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From the Editor's Desk Indian Journal of Marketing is a Referred Journal. It is blind reviewed and has two or more external reviewers. The blind review requirement and the use of external reviewers are consistent with the research criteria of objectivity and knowledge. The use of two or more reviewers permits specialists familiar with research similar to that presented in the paper to judge whether the paper makes a contribution to the advancement of knowledge. When two or more reviewers are used, it provides a broader perspective for evaluating the research. This perspective is further widened by the discussion between the editor and reviewers in seeking to reconcile these perspectives. Apart from printing quality articles, we lay a special emphasis on the quality of the paper used in our journal. We make no compromises on the standards of quality and use the best paper available in the market. This paper comes from the house of Ballarpur Industries limited (BILT).The advantages of using this paper are that it has a longer shelf life and has the least amount of opacity among different kinds of paper available. “Emerging Economies” (EEs hereafter), are known to be the biggest boost to the global economy after industrial revolution; while they have relatively low levels of per capita incomes, they are moving from a lower to a higher stage of economic development. The paper “Marketing Strategy Adaptation on the Anvil of Market and Institutional Variations: MNCs and Emerging Economies” aims to map the contours of institutional variations (e.g. political and social systems, policy stability and effectiveness, type of economy, country market infrastructure, quality of regulation, state interference) in the emerging economies. Caltrex Mechanicals (ISO: 9001) is a recognized name among the OEM manufacturing brake lining components for the automobiles world over. With over 6 product lines under 2 brand names, 9 manufacturing locations in 4 countries and a network of over 2,000 suppliers and dealers; the company has larger than mouth appetite to grow. The article “Product Development : The Case of an OEM” highlights the product development initiatives undertaken by an OEM for its brake lining components, spares and parts business in order to re-design and align the products to the brake unit. Initially, the market response favoured the company but then immediately sales begin to decline. The company appointed experts to probe into the matter for identification of cause and antidote. The aim of the paper in the wake of the situation is to seek what product development is not about. Travel and tourism researchers have emphasized the increasing role of internet in the industry. For tourism suppliers, the internet provides an avenue to market and sell their products globally to potential customers. On the other hand, it offers information on travel destinations, booking sources, ticketing and other travel related services. Thus it has emerged as a major source of information, access and buying point for travelers which can all be done at their own pace and convenience. The paper “Travellers' Perceptions on Travel Service Providers in an Electronic Environment” mainly highlights the question of disintermediation by the internet in travel trade by respondents who have purchased online as well as those who have not purchased online. Liberalization in India has brought changes in technology, quality, service work culture and undoubtedly fierce competition. As Kotler, Philip says, “Companies should think about the millennium as a golden opportunity to gain mind share and heart share”. The article “Co-Branding- An Innovative Strategy in Marketing” explores how Co-branding can be done in various combinations between national brands, regional brands, world brands, individual brands, family brands or with intangible product like service ensuring synergistic effect and win-win situation for companies, brands and customers. Indian Public Sector Banks have had the unique experience of being established in a purely competitive market under the British rule, then move into a totally controlled non-competitive market after their nationalization, further to slowly move to the mixed era of regulatory-competitive times, and their future which stands to look into the face of a global competition from counterparts which have never but worked in a competitive environment. Exactly after 40 years of their nationalization, all the walls of protection are likely to be shorn off them in 2009. The research paper “An Evaluation of Customer Orientation of Indian Public Sector Banks” delves into the secondary data to evaluate the present customer orientation of Indian Public Sector Banks and thus take stock of their strengths and lacunae, before plunging into the open regime. There is a growing consensus that advertising works its influence on children's food preferences, diet and health. Given that most advertising for children is for products high in salt, sugar and fat, this influence is harmful to children's health. The present study “Analyzing the Impact of Television Advertising on Children's Food Preferences : A Study Of Indian Perspective (With Special Reference To Delhi and NCR)” seeks to examine the influence of Television Advertising on the food and beverage preferences of Kids, the influence of television advertising on food and beverage beliefs of children belonging to different agegroups and also examines the influence of Television Advertising on diet-related health outcomes and risks among children and youth considering the Indian perspective with specific focus on Delhi & NCR. One of the most widely accepted notions in consumer behavior is that Word Of Mouth(WOM), plays an important role in shaping consumers' attitudes and behaviors. Word of Mouth is the most important source of influence in the purchase of household goods and food products. It is twice effective as radio advertising, four times as effective as personal selling, and seven times as effective as newspapers and magazines. The paper “Influential power of 'Word Of Mouth' for purchase of sarees” discusses the level of influence the word of mouth has on the saree purchase, actually how WOM persuades a person to purchase a saree, from where the information is got, whether the negative attitude towards a brand may result in purchase but not necessarily in good WOM. Mrs.S.Gilani Editor Indian Journal of Marketing

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Indian Journal of MARKETING VOLUME : XXXVIII

NUMBER : 6

Rs. 100/-

Editor

CONTENTS

Mrs. S. Gilani Editorial board :

Prof. V. Shekhar M. Com., M.B.A., Ph.D. Dept. of Business Mangement Osmania University, Hyderabad Dr. R. Vijayakumar Head, Department of Commerce Government Arts College, Udagamandalam, The Nilgiris, Tamil Nadu Mr. P. K. Mittal MBA (Faculty of Management Studies, University of Delhi) Managing Director eMIT Peripherals Pvt. Ltd. Noida, Uttar Pradesh Assistant Editor Meenakshi Sawhney Subscription Manager Meenakshi Gilani Senior Manager Deepak Sawhney Copy Editor Priyanka

The views expressed by individual contributions in Indian Journal of Marketing are not necessarily endorsed by the Management. CopyrightŠ2008. All rights reserved. No part of this publication may by reproduced or distributed in any form or by any means without the prior written permission of the publisher. ISSN 0973-8703 All disputes are subject to Delhi Jurisdiction only. All correspondence relating to circulation and advertisement may be addressed to:-

INDIAN JOURNAL OF MARKETING Y-21, Hauz Khas, New Delhi-110016 (India) Phone : 011-42654857, 011-32547238 Url : http://www.indianjournalofmarketing.com Email : editor@indianjournalofmarketing.com meenakshi.gilani@indianjournalofmarketing.com

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Indian Journal of Marketing • June, 2008

JUNE, 2008

Marketing Strategy Adaptation on the Anvil of Market and Institutional Variations: MNCs and Emerging Economies

Navneet Sharma Gordhan K. Saini

3

Product Development: The Case of An OEM

Himanshu Dutt

16

Travellers' Perceptions On Travel Service Providers in an Electronic Environment

Prof. K. Ravichandran

21

Co-Branding - An Innovative Strategy in Marketing

Ravi.Akula

29

An Evaluation of Customer Orientation of Indian Public Sector Banks

Dr. S. S. Hugar Nancy H. Vaz

31

Analyzing the Impact of Television Advertising on Children's Food Preferences: A Study of Indian Perspective (with Special Reference to Delhi & NCR)

Noopur Agrawal Aditya Prakash Tripathi

42

Influential Power of 'Word of Mouth' for Purchase of Sarees

Prof. D. Malmarugan

50

Indian Journal of Marketing is published monthly and is available against Subscription only. Subscription Rates for Individuals/Institutions : One year - Rs. 900/Two years - Rs. 1700/Three years - Rs. 2500/Five years - Rs. 4100Back Issues (2000-2006) - Rs. 700/- per year International Rates - US $ 60 per year


Marketing Strategy Adaptation on the Anvil of Market and Institutional Variations: MNCs and Emerging Economies *Navneet Sharma **Gordhan K. Saini “Emerging Economies” (EEs hereafter), are known to be the biggest boost to the global economy after industrial revolution; while they have relatively low levels of per capita incomes, they are moving from a lower to a higher stage of economic development (see Nakata and Sivakumar, 1995, The Economist 2006). An emerging economy is generally viewed as one that often has low per capita income but also has a rapid pace of economic development, government policies favoring economic liberalization, and a usually free market economy (see Hoskisson, Eden, Lau & Wright, 2000 for a good account). Comprising a part of the world economy having over 6 billion people and 200 nations, EEs present, potentially some of the most important growth opportunities for companies (Hooke, 2001). Many scholars and institutions have defined and identified EEs suiting their own objectives. The Economist, World Bank/IFC, Goldman Sachs, Morgan Stanley to name a few. Some agencies tend to prefer emerging market over economy. In fact the definitional issues are yet to be resolved with regard to EEs. We will use both terms interchangeably. Twenty four countries were identified as "Emerging Markets" by The Economist (Market Potential Study of Emerging Markets 2005). The Emerging Economies comprise more than 80 percent of the world's population, account for a large share of world output and have a very high growth rate which means enormous market potential (for a more comprehensive statistical coverage see The Economist, 2006). They can be distinguished by the recent progress they have made in economic liberalization and trade opening. This is reflected by their increasing need for capital equipment, machinery, power transmission equipment, transportation equipment and high-technology products. These emerging economies comprise countries with a rapid pace of development and government policies that favor economic liberalization. Out of the 64 emerging economies identified by Hoskisson et al. (2000), 51 are rapidly growing developing countries and 13 are in transition from centrally planned economies (often called 'transition economies'). The changing landscape may be gauged by the fact that the list of the world's ten largest economies may look quite different in 2050. The largest economies in the world (by GDP) may no longer be the richest (by income per capita), making strategic choices for firms more complex (Dreaming With BRICs: The Path to 2050, 2003). As today's advanced economies become a shrinking part of the world economy, the accompanying shifts in spending could provide significant opportunities for global companies. Being invested in and involved in the right markets sparticularly the right emerging markets may become an increasingly important strategic choice. The interest comes from Multi National Companies (MNCs), western as well as eastern MNCs, who see the growth and leadership potential in these emerging markets and have hastened to expand their operations in them. Others are interested in these newly-opened emerging markets, because of the potential threat they represent to local corporations, as new MNC competitors flood in and take away market demand from these local corporations. The interest of MNCs in emerging markets is easy to understand, due to attractiveness of these new markets. For example, the household penetration of durables in most of these countries is growing rapidly from very low base, and households are rapidly moving up their shopping lists of motorized two-wheelers, TVs, VCRs, air coolers, washing machines and clothes dryers, electric ranges, air-conditioners and cars. These increase in demand are fueled by rising incomes, increased availability of credit, the “demonstration effects” of expanding television reach, and an increased demand for convenience from two-earner households (Jain 1993, p.140). Emerging markets have attracted considerable attention and are likely to become an increasingly important political and economic force. They represent an enormous opportunity for entrepreneurs, multinationals, and *Navneet Sharma, Economist, Economic Laws Practice, New Delhi, Email - ns74@rediffmail.com **Gordhan Kumar Saini, Academic Associate(Marketing Area), Indian Institute of Management, Vastrapur, Ahmedabad, Email - gksaini@iimahd.ernet.in Indian Journal of Marketing • June, 2008 3


investors but also pose a threat for products, jobs, and resources. They have the potential to redefine the way business is done in many industries but remain shrouded by myths. Emerging markets often experience faster economic growth than other types of economies despite growth uncertainty. Strong market demand, especially from emerging middle-class consumers, provides MNCs with some unique, unavailable-at-home opportunities they can capitalize on from existing resources deployed in an expanded market domain (Hoskisson et al., 2000). Since factor markets (e.g., markets for capital, labour, foreign exchange, consumer market information, contract enforcing mechanism) are underdeveloped and turbulent, committing own resources becomes necessary for the firm to reduce its dependence on host country inputs, thus curtailing its operating exposure (Luo, 2002). Given the high imitability of local firms and intensified rivalries with other foreign firms, preemptive opportunities or earlymover position advantages quickly fade, further requiring resource commitment (Delios and Henisz, 2000). While EEs offer growth opportunities for firms, they also impose challenges for firms' competitive behaviour. A common feature of emerging markets is a weak institutional environment or the existence of 'institutional deficits' (Khanna & Palepu, 1997). In these markets, formal institutional constraints such as inefficient legal frameworks and weak intellectual property rights pose significant problems for foreign firms making it difficult for these firms to adapt to the emerging market country's institutional environment. The foreign entrants, though often possessing valuable resources such as financial capital, managerial capabilities, and technical skills, still need to learn about local markets, about often vague and changing institutional arrangements and how to gain access to social connections (Child & CzeglĂŠdy, 1996; Hitt, Dacin, Levitas, Arregle & Borza, 2000). Coupled with the dynamic, uncertain, and complex nature of the emerging markets, firms frequently experience difficulties in competing with both domestic rivals and foreign entrants. MNCs have to decide where and how to set up their operations. These strategic decisions have to accommodate institutional conditions that vary not only between countries, but also within the host country (Wright et al; 2005). The environmental heterogeneity will require the company to accommodate local differentiation while maintaining the integration and global efficiency of resource utilization within its organizational context (Bartlett and Ghoshal, 1989; Gustavsson, Melin and Macdonald, 1994; Prahalad and Doz, 1987). This challenge entails both strategic and organizational capabilities (Bartlett, 1986), of which newly internationalized firms are by and large lacking and have to build up incrementally through the process of internationalization (Eriksson et al., 1997; Erramilli, 1991; Johanson and Vahlne, 1977; Welch and Luostarinen, 1988). The effects of institutions on the performance of firms, however, vary across countries because institutions are developed and sustained in path dependent and highly localized processes in a country. Khanna and Palepu (1997) suggest that the institutional environment in an emerging economy is typically characterized by underdeveloped capital markets, the lack of reliable market information, extensive state intervention in business operations, and the lack of effective mechanisms to enforce contracts. Such 'institutional voids' make market transactions less efficient and create more uncertainty to trade in less developed economies than in developed economies. National differences in cultural values also lead to differences in economic growth. Countries that stress Confucian dynamism and group cohesion have a better economic performance than other countries that do not (Franke, Hofstede, and Bond, 1991). Similarly, in countries that have strong norms of civic cooperation and high levels of trust that facilitate economic activities (Knack and Keefer, 1997), firms can lower the cost of monitoring and enforcing contracts and hence improve their performance (La Porta et al., 1997). As the stability and efficiency of such institutions determine the costs of doing business in a given country, the performance of firms varies significantly across countries (North, 1990; Westney 1993; Zaheer and Zaheer, 1997; Bergara, Henisz, and Spiller, 1998; Kostova and Zaheer, 1999; Delios and Henisz, 2000; Henisz, 2000). The government may also change the structure of taxations, regulations, and agreements that penalize foreign operations. For example, the host country government may opportunistically expropriate the assets of foreign affiliates (Henisz, 2000) or local competitors may request the government to take actions that favor them at the expense of foreign affiliates (Henisz and Williamson, 1999). This unstable institutional environment poses a threat to foreign affiliates and how much country differences actually explain the variations in foreign affiliate performance. 4

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Foreign companies are not only subject to the influences of the host country institutional environment but also those of home country institutional environment and thereby face different sources of institutional pressure to which they must conform (Rosenzweig and Singh, 1991; Westney, 1993; Scott, 1995; Kostova and Zaheer, 1999). One source of institutional pressure comes from an external pressure to conform to local demands in the host country, and another from an internal pressure imposed by the parent firm to sustain consistency (Rosenzweig and Singh, 1991; Westney, 1993; Kostova and Zaheer, 1999). Besides, the distance in cultural and social orientations between the institutional environments of the home and the host country creates a barrier to social networks in local business communities, thus limiting the chance of gaining access to the intangible assets and know-how shared among particular local firms and favorable transactions with particular local firms and government authorities (Kogut, 1991; Chen and Chen, 1998; Ghemawat, 2001; Peng and Luo, 2000; Luo, 2001). The average incomes in emerging economies are relatively low that leads to a great degree of price-sensitivity (Simon-Miller 1984, p.124) and demand for lower-priced products is consequently very high (Vachani 1990). MNCs thus need to create value-priced versions of their products that allow them to better meet these lower price points, through stripping out features and “value-engineering” their products and services to cut out costs that are unnecessary for local consumers (such as high-tech gadgets in cars). The exception to the need to launch morecompetitive products is for cases where a “status” good is involved (Simon-Miller 1984). Emerging economies are often characterized as “Dual Economy” structure (Mohmaud and Rice 1984) with a relatively small elite urban high-income market amidst a relatively much larger substance and low-income market, reflecting a relatively high degree of inequality in the distribution of income and wealth. In some countries (such as India), the top 10% of the population earns 30-40% of the income (Jain 1993, p.74), and this is usually the market segment targeted by MNCs, especially since most of this segment tends to concentrate in major metropolitan areas (Gillespie and Alden 1989). Having too many choices, marketers face the challenge of determining which international markets to enter and the appropriate marketing strategies for the countries they are planning to penetrate. Many multinationals have rushed in to emerging markets over the past decade, agog at the potential of billions of new consumers liberated from planned economies and protectionist barriers. But as the initial euphoria wanes, there is a growing realization that the billions of consumers have not reciprocated the multinationals' embrace; that local competitors are stronger than expected; and competition for the top tier of the market is fierce, as major players from around the world compete for the same limited pie. Multinationals' stance is rapidly evolving from one of 'exploration,' 'investment,' and 'establishing a beachhead,' to more prosaic reasons such as 'generating a return,' 'growing long term sales volume,' and 'building a dominant position'. Local subsidiaries are being called to account, and losses that may earlier have been viewed as investments in market building are no longer tolerated. Local operations now realize that the three to five percent of consumers in emerging markets who have global preferences and purchasing power no longer suffice as the only target market. Instead, they must delve deeper into the local consumer base in order to deliver on the promise of tapping into billion-consumer markets. This calls for a shift in emphasis from the 'global' to the 'local' consumer, and from globally standardized to locally adapted marketing programs. Most multinationals have long resisted targeting the local consumer, preferring instead to transplant offerings that were developed for their traditional developed markets.

THE OVERALL CONCEPTUAL FRAMEWORK Institutional Variations Regulatory system Country market infrastructure Political and Social Systems Type of economy Direct state interference Market Variations Low purchasing power Indian Journal of Marketing • June, 2008 5


Consumer market infrastructure Labour substitution Case studies from Emerging Economies- (eg. India, China, Brazil, Russia, Chile, Malaysia) Designing Appropriate Marketing Strategies

OBJECTIVES OF THE STUDY 1. To map the contours of institutional variations (e.g. political and social systems, policy stability and effectiveness, type of economy, country market infrastructure, quality of regulation, state interference) in the emerging economies. 2. To understand market variations (e.g. purchasing power, consumer market infrastructure and labour substitution) in the emerging economies. 3. To establish the set of propositions vis-à-vis particular institutional and market variations to suggest appropriate marketing strategies for emerging markets.

APPROACH AND METHODOLOGY Eisenhardt (1989) provided a road map to developing theories from case studies that may be appropriate in emerging market context. An integral part of this approach is the development of research instruments that can be used in quantitative studies. Sophisticated case methodologies were adopted by Collins (1991) and Hitt, Harrison, Ireland, and Best (1998), who used detailed field-based archival and interview data to develop in-depth case studies. From an institutional theory perspective, problems have arisen in constructing a consistent set of measures of institutional factors (North, 1990; Oliver, 1997; Scott, 1995). This difficultly has not only limited the generalizability of findings, but has also provoked the issue of developing a common set of measures for the institutional environments in emerging economies. There is an important need for development of a case study approach in research in emerging economies (Cho, Kim & Rhee, 1998). The study is exploratory in nature with the following approach: 1. The depth literature review of the studies undertaken on the emerging economies. 2. Using the relevant examples and case studies to understand the institutional and market variations and drawing inferences from the same. 3. Establishing set of propositions using the inferences drawn from the case studies and examples. Total 17 propositions have been established with the help of total 34 relevant examples, thus on an average proposition to example ratio is ½. At last one case study of “South African Breweries” has been discussed that could successfully implement the “Emerging Market Strategy” in emerging economies. All examples and case studies have been drawn from sampled emerging market economies such as India, Russia, Brazil, and China, Chile. A. Understanding Institutional Variations Companies that choose new markets systematically often use tools like country portfolio analysis and political risk assessment, which chiefly focus on the potential profits from doing business in developing countries but leave out essential information about the soft infrastructures. McKinsey Global Survey of Business Executives (December, 2004) polled 9,750 senior managers on their priorities and concerns, 61% said that market size and growth drove their firms' decisions to enter new countries. While 17% felt that political and economic stability was the most important factor in making those decisions, only 13% said that structural conditions (in other words, institutional contexts) mattered most. Companies can lower costs by setting up manufacturing facilities and service centers in those areas, where skilled labor and trained managers are relatively inexpensive. Moreover, several developing-country transnational corporations have entered North America and Europe with low-cost strategies (China's Haier Group in household electrical appliances) and novel business models (India's Infosys, WIPRO and TCS in information technology services). Western companies that want to develop counter strategies must push deeper into emerging markets, which foster a different genre of innovations than mature markets do. Advanced economies have large pools of 6

