefluctuating demand. The demand for many business goods and services tends to change more—and more quickly—than the demand for consumer goods and services does. A small percentage increase in consumer demand can cause large increases in business demand. Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent rise in business demand during the next period. 2. Nature of the Buying Unit:Compared with consumer purchases, a business purchase usually involves more decision participants and a more professional purchasing effort.

Often, business buying is done by trained purchasing agents who spend their working lives learning how to make better buying decisions. Buying committees made up of technical experts and top management are common in the buying of major goods. Companies are putting their best and brightest people on procurement patrol. Therefore, business marketers must have well-trained salespeople to deal with well-trained buyers. 3. Types of Decisions and the Decision ProcessBusiness buyers usually face more complex buying decisions than do consumer buyers.

Purchases often involve large sums of money, complex technical and economic considerations, and interactions among many people at many levels of the buyer’s organization. Because the purchases are more complex, business buyers may take longer to make their decisions. The business buying process tends to be more formalized than the consumer buying process. Large business purchases usually call for detailed product specifications, written purchase orders, careful supplier searches, and formal approval. The buying firm might even prepare policy manuals that detail the purchase process.

Finally, in the business buying process, buyer and seller are often much more dependent on each other. Consumer marketers are often at a distance from their customers. In contrast, business marketers may roll up their sleeves and work closely with their customers during all stages of the buying process—from helping customers define problems, to finding solutions, to supporting after-sale operation. They often customize their offerings to individual customer needs. In the short run, sales go to suppliers who meet buyers’ immediate product and service needs. C.

Business Buyer BehaviorThe model in Figure suggests four questions about business buyer behavior: What buying decisions do business buyers make? Who participates in the buying process? What are the major influences on buyers? How do business buyers make their buying decisions? a. A Model of Business Buyer BehaviorAt the most basic level, marketers want to know how business buyers will respond to various marketing stimuli. Figure shows a model of business buyer behavior. In this model, marketing and other stimuli affect the buying organization and produce certain buyer responses.

As with consumer buying, the marketing stimuli for business buying consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces in the environment: economic, technological, political, cultural, and competitive. These stimuli enter the organization and are turned into buyer responses: product or service choice; supplier choice; order quantities; and delivery, service, and payment terms. In order to design good marketing mix strategies, the marketer must understand what happens within the organization to turn stimuli into purchase responses.

Within the organization, buying activity consists of two major parts: the buying center, made up of all the people involved in the buying decision, and the buying decision process. The model shows that the buying center and the buying decision process are influenced by internal organizational, interpersonal, and individual factors as well as by external environmental factors. b. Major Types of Buying SituationsThere are three major types of buying situations. At one extreme is the straight rebuy, which is a fairly routine decision.

At the other extreme is the new task, which may call for thorough research. In the middle is themodified rebuy, which requires some research. In a straight rebuy the buyer reorders something without any modifications. It is usually handled on a routine basis by the purchasing department. Based on past buying satisfaction, the buyer simply chooses from the various suppliers on its list. “In” suppliers try to maintain product and service quality. In a modified rebuy, the buyer wants to modify product specifications, prices, terms, or suppliers.

The modified rebuy usually involves more decision participants than the straight rebuy. The in suppliers may become nervous and feel pressured to put their best foot forward to protect an account. Out suppliers may see the modified rebuy situation as an opportunity to make a better offer and gain new business. A company buying a product or service for the first time faces a new-task situation. In such cases, the greater the cost or risk, the larger the number of decision participants and the greater their efforts to collect information will be.

The new-task situation is the marketer’s greatest opportunity and challenge. The marketer not only tries to reach as many key buying influences as possible but also provides help and information. The buyer makes the fewest decisions in the straight rebuy and the most in the new-task decision. In the new-task situation, the buyer must decide on product specifications, suppliers, price limits, payment terms, order quantities, delivery times, and service terms. The order of these decisions varies with each situation, and different decision participants influence each choice. c.

Participants in the Business Buying ProcessThe decision-making unit of a buying organization is called its buying center: all the individuals and units that participate in the business decision-making process. The buying center includes all members of the organization who play any of five roles in the purchase decision process. • Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications. • Influencers often help define specifications and also provide information for evaluating alternatives.

Technical personnel are particularly important influencers. • Buyers have formal authority to select the supplier and arrange terms of purchase. Buyers may help shape product specifications, but their major role is in selecting vendors and negotiating. In more complex purchases, buyers might include high-level officers participating in the negotiations. • Deciders have formal or informal power to select or approve the final suppliers. In routine buying, the buyers are often the deciders, or at least the approvers. • Gatekeepers control the flow of information to others.

For example, purchasing agents often have authority to prevent salespersons from seeing users or deciders. Other gatekeepers include technical personnel and even personal secretaries. The buying center is not a fixed and formally identified unit within the buying organization. It is a set of buying roles assumed by different people for different purchases. Within the organization, the size and makeup of the buying center will vary for different products and for different buying situations. Business marketers working in global markets may face even greater levels of buying center influence.