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seasoned market intermediaries and effective contract-enforcing mechanisms, whereas less-developed economies have unskilled intermediaries and less-effective legal systems. Because the services provided by intermediaries either aren't available in emerging markets or aren't very sophisticated, corporations can't smoothly transfer the strategies they employ in their home countries to those emerging markets. i) Regulatory System 1. The United States and the United Kingdom have similar product, capital, and labor markets, with networks of skilled intermediaries and strong regulatory systems. The two nations share an Anglo-Saxon legal system as well. American companies can find competent market research firms to enter in Britain and they can count on English law to enforce agreements they sign with potential partners, and that retailers will be able to distribute products all over the country. These are dangerous assumptions to make in an emerging market, where skilled intermediaries or contract-enforcing mechanisms are unlikely to be found. The legal system in emerging economies is often under-developed and/or inefficient and investment protection and other laws are often not in place (Zurawicki and Becker 1994). Laws regarding intellectual property (such as trademark and patents), in particular, are sometimes not adequately enforced; this has recently led to trade tensions between the U.S. and many other countries, notably China (Nakata and Sivakumar 1995). Proposition 1.1.1) The lack of skilled intermediaries (such as competent market research firms) and contractenforcing mechanisms (rule of law and its enforcement) may deter firms to enter and operate in emerging economies. ii) Country Market Infrastructure 1. In 2003, Brazil, Russia, India, and China appeared similar on several indices such as growth and business competitiveness, governance indicators, corruption perception, composite country risk indicators. Yet despite the four countries' comparable standings, the key success factors in each of those markets have turned out to be very different. For instance, in China and Russia, multinational retail chains and local retailers have expanded into the urban and semi-urban areas, whereas in Brazil, only a few global chains have set up shop in key urban centers. And in India, the government prohibited foreign direct investment in the retailing and real estate industries until February 2005, so mom-and-pop retailers dominate. Brazil, Russia, India, and China may all be big markets for multinational consumer product makers, but executives have to design unique distribution strategies for each market. The differences between the countries' market infrastructures made it more attractive for some businesses to enter, say, Brazil than India. Propositions 1.2.1) The countries' market infrastructure, that allows market transactions to take place in a systematic fashion that enables customers and firms to participate in the market economy on equitable terms, in emerging markets is sufficiently distinct from developed markets and have enough variations among even among emerging economies. iii) Political and Social System 1. In socialist countries like China, for instance, workers cannot form independent trade unions in the labor market, which affects wage levels. A country's social environment is also important. In South Africa, for example, the government's support for the transfer of assets to the historically disenfranchised native African community; a laudable social objective has affected the development of the capital market. Such transfers usually price assets in an arbitrary fashion, which makes it hard for multinationals to figure out the value of South African companies and affects their assessments of potential partners. 2. In Chile, a military coup in the early 1970s led to the establishment of a right-wing government, and that government's liberal economic policies led to a vibrant capital market in the country. But Chile's labor market remained underdeveloped because the government did not allow trade unions to operate freely. Similarly, government restrictions affected the development of markets. 3. In Malaysia, for instance, foreign companies should enter into joint ventures only after checking if their potential partners belong to the majority Malay community or the economically dominant Chinese community, so as not to conflict with the government's long-standing policy of transferring some assets from Chinese to Malays. Indian Journal of Marketing • June, 2008 7


This policy arose because of a perception that the race riots of 1969 were caused by the tension between the Chinese haves and the Malay have-nots. Although the rhetoric has changed somewhat in the past few years, the pro-Malay policy remains in place. Propositions 1.3.1) Emerging economy's political system influence the development of labor and capital markets significantly and have greater control than those of developed markets. Propositions 1.3.2) The thorny relationship between ethnic, regional, and linguistic groups in emerging markets affect the interplay between foreign investors and domestic policy landscape. iv) Type of Economy 1. China is a relatively open economy (atleast in terms of investment) because the government welcomes foreign investment but that India is a relatively closed economy because of the lukewarm reception the Indian government gave to the multinationals. However, India has been open to ideas from the West, and people have always been able to travel freely in and out of the country, whereas for decades, the Chinese government didn't allow its citizens to travel abroad freely, and it still doesn't allow many ideas to creep inside its borders. Consequently, while it may be true that multinational companies can invest in China more easily than they can in India, managers in India are more inclined to be market oriented and globally aware than managers are in China. 2. If a country's capital markets are open to foreign investors, financial intermediaries will become more sophisticated. That has happened in India, for example, where capital markets are more open than they are in China. 3. In the product market, if multinationals can invest in the retail industry, logistics providers will develop rapidly. This has been the case in China, where providers have taken hold more quickly than they have in India, which has only recently allowed multinationals to invest in retailing. Propositions 1.4.1) The MNCs need to understand the type of economy such as the degree of openness and closeness in emerging markets that often decides the market success. V) Direct State Interferences 1. In China, state-owned enterprises control nearly half the economy, members of the Chinese Diaspora control many of the foreign corporations that operate there, and the private sector brings up the rear because entrepreneurs find it almost impossible to access capital. India is the mirror image of China. Public sector corporations, though important, occupy nowhere near as prominent a place as they do in China. Unlike China, India is wary of foreign investment, even by members of the Indian Diaspora. However, the country has spawned many private sector organizations, some of which are globally competitive. In China, companies have succeeded due to the state while in India, most companies have succeeded in spite of the state. 2. Brazil mixes and matches features of both China and India. Like China, Brazil has floated many state-owned enterprises. At the same time, it has kept its doors open to multinationals, and European corporations such as Unilever, Volkswagen, and NestlĂŠ have been able to build big businesses there. Volkswagen has six plants in Brazil, dominates the local market, and exports its GoI model to Argentina and Russia. Brazil also boasts private sector companies that, like Indian firms, go head-to-head in the local market with global firms. Some Brazilian companies, such as basic materials company Votorantim and aircraft maker Embraer, have become globally competitive. 3. Russia is also a cross between China and India, but most of its companies are less competitive than those in Brazil. A few multinationals such as McDonald's have done well, but most foreign firms have failed to make headway there. There are only a few strong private sector companies in the market, such as dairy products maker Wimm-Bill-Dann and cellular services provider VimpelCom. The Russian government is involved, formally and informally, in several industries. For instance, the government's equity stake in Gazprom allows it to influence the country's energy sector. Moreover, administrators at all levels can exercise near veto power over business deals that involve local or foreign companies, and getting permits and approvals is a complicated chore in Russia. 4. The financial markets also in Brazil, Russia, India, and China vary, too. In Brazil and India, indigenous entrepreneurs, who are multinationals' main rivals, rely on the local capital markets for resources. In China, 8

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foreign companies compete with state-owned enterprises, which public sector banks usually fund. The difference is important because neither the Chinese companies nor the banks are under pressure to show profits. Moreover, financial reporting in China isn't transparent even if companies have listed themselves on stock exchanges. Stateowned companies can for years pursue strategies that increase their market share at the expense of profits. Corporate governance standards in Brazil and India also mimic those of the West more closely than do those in Russia and China. Propositions 1.5.1) Emerging markets differ in the role of state in providing goods and services to customer and MNCs therefore, may face different kinds of competition in the each of emerging economies due to varying degree of state-industry interaction. i) Low Purchasing Power 1. Lured by the prospect of one billion new breakfast eaters, Kellogg, the US cereals giant, ventured into India in the mid-1990s. Three years after entering the market, sales stood at an unimpressive $10 million. Indian consumers were not sold on breakfast cereals. Most consumers either prepared breakfast from scratch every morning, or grabbed some biscuits with tea at a roadside tea stall. Advertising positions common in the west, such as the convenience of breakfast cereal, did not resonate with the mass market. Segments of the market that did find the convenience positioning appealing were unable to afford the international prices of Kellogg's brands. Disappointing results led the company to re-examine its approach. In year 2001, Kellogg finally realigned its marketing to suit local market conditions: they introduced a range of breakfast biscuits under the Chocos brand name. Priced at Rs. 5 (10 US cents) for a 50-gram pack, and with extensive distribution coverage that includes roadside tea stalls, they are targeted at the mass market and expected to generate large sales volumes. 2. South African Breweries (SAB) is one of the rare foreign breweries that are profitable in China. SAB's approach to the China market has been markedly different from that of the fifty other international brewers operating there. SAB brews and sells local brands of beer, has consciously targeted the mass market, and has avoided the crowded premium urban segments. The price of its brands is up to 70 per cent lower than that of international brands such as Budweiser or Carlsberg. But SAB's long-term strategy of building market share is paying off. Despite its limited reach, which currently covers less than five per cent of the market, it is the third largest brewer in China. It has a dominant market share in every provincial market in China in which it competes. 3. Whirlpool's microwave ovens, when first sold in Hungary and Poland, were chock-full of little-used features that raised its price above levels affordable to the local market, especially given low-end South Korean entries. Whirlpool eventually moved to a cheaper production source in China for its Central/East European microwave supplies. Such product redesign is often done more easily in no-US, “third worldâ€? locations. 4. In Indonesia, 88 per cent of the soap market is classified as 'regular' soap, with another 11 per cent accounted for by deodorant soap, and the remaining 1 per cent is moisturizing soap. The average price of soap sold in Indonesia is less than one third of that in the United States. Proposition 2.1.1) Mass market in emerging economies is unable to afford the international prices and high level of segmentation due to low purchasing power. 1. There exist about 18,000 magazine titles in the United States for a population of 250 million. In contrast, in Brazil, a country of 150 million, there are fewer than one thousand magazines and, in India, a country of one billion people, there exist just over 300 magazine titles. This lack of narrowly focused media limits the ability of marketers to segment their markets, and increases the effective cost per hit of advertisements, since a smaller proportion of readers of any given title is likely to be in the target market for a given product. Proposition 2.1.2) Low purchasing power has encouraged narrow segmentation due to non- affordability of media cost in many emerging markets. 1. The Volkswagen Beetle remained the largest selling car in Brazil long after it had been phased out of the affluent markets, and despite competitive assaults by other manufacturers with newer models. The largest selling car in China is still the Volkswagen Santana, a model that was phased out of developed markets 15 years ago, and the Maruti 800, produced by the Suzuki joint venture in India for the past 20 years, remains the top selling car in India, Indian Journal of Marketing • June, 2008 9


10

Indian Journal of Marketing • June, 2008 Urban and rural retailers look similar but operate on different principles. It pays to be first in rural markets. It pays to be differentiated in urban markets. Nestle´ in Asia People rather than machines provide a cost-effective means of delivering products to consumers.

Coca-Cola in China and India

Price promotions yield large volume gains. But it is worthwhile to launch second tier brands rather than occasional promotions. Television market in China Consumers 'make versus buy' decisions drive value perceptions. Competition also comes in the shape of homemade products

Pre-processed food in India

Volkswagen in Brazil and China; Suzuki in India Quality consistency is at a premium, and not easy to achieve in a variable environment. Design and package for infrastructural and consumer variability. Whirlpool and Marico in India Products can be re-engineered to replace some elements with consumers' labor. This makes the product more affordable to the mass market.

Dairy industry; Whirlpool in India

Examples Soaps in Indonesia Media in India and Brazil vs. the US.

Income disparities and income flow variability lead to coexistence of very different market segments.

Baron International in India

Despite huge differences in consumers' cost of time, the market cannot be segmented on this dimension because time is often bought and sold.

Dupont in China

Variability in Consumer Market Infrastructure

Examples

Labor Substitution

Examples

South African Breweries in China; Cadbury's in India

Retail trade in China, Unilever in India; United Phosphorous Ltd., India

Retail distribution is highly fragmented, but nevertheless powerful

Examples

Large volumes and low margins drive profitability Consumers gauge prices in relation to a local basket of purchases.

Products need to be functional, built to last, and basic. Rapid obsolescence is a mistake.

Segments are coarse and diverse because the costs of segmentation are high. Mass media are not finely segmented.

Distribution

Low Purchasing Power

Pricing

Product

Segmentation

Market characteristics

Citibank credit cards in Asia

Mass media don't always have a cost advantage over face-to-face customer interaction. Sales forces can be used to communicate product benefits and usage more effectively.

Media; Unilever and Coca-Cola

Creating own channels of communication where no mass media exist to cater to large market segments swathes of the market.

Coca-Cola in China and Russia

Persuade consumers to consume more and nonconsumers to adopt the product.

Communication

Table 1. The impact of emerging market characteristics on marketing programs (adapted from, Niraj Dawar and Amitava Chattopadhyay, 2002)

B. Understanding Market Variations


notwithstanding the onslaught by the automobile majors in that market during the past decade. These cars are known to be dependable workhorses that can be easily repaired when they break down, with readily available and inexpensive spare parts. Proposition 2.1.3) Consumers dislike products that evolve too rapidly, making their recent purchases obsolete instead, the need is for basic, functional, long lasting products. 1. Cadbury's knows that Indian consumers are willing to pay about one cent for an impulse purchase candy. The company delivers packs of these candies to retailers who then break the bulk and sell the candy by the unit. Cadbury's international managers question why their company should spend time, effort, and money selling products that retail at one cent. But in this market it is the enormous volumes, not the margins, which drive profitability. If 10 per cent of the population were to buy just one candy a week, annual sales would exceed $60 million. An added advantage is that the inexpensive candy maintains a shelf presence for the brand and provides an entry-level item that converts some consumers on to higher priced and higher margin products. 2. Unilever's Lifebuoy brand of soap, popular in Africa, India, and Indonesia is priced low and made using inexpensive local ingredients and packaging material. By volume, Lifebuoy is the largest selling brand of soap in the world. 3. By the mid-1990s, Sony and Matsushita had captured 75 per cent of the top end of the Chinese market for televisions with sales of 1.5 million units. But this left the door open to local manufacturers Changhong, Konka, and Panda who achieved significant economies of scale by catering to the mass market. Together these manufacturers sold over 5 million units, and were then able to use their strong position to attack Japanese manufacturers in the higher priced segments. Proposition 2.1.4) In emerging markets, it is difficult to penetrate market on price basis and the large volumes can make even trivially priced products profitable. 1. United Phosphorous Limited (UPL), an Indian crop protection company, realized that in its rural markets small farmers were not applying pesticide at all, or applying it inappropriately due to the lack of application equipment. The capital cost of the equipment (mounted pumps and dispensers that cost up to $3,000) placed it out of reach of small farmers and most rural retailers. UPL designed a program in which it arranged for bank loans for its rural retailers to purchase application equipment, and demonstrated to these retailers the additional revenue possibilities from renting this equipment to small farmers. The result was an added revenue stream for rural retailers and additional sales of pesticides for UPL. Proposition 2.1.5) In some cases the products need to be introduced with value addition and innovatively to overcome to justify products' high cost. 1. International brewers in China, for example, have chosen to focus on the Shanghai and other urban markets where per capita consumption is already high. The reasoning is that it is easier to convince an existing beer drinker to have another beer, than to convert someone who has never drunk beer to try one. The existing product portfolios of multinationals, however, often drive this reasoning. It is easier to sell more of an existing product to current consumers than to develop new products and brands to appeal to non-consumers. 2. Kellogg realized that biscuits were the way into the Indian consumers' breakfast diet, Coca-Cola has found that to gain what the company colorfully refers to as a 'share of throat' in China and Russia, products that fit with local consumption habits are required, and has introduced fruit-flavored tea in China and low priced carbonated fruit flavored drinks in Russia. Proposition 2.1.6) In emerging economies, it is relatively easier to sell more of an existing product to current consumers than to covert non-consumers. ii) Variability in Consumer Market Infrastructure 1. Baron International (the local distributor for Akai in India) realized that the market for new television sets was primarily urban, but that there was considerable inertia when it came to replacing a working television set of a previous generation. But Baron also knew that there existed a market, primarily rural, for used television sets. The company instituted a trade-in scheme that linked urban retailers with those in rural areas. Rural retailers purchased Indian Journal of Marketing • June, 2008 11


traded-in sets from urban dealers. Urban consumers got something for their old TV sets, urban retailers made their margins from selling the traded in sets, rural retailers made a profit on used TVs, and rural consumers were offered television sets they could afford. Baron's sales increased 1,500 per cent over three years, making it the most profitable firm in the Indian television business. Proposition 2.2.1) Consumer segments those vary in income allow some resourceful firms to create innovative opportunities. 1. Washing machines in emerging markets need to be designed to cope with unexpected interruptions of power and water supplies. Whirlpool found that, in India, its machines needed to be designed to restart from the point in the washing cycle where they had left off when the power and/or water was interrupted, rather than return to the start as they are designed to do in developed markets where reliable power and water supplies are taken for granted. 2. Cars meant for emerging markets need to be designed with heavier suspensions, in smaller size, without fancy features, and with the ability to use gasohol or leaded gasoline (Business Week 1994). For instance, the 5-ton trucks made in China by Dong Feng Motor are very successful there simply because they exceed local market expectations on a most vital “low-end� feature-they were actually capable of carrying more than a 5-ton payload, which cargo-carrying customers found very useful(DFM Team Report 1994) Proposition 2.2.2) In order to deliver consistent quality, products need to be designed to cope with variability in infrastructure such as power, roads etc. in emerging markets. 1. Unilever pioneered the concept of the video van. Unilever's video vans travel from village to village screening films in the local language, interspersed with advertisements for Unilever products. The company also provides product usage demonstrations to the captive audience because written instructions on the pack may not be read by consumers who are either illiterate or do not understand the dialect. 2. On re-entering India in the 1990s, Coca-Cola decided to invest massively on a television advertising campaign. It invested in slick commercials, rich in color, with high production values, but the effect was somewhat lost on a market where 60 per cent of all TVs are still black and white. Proposition 2.2.3) Different communication strategies are needed due to variability in mass media that may pose a threat to MNCs in communicating with the existing and prospective consumer. iii) Labour Substitution 1. Dairies in several Indian cities have opted to eliminate individual level packaging for milk. Instead, milk is distributed through vending machines where consumers bring their own containers to carry the milk home. 2. Similarly, Whirlpool discovered that it was unable to sell its high priced, fully automatic machines in the emerging markets. It was only after it introduced twin-tub machines that were cheaper and utilized the consumers' labor rather than electronics to complete the entire washing cycle that sales took off. (Interestingly, due to the fact that these machines had long disappeared in the developed markets, Whirlpool had to re-acquire the 'obsolete' technology from Korea). Proposition 2.3.1) Engaging the consumers' time and energy as a substitute for labour can allow firm to market the product at an affordable price to mass market. 1. Coca-Cola has not invested in vending machines, which are seen as too expensive relative to salespeople. Instead the company has experimented with a pushcart program in China, in which salespeople dispense the company's drinks by the single-serve bottle. Sales of two cases (48 bottles) every day at US$ 0.25 per bottle are sufficient to justify the costs of a salesperson. Similarly, in India, almost 10 per cent of Coca-Cola sales take place through fountains, where a salesperson dispenses drinks by the paper cup. Daily sales of as little as 100 cups justify the cost of the fountain and the person employed to dispense the drinks. 2. Modern retail formats such as supermarkets (e.g., Nanz), hypermarkets (e.g., Carrefour), and discount stores (e.g., Walmart), that substitute capital for labor, have experienced slow growth in emerging markets. The scale economies of these operations are offset by the high capital costs, and often lead to higher prices relative to small owner-operated stores. The typical 25 per cent to 40 per cent margins taken by international retailers reflect their 12

Indian Journal of Marketing • June, 2008


higher operating costs relative to low-overhead local retailers, whose margins rarely exceed 15 per cent with operating costs below 5 per cent of retail price. 3. When Citibank launched its credit card in Asia, it found that in many markets the cost per customer of door-todoor sales was lower than a range of mass media, including magazine inserts, direct mail, and take-one application forms placed on sales counters. Proposition 2.3.2) Labor-intensive distribution and face to face communication has been proved more effective and economical in emerging markets.

South African Breweries: A Case of Successful 'Emerging Market Strategy' South African Breweries is an example of a company that has built a powerful business model and accumulated considerable management expertise dedicated to emerging markets. The company is present in 24 countries including several African countries, China, India, Poland, the Czech Republic, and Central America. Despite being located in these low-income countries, the company's productivity levels are high: it sells over $116,000-worth of beverages per employee. Yet, interestingly for the consumer goods multinational, the company does not derive its economies of scale from global brands or even global products. It prefers instead to develop local brands that fit the local market's needs, while at the same time extracting economies by replicating its low cost brewing techniques and rigorously applying standardized management procedures in every functional area. Successful processes developed for one market are rapidly transferred to other markets through personnel transfers, common training programs, in-house mobile consultant teams, and active informal networks across geographic regions. As a result, its 27 breweries in China operate using the same global benchmarks as its seven breweries in South Africa. SAB's acquisition of a beverage business in El Salvador illustrates how knowledge and processes developed in one emerging market are replicated in others. The top management team at Bevco, the newly formed holding company, consists of SAB managers with experience in Africa, China, and Eastern Europe. Because the team was picked from all of these regions, best practices from each are easily brought in. For example, as the Central American operation identified opportunities for applying SAB's rigorous low-cost processes to distribution, information technology, logistics, etc., they were able to call on experts in these functional areas and bring them in from other parts of the SAB network on a project basis. Experts would spend a few weeks on the ground to implement and train the local team, and then return to their base. This sharing of expert resources is interesting for at least two reasons. First, it illustrates the importance of the local-to-local network at SAB, where local companies in the SAB family share information, without necessarily going through headquarters. Among multinationals, such emerging-market local-to-local networks are rare. Secondly, this example shows the importance of personnel transfers. Because the management team is constituted of managers with experience in various parts of the SAB network, they are able to call upon best practices developed elsewhere. Recognizing the value of this type of networking, SAB has instituted centralized training programs where managers from the various local subsidiaries go to learn about common global processes, and to develop an international network that can be called upon to tackle local problems. SAB operates as a true multinational by applying learning that takes place in one part of the network to other parts. Many multinationals do this, but SAB illustrates how the costs of setting up such a network, and operating as multinational, are outweighed by the benefits even in an 'emerging-market-only' context. In other words, viewing emerging markets as a common opportunity has provided SAB the economies of scale necessary to design and implement an 'emerging market strategy'.

CONCLUSION The billions of consumers that multinationals seek in emerging economies will remain an elusive target until these firms are able to develop value propositions that appeal to the mass market. For these firms, it should be abundantly clear that mass markets in emerging countries are unlike any markets they have traditionally served. The emerging market consumers' behavior is moulded by low incomes, market infrastructural variability, and the unique tradeoffs created by the substitution of labor for capital. These consumers are unlikely to respond to marketing programs transplanted from developed markets. Instead, marketing programs need to be built from the Indian Journal of Marketing • June, 2008 13


ground up, but to do so often militates against the fundamental marketing practices based on economies of scale and the consequent drive for standardization that are taken to be the bases of success in traditional markets. The dilemma is often posed as whether to localize at high cost for an uncertain return, or whether to simply replicate standardized, developed-market programs at the risk of addressing only a very limited market. The organizational tensions that arise as firms grapple with this dilemma can be wrenching. One means of resolving the debate is to abandon the traditional practice of having country-focused strategies, such as a 'China strategy' and an 'India strategy', and to begin to consider the firm's 'emerging market strategy'. Framing the issue in this way places the focus on the commonalities across emerging markets and their real potential size. The analysis suggests that the characteristics of emerging markets are sufficiently distinct from developed markets, and yet have enough in common with each other to justify developing an alternative business model. Traditional business models that rely on innovation, fine segmentation, high margins, and finely tuned global brands need to be redefined for emerging markets. This is not to say that the fundamental principles of scale and standardization need to be abandoned to tackle the emerging market opportunity. Rather, than economies of scale and opportunities for standardization can be found by uncovering the commonalities across emerging markets and building business models around these. The opening up of fast growing emerging market presents great challenges and opportunities to local corporations as well as MNCs. Faced with turbulent socio-political environment, legal and regulatory framework, at the same time they have to target consumers who are rapidly changing in their expectations, incomes and levels of knowledge. The business conditions are difficult to operate in but also provide opportunities for market-winning innovation. How these markets will evolve, which kinds of marketing strategies and tactics will prove to be the most appropriate as they grow, is, consequently of great interest today. This paper has attempted to document the nature of institutional and market differences in emerging economies and discuss some of the consequent marketing strategies and tactical issues, as gleaned from different relevant examples and case studies.

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PRODUCT DEVELOPMENT: THE CASE OF AN OEM * Himanshu Dutt

INTRODUCTION Caltrex Mechanicals (ISO: 9001) is a recognized name among the OEM manufacturing brake lining components for the automobiles world over. With over 6 product lines under 2 brand names, 9 manufacturing locations in 4 countries and a network of over 2,000 suppliers and dealers; the company has larger than mouth appetite to grow. The Vice President, Carlos Neuman, last year in the governing body meeting announced the progress with figures growing at an average rate of nearly 4 percent annually, over the previous years' profit of $290 million globally (earnings after tax). In India, Caltrex operated as a wholly owned subsidiary of the parent organization in South America, with the name of Caltrex India Holdings Pvt. Ltd which is into components and spares business, sourcing to domestic and South East Asian markets, through its 3 independent manufacturing locations in Gurgaon, Pune and newly built facility at Manesar. The company in India established its operations in the year 2000 and has grown multifold in six years with almost 4.7 percent growth over the last year (in 2005-06) profit at a turnover of $93.5 million (in 2006-07) from all of the three SBUs. The company's exports from India contribute to 26 percent of global sales for Caltrex which is highest after the parent company at 49 percent in Sao Paulo.

SUCCESS DETERMINANTS OF CALTREX INDIA Caltrex Mechanicals attributes this 'so-short span' success to Mr. Venugopal, Country Manager for Caltrex India who has taken care of the subsidiary businesses of Caltrex in India for last 6 years. Venugopal, an IITian in applied mechanics, who was initially appointed as product manager, transformed to the current post, because of his product development management capabilities. In the words of Mr. Venugopal, “developing better products demands a mix of technology and design to the standard where the difference between both of them dissipates to become one”. In one of his articles in a journal, he quoted “technology inspires compact designs and sophistication in products, incorporated in a way, to have scope for more space and convenience in handling”. In an interview with an international T.V channel, he remarked that “design orientation is a key variable of product development” and “more than 70 percent efforts by the organizations in mechanics like ours who are in automotive engineering are re-working on design developments for compactness”. While Mr. Mishra, R&D chief of Caltrex India, in the same interview quoted “for designing compact products, the organizations must focus on user design orientation” but also hypothesized that “the possibility of common man designing some automobile individually is almost negligible and therefore the term like user orientation becomes vague here”. This hence becomes the responsibility of automobile and automotive manufacturers to develop designs that speak for compactness and scope for space. It is clear that both have emphasized upon developing ever shrinking component designs for more compactness and space that shall put pressure on automobile companies to develop compact vehicles. This continuous research in product specifications, component designs and multifunction spares did pay off well to the company and the company decided this year to increase the R&D spending by nearly 8 percent of total sales (in India). Caltrex India through its continuous product improvement initiatives has so far produced 3 upgraded versions of brake lining components and also has developed multifunction spares eliminating the need for individual spares for different spares based functions thus, making them common for all vehicles and to suit the assembly lines on which the final development is to be done. Similarly the upgradation in design of the brake lining components has reduced the length and breadth of the brake box in cars. The company spent nearly $70,000 to develop these improvements and plans to allocate some $48,000 for integrating the brake lining components through multiutility spares eliminating the scope of different spares to be used with different brake component systems to form the whole of brake box. *Senior Lecturer, Delhi School of Professional Studies & Research (GGS Indraprastha University) 9, Institutional Area, Phase III, Sector 25, Rohini, Delhi- 110085, Email Address: himanshudutt@gmail.com 16

Indian Journal of Marketing • June, 2008


Mr. Mishra and Mr. Venugopal were quite happy with the developments while the designs were being imitated at the parent company too. The company saved whopping $ 1.5 million from this product development initiative globally which amounts to be the cost of producing the 6 different spares with 7,000 parts for each one of them.

YET ANOTHER PRODUCT DEVELOPMENT INITIATIVE This year, in early January, the company appointed Mr. Gopalswamy Iyer as Product Manager, for Caltrex range of brake lining components and spares. Mr. Iyer, an engineer with marketing experience of 7 years, promoted the products well until recently he declared to re-vitalize the product lines in terms of cost based differentiation. The product manager found big scope for margins from their product design initiatives based on compactness and integration of brake lining system with multifunction spares. So the prices were revised @ 11 percent with an increment ranging between Rs. 235-319 excluding the sales tax. Meanwhile the company in January also launched new lock system technology for spares meant for the brake unit called 'ABS' (Anti-lock brake System).

MARKET RESPONSE AND COMPANY REACTION The product was initially accepted with lukewarm response but it collapsed after 2 months. As ever confident Mr. Venugopal and Mr. Mishra both reacted normally until it was clear to them that sales were really sinking in figures. Mr. Gopalswamy was also not sure that the drowning sales were due to his idea of price hike or due to the new technology that the R&D division had just roped in. By April, the sales recorded for brake lining components and spares came crashing to a downfall of lowest ever sales. In comparison to last year sales of July, Caltrex India has run under a loss of $ 11,000 significant enough to raise the alarm in the parent company. A total of 5 export distributors of Caltrex India backed up and refrained trade with the company leading to a monthly loss of $ 3,000 per dealer average on invoice. Dealers also started quitting on pretexts unclear to the company. Between January to April, company lost 19 dealers, 43 dealers picking up less volumes and 104 dealers putting pressure threatening withdrawal of company's products. Mr. Gopalswamy personally went for the market visits but did not find anything concrete to come up with about the declined sales. In fact from the few feedbacks that he received from the dealers, he found that price hike is justifiable and also that new lock system based technology has made the brake box design compact than ever and secure too. However, one remark that he got from an export dealer was “… company is only looking after at adding value to the product but not to them who are taking this value ahead to the next level”. Mr. Gopalswamy interpreted this as different story from the present cause of declining sales and assured the distributor incentives and margins in future. Caltrex India did not know where they went wrong. The product pricing is okay; and so is the beautiful compactness of design. The company decided to hire a technical consultant and a marketing analyst to probe into the matter.

REPORT OF TECHNICAL CONSULTANT Mr. Jayachandran, technical consultant, working with SIAM, was deputed for this task. He presented the findings within 15 days. His report outlined the fact that most of the dealers and distributors working for the company could not understand why the company changed the product design so frequently. The change in design brought abrupt changes in the market demand-supply patterns, and confused the dealers. The demand for older specifications still existed while the company had abandoned its manufacturing. The lacking areas pinpointed in the report emphasized the company's failure to involve these dealers and distributors in designing 'so-called' useroriented designs and lack of innovativeness in offering cost based competency through streamlining of process and not the product only.

REPORT OF MARKETING ANALYST Mr. P. Burman, a freelance marketing expert with over an experience of 23 years, was appointed to uncover the unclear pretext about declining sales and product competency of Caltrex India while the overall industry sales for brake lining components of competitors grew at 2 percent in comparison to last year and competition arena was getting wider with the entry of two new players in the segment. Aksimo Automotives of Japan and Glosun Works Inc. of France were the potential entrants. Mr. Burman unearthed that the company made no significant product differentiation but over-emphasized Indian Journal of Marketing • June, 2008 17


compactness. The company suffered marketing myopia syndrome resulting in cannibalizing of own product lines. It did not work on the lines of what companies want and rather went upon to present a costly 'cost structure' for the compactness in the name of product development. Besides, companies also need to work out on designing a direct market representation plan with dealers and distributors.

REPORT OF PRODUCT MANAGER Mr. Gopalswamy also did some homework to unlock the mystery based on these reports. Based on the reports of technical consultant and marketing analyst, Mr. Gopalswamy presented his findings contradicting and countering the reports. His report quoted that only 7 of the dealers and distributors have ever given any suggestion to the company in the last six years on their products, which are rather more in context of finding ways to improve costs, margins and incentives to them and not in terms of technology. The company also has feedback mechanism but such feedbacks are rare and unusable. Therefore dealer opinion may not be significant in developing products. Further, the report justifies the costly 'cost structure' that the company recently introduced on the premise that company spends more than 19% of total sales on training and health facility for its employees which is more than a double of what we spend on R&D (8% of total sales), therefore 11 percent increment in costs is still less with this point of view. “Moreover, the design we offer, nobody has ever thought of developing. We yearn for skimming therefore.” He said. Mr. Gopalswamy also advocated that company has high product differentiation in terms of appearance (“we have smallest of designs!”) that can easily be recognized in the market place. Further our differentiation is cost focused as well, being the premier global brand in the brake box components. “We do have significant product based differentiation and we maintain that too”.

END NOTES One most prominent conclusion derived from this case revolves around the discussion on what product development is not supposed to be about in the wake of the situation described here. It can be concluded that product development is not solely the compactness, design or the technology. It does not expect to represent or intend product cannibalization for self. It also might not always command high margins and therefore price 'skimming' does not apply all the times. Further it affects the associates of the company viz. suppliers, dealers, distributors, exporters and just not the company. Exhibit I: Caltrex Mechanicals Product Lines

Brake Backing Plate

Brake Drum 18

Indian Journal of Marketing • June, 2008

Brake Lining

(Multi-function) Brake Spare


Brake Pads

Source: Catalogues & Product Review Reports of Caltrex Mechanicals Exhibit II: Product Features & Descriptions S. No.

Product

Features/Description

1.

Brake Lining

Totally alloy-made with coatings which is: a) Durable nearly 3 times than ordinary ones b) With noise reduction (NR) system c) Available with or without asbestos versions

2.

Brake Pads

a) Material: semi-metal, carbon fiber and ceramic fiber b) Available for 1,000 vehicle types c) Allows for sensitive braking d) Proper hardness e) Less dust f) Noiseless

3.

Brake Plate

a) Single layered, Alloy sheet made, heat resistant

4.

Brake Drum

a) Compatible: all vehicle types b) Alloy-lead made, Brass coatings c) 8 points with 1 inch thick diameter

5.

Brake Parts & Spares

a) Includes sprockets, suspensions, brake shoe and springs b) Suits all vehicle types except farm tractors c) Available separately

6.

Brake Pump (partially outsourced)

a) Fuel injection based pump technology rendered through European suppliers b) Not a major product line of Caltrex, uses it as product support to overall brake system family

Source: Sales Catalogues of Caltrex Mechanicals Exhibit III: New Product Development Initiatives at Caltrex India

Multi-Utility Brake Parts

A multifunction Sprocket

Source: Company Newsletter, January, 2007 addressed under Product description, Review and Feedback Rounds Indian Journal of Marketing • June, 2008 19


Exhibit IV: Product Development Model of Caltrex Mechanicals Stage 1: Researching for Development § Analyzing Product Improvements § Locating Capabilities & Resources § Assessing Link Between Perceived Product Improvements & Gains From Process Stage 2: Development & Testing § Diagnosing Process § Developing Mechanism § Deriving Model § Recording technical feasibility § Validating for testing Stage 3: Commercialization § Sample Testing § Correcting Reviews § Market Development & Sales Stage 4: Monitoring Product Life Cycle § Innovative marketing practices § Sustaining PLC through product value support § Introduce related diversification before product grey Source: Primary information of development process, views of R&D team and interpretations from formal process documents and operator's manual. Exhibit V: Some Major Technology Terms Brake Lining: A heat-resistant friction material (usually asbestos) that is attached to the brake shoe (either riveted or bonded). When the shoe is pressed against the brake drum, the lining grabs the inside of the drum, which stops the vehicle and also prevents the drum and the shoe from wearing each other away. Brake Shoe: That part of the brake system, located at the wheels, upon which the brake lining is attached. There are usually two shoes (curved or arc-shaped pieces) in each wheel. When the wheel cylinders are actuated by hydraulic pressure they force the brake shoes apart and bring the lining into contact with the brake drum. In this way the vehicle is slowed or stopped. Anti-lock Brake System: A device which senses that one or more of the wheels are locking up during braking. It monitors the rotational speeds of the wheels and reduces hydraulic pressure to any wheel it senses locking up. It is controlled by both mechanical and electronic components. When you apply the brakes, the ABS will regulate the flow of brake fluid being delivered to the brake calipers. It must be remembered that a wheel cannot be steered unless it is rolling; so if the wheel is locked up, there is no steering control. By the use of electronic computers, the brakes rapidly alternate (at a rate of 30 times per second) from full pressure to full release. This process will also alternate from the leftfront wheel and the right-rear wheel and switch to the right-front wheel and left-rear wheel. In this way both maximum braking and maximum steering control is allowed during braking. Source: Company Manual on Technology Index & References and Operator's Manual

BIBLIOGRAPHY 1. Catalogues & Product Review Reports published in January-March & October-December, 2006 for in-house circulation of Caltrex Mechanicals. 2. Indian Sales Catalogues of Caltrex Mechanicals, 2004 onwards upto January 2007. 3. Company Newsletter, January, 2007 on Product description, Review and Sales. 4. Formal documents on product development process referred from Operator's Manual and Guide to Product Handling. 5. Company Manual on Technology Index & References

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Indian Journal of Marketing • June, 2008


Travellers' Perceptions On Travel Service Providers in an Electronic Environment *Prof. K. Ravichandran

INTRODUCTION Rapid advances and commercialization of the Internet in the last decade has changed the ways businesses are conducted. Clever Domains, 1999, stated earlier, on the impact of internet as the world's fastest growing marketplace with seemingly limitless opportunities for marketing products and services. The main driving force behind this explosive growth of the virtual marketplace are, among others, cost efficiency, 24/7 accessibility, a lack of geographic limitations and now, the Internet is more accessible and less expensive than it was, as the number of Internet users is growing tremendously. The “Internet world Stats” (2006) indicated that out of 6,499,697,060 of the world total population, 1,091,730,861 (16.8%) has penetrated in the usage of the internet. At present, the penetration of internet in travel and tourism industry is on the leading edge than in any other industry. As Violino, 1996, quoted positively earlier, that the internet is regarded as a technology asset for business, because of its ability to disseminate large volumes of information quickly and efficiently to all types of stakeholders, including employees, customers, shareholders and suppliers .Although the opportunities presented by this channel seem readily apparent there is still much debate and speculation on exactly how the use of the Internet will affect established travel and tourism firms by disintermediation (bypassing the traditional intermediaries) which is critical for any firm doing business in a physical or virtual market place. The Internet is thus often discussed in terms of disintermediation whereby the role of the traditional intermediaries such as travel agents is seen as becoming redundant (Reinders and Baker, 1998; Walle, 1996; Wynne et al, 2001). This article specifically analyses the perceptions of travelers on traditional intermediaries and the internet facilitations for travel and tourism.

THE INTERNET, TRAVEL AND TOURISM In the travel, tourism and hospitality industry, the growing importance of the Internet as a business tool and to a greater extent as an information source for travelers, booking and purchasing products online has increased where many travelers are inclined to use this means in the recent years. The booking of travel online is perhaps the most successful niche of all of the world's e-commerce efforts and consumers use the Internet to become better informed and to seek bargains. The other major aspect that has gained popularity recently is by online sites like Expedia, Price line and Orbitz which steer millions of consumers toward specific airlines and hotels in a manner that lowers prices and improves satisfaction among consumers. Today's outlook for the travel industry is one of innovation, high occupancy rates and healthy competition at a high rate. As Bloch, 1996 states tourism is one of the world's largest industries and has historically been an early adopter of new technology and other studies have also shown the direct fit of the Internet and travel and tourism products (Buhalis and Licata, 2002; Christian, 2001; Poon, 2001). In addition Smith and Jenner (1998) have also noted that travel products and services are perfectly suited to online selling because they possess the necessary characteristics and structure that can function in the electronic environment.

INTERMEDIATION AND DISINTERMEDIATION Mill and Morrison (1992), described distribution channels as “an operating structure, system or linkage of various combinations of travel organizations through which a producer of travel products, describes and confirms travel arrangements to the buyer”. These travel organizations includes intermediaries such as inbound operators, wholesalers and retail travel agents. Typically, the international tourism industry is characterized by large numbers of small suppliers who are globally scattered. They facilitate the searching process of both buyers and sellers by structuring the information essential to the parties, providing a place to meet each other thus reducing uncertainty. Some travelers do their own searching, but use a travel agent to do the bookings; others will try to search and make reservations on their own, while many will want complete advice and the security of a fully arranged tour. Further , Werthner & Klein, 1999; O'Connor & Frew, 2000 append that “the development and advent of the *Professor, Department of Management Studies, Madurai Kamaraj University, Madurai, Tamil Nadu - 625021 E-mail : ravimba_mku@yahoo.co.in Indian Journal of Marketing • June, 2008 21


Internet as a universal and interactive means of communication, and a parallel change in consumer behavior and attitude, have therefore, shifted the traditional way tourism and travel products are distributed�. In fact , a consumer no longer has to wait for a retailer to release information and then pay over the odds to purchase a product particularly if one supplier is out of stock or too expensive, there is no need to drive miles but help is a mere mouse click away. Apparently with the emergence of the Internet, the process of fast information transmission can be addressed effectively at a low cost. In other words, tourists can now receive comprehensive, timely and relevant information in a virtual environment to assist their decision-making process. Increasingly, consumers are undertaking their entire tourism product search and book on-line. Therefore, the role of E-mediaries has been changing dramatically. In the year ending May 1999, Airlines Reporting Corp. reported a drop in the number of travel agents in the US from 32,364 to 31,227 (Wilson, 2000). Where the decline features business closures .Morrell, 1998; Prideaux, 2002 states that “While some structural changes have occurred within the industry, especially in the aviation sector, there is little evidence yet of total disintermediation occurring, with the Internet becoming the sole means to distribute tourism products and services. Travel intermediaries can no longer survive as mere order- takers but, must provide service the Internet is less capable of experiential advice, personal service and purchase assurance (Prideaux, 2002; Reinders and Baker, 1998; Wynne et al, 2001). The implication for agents is that they need to re-intermediate themselves by providing value-added services that are required by customers. On the other hand, Lewis and Semejn, 1998, stated that trust and social contact are the main concerns for many consumers, particularly when planning leisure. This statement can be asserted as a major concern for different categories of travelers on whether or not the information and buying mechanisms from the website are credible enough and trustworthy. Business travelers might book through a travel agent, or, in case of repeated travel, negotiate corporate contracts directly with the final service providers. Those visiting friends and family might look for information in the internet but book their flights through a travel agent and still make the rest of their holiday arrangements. Hence these E -intermediaries add value as they are geographically close to the tourist and assist the customer by doing much of the searching on their behalf and are better able to cater to the individual requirements of each tourist and can customize the trip to suit segments like independent travelers, business visitors, holidaymakers and tour groups. O'Conner and Frew (2002) point out those tourism products are diverse, and are rarely purchased in isolation, and can be combined in a seemingly endless range of permutations and combinations. Through access to the booking systems, they routinise transactions and payments combined with their experience and expert knowledge of the industry. Moreover, they are also aggregators in that they will stock the brochures of many package offerings so that the customer has a choice from a large number of different offerings.

RESEARCH OBJECTIVES: The research was conducted to seek an insight on the perceptions of travelers particularly on the issue of disintermediation in the industry. It aims at assessing how travelers perceive the traditional travel intermediaries in the current electronic environment. The research was conducted in Rwanda, an emerging tourism destination in Africa. It reports on a series of relevant questions that identifies the overall perceptions on the different categories of travelers namely, tourists, business travelers and others.

MEASURES AND DESCRIPTIVE STATISTICS The survey is based on questionnaires that addressed particular issues such as technology service facilitations vs. traditional travel agents/ operators. It has incorporated issues from previous studies with additional items that were considered important from the industry's point of view. The questionnaires consisted of parts: a) demographic data b) purchasing experience over the internet c) travel distance (Short haul / long haul) d) travel purpose e) items related to the perceptions towards internet facilitation of services and traditional travel intermediaries' services. A five point scale consisting of (1) strongly disagree (2) disagree (3) Neutral /No opinion (4) agree (5) strongly agree was used in the items that measured the perceptions of travelers. The sample consisted of international tourists and travelers from and to, Rwanda during November 2006. Purposive sampling method was adopted and the questionnaire was delivered both in English and French. A total of 104 responses were administered with the questionnaire at Airports, hotels and other public and private sectors that fulfilled the purpose. There were 46 incomplete responses which were discarded out of 150. Table 1.0 presents the descriptive statistics of the sample. 22

Indian Journal of Marketing • June, 2008


Table 1.0 Descriptive statistics of the Respondents Gender Age

Education

Marital status

Income

Employment Status

Country of origin

Travel Purpose

Purchased products or services from travel websites

Travel distance

Mode of travel

N

Percent

Male

66

63.5

Female

38

36.5

25 or Below

15

14.4

26-45

51

49.0

46 65

31

29.8

66 and above

7

6.7

secondary or below

4

3.8

Undergraduate

48

46.2

post graduate

52

50.0

Single

33

31.7

Married

58

55.8

Divorced/ Separated/ Widow

13

12.5

Less than 10,000$

17

16.3

10,000 - 29,0000

25

24.0

30,000 -49,000

21

20.2

50,000 - 69,000

24

23.1

70,000 - 99,000

14

13.5

100,000

3

2.9

Employed

75

72.1

Un employed

11

10.6

Retired

15

14.4

Not Applicable

3

2.9

Africa

27

26.0

Asia / East Asia

23

22.1

Australia / New Zealand

8

7.7

Eastern Europe

6

5.8

Middle east

8

7.7

North America

16

15.4

Western Europe

16

15.4

Tourism

53

51.0

Business, Meeting

41

39.4

Others ( VFR)

10

9.6

Yes

37

35.6

No

67

64.4

Short haul

47

45.2

Long haul

57

54.8

Fully packaged

10

9.6

Partially packaged

34

32.7

Non package / Independent

60

57.7

Indian Journal of Marketing • June, 2008 23


Findings and Discussions 2.0Tabulation by Travel distance, purchasing experience over the internet and travel purpose Purchased products or services form travel websites

Tourism

Yes

No

Travel Purpose

Travel Purpose

Business, Meeting

Others

Business, Meeting

Tourism

Others

N = 104

N

%

N

%

N

%

N

%

N

%

N

%

Short haul

6

46.2

9

42.9

1

33.3

22

55.0

8

40.0

1

14.3

Long haul

7

53.8

12

57.1

2

66.7

18

45.0

12

60.0

6

85.7

Total

13

100.0

21

100.0

3

100.0

40

100.0

20

100.0

7

100.0

Table 2.1Mean score of perceptions - on travel intermediaries Travel distance

Purchased through travel websites

Short haul

Travel Purpose

Traditional travel intermediaries offers a personal touch

Traditional travel intermediaries are expert counselors

I Relied on Traditional travel intermediaries for the trip

Traditional travel intermediaries gave me adequate information that were not dealt in the travel websites

Tourism

4.20

4.13

3.83

3.53

Business,

3.83

3.66

3.41

3.23

Meeting No

Others

2.00

4.00

4.00

3.00

Tourism

4.05

3.52

3.54

3.55

Business,

3.87

3.38

2.63

2.50

Meeting

Long haul

Yes

Others

4.00

4.00

1.00

4.00

Tourism

3.86

4.14

4.15

3.43

Business,

2.92

2.98

3.83

2.58

Meeting No

Others

4.00

3.00

2.00

3.00

Tourism

3.47

2.65

2.88

3.24

Business,

3.33

3.59

3.92

3.43

3.85

4.13

3.77

3.19

Meeting Others

* Traditional travel intermediaries Travel agents, Tour operators

From the table 2.0 and 2.1, the tourist category for both short haul and long haul who had purchased (N = 6) or not purchased (N = 22) over the internet generally has a positive agreement towards the items. Whereby, the business travelers on short haul who have purchased over the internet (N = 9) shows moderate agreement and those who have not purchased (N = 8) showed a positive agreement. When we look at the long haul travelers in the tourism category, the respondents who had purchased over the internet (N=7), and those who have not (N = 18) shows a higher level of agreement towards the items. While looking at the business travelers who have purchased over the internet (N =12) and those who have not (N=12) also shows a moderate level of agreement. Interestingly the “others� category, those visiting their friends and relatives or on any other purpose apart from tourism and business (N=10) on both lines of purchases and travel distance shows a higher level of agreement towards the above items.