The buying center concept presents a major marketing challenge. The business marketer must learn who participates in the decision, each participant’s relative influence, and what evaluation criteria each decision participant uses. The buying center usually includes some obvious participants who are involved formally in the buying decision. d. Major Influences on Business BuyersBusiness buyers are subject to many influences when they make their buying decisions. Some marketers assume that the major influences are economic. They think buyers will favor the supplier who offers the lowest price or the best product or the most service.

They concentrate on offering strong economic benefits to buyers. However, business buyers actually respond to both economic and personal factors. Far from being cold, calculating, and impersonal, business buyers are human and social as well. They react to both reason and emotion. Today, most business-to-business marketers recognize that emotion plays an important role in business buying decisions. When suppliers’ offers are very similar, business buyers have little basis for strictly rational choice. Because they can meet organizational goals with any supplier, buyers can allow personal factors to play a larger role in their decisions.

However, when competing products differ greatly, business buyers are more accountable for their choice and tend to pay more attention to economic factors. Figure lists various groups of influences on business buyers— environmental, organizational, interpersonal, and individual. Major Influences on Business Buyers• Environmental FactorsBusiness buyers are influenced heavily by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money. As economic uncertainty rises, business buyers cut back on new investments and attempt to reduce their inventories.

An increasingly important environmental factor is shortages in key materials. Many companies now are more willing to buy and hold larger inventories of scarce materials to ensure adequate supply. Business buyers also are affected by technological, political, and competitive developments in the environment. Culture and customs can strongly influence business buyer reactions to the marketer’s behavior and strategies, especially in the international marketing environment. The business marketer must watch these factors, determine how they will affect the buyer, and try to turn these challenges into opportunities.  Organizational FactorsEach buying organization has its own objectives, policies, procedures, structure, and systems. The business marketer must know these organizational factors as thoroughly as possible. Questions such as these arise: How many people are involved in the buying decision? Who are they? What are their evaluative criteria? What are the company’s policies and limits on its buyers? Interpersonal FactorsThe buying center usually includes many participants who influence each other. The business marketer often finds it difficult to determine what kinds of interpersonal factors and group dynamics enter into the buying process.

Participants may have influence in the buying decision because they control rewards and punishments, are well liked, have special expertise, or have a special relationship with other important participants. Interpersonal factors are often very subtle. Whenever possible, business marketers must try to understand these factors and design strategies that take them into account. Individual FactorsEach participant in the business buying decision process brings in personal motives, perceptions, and preferences.

These individual factors are affected by personal characteristics such as age, income, education, professional identification, personality, and attitudes toward risk. Also, buyers have different buying styles. Some may be technical types who make in-depth analyses of competitive proposals before choosing a supplier. Other buyers may be intuitive negotiators who are adept at pitting the sellers against one another for the best deal. D. The Business Buying ProcessThere are eight stages of the business buying process. Buyers who face a new-task buying situation usually go through all stages of the buying process.

Buyers making modified or straight rebuys may skip some of the stages. We will examine these steps for the typical new-task buying situation. a. Problem RecognitionThe buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a specific product or service. Problem recognition can result from internal or external stimuli. Internally, the company may decide to launch a new product that requires new production equipment and materials. Or a machine may break down and need new parts.

Perhaps a purchasing manager is unhappy with a current supplier’s product quality, service, or prices. Externally, the buyer may get some new ideas at a trade show, see an ad, or receive a call from a salesperson who offers a better product or a lower price. In fact, in their advertising, business marketers often alert customers to potential problems and then show how their products provide solutions. b. General Need DescriptionHaving recognized a need, the buyer next prepares a general need description that describes the characteristics and quantity of the needed item.

For standard items, this process presents few problems. For complex items, however, the buyer may have to work with others—engineers, users, consultants—to define the item. The team may want to rank the importance of reliability, durability, price, and other attributes desired in the item. In this phase, the alert business marketer can help the buyers define their needs and provide information about the value of different product characteristics. c. Product SpecificationThe buying organization next develops the item’s technical product specifications, often with the help of a value analysis engineering team.

Value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production. The team decides on the best product characteristics and specifies them accordingly. Sellers, too, can use value analysis as a tool to help secure a new account. By showing buyers a better way to make an object, outside sellers can turn straight rebuy situations into new-task situations that give them a chance to obtain new business. d. Supplier SearchThe buyer now conducts a supplier search to find the best vendors.

The buyer can compile a small list of qualified suppliers by reviewing trade directories, doing a computer search, or phoning other companies for recommendations. Today, more and more companies are turning to the Internet to find suppliers. For marketers, this has leveled the playing field—smaller suppliers have the same advantages as larger ones and can be listed in the same online catalogs for a nominal fee: The newer the buying task, and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers.

The supplier’s task is to get listed in major directories and build a good reputation in the marketplace. Salespeople should watch for companies in the process of searching for suppliers and make certain that their firm is considered. e. Proposal SolicitationIn the proposal solicitation stage of the business buying process, the buyer invites qualified suppliers to submit proposals. In response, some suppliers will send only a catalog or a salesperson. However, when the item is complex or expensive, the buyer will usually require detailed written proposals or formal presentations from each potential supplier.