24

Indian Journal of Marketing • June, 2008


Table 2.2Mean score of perceptions - Items on travel web sites Travel distance

Short haul

Purchased through travel websites

Travel Purpose

Internet allows ease for searching and purchase

Web based intermediaries can offer many choices than traditional travel agents / Operators

Web sites allow me to change ITN any time *

Technology counseling will not be popular Because , many travelers are not computer literate

Yes

Tourism

3.40

3.33

3.33

2.43

Business,

3.77

4.13

3. 87

2.67

Others

3.00

4.00

2.00

4.00

Tourism

3.77

2.55

2.91

3.05

Business,

4.13

2.50

3.41

2.50

Others

3.78

4.14

2.00

2.00

Tourism

3.14

3.29

3.86

2.14

Business,

3.25

2.42

3.00

2.42

Meeting No

Meeting

Long haul

Yes

Meeting Others

3.00

3.00

4.00

3.00

Tourism

3.71

2.88

2.82

2.29

Business,

3.58

2.67

2.25

3.17

4.00

3.17

2.67

3.17

No

Meeting Others * ITN Travel Itinerary

Secondly, the focus was on internet intermediary services as shown on table 2.2. For the first three items, the tourist categories on short haul who have purchased over the internet (N= 6 and N = 22), respectively, have a moderate level of agreement, but on the contrary the business travelers who have not purchased over the internet (N=9 and N=8) shows a high level of agreement, meaning that the business travelers are more inclined towards the choices and changes that can be made over the internet also, this strongly supports the concerns on the time factor. The “Others” category has a moderate agreement. The respondents both in the tourism and business category on long haul and those who have purchased through internet cling to moderate agreement on the service facilitation through the internet. But those who did not have internet purchase experience hold moderate agreement. The “Others” category also show a moderate agreement. The last item “Technology counseling will not be popular because, many travelers are not computer literate” is one that focuses on the future of the industry. Here the tourism short haul travelers, those who have purchased over internet embraces a mean of 2.43 which is lower , whereas for long haul tourists the mean is 2.14 which is very low when compared with the previous. Again when looking at the business travelers those who purchased over the internet for both short haul and long haul the mean scores are 2.67 and 2.42, highly rejects the agreement that technology will not be popular. The mean scores of the “Others” category is 3.00 and 3.17 meaning that they stand for technology assisted counseling. Table 2.3 Travel distance

Short haul

Mean score of perceptions - Items traditional travel intermediaries Purchased products or services from travel websites Yes

Travel Purpose

Travelers have to bear the cost of commission to traditional travel intermediaries

Traditional travel intermediaries are in favor of principals thus Biased Recommendations

Traditional travel intermediaries mainly serve bookings and reservations and add little value to tourism Products and services

Tourism

2.67

3.00

2.17

Business,

4.22

3.89

3.33

4.00

4.00

4.00

Meeting Others

Indian Journal of Marketing • June, 2008 25


No

Tourism

2.36

2.41

3.09

Business,

3.38

3.63

3.88

Meeting

Long haul

Yes

Others

1.00

5.00

4.00

Tourism

2.72

2.00

1.86

Business,

2.92

2.88

2.65

Meeting No

Others

3.00

3.00

4.00

Tourism

2.72

2.78

2.56

Business,

2.97

3.00

3.86

3.17

3.33

3.33

Meeting Others

Here, the first two items are related with the perceptions on the cost of commission and favoritism for principals. The tourist category those who had purchased on the internet and traveled short haul show a mean score of 2.67 and 3.00 respectively which is not relatively high. But interestingly, the business travelers in the same situation have a higher agreement with the mean 4.22 and 3.89. This is a significant aspect that shows that business travelers are much biased towards travel intermediaries. While looking at the long haul travel of those who had purchased over the internet, the tourist's mean scores are 2.72 and 2.00 showing disagreement towards the statement where business travelers also share the same view with a mean score of 2.92 and 2.88. On the other hand if we look at the mean score of tourists who traveled short haul and who have not purchased over the internet, the mean scores are 2.36 and 2.41 respectively which shows that they have negative agreement towards both the statements. The business traveler for the same has a score of 3.38 and 3.63 which is higher, showing a positive agreement. On the third item “Traditional travel intermediaries mainly serve bookings and reservations and add little value to tourism products and services�. The tourist category shows a negative agreement whereas the business travelers show a highly positive agreement towards the statement. Table 2.4 Travel distance

Purchased products or services from travel websites

Short haul

Yes

No

Long haul

Yes

No

Mean score of perceptions - Items on travel web sites Travel Purpose

I don't trust web site transactions because of security concerns

I am not convinced about the travel websites because they are almost outdated

Travel agents/op gave me enough information that were not addressed in the travel websites

Tourism

2.67

3.33

3.33

Business, Meeting

2.33

3.22

3.20

Others

1.00

3.00

3.33

Tourism

2.41

2.34

3.55

Business, Meeting

2.87

2.63

3.80

Others

5.00

4.00

4.00

Tourism

2.86

2.29

3.43

Business, Meeting

2.67

2.74

3.58

Others

3.50

4.00

3.00

Tourism

3.39

3.36

3.22

Business, Meeting

3.33

3.19

3.00

Others

3.17

3.17

3.33

For the first two items, the tourism and business categories who purchased through internet and in short haul, almost share the same view on trust, and updating of the websites with a moderate mean score ( tourists , 2.67 , 3.33 business travelers 2.33 , 3.22). For those who have not purchased from the web site and on short haul the mean score are, tourists (2.41, 2.34) and business travelers (2.87, 2.63). In both the cases, trust, security concerns 26

Indian Journal of Marketing • June, 2008


and confidence over the web transactions and reliability seems to be moderate. On the other hand, when we look at tourists on the long haul, and those who have purchased over the internet, the mean scores are 2.86, 2.29. The situation is almost the same for business travelers as 2.67 and 2.74. This shows that they are moderate towards the statements. For those who have not purchased from the internet, the mean score for tourists (3.39, 3.36) and business travelers (3.33, 3.19) reveals higher agreement towards the statement of trust and updating. On the third item “Travel agents/operators gave me enough information that were not addressed in the travel websites” almost all the categories share the same view and the mean score is higher than 3.00 in most cases. This reveals that the traditional travel intermediaries have more utility value than the technology based internet services.

CONCLUSIONS AND IMPLICATIONS The study on internet and disintermediation, an analysis of travelers' perception has revealed similarities as well as differences between the main categories of travelers such as the tourists, business travelers and additionally those who visited for other purposes like VFR. The categories were cross evaluated on tourists who were on short distance and long distance to the destination, and the purchase experience over travel websites. This study identifies the main constituents as: • Tourists, both short haul and long haul with or without travel purchase experiences in the internet show moderate and high level of inclination towards traditional travel intermediaries. • Business travelers, short haul that have not purchased through the internet show a moderate level of inclination towards traditional travel intermediaries. • Business travelers, those who purchased over the internet in both short haul and long haul highly reject that technology will not be popular, which highlights that technology assisted travel intermediaries will be popular. • The business travelers who have not purchased over the internet show a high level of inclination towards travel websites. But on trust and security and updating of web sites from time to time, their view is with a degree of uncertainty. • The tourist category, those who have purchased on the internet and traveled short haul show that their perceptions revolve moderately towards the commission and favoritism of principals. But interestingly the business travelers have a higher agreement on the same, which is a significant aspect that shows that business travelers are much biased against travel intermediaries. • Both in the tourism and business category on long haul, those who have purchased through internet cling to• moderate agreement on service facilitation through the internet. • On the statement “Traditional travel intermediaries mainly serve bookings and reservations and add little value to tourism products and services” the tourist category shows negative agreement, whereas the business travelers show agreement. • On the popularity and computer literacy statement of technology usage by travelers, the tourists who traveled short haul and long haul hold the same perceptions showing negative agreement towards the statement. • For the items that are related with the perceptions on the cost of commission and favoritism for principals, tourists on long haul travel, of those who had purchased over the internet show disagreement towards the statement and this view is shared by the business travelers. • Tourists who traveled short haul and who have not purchased over the internet, show that they have negative agreement towards the statements. But an interesting observation is that the business traveler for the same shows a positive agreement. • In general ,the “Others” category, those visiting their friends and relatives or on any other purpose apart from tourism and business on both lines of purchases and travel distance show a higher level of agreement towards stand for technology assisted travel counseling. The phenomenal expansion of computer networks, notably the internet, has resulted in a rapid proliferation in the travel industry. Given the complex, dynamic and continuously changing behavior of the travelers of different categories such as tourists, business travelers and others, there is a need for transformation to the dynamic change in the techno-centric business arena, where it is obvious that the consumers or travelers have different choices and Indian Journal of Marketing • June, 2008 27


options for customization of their own product without any direct contact with the intermediary. To do business successfully on the internet, travel intermediaries have to mould their strategies to the unique characteristics of cyberspace. The major aspect of concern for travelers is to search information faster, seek more options and choices that suits their budget, and settling transaction online through the internet, as was evident in the study and which has an extreme implication. Internet services have already enhanced the options for customers to directly access the travel service providers, and the options thrown by internet and web based travel solutions for direct connection has augmented the possibilities of richer experience for travelers, with targeted bundled travel service offerings for travelers involving multiple travel service providers including airlines, car rentals, hotels, cruise liners, etc. This kind of service especially can satisfy the needs of the free independent traveler ( FIT) and (VFR) market, where they can get more satisfaction from the on-line choice with more freedom and more involvement. Traditional intermediaries, in contrast, offer limited value added features, content, availability of information and booking functionality,where they provide the booking and consulting services that are quite limited in their capacity to fine tune whether a tourist trip or business trip. But when adopted, they will be able to offer integrated trip service to customers revolving around multiple service providers including airlines, cruise ships, car rentals, hotel bookings etc. Therefore, traditional intermediaries need to build relationships with suppliers and to use the entire range of e - services to serve their customers. Being able to fulfill customer expectation and providing comprehensive and timely advice and service will be critical. While disintermediation or compression can pose a threat to traditional travel intermediaries from the above study, it cannot be said that they will be phased out in the near future as many respondents, business and tourists have a view that human interface has a significant place in their travel arrangements. However, the innovative e medium has its advantages of convenience for faster access of information and transaction, which should be factored and integrated in the business model of traditional intermediaries so as to enhance their services. But security concern is one major threat for using e mediaries, updating of information is another factor that makes consumers to rely on traditional travel intermediaries as from the above study. But this factor is almost equally problematic for the traditional travel intermediaries as they also have to update their own information from time to time. However, the study derives that travelers are more confident and feel trustworthy from a human interface point of view. If travel agencies want to survive, they will no longer be able to be content with printing airline tickets, but will have to act as a consultant and as travel package tailor, thus being able to use their special knowledge. Moreover, travel firms wishing to pursue the online channel can position the internet channel as most suitable for price conscious pleasure seekers who would like to plan everything themselves, whereas for those who do not want to spend the effort to do the planning, can always seek the services of the traditional travel intermediaries. Furthermore, the study reveals that the business travelers have high agreement towards internet based services. The traditional travel intermediaries, who have not adapted to the web based services though they make use of the GDS services, might need to revise their innovation and technology strategies regarding the provision of services to facilitate to the needs of the different segments. Currently, many international business travel agencies have been renamed as travel management companies to portray their change from being ticket bookers to offering consultancy services and involving in technology development for the better with which to gratify the needs of business travelers as internet and web-based applications have transformed corporate travel from a revenue producing unit to a cost-conscious activity. Thus it is quite evident that travel firms should also provide on-line services to their clients, with an additional value by making it possible to monitor and control the travel spending and where if possible corporate travel policies can be implemented. The proliferation of cybermediaries that we witness in the developed countries will not be pronounced in the rest of the world due to the more complex nature of adoption of technology and diffusion in terms of economy, web penetration and digital divide. For these reasons, the status of the traditional travel intermediaries will remain the same in the second and third world countries although on a less profitable permanence. (Cont. on page 41) 28

Indian Journal of Marketing • June, 2008


CO-BRANDING - AN INNOVATIVE STRATEGY IN MARKETING *Ravi Akula

INTRODUCTION Liberalization in India has brought changes in technology, quality, service work culture and undoubtedly fierce competition. As Kotler, Philip says, “Companies should think about the millennium as a golden opportunity to gain mind share and heart share”. It should be noted that these mind shares highlighted by Kotler are nothing but carving out brands in the customers mind. Marketers to capture share of mind and share of heart adopt innovative tools and techniques. Brands with varying dimensions of attributes, benefits, values, culture, personality and users have the real power to generate wealth. Brands, which are storing in these dimensions command respectable position in terms of sales, reputation, image etc, in the market. Ironically, in today's competitive scenario, there is a real battle of brands. Mostly brands find themselves in a clutter trying to differentiate from each other. This keeps marketers on toes to effectively communicative the values their brand possesses. They adopt many techniques for this; one such effective and efficient tool is COBRANDING. This article presents strategic model in co-branding, which discuss existing combinations and new combinations to build brand image, identity and reinforcement.

CO-BRANDING Kotler, Philip (2003) defines Co- branding as “two or more well-known brands combined in an offer” and each brand sponsor expects that the other brand name will strengthen the brand's preference or purchase intention and hopes to teach a new audience. Co -branding is also termed as dual branding. Tom Blackett and Bob Boad (1999) classify co-branding as listed below: (i) Same Company Branding: In this co-branding exercise, the company advertises their own brands together. For example General Mills advertises Trix and Yoplait yougurt together. As a hypothetical case, H.L.L. may promote Liril and Close up together on the freshness platform. (ii) Joint Venture Co-branding: It is defined as two or more companies going for strategic alliance in marketing an offer to the target. For example, WIPRO (Indian Company) and ACER (Taiwan Company) had joined hands in offering laptop in the Indian Market. Similarly Bharat Petroleum Corporation Ltd. has formed an alliance with the Bank of Baroda to launch the co-branded credit card namely Bharat BOB card. The card holders may buy the BPCL's product - namely petrol, diesel, lubricants etc. Diners club, British Airways and Citibank had joined hands in offering a credit card where the card owner will automatically become a member of British Airway's Executive club. (iii) Multiple sponsor co-branding: In multiple sponsor co-branding, two or more companies go for strategic alliance in technology, in distribution, in promotion etc. For example, Taligent is a technological alliance betweenApple, IBM and Motorola. (iv) Ingredient Co-branding (Component Co-branding): Manufacturers who make components, which is entering into final products, go for promoting their brand with an eye on the replacement market. For example, INTEL inside campaign with the branded computers is a very successful case in component co-branding. Indian Oil Corporation had gone for its 2T oil Bajaj and Kinetic Honda. MRF had gone for co-branding with Maruti, Opel Astra, Cielo and Fiat Uno.

CO- BRANDING IN INDIAN PERSPECTIVE • GE Money announced that it has formed a strategic alliance with Indian Railway Category and Tourism Corporation limited (IRCTC) through SBI card, its joint venture with State Bank of India. * Research scholar and Faculty of Commerce, O U P G College, Medak. E-mail: arreddy8881@yahoo.co.in Indian Journal of Marketing • June, 2008 29


• IRCTC and SBI card has launched its first even frequent traveler program and co-branded credit card- the SBI Railway card. • Idea Cellular and HDFC Bank launched two co-branded cards providing multiple benefits to customers of both. • SBI Card and consumer electronics firm LG Electronics India announced the launch of the LG-SBI card. This is the country's first co-branded credit card for the consumer appliances industry and can be used at more than 2 lakh outlets in India. • Andhra Bank and Hindustan Petroleum also launched their co-branded card. • Andhra Bank and ICFAI (Institute of Chartered Financial Analysts of India) University are using the strategy of co-branding.

BENEFITS OF CO-BRANDING Kapferer (2000) pointed out that with increasing frequency, companies today pair their brands in collaborative marketing effort to achieve the following benefits: v Many line extensions capitalize on partner's brand equity v Brand extensions success rates are maximized in the market when co branded with the reputed brand that has established itself in that market. v Co-branding may help usage extension. v Image reinforcement may take place due to co-branding. v Loyalty programs increasingly include co-branding arrangements. The corporations are sharing the cost of loyalty programs; hence, the promotional costs to the companies are coming down. v Co-branding signals a trade marketing operation. v Capitalizing on the synergies among a number of brands is yet another advantage of Co-branding. The companies gain in terms of purchase preference, price premium and enhanced brand image by co-branding practices. C. Anandan and S. Kaliyamoorthy (1999) had proved that in component co-branding (Ingredient Cobranding), the above benefits are experienced by the component part manufacturers. The final product manufacturers do gain little by the component part manufacturers. The final product manufacturers do gain little from the component co-branding practices. Entity of brand into foreign market presents an information asymmetry. A co-branding alliance with local brand may provide many benefits like reduced effort for building awareness, reduced effort for building brand image, and enhanced ability to penetrate channels.

RISKS INVOLVED Akshay Rao etal (1999) described a component featuring in a final product as brand alliances. In their research, they analysed the impact of customer perception about the brand form the quality angle. Venkatesh and Vijay Mahajan (1997) on their research work on partner selection for bundled products had pointed out that customer perception on the alliance would have a greater impact on the price premium the brand alliance was going to command in the market. Simonin and Ruth (1998) suggested that a fit should exist among allies in some way to ensure success in such alliances. While choosing the partners for their alliance, a company should be cautious and careful in analyzing the values of their alliance brand and its image. (Including company's image if it has an influential role to play).

CONCLUSION It is observed that Co-branding can be done in various combinations between national brands, regional brands, world brands, individual brands, family brands or with intangible product like service ensuring synergistic effect and win-win situation for companies, brands and customers. A study by the American Marketing Association, which investigated consumer's approach to Co-branding had found out that among the target audience when told that Kodak was introducing a new digital imaging product, (Cont. on page 41) 30

Indian Journal of Marketing • June, 2008


AN EVALUATION OF CUSTOMER ORIENTATION OF INDIAN PUBLIC SECTOR BANKS *Dr. S. S. Hugar **Nancy H. Vaz

INTRODUCTION Customer Orientation is the attitude of a concern towards its business wherein it places prime emphasis on listening to customers with a view to maximize their satisfaction with the concern and it products. Such a concern aims at maximizing the long term satisfaction of a customer even at the expense of losing immediate sale. In contrast, a 'sales oriented' organization encourages opportunistic means with a focus on immediate sales even at the cost of long term customer satisfaction. Thus, a customer oriented organization is the one which:1 • Constantly thinks and talks about its customers • Continuously assesses its customers' perception • Resolves priority issues in favour of its customers • Gives in, compromises, adds value to its customers • Makes amends to customers for poor treatment • Employs “whatever it takes” policy to satisfy special needs • Redesigns processes, redeploys resources when they get in the way of service quality. The Indian Public Sector Banks have treaded a unique path since their inception. They were born in a competitive regime. After nationalization they faced a totally regulated, non-competitive atmosphere with a social responsibility at their heart. Now they are trudging the path of regulated-competitive regime with the knowledge that nothing less than a strong global competition is likely to face them in the near future. The very lack of experience of a competitive environment seems to have made them forget what exactly is expected of a customeroriented organization.

NEED AND SCOPE OF THE STUDY The Financial Sector has already been opened. The Modern and efficient looking new generation banks have begun capturing the market. Moreover foreign banks have been permitted to open 20 branches a year now in the 3 place of 12 branches . The last decade has seen many proposals placed before the Government for the opening up of the banking sector to foreign investment, i.e., with regard to cap on voting rights to foreign investors, permission for the foreign investors to hold 74% of the stake in Indian Private banks, local subsidiaries of foreign banks to be treated at par with the domestic banks after 2009 etc.2,7. These moves for opening of the banking sector calls for improvement in the service orientation of the Public Sector banks (PSBs), which has been under attack for a long time. These foreign banks will bring in their wake capital, greatly advanced technology and management skills and unless one is equipped enough to counter the pressures, the repercussions would be great; especially for an economy which has learnt to depend heavily on these banks over the decades. Table1 gives the profile of the Schedule commercial banks, bank-group wise, which depicts the massive share of banking handled by the Indian public sector banks. From table 1 it is clear that the Public sector banks have been playing a major role as far as banking business is concerned and hold around 75% of the banking business under every category. But it is also obvious that when they are compared with their share from the year 2005 to 2006, they have lost a portion of their business in every single category of business. The major gainers have been the new private sector banks in every category and also the foreign banks which have done better on all aspects except to lose a very small fraction of their advances. Therefore, it is imperative for the Indian Public Sector Banks to take stock of the causes for the same and fortify Professor, Department of Studies in Commerce, Karnatak University, Dharwad , Karnataka Professor, St. Agnes College, Bendore, Mangalore-575005, Karnataka, E-mail : nesnan@sancharnet.in. Indian Journal of Marketing • June, 2008 31


themselves to the impending competition in future. Table1: The bank-group wise percentage of banking business handled by the scheduled commercial banks in India. (As at end-March) (Per cent) Bank Group

Assets

Deposits

Advances

2005

2006

2005

2

3

4

5

6

Public Sector Banks Nationialised Banks State Bank Group Other Public Sector Bank

75.3 45.2 26.6 3.5

72.3 44.3 24.8 3.2

78.2 49.8 27.5 0.8

75.0 48.7 25.1 1.2

Private Sector Banks Old Private Sector Banks New Private Sector Banks Forelgn Banks

18.2 5.7 12.5 6.5

20.4 5.4 15.1 7.2

17.1 6.4 10.8 4.7

100.0

100.0

100.0

1

Scheduled Commercial Banks

2006

2005

Investments

2006

2005

2006

7

8

9

74.2 45.5 24.7 3.9

72.9 45.0 24.5 3.5

78.9 46.0 30.0 2.9

73.1 44.2 25.9 2.9

19.8 6.0 13.8 5.3

19.2 5.9 13.3 6.5

20.6 5.5 15.2 6.4

16.2 5.1 11.0 4.9

20.8 5.2 15.6 6.2

100.0

100.0

100.0

100.0

100.0

Source: Report on Trend and Progress of Banking in India 2005-2006

SAMPLE GROUP 15,16,18 For this study, five PSBs, three new generation banks and three foreign banks have been selected. The chosen for the study are: State Bank of India i.e., by virtue of its size and importance as a leader among the PSB's and the most trusted and patronized bank. (hereafter coded as 1.1), SBI is the largest bank in India with a network of 9177 branches and 70 overseas branches which have enabled the bank to access stable retail funds which constitute about 60% of its total deposits. It has managed to accumulate a deposit base of Rs.4044 billion and advances of Rs.3094 billion. It has a satisfactory profitability and has retained a return on assets of around 0.9 to 1 percent per annum for the past three years. In the recent ratings allotted by CRISIL, some of its bonds have been rated at the highest industry rate of AAA and deposits at P1+. Oriental Bank of Commerce and Corporation bank as the second and the third bank, by virtue of their leading, the banks in most of the performance indicators and also having been nationalized together in the second round of nationalization of banks on April 15th, 1980. Rumours say that three banks, with OBC and Corporation Bank being the two among them, are likely to be amalgamated in the near future. (hereafter coded as 1.2 and 1.3 respectively). Oriental Bank of Commerce is a large-sized bank. It has a comfortable capitalization level; a high absolute networth; a healthy, net-worth to net non-performing asset ratio of 23.7; and a strong market position in the North. In the recent past, the bank has been proactive in early detection and taking corrective actions on its potential weak assets. The Global Trust Bank was amalgamated with Oriental Bank of Commerce onAugust 14, 2004, providing the bank with an access to an established base of high net worth customers in South India and a network of 80 branches and 150 ATMs Corporation Bank, though relatively small in size, has a strong capitalization, superior asset quality and a comfortable resource profile. It is among the best players in the Indian banking sector on these parameters. The Bank has a moderate net worth size with a comfortable net worth coverage for non-performing assets at 26.53 times. The gross NPAs reported as on March 31, 2007 compare favourably with most banks and its resource profile has also been managed favourably. Its profit margins have remained high over the years with its business mainly concentrated in the western and southern regions. The products of the bank that are recently rated by CRISIL enjoy the best industry grade of AAA for the loan products, FAAA for its fixed deposit and P1+ for its Certificate of Deposit programmes. Allahabad Bank, by virtue of it being the oldest indigenous bank among the PSB's to have been set up on 24th April 1865 (hereafter coded as 1.4). Over 50% of the bank's branches are in rural areas hence around 38% of its 32

Indian Journal of Marketing • June, 2008


deposits are of low-cost current and savings banks account deposits. The bank has witnessed a high growth of advances of 39% per annum in 2006-07. Punjab National bank, again a bank set up in the 19th Century, holding the largest deposit of the public among the Nationalised banks, next to SBI and also as one of the leaders in lending (hereafter coded as 1.5). The bank has a healthy resource profile and a strong market position. It is the second largest bank among the PSBs with regard to its total business and the third largest among all scheduled commercial banks as far as its asset size is concerned. In 2003, the bank took over the Nedungadi Bank Ltd., the oldest private sector bank of Kerala. All its recently rated products have been given the highest industry rate by CRISIL. With regard to the ratings of the Indian Public sector banks, the CRISIL says: In its ratings of Indian public sector banks (PSBs), including Allahabad Bank, CRISIL factors in the high likelihood of systemic support they can expect to receive from GoI in the event of distress. CRISIL believes that GI's majority ownership creates a moral obligation for it to support the PSBs if the need arises 17 In addition, two groups of banks have been included for a comparative analysis with the above Public Sector banks, (often mentioned as other banks) i.e., three New Generation banks and three Foreign Banks, from which the PSB's may expect strong competition in the future. The three New Generation Banks taken up for this purpose are: The Indusind Bank Ltd., by virtue of it being the first new generation bank to be set up in 1994 by the eminent non-resident Indians and also as the first Indian Commercial Bank to achieve the unique distinction of ISO 9001:2000 quality certification for banking operations at all their branches. (hereafter coded as 2.1), The bank is among the top five commercial vehicle finance companies in the country in terms of disbursements. It has a healthy medium term asset quality with retail advances which have inherently lower risks and which constitute to 69% of the bank's total advances. Its capital base is small. In 2004-05, Ashok Leyland Finance Ltd (ALFL), a subsidiary of Ashok Leyland Ltd, was merged with the bank The ICICI bank is the second largest commercial bank in India. (hereafter coded as 2.2), ICICI bank's overall retail loan portfolio, which grew at 39% in 2006-07, is at Rs.1.28 trillion, which accounts for 65% of its total advance. It has a strong capital position and has improved its earnings profile significantly. Its reverse-merger with its promoter ICICI Ltd. in March 2002 makes it stand as the second largest bank in India. According to the recent ratings given by CRISIL, all its rated products enjoy the highest industry ratings. HDFC bank is one of the finest new generation banks, established in 1994, which became operational in the year 1995. .(hereafter coded as 2.3) The bank is involved in wholesale banking, retail banking and treasury operations and is known for its customer oriented products and services CRISIL has recently assigned the highest provisional ratings to HDFC Ltd's Mortgage backed securitization programme. The three Foreign Banks selected for the study are: The Hongkong and Shanghai Banking Corporation Ltd., known as HSBC bank, selected by virtue of its presence in more than 79 countries and considered one of the largest banking groups in the world, one to have its presence in India since 1853, and as one of the safest banks. (hereafter coded as 3.1), Standard and Poor's has assigned the bank an outstanding counter-party foreign currency ratings of AA/Positive/A-1+ which reflect its strong parentage by the UK based HSBC Holdings Plc, good asset quality, stable funding base and strong financial risk profile. Its Indian operations too are characterized by high profitability, healthy asset quality and capitalization levels and a comfortable resource profile. It is the third largest foreign bank in India. ABN Amro Bank N.V., a Netherlands based bank, the tenth largest bank in the world with its presence in 76 countries. (hereafter coded as 3.2), For the financial year ended on March 31, 2006, the bank has recorded its best growth in Indian operations where its total profits grew by 23.7%, balance sheet by 52.9% and revenues by 48%. The year also saw great improvement in its Small and Medium Enterprise and mid-market client base and its micro-finance business now reaches around four lakh low income households in India through its 27 institutions across 17 Indian states. It began its microfinance operations in September 2003, and aims to reach 1 million rural and underprivileged women with its financial services by 2009. Indian Journal of Marketing • June, 2008 33


The Citibank NA which has its presence in India since 1902 and has captured the largest Indian deposits and is also the highest lender among the foreign banks in India. It was adjudged the best bank in India during 2001-02 by the Business India and has ambitious plans to expand its branch network in India in the years to come (hereafter coded as 3.3). The above three being world leaders, it would suffice to say that they have the best in their armour as far as customer orientation is concerned.

SCOPE OF THE STUDY Four major variables have been chosen for the study in evaluating the Customer Orientation of these banks, i.e., the products offered, the technology adopted, the service environment and the complaints received.

THE OBJECTIVES OF THE STUDY The primary concern of this paper is to evaluate the customer orientation of the PSBs i.e., a kind of a SWOT analysis, which could help these banks to take stock of their present position in the four aspects of customer orientation, with a view to help them to gear up to the competition.

METHODOLOGY An evaluation of the secondary data has been made of the above banks from the following sources, i.e., RBI reports, bulletins, the report of trends and progress of banking in India, and the other archival data available on these banks. A number of articles, both research and otherwise, hardbound and web-bound, news items, reports and other materials have also been browsed in an attempt to make an accurate evaluation.

DATA ANALYSIS ON CUSTOMER ORIENTATION OF INDIAN PUBLIC SECTOR BANKS The Products Offered: The past decade and a half has seen a sea-change in banking products offered. Though the major product composition of banks still consists of deposits and advances, the garb of their usage has revolutionized. Indian banks, including the PSBs, have naturally followed suit and have been servicing their customers by offering these traditional services in the shape of ATM's, Debit/Credit cards and other e-banking products. But the pace at which these banks have been promoting these products to their customers is very slow. Inspite of the brochures, pamphlets, posters, bill-boards and other forms of advertisement, the banks have not been able to convince the customers to use the modern services. Customers are apprehensive of these products due to a number of reasons. To site a few of them: the unmanned ATMs have at times given them nightmarish experiences due to their lack of knowledge of proper usage; there is always a fear in the mind of the customer who deposits the amount at the ATM that it may not ultimately get to his account, for their ATMs do not have a fully automated deposit system unlike those of the foreign banks; the inability of these banks to estimate the customer needs often leads to a 'no cash' situation at many ATMs which not only disillusions the customers but spreads negative word-of-mouth advertisement. Too many service failures are aired by the customers and such instances do not give them enough confidence in these products. Often the customers interested in a particular modern product which is widely advertised by a PSB, run against a wall in the shape of the staff that is either unenthusiastic or ignorant about the offer, the product or the process of service. At times the staff is even unaware of the new products introduced as no timely communication or training on the product is given to them (especially when such products are not introduced at some branches). One of the constraints in the growth of electronic payment systems (i.e. ECS, EFT and RTGS) has been the high rate of service charges being levied by banks. But the RBI has taken steps to popularize these facilities by waiving the service charges to the banks up to March 31, 200619. The rich illiterate man of the interior is blissfully ignorant of the modern trend and the usage. These facilities are hardly extended to such places and the effort to reach and attract these customers is hardly sufficient. Furthermore, despite the wide branch network of the Public Sector Banks claiming to span even the rural areas, a recent survey on rural access to finance indicated that 70% of the rural poor do not even hold a bank account.18 Ways and means of tapping the youth who have nimble fingers at technology and are undoubtedly going to be great customers of 34

Indian Journal of Marketing • June, 2008


the future, are very insufficient. It is important to note that around 40% of the total population of India is below 15 6 years of age. The modern customized product offers, i.e., the investment advisory services, tax advisory services, cash management, etc., (which are already offered by the new generation and foreign banks4) - a lucrative business of the future and sure way of attracting high net-worth and greater number of customers in the present times - are hardly looked into. If we just take the insurance products offered by the public sector banks, we can see that they have rather become peddlers of the products of the insurance companies unlike the new generation and foreign banks which offer these products in their own right. The inability of these banks to provide the facility of demat accounts to their customers - a thriving business in the present market boom - has also seen the erosion of business from these banks towards other banks. At times it looks as if these banks are trying to attract customers using new labels on the old product offers which are most unlikely to fool the customer of the future. Even the Corporate sector seems to be enjoying the fruit of competition in banking and is greatly enamoured by the modern products of new generation and foreign banks. As far as product cost is concerned, the PSBs have to follow a rigid interest rate structure in their deposits and advances. This does not permit them to attract large, highly credit worthy and corporate customers who are being serviced at relationship pricing by the other banks and thus able to capture bulk of their business13. These problems can well be spoken of as 'pains of transition' of the early stages. But it should be clear by now that there is not much time left to grow. Customers are least likely to be worried about the banks' pains and the banks that are likely to inundate India in the future are sure to come with a fault free, modern, speedy and efficient spate of products. These banks which are geared to 'listen' to their customers will be a great challenge for the Public Sector Banks. On the positive side we see that Public Sector bank products are well tested by the public. The systematization of procedures results in lower procedural complaints. Their service charges and other costs are highly reasonable; the minimum balance requirements are lower. Unlike the Private sector banks and foreign banks, the PSBs do not haunt their customers with hidden costs and penalties. Safety of funds of the customers of these banks has a clear edge over the other banks. In this connection attention is called to the statement of CRISIL given after the profile of the PSBs. Some foreign banks even charge a fee to their customers who hold certain accounts if the customer visits the bank instead of using their Call Centres and other technological services. The formidable combined PSB network of around 48,000 branches and 13,000 ATMs, is another point of advantage over the other banks. Table 2: The number of branches and ATMs of Scheduled Commercial Banks bank-group wise. (As at end-March 2006) Bank Group

1 i) Nationalized Banks ii) State Bank Group iii) Old Private Sector Banks iv) New Private Sector Banks v) Foreign Banks Total (i to v)

Number of Branches

Number of ATMs

Rural

SemiUrban

Urban

Metropolitan

Total

On-site

Off-site

Total

Percent of Off-site to total ATMs

2

3

4

5

6

7

8

9

10

12,992 5,229 936 97 Ăą 19,254

7,120 4,043 1,447 322 1 12,933

7,056 2,449 1,236 674 37 11,452

7,017 2,110 947 857 221 11,152

34,185 13,831 4,566 1,950 259 54,791

4,812 1,775 1,054 2,255 232 10,128

2,353 3,668 493 3,857 648 11,019

7,165 5,443 1,547 6,112 880 21,147

32.8 67.4 31.9 63.1 73.6 52.1

Source: Report on Trend and Progress of Banking in India 2005-06

Table 2 shows the large combined branch network and ATMs of the nationalized banks which can be used to their advantage in future. It also depicts the social responsibility discharged by them through their rural and semiurban branches, whereas the foreign banks are yet to open their branches in rural areas. Yet the profile of ABN Amro given above (point 3 pg. 4) makes it clear that the bank has successfully penetrated these areas of business as well. The data under 'number of ATMs', shows that the new generation and foreign banks reach their customers more through their ATMs than through their branches and the high percentage of offsite ATMs to on-site one's Indian Journal of Marketing • June, 2008 35


speak of their efforts at reaching their customers with modern products and services far and wide. Any query on the performance and abilities of the technological products offered by them receives a very positive response from the customers of these banks. It is commendable to note that the State Bank group which operates with the highest number of ATMs, caters to the whole of the customer base of the 8 State Banks at no extra cost to any customer of the banks in the group. But sadly their ATMs are the ones on which negative word of mouth is often aired. A little effort in this direction from the concerned may go a long way in providing fault-free service and enhance their customers' satisfaction Technology: At the very base of customer orientation lie the four aspects of evaluation made consciously or unconsciously by a customer, i.e., Speed, certainty, ease and recognition5. This calls for a bank of the future to be a highly technology oriented one. Further, none of the modern products come without technology. Information technology, as the clichĂŠ goes, is 'ruling the roost' as far as banks are concerned and no bank can survive in the future without paying proper homage to it. Indian Banking began its tryst with technology in the 1980's in a small way on the recommendations of Rangarajan Committee and the 1990's plummeting hardware prices also contributed to its adoption. India has been known world over for its technological prowess and the greatly sought after technology experts. But Indian economy as a whole and banking sector in particular, has lagged far behind the industrialized countries in technology adoption and failed to reap timely benefits of all the technological innovations and expertise. In fact the countries which were the early adopters of technology were able to benefit by way of increased productivity with a head start in capturing the market by their innovative technological and highly customised products. The technological innovations have greatly benefited the banking industry world over in a number of ways. First of all, the speed and accuracy of the banks' operational data has been the foremost benefitter of technology. The offer of a great number of channels of operations in addition to the 'across the counter' channel, i.e., the telephone/mobile banking, ATM/kiosk banking, the internet channel, were second to benefit from the technological innovations. Thirdly the innovative, highly efficient and quick services in the shape of anywhere/anytime banking offered by the banks are all obligated to technology. The present trends of product customisation and customer relationship management etc., have been made possible by technology alone. All those banks which have captured a large customer base, especially the customer of the future, definitely have their 8 early technology adoption to thank for. Table 3: Computerization in Indian Public Sector Banks (As on March 31, 2006) (Per cent)

1 i) Branches already Full computerised # ii) Branches Under Core Banking Solutions iii) Fully Computerised Branches (i+ii) iv) Partially Computerised Branches # : Other than branches under Core Banking Solutions.

2 48.5 28.9 77.5 18.2

Source: Report on Trend and Progress of Banking in India 2005-2006

When it is a known fact that the Foreign Banks and New Generation banks have computerization and modern technology in their arsenal for more than a decade or two, table 3 gives the state of computerization of Indian Public Sector banks. But on the positive side a major part of the country's population has not yet adapted itself to the technological innovations and are rather 'afraid' to use the 'tech-products'. The Indian customers are still aware of only the traditional products and are used to the speed of service of the regulated regime and also are not great travelers 36

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unlike their counterparts in the western countries. And for the best part, the foreign banks have so far not penetrated a major part of India except for a few metropolitan and large cities. All the above factors therefore afford the Indian PSBs alien on time for the next few years to catch up with their technical lacks. But there is no denying that this has to be done fast as there is only a very short time left. Table 4 sets out the details of the computerization that has so far taken place in the PSBs chosen for the study. The State Bank of India - the giant, and the Corporation Bank - small compared to it, are fully computerized. Corporation Bank which is always commended as an early technology adapter has moved the maximum of its branches into core banking. Allahabad bank which is yet to open its account in core banking has decided to move into core banking since the year 2006. Table 4: Computerization in the Public Sector Banks chosen for the Study. Bank Code 1.1 1.2 1.3 1.4 1.5

Fully Computerised Branches (%) 70.20 6.00 39.90 79.50 45.80

Branches under Core Banking Solution (%) 29.80 57.30 60.10 -51.80

Total no. of computerized branches (3 + 4) 100.00 63.30 100.00 79.50 97.60

Partially Computerised branches (%) -38.40 -20.50 2.40

Data is derived from the report on Trend and Progress of Banking in India 2005-06.

The service environment: The employees and the bank's working environment are major contributors to this factor. Customer orientation of the employees of the PSBs is under attack due to a number of reasons. First of all the lack of exposure to competition for decades has killed the enthusiasm and the competitive spirit, and in general the customer orientation, of the employees. The controlled regime has taken its toll in the shape of lack of incentives, favouritism, corruption, delays and red-tape, non-accountability, etc9,10. The foremost complaint of the employees is their age-group. The average age of a bank employee in the PSBs is late forties. There are a number of stigmas attached to this age-group. It is the general notion that employees in this age-group lack energy and enthusiasm to give their best to customers, are slow to understand the innovations in the field, have very little orientation towards technological adoption, often are emotionally drained, etc. Whether this is true or not, most of the Indian PSB employees especially those that serve across the counter suffer from the above symptoms which cause customer dissatisfaction. Added to these are the trade unions that have often been blamed to have refused to adapt to change for the better, protected the employees from any action being taken against them for their inefficiencies, etc. One major complaint often heard about the staff, which is the most crucial aspect of customer orientation and which speaks volumes in favour of the other banks, is the slackness and unenthusiastic nature of the service of touch point personnel which has put off even some of their best customers. Often it is heard of these banks being over/under staffed. On the other hand, their counter parts have come out with various ways and means to 'delight' their customers with special treatment, especially the high net worth customers. One of the tactics used by them is by allotting a service personnel to each of the priority customer. His work is to go to the door step of the customers when they call him instead of the customer visiting the bank for his need. Some PSBs have woken to the need of special treatment to high profile customers by maintaining a register of such customers and keeping a tab on their needs. The social responsibilities of the PSBs, lack of technology needed for the purpose as also the need to provide equal treatment to all customers seems to come in their way. Even then non-discrimination on the premises is the general norm of any business and it means quick, hassle free, courteous and professional service. Inspite of the social responsibilities of banks it does well to remember that a bank cannot remain viable for long without high net-worth customers. Whatever may be the cause or the symptom, the indicators of their efficiency i.e., business per employee, profit per employee, rank the lowest among the three types of banks chosen for the study and is summed up in Table 5.

Indian Journal of Marketing • June, 2008 37


Table 5: Comparative view of Banking business and Profit per employee. (Rs. In Lakhs) Bank Code 1.1 1.2 1.3 1.4 1.5 2.1 2.2 2.3 3.1 3.2 3.3

Banking business per employee 299.23** 570.26 527.00 336.00 330.92 880.18 905.00 758.00 975.65 905.82 1607.92*

Negative difference from the best performer 1308.69# 1037.66 1080.92 1271.92 1277.00 727.74 702.92 849.92 632.27 702.10 --

Profit per employee 2.17 5.37 4.13 3.69 2.48 1.56** 10.00 7.39 12.07 8.15 21.71*

Negative difference from the best performer 19.54 16.34 17.58 18.02 19.23 20.15# 11.71 14.32 9.64 13.56 --

Worked out on the basis of data derived from the Report on Trend and Progress of Banking In India 2005-06.