Business marketers must be skilled in researching, writing, and presenting proposals in response to buyer proposal solicitations. Proposals should be marketing documents, not just technical documents. Presentations should inspire confidence and should make the marketer’s company stand out from the competition. f. Supplier SelectionThe members of the buying center now review the proposals and select a supplier or suppliers. During supplier selection, the buying center often will draw up a list of the desired supplier attributes and their relative importance.

In one survey, purchasing executives listed the following attributes as most important in influencing the relationship between supplier and customer: quality products and services, on-time delivery, ethical corporate behavior, honest communication, and competitive prices. Other important factors include repair and servicing capabilities, technical aid and advice, geographic location, performance history, and reputation. The members of the buying center will rate suppliers against these attributes and identify the best suppliers.

As part of the buyer selection process, buying centers must decide how many suppliers to use. In the past, many companies preferred a large supplier base to ensure adequate supplies and to obtain price concessions. These companies would insist on annual negotiations for contract renewal and would often shift the amount of business they gave to each supplier from year to year. Increasingly, however, companies are reducing the number of suppliers. There is even a trend toward single sourcing, using one supplier. With single sourcing there is only one supplier to handle and it is easier to control newsprint inventories.

Using one source not only can translate into more consistent product performance, but it also allows press rooms to configure themselves for one particular kind of newsprint rather than changing presses for papers with different attributes. Many companies, however, are still reluctant to use single sourcing. They fear that they may become too dependent on the single supplier or that the single-source supplier may become too comfortable in the relationship and lose its competitive edge. Some marketers have developed programs that address these concerns. g.

Order-Routine SpecificationThe buyer now prepares an order-routine specification. It includes the final order with the chosen supplier or suppliers and lists items such as technical specifications, quantity needed, expected time of delivery, return policies, and warranties. In the case of maintenance, repair, and operating items. h. Performance ReviewIn this stage, the buyer reviews supplier performance. The buyer may contact users and ask them to rate their satisfaction. The performance review may lead the buyer to continue, modify, or drop the arrangement.

The seller’s job is to monitor the same factors used by the buyer to make sure that the seller is giving the expected satisfaction. We have described the stages that typically would occur in a new-task buying situation. The eightstage model provides a simple view of the business buying decision process. The actual process is usually much more complex. In the modified rebuy or straight rebuy situation, some of these stages would be compressed or bypassed. Each organization buys in its own way, and each buying situation has unique requirements.

Different buying center participants may be involved at different stages of the process. Although certain buying process steps usually do occur, buyers do not always follow them in the same order, and they may add other steps. Often, buyers will repeat certain stages of the process. E. Institutional and Government MarketsSo far, our discussion of organizational buying has focused largely on the buying behavior of business buyers. Much of this discussion also applies to the buying practices of institutional and government organizations.

However, these two nonbusiness markets have additional characteristics and needs. In this final section, we address the special features of institutional and government markets. a. Institutional MarketsThe institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that provide goods and services to people in their care. Institutions differ from one another in their sponsors and in their objectives. Many institutional markets are characterized by low budgets and captive patrons. For example, hospital patients have little choice but to eat whatever food the hospital supplies.

A hospital-purchasing agent has to decide on the quality of food to buy for patients. Because the food is provided as a part of a total service package, the buying objective is not profit. Nor is strict cost minimization the goal—patients receiving poorquality food will complain to others and damage the hospital’s reputation. Thus, the hospitalpurchasing agent must search for institutional-food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low. Many marketers set up separate divisions to meet the special characteristics and needs of institutional buyers. . Government MarketsThe government market offers large opportunities for many companies, both big and small. In most countries, government organizations are major buyers of goods and services. Government buying and business buying are similar in many ways. But there are also differences that must be understood by companies that wish to sell products and services to governments. To succeed in the government market, sellers must locate key decision makers, identify the factors that affect buyer behavior, and understand the buying decision process.

Government organizations typically require suppliers to submit bids, and normally they award the contract to the lowest bidder. In some cases, the government unit will make allowance for the supplier’s superior quality or reputation for completing contracts on time. Many companies that sell to the government have not been marketing oriented for a number of reasons. Total government spending is determined by elected officials rather than by any marketing effort to develop this market. Government buying has emphasized price, making suppliers invest their effort in technology to bring costs down.

When the product’s characteristics are specified carefully, product differentiation is not a marketing factor. Nor do advertising or personal selling matter much in winning bids on an open-bid basis. Key TermsBusiness Markets:The business market includes firms that buy goods and services in order to produce products and services to sell to others. Straight Re-buythe buyer reorders something without any modifications. Modified Re-buy the buyer wants to modify product specifications, prices, terms, or suppliers. New Task Buying A company buying a product or service.

Users are members of the organization who will use the product or service. In many cases, users initiate the buying proposal and help define product specifications. Influencers Often help define specifications and also provide information for evaluating alternatives. Technical personnel are particularly important influencers. Buyershave formal authority to select the supplier and arrange terms of purchase. Decidershave formal or informal power to select or approve the final suppliers. Gatekeeperscontrol the flow of information to others. |