* Best performance

**Least performance

#Highest negative difference

Further, the service environment of PSBs greatly falls short of the needs of a modern customer. The foreign banks have a well endowed pleasant place of work at most convenient locations providing for most of the customers needs, i.e., place for parking, comfortable set up, proper guidance and direction, etc. Due to various steps taken and the technology adopted, these other banks offer a cool and quiet atmosphere. For the best part, the greatest enemy of a respectable customer is rarely seen in these banks, i.e., the long queues, which are a very common feature at any PSB even at non-peak hours. The premises with inconspicuous but ever present young, energetic, enthusiastic, knowledgeable, smiling and courteous staff with a professional look play a great role in attracting customers to these banks. But on the positive side we have an Indian customer in a village set up with a single bank for his needs, who still calls the PSB branch that it is 'his'. He does not have many expectations and does not know his rights. A quote of 11 Late Mr. M.R. Pai says "The biggest asset on the balance sheets of banks today is the ignorance of customers of their own rights, and their reluctance to fight for them". (on the Depositor Rights and Customer Service in Banks, All India Bank Depositors Association, 2001,). But here again the customers are awakening to their rights. The RBI is working in a number of ways to improve the service conditions for the customers of the banks.12 The year 2006 has seen the RBI setting up a separate Customer Service Department of its own. Any query with any customer of a PSB with regard to the services often elicits a response that the quality of service in any branch of a PSB depends on who the branch manager is. Thus proper empowerment of the manager to guide and motivate his 9 subordinates may go a long way in improving the quality of service . The current trend of patriotism and traditionalism in the country may well be used by these banks to their advantage through advertisements. Customer Complaints: Table 6 gives the statistics on the complaints received by the RBI from customers regarding the services rendered by the banks. It records that the complaints received are maximum in number against the Public sector banks chosen for the study. But 'complaints per branch', are comparatively very few, especially when compared to the foreign banks. The category-wise break up of complaints, records that the credit card related complaints are maximum as far as the new generation and foreign banks are concerned, whereas they are negligible or nil (except SBI), in case of the PSBs. One of the reasons for this is that most of the PSBs (including those selected for this study) are yet to offer this facility to their customers and others may not have offered it for long to elicit many complaints. Harassment in recovery of loans is also seen in the other banks as recovery is an important issue to remain profitable and viable in business in the private sector as well as the competitive scenario. The statement of CRISIL under point 3 above is worth keeping in mind here regarding the viability of the PSBs. It is seen that the 'general complaints' are the maximum among the PSBs and lack of customer orientation may be one of the reasons for receiving such complaints against them. 38

Indian Journal of Marketing • June, 2008


Generally these complaints stated in table 6 are the major problems related to failures in products and procedures, i.e., those encountered in the collection procedures and costs involved in servicing the customers, etc. The high cost of service, often hidden from the customer at the time of availing the service, is more likely to reach the RBI for settlement. But equally dangerous are customers who are dissatisfied with the services across the counter and who rarely complain for the lacks experienced by them. Even if they do complain such complaints never figure out in the statements of the RBI. It is a well-known fact that the negative word of mouth of a customer has great repercussions on the business of any organization. Luckily, the culture of complaining has still not set in the ordinary Indian customer. He seems to have a lot of patience, ever ready to sacrifice hours together to be served standing in a queue and, even his due treatment with courtesy and respect delights him often. But all this may not continue for long. This kind of service environment of the PSBs, if continued in future, is sure to have a detrimental effect on them by losing their customers to the new generation and the foreign banks which are known to provide exemplary service to their customers. After all, the complaints in procedures and hidden costs are encountered only in due course and once a customer is captured, the defection costs piled up by these banks are more likely to deter their customers from shifting back to a Public Sector Bank. Table 6: The complaints received against the banks chosen for the study (Period 2005 -2006) Name of the Bank

State Bank of India Oriental Bank of commerce Corporation Bank Allahabad Bank Punjab National Bank Induslnd Bank Ltd. ICICI Bank Ltd. HDFC Bank Ltd. HSBC Ltd. ABN Amro Bank Ltd. Citibank N.A.

Total No. of No. of Complaints Category-wise break up complaints complaints Branches per branch Deposit Remittance/ Loans / Advances Credit Activities Harassment General received Accounts collection of Direct in recovery other Cards during the General Housing related facilities of loan related Selling period Loan Agents 1100 99 60 96 263 24 783 374 79 147 338

9241 1187 824 2027 4142 146 563 515 42 23 39

0.12 0.08 0.07 0.05 0.07 0.16 .1.39 0.73 1.83 6.39 8.59

200 22 6 22 76 3 95 66 7 10 18

140 10 10 8 32 3 35 30 2 2 14

174 18 4 24 51 3 92 36 7 7 33

34 7 4 14 38 20 5 4 15

15 3 296 83 37 94 147

25 1 17 5 7 2 62

42 7 1 4 10 24 12 4 5 10

334 35 32 37 106 15 186 122 10 23 36

Source: Report on Trend and Progress of Banking In India

– : Nil/negligible.

FINDINGS AND SUGGESTIONS The above analysis on the four aspects of customer orientation can be summed up as an overview of the strengths and weaknesses of the PSBs and the opportunities and threats in their way, with regard to their customer orientation in facing the competition in the open regime. It is important to note that the overview gives a general analysis of the PSBs and all that is mentioned under each head may not be true for every bank. Therefore it is imperative that every Public Sector Bank makes its own SWOT analysis and: 1. Takes note of its own strengths and uses these as a strong foundation to improve their customer orientation, 2. Takes note of the weaknesses that deters it from giving the best to their customers and take steps to overcome them, 3. Takes note of all the opportunities that come its way and carefully plan out to make the most out of them and, 4. Takes note of the threats on its way and fortifies itself to face them squarely.

Indian Journal of Marketing • June, 2008 39


An overview of the Analysis of customer orientation of Indian PSBs Strengths Well tested products, systematized procedures, low product costs, low minimum balance requirements, no hidden costs, great safety of funds, large combined branch network and ATMs, Supportive, encouraging policies and guidance of the RBI, Govt. stake in the capital of PSBs, realization among the higher officials for a need to improve customer orientation.

Opportunities Large computer illiterate population, time period of two years to gear up to the competition and catch up with banking technology, large untapped young population which is lately being tapped by the PSBs through their zero balance account drive, Inability of foreign and new generation banks to tap the rural population so far, likelihood of MOUs, tie-ups and amalgamation of the PSBs in future, ability to adopt latest banking technology due to the delayed adoption of technology, Recent traditional patriotic bent of mind of the Indian population, ignorance of modern trends in banking among Indian customers, Modest ways and habits of majority of the Indian customers.

Weaknesses Low efficiency of the ATMs, operational problems of ATMs, low efficiency of the employees, motivational and technology adoption problems of employees; slow, inefficient and often unattractive service environment, age of the employees of the PSBs, Lack of experience of the competitive environment, low efforts at capturing modern and highnetworth customers, technology and service failures which give these banks negative advertisement, loss of business due to inability to offer the required modern, efficient products to individuals and also corporate customers, Insufficient and unattractive advertisement effort, Lack of appropriate and timely training to staff.

Threats Overt Governmental and RBI parenting, negative word of mouth advertisement from dissatisfied customers, Highly innovative product offers of the other banks, efficient and highly customer oriented operations of the other banks, flexibility in the procedures of other banks, Efficient technology, enthusiastic, efficient and young employees of the other banks, customer oriented technology of the other banks, innovative advertisement effort of new generation banks, Likelihood of holding a controlling interest in private banks by the foreign investors.

In recent times, among the various measures used by the new generation and foreign banks in improving their customer orientation, the concept of Customer Relationship Management (CRM) is most widely used. CRM focuses on customer retention by adopting a customer oriented strategy to delight their customers rather than just aiming at their satisfaction. It makes use of the relevant technology available for the purpose. But it should be remembered that proper planning and care is exercised before its implementation to see that steps are taken for the customer oriented attitude to percolate throughout the organization. This alone can guarantee its success, especially in view of the large investment that the CRM technology entails. The technology only helps in enhancing the relationship with the customers by offering guidance and easy access to the analyzed information about the customer and other related matters. CRM adoption is very popular with financial institutions world over, more than any other type of industry. Some new generation banks in India have already adopted it. But the Indian PSBs do not seem to have given a thought to it yet. May be it is time now for those in authority to give a thought about its suitability to the Indian Public Sector banks and then plan its proper implementation if they think that it would help these banks to improve their customer orientation.

CONCLUSION With the opening of the financial sector, improved customer orientation will surely be an important factor in helping the Indian Public Sector Banks to stand to the global competition. Moreover the already intense competition from the new generation banks and also the other private sector banks is likely to intensify further after 2009, if the foreign direct investment limit in the banking sector is raised to 74% as proposed. Fears are often expressed that this may lead to a 'no competition' scene for the PSBs, if all the protection is removed without giving a thought to improve their customer orientation. There is a short time left but if thoughtful action is taken in the right direction, there is no doubt that the Indian PSBs will be able to stand strong. But the time factor calls for the right action to be taken at the earliest.

BIBLIOGRAPHY 1. 'Customer Orientation', Wikipedia the Free encyclopedia, browsed on 28th January 2007, "http://en.wikipedia.org/wiki/Customer_orientation". 2. Left Parties Note on the 'Proposal to enhance FDI cap in Banking', dated February 14, 2005. Submitted to the UPA-Left Coordination Committee. 3. 'Banking', Indian Brand Equity Foundation, dated April 6, 2006, browsed on January 21, 2007, www.ibef.org 4. 'Banking Products', Banknet India, www.banknetindia.com/banking/products.htm, dated January 26, 2007

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5. 'Four Factors of Customer Expectation', Russell Guiles, article of Allies Consulting, dated January 28,2007, www.alliesconsulting.com/resources/articles.html. 6. 'Economy of India', Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Economy_of_India, browsed on January 26, 2007. 7. 'Banking in India', From Wikipedia, the free encyclopedia, http://en.wikipedia.org/wiki/Banking_in_India, browsed on January 26, 2007 8. 'Technological innovations in the Indian banking industry: the late bloomer', Meenakshi Rishi & Sweta Saxena, Journal of accounting, Business and Financial History, Volume 14, issue 3, pages 339-353. 9. 'Where Did India Miss a Turn in Banking Reform? Is there a comeback?', Pradeep Raje, Centre for Advanced Study in India Working Paper, December 2000. 10. 'Bank Financing in India', Abhijit V. Banerjee, Shawn Cole, and Esther Duflo, October 2003, Research paper browsed on January 21, 2007. 11. Report on Banking Operations, Reserve Bank of India, dated May 28, 2004. 12. Annual Report 2005-06, Reserve Bank of India, pg. 165-66. 13. 'Web Banking: Europe's ING Direct Bucks U.s. Tradition', By John Engen, Internet resource. http://www.banktechnews.com, browsed on 16th March 2006 14. 'State Bank of India: Transforming a Giant', Douglas Jaffe, Financial Insights Opinion, December 2005, Financial Insights #FIN1701, Financial Insights:Asia/Pacific Banking Advisory Service: Case Study, www.Financial-insights.com 15. Indian Banking Year Book, 2003, Indian Banks'Association. 16. CRISIL Ratings, http://www.crisil.com/credit-ratings-risk-assessment 17. 'CRISIL Reaffirms ratings of Allahabad Bank',CRISILRatings, http://www.crisil.com/credit-ratings-risk-assessment 18. 'ABN Amro Case Study', The Worl Bank/Brookings Conference on Access to Finance: Session VI Case Studies. 19. 'Reserve Bank of India', Economy Watch, http://www.economywatch.com/reserve-bank/reserve-bank-india4.html, downloaded on May 8, 2007. 20. Report on Trend and Progress of Banking in India, 2005-2006, Reserve Bank of India.

(Cont. from page 30) 20% of respondents said they were likely to buy it. The same number said they were likely to buy it if Sony made it. But when told the products was being Produced jointly by Kotak and Sony, that figure rose to 80%. Blackett points out that it indicates the weakness or lack of credibility of each firm separately, but a brand 'synergy' of potentially staggering dimensions. In an era of globalization, liberalization and intense competition to give a distinct identification to their brands, companies have to invest huge amount that can be significantly reduced by effective utilization of co-branding.

BIBLIOGRAPHY 1. Anandan, C. and Kaliyamoorthy, S. “Astudy of component co-branding practices in India” paper presented in the XXIII Indian Science Congress at Coimbatore (1999). 2. Bennet, peter D. “Dictionary of Marketing Terms”American Marketing Association: Chicago (1998) p18. 3. Kotler, Philip.”Marketing Management the Millennium edition” PHI Pvt.Ltd: New Delhi (2003) pp 87-88. 4. Rao, R. Akshay, Lu Qu and Robert W. Rukert. “Signaling unobservable product quality through a brand ally” Jourmal of Marketing Research XXXVI (1999) pp. 256-268. 5. Business Line Daily newspaper. 6. Economic Times. 7. Financial Express.

(Cont. from page 28) Thus it can be construed that in every respect the rules of value creation is changing rapidly. And tomorrow there categorically might be a new rule which will depend on the survival of the fastest. Integration and customization, is indeed the future focus that might boast many new features, including more technology coverage and innovation with a human touch.

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Analyzing the Impact of Television Advertising on Children's Food Preferences: A Study of Indian Perspective (with Special Reference to Delhi & NCR) * Noopur Agrawal **Aditya Prakash Tripathi

REVIEW OF LITERATURE Children were able to recognize scenes from the advertisements after one exposure but recall of the brand names was poor for the younger children, even after three exposures. Recall for the advertising content increased by age and number of exposures. None of the six-year-olds and only a quarter of the eight-year-olds and a third of the 16year-olds discussed advertising in terms of persuasion. Therefore, although children remember television advertisements, their purpose is not fully understood, even by many ten-year-olds. The present study seeks to examine the influence of Television Advertising on the food and beverage preferences of Kids, the influence of television advertising on food and beverage beliefs of children belonging to different age-groups and also examines the influence of Television Advertising on diet-related health outcomes and risks among children and youth considering the Indian perspective with specific focus on Delhi & NCR . Livingstone and Helper's (May 2004) literature review examined the influence of television advertising on children's food preferences and choices in the context of rising national and international levels of childhood obesity. The following conclusions are drawn: 1.) There is a growing consensus that advertising works its influence on children's food preferences, diet and health. Given that most advertising for children is for products high in salt, sugar and fat, this influence is harmful to children's health. 2.) Expert commentators are now convinced that television viewing plays a role in contributing to the problem of children's unhealthy diet. 3.) Very little is known about forms of food promotion other than in- television advertising. This is a crucial gap as promotional strategies diversify. 4.) The experimental evidence suggests that television advertising has a modest direct effect on children's (age 211) food preferences by demonstrating that those exposed to particular messages are influenced in their food preferences when compared with those who did not see those messages. 5.) Although experiments identify causal relations between advertising and food choice, it remains unclear how these operate along side the complex conditions of daily life at home and school. 6) A growing body of well-conducted national and international surveys shows a modest but consistent association between overall television exposure and weight/obesity. This applies among children and teenagers. 7.) It remains unclear whether this association reflects the specific influence of exposure to television advertising or whether it is due to increased snacking while viewing or to a sedentary lifestyle with reduced exercise. 8.) In both experimental and survey studies, the measured effects of advertising/television on food choices are small. Estimates vary, but some suggest that such exposure accounts for some 2% of the variation in food choice/obesity. 9). Cumulatively, this may make an appreciable difference to the number of children who fall into the 'obese category'. Further, this effect may be larger than the measurable effect of exercise and some other factors. 10) Multiple factors account for childhood obesity. Television viewing/advertising is one among many influences *Senior Lecturer in Management, Department of Management Studies, Delhi School of Professional Studies & Research, Delhi. E-mail : noopurwaves@gmail.com ** Senior Lecturer in Management, Department of Management Studies, Delhi School of Professional Studies & Research, Delhi. E-mail : lkaditya2002@yahoo.com 42 Indian Journal of Marketing • June, 2008


on children's food choices. These other factors include individual, social, environmental and cultural factors, all of which interact in complex ways not yet well understood. 11) Rather than asking simply, does advertising influence children's diet, it is recommended that research and policy instead asks, what are the multiple factors that contribute to children's diet and, within this broader picture, what is the role of food advertising/ promotion? 12) A range of interventions are now being tested, in the concerted effort to improve children's health. Many call for more positive health messages, and for a reduction in the promotion of foods high in sugar, salt and fat, as part of this wider effort.

APPROACH In the UK, Hastings et al (2003) conducted a comprehensive and systematic review of the evidence regarding food promotion to children. In the USA, the Institute of Medicine (2005) also published a wide-ranging and substantial review. Both provide detailed summaries of the many empirical studies, together with an evaluation of their strengths and weaknesses. Consequently, the present review focuses on the most recent research, of which there is fast growing amount, in order to update Livingstone & Helsper (2004); it should be read in conjunction with the previous review. The focus is on academic research, primarily empirical, preferably published in high quality, peer-reviewed journals, in the past two years. This was identified from a keyword search of electronic data bases in the fields of developmental and social psychology, advertising/marketing, media and communications, health and medicine, nutrition and food sciences.

RECENT UK RESEARCH The British Medical Association, responding to the Government's White Paper of November 2004, recommends an outright ban on advertising foods to children in the UK (see British Medical Association, 2005; see also National Family Planning Institute, 2003).3 They particularly point to the power of celebrity endorsements, and call on the industry instead to promote healthy diets to children. Halford (2005) argued, in a review article, that “major changes in the home life of many of our children need to take place” and that “TV adverts do influence children's behaviour and, critically, their intake” (p.286).5 The British Birth Cohort, followed up at age 5, 10 and 30 (N=11,261), revealed that the amount of weekend television viewing in early childhood continues to influence BMI in adulthood (Viner & Cole, 2005). Pursuing the growing concern over product placement, Auty and Lewis (2004) conducted an experiment in which 105 6-7 and 11-12 year olds were shown a scene from the film, Home Alone, in which Pepsi Cola was spilled, while a control group saw the same clip with no branded product. The experimental group was significantly more likely to select Pepsi rather than Coke afterwards, which the researchers interpret as showing that product placement serves as a reminder about previously established product preferences.6 3 Note that the White Paper, Choosing Health: Making Healthier Choices easier, suggests a voluntary period of modification of advertising foods to children, giving food advertisers until 2007 before reconsidering the question of a ban. 4 The BMA report does not explicitly discuss the empirical research findings on which they base this recommendation. Internationally too, pediatric and nutritionist organizations are calling for restrictions on food promotion to children, calls that are equally widely resisted by the food and advertising industries. In advancing this call, some point to the success of restrictions on advertising tobacco (Chopra & Darnton-Hill, 2004; Davey & Stanton, 2004; Daynard, 2004), though reductions in tobacco use must be recognized also as the result of a multifaceted approach (Mercer et al., 2003). 5 In his research, reported in the previous review, 42 children aged 9-11 were shown advertisements for either food or non-food items. All the children ate significantly more after exposure to the food advertisements, and the obese and overweight children in the sample were particularly likely to remember the food advertisements Indian Journal of Marketing • June, 2008 43


(Halford, Gillespie, Brown, Pontin, & Dovey, 2004). 6 Note that relatively little work examines just what aspects of the advertisements influence children, though it is likely that different persuasive appeals are effective for children and teens. Valkenburg (2004) offers a standard summary of the empirical literature when she points to the following characteristics that evidence has shown to increase advertising effects: (1) Repetition of the advertisement, (2) The use of peer-popularity appeal, (3) Offering a premium (gift), (4) Celebrity endorsement, (5) Host selling, and (6) Visual cues on packaging. For the range of promotional strategies used, see also Linn (2004), McNeal (1992); see also Moore (2004) and Moore & Lutz (2000). As Achenreiner and John (2003) show in their experiment, by the age of 12, children are highly aware of, and make use of, brand names as a cue in consumer judgments. Recent International Research (A) The USA's Institute of Medicine's recent report The USA's Institute of Medicine's (IOM) Committee on Food Marketing and the Diets of Children and Youth published a major report in December 2005.7 Key points include: Obesity among 6-19 year olds in the USA has tripled over the past four decades, to 16% in 1999-2002. The incidence of type 2 diabetes has doubled in the past decade, with notable increases also in the risk of heart disease, stroke, circulatory problems, some cancers, osteoporosis and blindness.8 Adult healthy eating patterns are established in childhood, but the diet of children and young people departs substantially from that recommended, putting them at risk. Children's diets “result from the interplay of many factors… all of which, apart from genetic predispositions, have undergone significant transformations over the past three decades” (p.ES-3). One factor is food and beverage marketing, with $11 billion spent on advertising in 2004, including $5 billion on television advertising, in addition to the much larger amounts spent on other marketing investments (product placement, character licensing, in-school activities, advert games, etc). Of all the research published, 123 of the strongest and most pertinent articles examining the influence of food and beverage marketing on the diets and health of US children and youth were systematically coded in order to assess the nature of the available evidence.9 Since nearly all of these concerned television advertising, it remains the case that virtually no scientific research has examined the influence of marketing campaigns on other platforms, including new media and multiple media venues. The key conclusion is that, “among many other factors, food and beverage marketing influences the preferences and purchase requests of children, influences consumption at least in the short term, is a likely contributor to less healthful diets, and may contribute to negative diet-related health outcomes and risks among children and youth” (p.ES-9). This is then broken down by age, dependent measure, and strength of the evidence, thus: 10 (1) There is strong evidence that television advertising influences the food and beverage preferences, the purchase requests, and the short-term consumption, of children aged 2-11; (2) there is moderate evidence that television advertising influences the food and beverage beliefs of children aged 2-11, and that it influences the 'usual dietary intake' of children aged 2-5, with weaker evidence for 6-11 year olds; 7 This has attracted widespread attention for the range of reforms it calls for in food promotion to children. Strauss (2002) reviews the range of negative physical consequences of obesity. This represents a considerably larger number of articles than the 55 identified and coded by Hastings et al (2003), though the authors remain 44

Indian Journal of Marketing • June, 2008


concerned at the paucity of carefully designed studies addressing this important issue. 10 Note that the terms 'strong' and 'moderate' in what follows refer to the amount, quality and consistency of the evidence, not to the measured size or importance of the effect. See later discussion on the size of advertising effects. (3) “It can be concluded that television advertising influences children to prefer and request high-calorie and low-nutrient foods and beverages” (ES-10); for each of these points (1-3), the evidence regarding teenagers is judged inconclusive; 11 (4) “there is strong evidence that exposure to television advertising is associated with adiposity in children aged 2-11 years and teens aged 12-18 years” but that the causal relations involved have not been determined.12 The report concludes with a range of recommendations that aim to improve the diets and the health of children and young people. These include calling for marketing resources to promote healthy diets, improving food labeling systems, conducting new research especially on promotion using new media platforms, and developing explicit industry self-regulatory guidelines for new forms of marketing communications. It also recommends that, “if voluntary efforts related to advertising during children's television programming are unsuccessful in shifting the emphasis away from high-calorie and low nutrient foods and beverages to the advertising of healthful foods and beverages, Congress should engage legislation; mandating the shift on both broadcast and cable television” (ES- 20). 11 A recent review has noted that very few experiments have been conducted on teenagers, making it difficult to go beyond the observation that television exposure is associated with unhealthy diets or obesity for this age Group (Livingstone & Helsper, in press). 12 Here the report bases its conclusion on large-scale survey findings that consistently show a correlation between obesity and hours spent viewing television. Since few (if any) experiments have been conducted with teenagers, it is not possible to determine the causal relations among the factors. Hence, the direction of causality could be either from obesity viewing or from viewing obesity. Most likely, the causal relation is bi-directional. Further, to the extent that viewing obesity, the underlying mechanism remains unclear. As noted in Livingstone and Helsper (2004), at least three mechanisms have been hypothesized: (a) viewing increased exposure to food advertisements, (b) viewing increased snacking while viewing and reduced family meal times, and (c) viewing reduced exercise and a more sedentary lifestyle. It could be added that, while many of the survey reports do not explicitly address these three options, most associate television viewing with increased snacking and reduced exercise, without specifying also whether they consider that television advertisements result in increased snacking of high-calorie, low nutrient foods (e.g., Graf et al., 2004). Little research has, as yet, attempted to disentangle these explanations empirically, and it is possible that support could be found for any or all of them. Interestingly, growing literature on the possible link between obesity and computer games could help here, since finding such a link would favour the sedentary over the advertising hypothesis (since there is little advertising in computer games); not finding it would favour the advertising hypothesis. At present, findings are mixed, with some finding an association between obesity and playing computer games (Stettler, Signer, & Suter, 2004), some finding no association (Janssen et al., 2005) and others finding more mixed patterns (Vandewater, Shim, & Caplovitz, 2004). Gorn and Goldberg (1982) reported a naturalistic experiment conducted over two weeks with 5-8 year olds at a summer camp in Quebec (n=288), found that showing adverts for fruit resulted in children drinking more orange juice, while adverts for sweets resulted in them drinking less orange juice. French et al (2001) conducted a field experiment on food promotion (here, signs on vending machines), finding that while the effect of the signs ('low fat') was statistically significant, it was small, particularly by comparison with the effect of reducing the price of the healthy food choice (see also Hannan, French, Story, & Fulkerson,2002). Indian Journal of Marketing • June, 2008 45


Greenberg and Brand (1993) administered a survey to 15-16 year old pupils in both 'Channel One' schools and matched schools which did not receive Channel One.17 They found that viewers of 'Channel One' evaluated products advertised on the channel more favorably than did non viewers and that they named more of the advertised brands as products they intended to buy, although actual purchases did not differ between viewers and nonviewers.18 Robinson (1999) provided a range of school-based interventions to 3rd and 4th grade children (approx. 7-8 years) to reduce their television viewing and videogame playing over a six month period. Compared with the control group, the experimental group not only reduced their television viewing but also showed reduced BMI and adiposity (though there was no reduction in high-fat foods, snacking or highly advertised foods in the diet of the experimental group).19 drawing on rather different sources of evidence, with the US review encompassing a greater number of studies (123 vs. 55), especially surveys. 17 In the US, 'Channel One' integrates 10 minutes of news and 2 minutes of advertising to teenagers. It is provided to schools who agree to show it to 90% of their pupils daily. The controversy, resulting in some schools taking the programming and others refusing, has been over the deal struck between original news content tailored to teens and the comparatively high rate of advertising, not otherwise permitted in many schools.18 The comparison also revealed that student viewers of 'Channel One' knew more about news events broadcast on the programme than did nonviewers, though they did not have greater general knowledge of news and public affairs. In short, the study suggests that television has effects that may both benefit and harm children, depending on the content viewed. 19 This study is widely lauded as a successful intervention (e.g., Strasburger, 2001) as, in terms of reducing BMI, indeed it is. Yet it must be acknowledged that the explanation remains unclear, since it appears not the case that reduced exposure to advertising -> reduced unhealthy diet -> reduced BMI. B) Other recent international research Content analyses continue to show the considerable discrepancy between the kinds of foods advertised to children and the recommended diet (Lewis & Hill, 1998; Neville, Thomas, & Bauman, 2005). Further, a literature review conducted for the American Psychological Association (Kunkel et al., 2004, p.12) argues that “it is well documented that such ads [for candy, snacks and fast food] are typically effective in persuading children to like and request the product�. Survey studies continue to identify television viewing as one of a broader array of factors contributing to the explanation of overweight/obesity. These include: A 34-nation study of 10-16 year olds in 2001-2 found that, in 22 of the 34 countries (including the UK, where obesity figures are relatively high), there is a significant positive relationship between BMI classification and television viewing time (Janssen et al., 2005). A 10 nation study found a significant association between the proportion of children overweight and the numbers of advertisements per hour on children's television (Lobstein & Dibb, 2005). An 8-year longitudinal study in Australia with over 1400 children found that BMI by the age of 8 years was significantly predicted by birth weight, mother's BMI, and hours spent watching television when 6 years old (Burke et al., 2004). National US research on over 4000 children aged 8-16 has shown that those who watch more television have more body fat and a greater BMI than lower viewers (Andersen, Crespo, Bartlett, Cheskin, & Pratt, 1998). Eating in front of the television is associated with eating more, for teenage girls (Francis, Lee, & Birch, 2003)20 and with a higher fat diet (Woodward et al., 1997), while reducing television viewing is followed by reduced weight gain (Robinson, 1999). A cohort study of over 10,000 9- 14 year olds in the USA found that those who spent more time with television/videos/games showed larger BMI increases a year later (Berkey et al., 2000); these effects were stronger for those who are already overweight, suggesting a cumulative effect over time (Berkey, Rockett, Gillman, & Colditz, 2003). A cross-sectional survey of 2762 parents with children found that the odds ratio of having a BMI>85th percentile was 1.06 for each additional hour of TV/video viewing per day, this increasing to 1.31 for those with a TV in their 46

Indian Journal of Marketing • June, 2008


bedroom (after controlling for child age, child sex, maternal BMI, maternal education, ethnicity, etc) (Dennison, Erb, & Jenkins, 2002). There are, indeed, a good many large-scale, well-conducted national surveys, mainly but not only in the USA, that find an association between hours spent watching television and the likelihood of being overweight among children and teens. Indeed, the literature contains scattered evidence that the effect of advertising on children is greater for girls (see also Hancox & Poulton, 2005), though this seems to be regarded as too tentative to feature as a general conclusion in the published reviews. A US survey of 9th grade (14 year old) girls reported a correlation between hours watching music videos and concerns over appearance and weight (Borzekowski, Robinson, & Killen, 2000).

OBJECTIVES OF THE STUDY The objective of the present study is three fold: 1) To examine the influence of Television Advertising on the food and beverage preferences of Kids. 2) To examine the influence of television advertising on food and beverage beliefs of children belonging to different age-groups Keeping in mind the above propositions the digging of Literature has made researcher to formulate the following three propositions in this regard. The 3 propositions are as follows: Pa: There is strong evidence that television advertising influences the food and beverage preferences, the purchase requests, and the short-term consumption of children. Pb: There is moderate evidence that television advertising influences the food and beverage beliefs of children belonging to different age-groups In order to test the truthfulness of the above stated propositions the following three null hypotheses has been put to test: Ăź Television advertising does not influence the food and beverage preferences, the purchase requests, and the short-term consumption of children. Ăź Television advertising does not influence the food and beverage beliefs of children belonging to different agegroups. Sample Size and Research Methodology: The responses were collected from 300 respondent falling in different age-groups ranging from 6-16 years of the Age from Delhi & NCR region. Due care was taken to ensure the representation of entire population. That is why Convenience based sampling was adopted. Statistical Tools Applied: For the present study Mean, Standard Deviation, Correlation, Paired t-test and ANOVA was applied. The following hypotheses were put to test for the purpose of the present study. Their result & inferences are stated Table: 1 Area-wise Distribution of Sample Table: 2 Age -Wise Distribution of Sample Area No. of Respondent East Delhi ( including Noida & Ghaziabad) West Delhi North Delhi South Delhi Central Delhi Total

60 60 40 40 100 300

Age Group 6-8 8-10 10-12 12& above Total

No. of Respondent 80 70 60 90 300

as under: First Hypothesis: h1: Television advertising does not influence the food and beverage preference, the purchase request, and the short term Consumption of children. In order to test the first hypothesis the Mean ,Percentage mean and Standard Deviation was computed which shows that 220 respondents rated the Television Advertising of Very High rank in terms of their influence on Indian Journal of Marketing • June, 2008 47


their food preferences followed by online ads , Sign boards and print media respectively. The result is shown in the table 3, 4 & 5 respectively. Table: 3 Preference Ratings of different Modes of Advertisement No. of Respondents Very Low 00 00 80 100

Mode of Advertisement Television Advertisement Sign- Boards &others Print Media On Line Advertisements

Low 10 190 90 20

Average 30 40 70 70

High 40 40 50 60

Very High 220 30 10 40

Total 300 300 300 300

Table: 4 Ranking of Different Modes of Advertisements Mean 4.30 4.14 4.00 3.98

Media Television Sign Board Print Media On Line

% mean 86.0 81.8 81.6 80.4

S.D. 0.61 0.70 0.76 0.76

Rank I II III IV

Further in order to evaluate the comparative strength of different modes of Advertisements on the food preferences of Kids Duncan's comparison of Mean test was calculated. For this purpose respondents have been grouped into three groups (depending upon their liking towards different modes of advertisements) on the basis of their mean scores and ranking which is given below: Group 'X� Television Group 'Y' Sign Boards, Window Display etc. Group 'Z' Print media & online Advertisement Table: 5 Comparison of Group 'X' With 'Y' Group 'X'

Variable Ranking

Group 'Y'

Mean

S.D.

Mean

S.D.

t-Value

4.16

0.46

3.66

0.42

10.47*

*Significant at 0.01 level of Significance

Table: 6 Comparison of Group 'X' With 'Z' Variable Ranking

Group 'X'

Group 'Z'

Variable

Mean

S.D.

Mean

S.D.

t-Value

4.16

0.46

2.22

0.31

20.44*

*Significant at 0.01 level of Significance

Table: 7 Comparison of Group 'Y' With 'Z'

Ranking

Group 'Y'

Group 'Z'

Mean

S.D.

Mean

S.D.

t-Value

3.66

0.42

2.22

0.31

30.11*

*Significant at 0.01 level of Significance

Hence the null hypothesis is rejected and alterative hypothesis that the Television advertising has a positive influence the food and beverage preference, the purchase request, and the short term Consumption of children is accepted. Second Hypothesis The second hypothesis which was put to test is as under: H2: TelevisionAdvertising does not influence the food preferences of children belonging to different age groups. In order to test this hypothesis the respondents have been grouped into four groups on the basis of their Age. Age group I (6-8) Age group II (8-10) Age Group III (10-12) to Age Group IV (12& above). 48

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Table 8: Influence of Age on Different modes of Advertisement Mode

Age Group I N= 80 Mean

Age Group II N=70 Mean

Age Group III N= 60 Mean

Age Group IV N=90 Mean

I V s II

I V s II I

I V S IV

II Vs III

II V s

F-Ratio

IV

Television Ad. Signboards

3.00

2.71

3.08

2.87

*

_

*

_

_

5.20**

2.67

2.68

3.03

2.88

_

_

_

_

_

1.33

Print Media

2.00

2.63

1.22

1.00

_

_

_

_

_

0.04

2.22

2.42

2.31

3.00

_

_

_

_

_

0.81

Online & Others

* Sign at 0.05 level of Significance ** Sign at 0.01 level of Significance The F-value for Television AD was Significant at 0.01 level of significance indicating that the mean of different age groups are significantly different from one another for this mode of advertising. Further Duncan's Comparison of mean test vibrated that the respondents belonging to age group I were significantly different from those of age group II with regard to this mode of advertising. For other mode of advertisements no significant differences were found. Hence the null hypothesis was that “Television advertising does not influence the food preference, the purchase request, and the short term Consumption of children” can only be partially accepted. It was found that children of age -group I were not very much influenced with Television Ads to decide their food choices as compared to Age group IV.

MAJOR FINDINGS The present study , apart of testing the hypothesis framed, suggests that in Indian scenario Television Advertisement is still the most popular and effective mode of advertisement especially for the Child products. It was also found that Online ads are growing effective with the passage of time but it is effective with grown up children falling in the age group of 10 -12 & above. During the survey, (for the children up to the age of 8) it was disclosed by the parents that they (kids) frequently ask for those products which are advertised very frequently with attractive promotional packages. It was also revealed that for certain food products like health drinks and chocolates, the kids were highly driven by catchy promotional schemes. Ultimately it can be said that Television Advertising is having positive influence on the food preferences of kids in Indian perspective.

BIBLIOGRAPHY 1) Achenreiner, G. B., & John, D. R. (2003). The meaning of brand names to children: A developmental investigation.Journal of Consumer Psychology, 13(3), 205-219. 2) Andersen, R. E., Crespo, C. J., Bartlett, S. J., Cheskin, L. J., & Pratt, M. (1998). Relationship of Physical Activity and Television Watching With Body Weight and Level of Fatness Among Children: Results From the Third National Health and Nutrition Examination Survey. JAMA, 279(12), 938-942. 3)Auty, S., & Charlie Lewis. (2004). Exploring children's choice: The reminder effect of product placement. Psychology and Marketing, 21(9), 697-713. 4) Barker, M., & Petley, J. (2001). Ill Effects: The Media/Violence Debate. London: Routledge. 5) Bolton, R. N. (1983). Modeling the impact of television food advertising on children's diets. In J. H. Leigh & J. C. R. Martin (Eds.), Current issues and research in advertising. (pp.p. 173-199). Ann Arbor, MI: Division of research, Graduate School of Business administration, University of Michigan. 6) Concerns Among Teenage Girls.Journal of Adolescent Health, Vol. 26(No. 1), pp. 36-41. 7) Coon, K. A., & Tucker, K. L. (2002). Television and children's consumption patterns. A review of the literature. Minerva Pediatrics, 54(5), 423-436. 8) Cumberbatch, G., & Howitt, D. (1989).A Measure of Uncertainty: The Effects of the MassMedia. London: John Libbey & Company Ltd. 9) Dennison, B. A., Erb, T.A., & Jenkins, P. L. (2002). Television Viewing and Television in BedroomAssociated With Overweight Risk Among Low-Income Preschool Children.Pediatrics, 109(6), 1028-1035. 10) Eisenmann, J. C., Bartee, R. T., & Wang, M. Q. (2002). PhysicalActivity, TV Viewing, and Weight in U.S. Youth: 1999 Youth Risk Behavior Survey. Obes Res, 10(5), 379-385. 11) Emmers-Sommer, T. M., &Allen, M. (1999). Surveying the effect of media effects: A meta analytic summary of the media effects research in Human Communication Research.Human Communication Research, 25(4), 478-497. 12) Giammattei, J., Blix, G., Marshak, H. H., Wollitzer, A. O., & Pettitt, D. J. (2003). TelevisionWatching and Soft Drink Consumption: Associations With Obesity in 11- to 13-Year- Old Schoolchildren.Arch Pediatr Adolesc Med, 157(9), 882-886. 13) Gorn, G. J., & Goldberg, M. E. (1982). Behavioral evidence of the effects of televised food messages on children.Journal of Consumer Research, 9(2), 200-205. 14) Greenberg, B. S., & Brand, J. E. (1993). Television news and advertising in schools The channel one controversy. Journal of Communication, 43(1), 143-151. 15) Halford, J. C. (2005). Serving up trouble? Advertising food to children. Psychologist, 18(5), 284-286. 16) Halford, J. C. G., Gillespie, J., Brown, V., Pontin, E. E., & Dovey, T. M. (2004). Effect of television advertisements for foods on food consumption in children.Appetite, 42(2), 221-225. 17) Hancox, R. J., & Poulton, R. (2005). Watching television is associated with childhood obesity: but is it clinically important? International Journal of Obesity, advance online publication, 13 September 2005;, 15. 18) Hastings, G., Stead, M., McDermott, L., Alasdair, F., MacKintosh, A. M., Rayner, M., et al. (2003).Review of the research on the effects of food promotion to children(Final report). London: Food Standards Agency. 19) Hearold, S. (1986). A synthesis of 1043 effects of television on social behavior. In G. Comstock (Ed.), Public Communications and Behavior: Volume 1 (Vol. 1, pp. 65-133). New York: Academic Press. 20 Lewis, M. K., & Hill, A. J. (1998). Food advertising on British children's television: A content analysis and experimental study with nine-year olds.International Journal of Obesity, 22(3), 206-214. 21) Livingstone, S. (2005). Assessing the research base for the policy debate over the effects of food advertising to children. International Journal of Advertising, 24(3), 273-296. 22) Livingstone, S. M., & Helsper, E. J. (in press). Relating advertising literacy to the effects of advertising on children. Journal of Communication.

Indian Journal of Marketing • June, 2008 49


Influential Power of 'Word Of Mouth' For Purchase Of Sarees *Prof. D. Malmarugan

LITERATURE REVIEW: Arndt (1967) defines Word of Mouth (WOM) as “Oral person-to-person communication between a receiver and a communicator whom the receiver perceives as non-commercial, regarding a brand, product or service." However, it is important to point out that WOM need not necessarily be brand, product or service-focused. It may also be organization-focused. Neither need WOM be face-to-face, direct, oral or ephemeral. The electronic community, for example, generates virtual WOM which is not face-to-face, not direct, not oral, and not ephemeral. One of the most widely accepted notions in consumer behavior is that WOM plays an important role in shaping consumers' attitudes and behaviors. It was found that WOM was the most important source of influence in the purchase of household goods and food products. It was twice effective as radio advertising, four times as effective as personal selling, and seven times as effective as newspapers and magazines. Subsequent investigations of the WOM phenomenon have confirmed the dominance of personal influence in choice decisions. Engel et al. (1969), for example, found that almost 60 percent of consumers cited WOM as the most influential factor regarding their adoption of an automotive diagnostic centre. More recent research is provided which observed that WOM communication had a much stronger impact on apparel purchase decision than information from neutral sources such as the 'Consumer Reports' magazine. The power of WOM communication stems from various factors. First, consumer recommendations are usually perceived as being more credible and trustworthy than commercial sources of information. It is common to assume that another consumer has no commercially motivated reasons for sharing information Also the discussions with either friends or family tend to be friendly and can offer support for trying certain behaviors. Second, the WOM channel is immediately bi-directional and interactive which allows for a 'tailored' flow of information to the information seeker. The third strength of consumer WOM comes from its 'vicarious trial' attributes. Potential consumers of a product, for example, can gain some of the product experience by asking somebody who has an actual experience with the product. Murray (1991) who found that services consumers prefer to seek information from family, friends and peers rather than sponsored promotional sources. From a marketing point of view, WOM can be negative as well as positive. In the case of negative WOM, consumers convey information on poor performance, lack of service, high prices or rude sales personnel. Positive WOM is the mirror image. The dissatisfied consumers complain to approximately three times as many friends and relatives as when they are dissatisfied. A consumer is more likely to pay attention to negative than to positive information. The power of WOM has not gone unnoticed. An increasing number of companies are proactively intervening in an effort to stimulate and manage WOM activity. Some even consider customer WOM as the most effective marketing tool and also the one with the lowest cost (Wilson, 1994). Specifically, marketers seek to influence opinion leaders directly, stimulate WOM communication in advertising, stimulate WOM communication through advertising and/or portray communications from opinion leaders. Additionally, marketers try to curb, channel and control negative communications. WOM is the most neglected of all the forces at work in market place by the marketers. Yet it is more powerful.WOM has probably destroyed more products and conversely made more products successful. Most companies expend huge amounts of resources researching advertising, sales aids and other promotional materials. But they allocate little or more time to research WOM. The scope of the study is to know about the power that WOM has in influencing the person to make decisions. This study is done with the hope that it may help to understand how much WOM communication is important for the marketers. Now let us discuss about the Product, the SAREE. Worn by millions of women in the Indian subcontinent, this *Associate Professor, Sardar Vallabhbhai Patel Institute of Textile Management 1483, Avanashi Road, Peelamedu, Coimbatore-641004, Tamilnadu. Email : mal_sal2000@yahoo.co.in 50

Indian Journal of Marketing • June, 2008


attire has been around for more than 5,000 years. The versatile saree, from the Sanskrit word chira (which means cloth), can be worn in many ways. Indeed, the mode of wearing it differs from region to region in India. Some sarees are more coveted than others. This could be because of the fabric used or its design. How is Word of Mouth improving Loyalty? Loyal customers demonstrate their loyalty through certain behaviors that benefit your organization. These behaviors include resisting offers from the competition, recommending you to others, and working with you when they experience a service breakdown. The payoff is described in the four R's: Retention - Customers who continue to do business with you provide a solid base for success. Your most loyal customers should cost you the least to service because they are not as sensitive to competitive pressures. Referrals - Loyal customers encourage others to choose your organization or product over the competition, saving you the substantial cost of acquiring new customers. Where yesterday's "word-of mouth" could influence a dozen individuals, today's "word-of-mouse," via e-mail or blogs, can influence thousands. Reputation - Loyal customers speak well of you. They increase public support and positive interest from investors, suppliers, future employees, the media, and even regulatory bodies. Revenue - Loyal customers give you a larger share of their business, which increases overall revenue and the recognition that comes with success. Cross-selling and up-selling to existing customers is the primary growth strategy for many organizations and is particularly lucrative with loyal customers. Consumer Decision-Making: Engel etal. (1992) define consumer behaviour as "... those activities directly involved in obtaining, consuming, and disposing of products and services, including the decision processes that precede and follow these actions." Thus, in the marketing context, the term 'consumer behaviour' refers not only to the act of purchase itself but to any pre- and post-purchase activities. Pre-purchase activities would include the growing awareness of a want or need, and the search for and evaluation of information about the product and brands that might satisfy it. Postpurchase activities would include the evaluation of the purchased item in use, and any attempt to reduce feelings of anxiety which frequently accompany the purchase of expensive and infrequently bought items like consumer durables. Each of these has implications for purchase and repurchase and they are amenable to marketing communications and the other elements of the marketing mix. Our understanding of both consumer behaviour and the capacity of marketing activities to influence it rest on knowledge of the ways in which consumers form decisions. There have been many attempts to create models of consumer decision-making such as that proposed by Engel et al. (1992). Since a review of these models would be beyond the scope of this chapter, a simplified approach has been adopted to guide the discussion. A diagram of this approach is presented in figure 1. Individual influences

Environmental influences Decision-Making Process

Problem recognition

Information Search

Evaluation of alternatives

Purchase

Post-purchase evaluation

Feedback

Figure 1: Consumer decision-making framework Reference to figure 1 reveals that it is made up of three major sections: (1) the consumer's decision-making process, (2) individual determinants of behaviour, and (3) environmental variables influencing behaviour. These major sections will be examined in more detail below. The Decision-Making Process As shown in figure 1, a major part of consumer behaviour is the decision process used in making purchases. This decision-making process, according to Engel et al. (1993), includes five stages: (1) problem recognition, (2) information search, (3) evaluation of alternatives, (4) purchase, and (5) post-purchase evaluation. An obvious Indian Journal of Marketing • June, 2008 51


criticism of this conceptualisation, however, would be that not every purchase will involve such an extensive decision-making exercise. The extent to which each of these steps is followed in the precise form and sequence can vary from one situation to the next. Some decisions are rather simple and easy to make, whereas others are complex and difficult. Consumer decisions can thus be classified into one of three broad categories: routine response behaviour, limited decision-making and extensive decision-making (Wilkie, 1994). Routinised-response behaviour occurs in purchasing situations which the consumer is likely to experience on a regular basis. The items that fall into this category do tend to be low risk, low priced, frequently purchased products such as food and household products. In this situation, the actual identification of a need may not occur explicitly; there may be little or no information search and the consumer may rely heavily on brand loyalty. Overtime, the repeat purchase becomes habitual, with little or no re-evaluation of the decision. Consumers engage in limited decision-making when they buy products occasionally and when they need to obtain information about an unfamiliar brand in a familiar product category. This type of decision-making requires a moderate amount of time for information gathering and deliberation. Typical examples include electrical goods, furniture and holidays. Finally, extensive decision-making comes into play when a purchase involves unfamiliar, expensive or infrequently bought products like cars or houses. Extensive decision-making is usually initiated by a motive that is important to the buyer's self-concept and the eventual decision is perceived to carry a high degree of risk. Moreover, the consumer will engage in extensive information search and evaluation prior to purchase and the purchase itself will be a relatively long process (Wilkie, 1994). Problem Recognition Problem recognition represents the beginning of a consumer's decision-making process. At this stage the consumer perceives a need and becomes motivated to solve the problem that he/she has just recognised. Once the problem is recognised, the remainder of the consumer decision-making process is invoked to determine exactly how the consumer will go about satisfying the need (Wilkie, 1994). Conceptually, problem recognition occurs when the consumer identifies a discrepancy between his/her actual and desired state. However, the presence of need recognition does not automatically activate some action. This will depend on two factors. First, the recognised need must be of sufficient importance. Second, consumers must believe that a solution to the need is within their means. If need satisfaction is beyond a consumer's economic or temporal resources, for instance, then action is unlikely (Engel et al., 1992). Need recognition can be triggered by internal or external stimuli. In the former case, one of the consumer's personal needs - hunger, thirst, sex - rises to a threshold level and becomes a drive. In the latter case, a need is aroused by an external stimulus such as advertising. Additionally, changes in one's actual or desired state are likely to create new needs (Kotler, 2003; Wilkie, 1994) for example; the birth of a child may create a need for baby-care products that were not needed before. Information Search After a need has been recognised, the consumer may then engage in a search for potential need satisfiers. Information search, the second stage of the decision-making process, can be defined as the motivated activation of knowledge stored in memory or acquisition of information from the environment. As this definition indicates, information search can be either internal or external in nature. In the internal search, the consumers search their memory for information about products that might solve the problem. This information may be based on past experience of the product, information that has been absorbed from past marketing campaigns, or information collected from WOM recommendations. If they cannot retrieve enough information from their memory for a decision, they seek additional information in an external search. The external search may focus on communication with friends and colleagues, comparison of available brands and prices, marketer dominated sources, such as television or press advertisements, and public sources (Engel et al., 1992). External search can be subdivided into purposeful and ongoing search. The first mode, purposeful search, refers to external search that is driven by an upcoming purchase decision, whereas the second mode, ongoing search, refers to in-formation acquisition that occurs on a relatively regular basis regardless of sporadic purchase needs. The amount of information that is collected depends on the nature of the decision process. An extensive problem52

Indian Journal of Marketing • June, 2008


solving process will usually entail a considerable amount of search. The consumer may consider a number of brands, visit several stores, consult friends, and so on. Information overload, however, may cause problems for the consumer. There is evidence to suggest that consumers cannot cope with too much information and, in fact, tend to make poorer choices when faced with large amounts of information. At the other extreme is routineresponse behaviour. Here the consumer minimises search time and effort by relying on past knowledge of the product or the brand name. Other sources of information are ignored. Information search under a limited problemsolving process falls between these two extremes .A successful information search yields a group of brands that a consumer views as possible alternatives. This group of products is sometimes called the consumer's evoked set. Evaluation of Alternatives As the consumer is engaged in search activity, he/she is also actively engaged in information evaluation. At this stage of the decision-making process, the consumer evaluates alternatives to make a choice. Four tasks are involved: the consumer must (1) determine the evaluative criteria to use for judging alternatives, (2) decide which alternatives to consider, (3) assess the performance of considered alternatives, and (4) select and apply a decision rule to make the final choice (Engel et al., 1992). When evaluating the products in the evoked set, consumers may employ a number of different evaluative criteria in making their decision. These criteria are the characteristics or features that the consumer wants (or does not want). Evaluative criteria will usually vary in their importance or salience. Price, for example, may be a dominant dimension in some decisions and yet rather unimportant in others. The salience of evaluative criteria depends on a host of product, situational and individual factors (Kotler et al., 2003; Engel et al., 1993). Consumers must also determine the set of alternatives from which a choice will be made (that is, the evoked set). In some situations, the evoked set will depend on the consumer's ability to recall alternatives from his/her memory. On other occasions, alternatives will be considered if they are recognised at the point of purchase. If consumers lack prior knowledge about choice alternatives, they must then turn to the environment for assistance in forming their evoked set (Engel et al. 1992). A consumer may also rely on his/her existing knowledge for judging the performance of choice alternatives along salient evaluative criteria. Otherwise, external search will be required to form these judgements. In judging how well an alternative performs, ranges for acceptable values ('cut-offs') that a consumer imposes for evaluative criteria will strongly determine whether a given alternative is perceived as acceptable. Additionally, judgements about choice alternatives can depend on the presence of certain cues or signals. Such is the case when price is used to infer product quality (Engel et al., 1993). Finally, the procedures and strategies used for making the final selection from the choice of alternatives are called decision rules. These rules may be stored in memory and retrieved when needed. Alternatively, consumers may build constructive decision rules to fit situational contingencies (Engel et al., 1993). Decision rules vary considerably in their complexity. They can be very simplistic (for example, buy what I bought last time) but they can also be quite complex, such as when the rule resembles a multi-attribute model. Another way to differentiate among decision rules is to divide them into compensatory and non-compensatory ones. Non-compensatory rules, such as conjunctive, lexicographic, and elimination-by-aspects, do not permit product strengths to offset product weaknesses. Compensatory rules, in contrast, do allow product weaknesses to be compensated by product strengths (Assael, 1992; Engel et al., 1993; Wilkie, 1994). Purchase The outcome of the alternative evaluation stage is an intention to buy (or not to buy). The fourth sequence in the decision-making process involves purchasing the intended product. In general, this will be the product which has the most satisfactory performance in relation to the evaluative criteria (Assael, 1992). As long as the consumer's circumstances or the circumstances in the marketplace re-main stable, the decision to purchase will lead to an actual purchase (Kotler et al., 2003). However, in executing a purchase intention, the consumer may make up to five purchase sub-decisions or instrumental actions, i.e. brand decisions, vendor decisions, quantity decisions, timing decisions and payment-method decisions (Kotler2003; Assael, 1992).The extent of instrumental action is likely to vary for different degrees of complexity of the decision-making process (Assael, 1992). For example, buying salt gives little thought to the vendor or payment method. Indian Journal of Marketing • June, 2008 53


Post-Purchase Evaluation The consumer decision-making process does not end when a purchase has been made. Once the product is purchased, they will evaluate its performance in the process of consumption. The outcome is one of satisfaction or dissatisfaction. Whether the consumer is satisfied or dissatisfied depends on the relationship between the consumer's expectations and the product's perceived performance. If the product exceeds expectations, the consumer is delighted; if it meets expectations, the consumer is satisfied; if it falls short of expectations, the consumer is dissatisfied (Kotler, 2003). These feelings determine whether consumers make a complaint, purchase the product again or talk favourably or unfavourably about the product to others. Shortly after the purchase of an expensive product, the post-purchase evaluation may result in cognitive dissonance. This, in very simple terms, it can be understood as doubts that occur because the consumer questions whether the right decision was made in purchasing the product. Since such psychological discomfort is not pleasant, the consumer will be motivated to act to reduce the amount of dissonance he/she is experiencing. Thus, a consumer may attempt to return the product or may seek positive information about it to justify the choice. An important role of marketing, therefore, is reminding the consumers that they have made the correct decision The Nature of Word-of-Mouth There are three basic types of WOM communications: product news, advice giving and personal experience. Product news is information about the product such as features or performance attributes. Advice giving relates to expressions of opinions about a product. Personal experience involves comments about product attributes or reasons for buying the product. This categorisation implies that WOM serves two functions, to inform and to influence. Whereas product news informs consumers, advice and personal experience are likely to influence consumer decisions. This, in turn, suggests that each of these types of communication is probably most important in different stages of the decision-making process. Product news, for example, is important in creating awareness about a product and its features. Hearing about product experiences from a friend or relative supports the consumer in the evaluation of the relative merits of one brand or another. Finally, through the opinion of 'relevant others', advice giving is important in making the purchase decision stage. Until the 1940s, marketers assumed that communication was a one-way process flowing from the marketer to consumers. This view, however, was challenged by a study of voting behavior which indicated that mass media messages were intercepted and distributed by so-called opinion leaders. This two-step flow hypothesis suggests that marketer-controlled mediated communication flows to opinion leaders who in turn communicate it through WOM to their peers and thereby exercising influence. In this theory, opinion leaders are distributed in all levels and groupings of society and may be influential on just one of several topics .Opinion leadership is product specific. They profiled different attributes for fashion opinion leaders, food opinion leaders, public affairs opinion leaders and movie-going opinion leaders. The two-step flow hypothesis and the associated concept of opinion leadership have been criticised on a number of grounds. First, the follower is not passive. He/she may well request information as well as listen to unsolicited opinions of others. Second, those who transmit information are also likely to receive it; that is opinion leaders are also followers and vice versa. Third, the opinion leader is not the only one to receive information from the mass media. Followers are also influenced by advertising also realised that there may be a 'gatekeeper'. This gatekeeper may be distinct from the opinion leader; he/she may introduce ideas and information to the group but may not influence it. Because of these limitations in the concept of a two-step flow, a multi-step flow model (figure 1) of WOM communication came into broader acceptance. Gatekeepers Mass Media Followers

Opinion Leaders

Figure 2: Multi-step flow model [Source: Assael, 1992] In this model the mass media can reach the gatekeeper, opinion leader, or follower directly but are less likely to 54

Indian Journal of Marketing • June, 2008


reach the follower (indicated by the dotted line). The gatekeeper represents a source of information to both opinion leaders and followers. However, the dissemination of information to opinion leaders is more likely. Furthermore, WOM communication between opinion leaders and followers is represented as a bi-directional flow, as opinion leaders may seek information from followers, and followers may solicit information from opinion leaders. The recognition in the multi-step model that opinion leaders and followers both may transmit and receive information leads to four possibilities INFORMATION SEEKING High Low

OPINION LEADEERSHIP

Socially Isolated (32%)

Socially Independent (18%)

High

Low

Socially Dependent (18%)

Socially Integrated (32%)

Figure 3: A categorisation of consumers by opinion leadership and information seeking for clothing decision. Consumers who score high on both opinion leadership and information seeking are classed as socially integrated consumers. Those who score high on influencing others, but low on being influenced themselves, are classed as socially independent consumers. Socially dependent consumers, on the other hand, are those who score low on influencing others but high on being influenced by others. Finally, socially isolated consumers are those who score low on both opinion leadership and information seeking. More recently, the concepts of the 'market maven' emerged. Market mavens are defined as individuals having information about many kinds of products, places to shop, and other facets of markets, which initiate discussions with consumers and respond to their request for market information. C. Environmental Influences Consumers are not isolated units but are members of a society, interacting with others and being influenced by them. These social attachments include culture, social class and reference groups. Culture Culture has the broadest of all environmental influences on consumer behaviour. It is "... the values, norms, and customs that an individual learns form society and that leads to common patterns of behavior within that society." (Assael, 1992). As this definition indicates, culture includes both material and abstract elements. In a consumer behaviour context, artifacts of the material culture would include products and services, supermarkets and advertisements. Abstract elements would include values, attitudes and ideas (Engel et al., 1990). Consumption choices cannot be understood without considering the cultural context in which they are made. Consumer goods, for example, have a significant ability to carry and communicate meaning. This, basically, occurs through a process in which cultural meaning is drawn from a particular cultural world and is transferred to a consumer good through advertising and the fashion system and then from these goods into the life of the individual consumer through certain consumption rituals. Culture also mandates the success or failure of specific products and services. A product that provides benefits consistent with those desired by members of a culture has a much better chance of attaining acceptance in the marketplace. A culture can be divided into sub-cultures based on age, geographic regions or ethnic identity. Within these, there are even greater similarities in people's attitudes, values and actions than within the broader culture. Finally, the prevailing culture will also determine how consumers react to certain aspects of the marketing mix. Indian Journal of Marketing • June, 2008 55


Social Class Within every society, people rank others into higher or lower positions of respect. These rankings results in social classes. A social class is a social category, usually defined by its members having roughly equivalent socioeconomic status. Typically, occupation and income serve to distinguish social classes but some researchers stress other factors such as education, lifestyle, prestige or values as better descriptive measures). Social classes show distinct product and brand preferences in many areas, including leisure activities, clothing and cars. Some products may even be considered as status symbols which serve to associate a consumer with a particular social class (Kotler, 2003). Reference Groups Consumers do not behave as isolated individuals. They belong to various groups. Traditionally, a group is referred to as "... a set of two or more individuals who are in reciprocal communication or associate with each other for some purpose." Two generic types of groups can be identified: primary and secondary groups. Primary groups include the family, friends, or working colleagues and involve an individual in direct and frequent interaction with other members. Secondary groups, on the other hand, are groups which tend to be more formal and require less continuous interaction, e.g. a political party .In the consumer behaviour literature, the groups of interest are reference groups and the family. Reference Groups: A group becomes a reference group when an individual identifies with it so much that he/she takes on many of the values, attitudes or behaviour of group members .Most people have several reference groups, such as friends, families, colleagues, religious and professional organisations. The consumer need not be a member of the group since some groups are those to which the consumer aspires to join (aspirational group). For example, a young junior manager might aspire to the middle management ranks. A group can also be a negative reference group for an individual (dissociative group). Such a group is one whose values or behaviour an individual rejects. Motives: There are several motives for engaging in WOM communication. Being involved in a decision, as mentioned before, is likely to encourage consumers to transmit information and influence. Those most likely to transmit information are not those with experience but those who are experiencing the product. Situational involvement or involvement in the product decision is one important ingredient in personal communications. Another motive for WOM communication is the inherent interest in the product category (enduring involvement). Individuals who have an ongoing interest in a product category get enjoyment in talking about it .Moreover, WOM communication is sometimes initiated to erase any doubt about product choice. According to cognitive dissonance theory, a consumer may attempt to reduce discomfort by describing the positive qualities of a recently purchased product to friends and relatives. Ideally, a purchase of the same product by a friend or relative confirms the consumer's original judgment. Another reason for WOM communication is involvement with a group. Talking about products may simply be a mean of social interaction. The greater the importance of the group for the individual; the greater the likelihood that he/she will seek to transmit information to it. WOM communications can also be initiated by a consumers' desire to be influential. Talking about the product and thus influencing people may give them personal satisfaction. The OBJECTIVES of this study are v To determine the level of influence the word of mouth has on the saree purchase. v To find actually how WOM persuades a person to purchase a saree. v To know from where the information is got. v To determine whether the negative attitude towards a brand may result in purchase but not necessarily in good WOM STATEMENT OF THE RESEARCH PROBLEM: What is the Level of influence the word of mouth has on the purchase of Saree? Actually how WOM persuades a person to purchase a saree? Are all advertisements responded equally? 56

Indian Journal of Marketing • June, 2008


METHODOLOGY: Methodology pertaining to the study entitled, “influential power of WOM in decision making for saree purchase” is presented under the following: 1. Selection of area and samples 2. Collection of data from the samples 3. Analysis of data Research Instrument: The research instrument used was a self-administered survey questionnaire. It was pre-tested with a number of participants to check for wording and clarity. Additionally, scenario enables the researcher to more consistently portray decision situations. b. Sample: A total of 128 participants were approached. This was a convenience sample since representative sampling was not possible provided the limited time available for this research. c. Sample unit: The research is to be conducted among the women between the age 20-30years. d. Data source: Both primary and secondary data will be used. Primary data will be collected through questionnaire from the samples. The question is of both closed and open type. e.Analysis: The analysis is done on the Chi- square method. Chi square analysis We are Comparing the occupational level of the respondents and response given by them to various advertisements. A random sample of 128 females gives the following pictures. Table No.1 Student

House wife

Working women

Total

Magazine

4

11

12

27

Banner

0

11

10

21

WOM

0

16

15

31

Television

0

12

14

26

News Paper

1

10

12

23

Total

5

60

63

128

2

The appropriate test statistic is the X test of goodness of fit. Null Hypothesis: The responses for all the advertisements are not equal. Alternative Hypothesis: The responses for all the advertisements are equal. 2 As in the case of the goodness of fit, calculated the X value 2

X=

k

S

2

(Oi-Ei) / Ei = 10.873

i=1

In our case, the computed X2=10.873 2 The critical value of X depends on the degree of freedom. The degree of freedom= (the number of rows-1) multiplied by (the number of columns-1).In our case, there are 5 rows and 3 columns. So the degree of freedom= (5-1) (3-1) =8. 2 Using Excel, The X value at 5% level for 8 d.f. This value=2.733 Since the calculated value of X2 is more than the critical value of X2 at 5% level and reject the null hypothesis of equal respondents and accept the alternative hypothesis. The conclusion is that the responses for all the advertisements are equal. We are comparing the educational level of the respondents and their knowledge on subjects. Indian Journal of Marketing • June, 2008 57


Table No.2 Diploma

UG

PG

No degree

Total

Strongly agree

7

10

3

18

38

Agree

6

4

9

5

24

Neither Agree nor Disagree

3

8

2

2

15

Disagree

5

8

1

21

35

Strongly Disagree

9

3

0

4

16

Total

30

33

15

50

128

Null Hypothesis: Educational Qualification does not influence the saree purchase decision. Alternative Hypothesis: Educational Qualification influences the saree purchase decision. As in the case of the goodness of fit, calculated the X2 value X 2=

k

S

(Oi-Ei) 2/ Ei = 42.3637

i=1

2

In our case, the computed X =42.3637 The critical value of X2 depends on the degree of freedom. The degree of freedom= (the number of rows-1) multiplied by (the number of columns-1).In our case, there are 5 rows and 3 columns. So the degree of freedom= (5-1) (4-1) =12. 2 Using Excel, The X value at 5% level for d.f. This value= 5.226 Since the calculated value of X2 is more than the critical value of X2 at 5% level and reject the null hypothesis of equal subject knowledge people and accept the alternative hypothesis. The conclusion is that the educational qualification influences saree purchase decision. LIMITATIONS: The findings of this study are subject to several limitations. First, a convenience sample was used for the data collection which makes the results not readily generalisable. Moreover, the general limitations of the scenario approach have to be taken into consideration. A scenario may appear realistic but is not necessarily compatible with the reality of individual participants. Furthermore, WOM has not been extensively studied in the context of tourism services. As a result, the design of the questionnaire was mainly based on limited exploratory research and empirical studies in other services markets. CONCLUSION: The present project has examined the role of WOM in relation to consumer decision-making for a sari purchase. The results indicated that persons who perceive that they are being asked for advice for purchasing on the subjects on whom they are knowledgeable were more likely to give advice for others closely related to them. Moreover, the consumers who value attributes of a product or service tend to give recommendations for persons closely related to them. All forms of advertisements are equally responded. So Word of mouth alone is not influencing the purchase decision of Sarees.Of all the respondents' housewives are the ones who are mostly influenced by the WOM. The second category being most influenced by WOM is the working women's. The persons who have a large social circle are most likely to give or get advice form others. BIBLIOGRAPHY: 1) Assael, H.- Consumer Behavior and Marketing Action, Kent Publishing Company, Boston, MA, 1981.- pp213-224 2) Arndt, J. "Word-of-mouth advertising and informal communication", in Cox, D. (Eds),//Risk Taking and Information Handling in Consumer Behavior, Harvard University, Boston, MA, 1967.- pp45-58 3) Bearden, W. O. and Etzel, M. J. 'Reference Group Influence on Product and Brand Purchase Decisions', Journal of Consumer Research, 9(September), pp183-194. 4) Engel, J., Blackwell, R., Miniard, P. (1990), Consumer Behaviour, 6th ed., Harcourt, Brace Jovanovich Publishers, Sydney, 5) .Howard, J.A., Sheth, J.N. (1969), The Theory of Buyer Behavior, John Wiley & Sons, Inc., New York., 6) Kotler, P. (2003),Marketing Management, Prentice-Hall, Englewood Cliffs, NJ, international edition, 7) Murray, K.B. "A test of services marketing theory: consumer information acquisition activities", //Journal of Marketing, 1991. Vol. 55 -No. January,- pp.10-25. 8) Wilkie, W. L. (1994) Consumer Behavior, New York: John Wiley and Sons. 9) Wilson, J. R. (1994) Word-of-Mouth Marketing, New York: John Wiley and Sons. 10) Whyte, W. H. Jr. (1954) 'TheWeb of Word of Mouth',Fortune, 50(November), pp140-143.

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Indian Journal of Marketing • June, 2008


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