Consumer Sovereignty and their Impact on Organizations and Society - Research Paper Example

Consumer Sovereignty and their Impact on Organizations and Society Introduction Consumers, businesses and environment are strong linked to each other because they are dependent on each other. The strong relation of consumers with environment and businesses over time is in response to social forces. The social forces may include consumers’ scientific knowledge, media coverage, interest groups, and social organizations, changing environment, government philosophy and public opinion. The aim of this essay is to analyze the impact of consumers on organizations and society and it will be also found that how consumers influence the formation of organizations and society at micro and macro level. Two methodologies have been used to analyze the topic under discussion. First of all, a qualitative analysis has been presented, in which work of other researchers has been presented to show what they actually think regarding the impact of consumers. Moreover, the examples of various organizations have been presented to show the real world situation. Secondly, regression analysis has been done with dummy variables to test the hypothesis, which has been developed after the qualitative analysis. Impact of Consumers on Organizations Consumer directly affects the organizations because they are the target market for the companies. The companies which especially belong to B2C category do experience the influence of consumers on their business. It is also evident from the fact that companies are very conscious about their pricing strategy, marketing strategies, place of distribution and branding etc. The companies offer their products and services to a selected target market, consisted of people with specific qualities and behavior. The demand of specific target market or consumer directly impacts the revenues of the company. Since, the primary aim of an organization is to earn revenues and survive in the long run therefore; customers largely affect the organization as a whole. It means that consumers do have the power to affect the organization. In some case, the bargaining power of customers is lower but it happens in a few industries where the number of firms is few and customers are large in number. In that case, customers have relatively little bargaining power however; still customers do have a strong impact on the organization. Organizational Strategies to Attract Customers For attracting and retaining customers, the organizations pursue various strategies. Companies attract customers by service-oriented up-selling, cross-selling, target sales and through marketing efforts for example, to empower customer service agents with context relevant prompts, the large and leading organizations are using inbound service calls. Moreover for retaining the employees, the organizations focus on customer relationship strategies such as maintaining their profiles, personal information and customer history (Microsoft, 2007). Following are some of the strategies pursued by organizations. Accessibility: Once a company starts its business, the convenience and accessibility of consumers is one of the major aims of the company. Therefore, companies seek to open their physical outlets in consideration to convenience of the customers. Mbogo (2010) highlights the strategies pursued by insurance companies in Kenya to attract customers. Mbogo argues that to target a huge market, the insurance companies are looking for new distribution channels. According to Tom Gitogo, the CEO of one of the insurance companies, “Growing new distribution channels for individual life products will be one of the key business growth plans for Pan Africa Insurance this year” (Mbogo, 2010). Marketing Strategies: Nowadays, because of the mass media expansion, companies are more pursuing marketing strategies to attract customers. For example, Nike is one of the most popular brands with a huge customer base. One of the marketing campaigns of Nike to attract customers was “Just Do It”. This campaign of Nike got successful because it was started during the period of fitness craze of 1980s. During 1980s, Nike was losing ground to Reebok because Reebok was sweeping the aerobics market. The aim of “Just Do It” campaign was to reassure customers that the brand they chose is the quality brand. Moreover, Nike products were advertised through celebrity sports figures such as John McEnroe, Bo Jackson and Michael Jordon (Centre for Applied Research, n.d.). Advertising becomes an effective tool for attracting customers because before experiencing the quality or other features of the product, the customers want to enjoy the brand name and brand belonging. The “Just Do It” campaign made Nike a self-fulfilling image prophecy for customers and the celebrity endorsements appealed the sense of belonging of customers. Customers Satisfaction Measurement: Another strategy through which organizations retain customers is through ensuring that customers are satisfied. Although there is no scale which may measure the experiences of the customers, however, companies are using various tools for customer satisfaction measurement. The awareness among the companies is increasing about attracting the customer, measuring his satisfaction and fulfilling his desires. Recruiting Skilled Capital: Nowadays, organizations are competing to secure the skilled and intellectual capital to increase their productivity and to attract customers. Even the lower performing employees are being replaced by high performing employees to strengthen the talent bench. Although it is known that hiring skilled employees may increase their financial commitment however, they believe that retaining talented workforce will attract customers, thereby, benefiting the organization in the long run. Take Bloomington, Ind., where Teletron, a 200-person telecommunications firm, is located. "Were competing for employees with companies in places like Atlanta and Dallas," says Jane Grose, PHR, vice president of human resources. "It can be difficult for us to find experienced people willing to move here." Most of the organizations take recruitment as a challenge for example, in order to excel in international competition Germany needs skilled and top class workers. In 2008, Federal Government introduced a Germany Action Plan to establish contribution of labour migration for securing skilled labour. Moreover, according to the plan, “with effect from 1 January 2009, the income threshold for obtaining an unlimited settlement permit will be reduced from the current EUR 86,400 to EUR 64,800 for highly qualified foreign workers” (High Tech Strategies, n.d.). To further enhance the skilled labour, the labour from third world countries and other EU members companies has been also opened up in various disciplines. Since organizations know that the main asset for a firm is human asset therefore, for attracting customers, hiring and retaining employees is an indirect strategies (Canadian Marketing Association, n.d.). Therefore, organizations can only ensure their survival in the long term, by providing customers what they want. Hidden power of consumer in the formation of the organization and Society Consumers also play a very significant role in protecting their interest. For examples, nowadays various kinds of cosmetics are available in the market and various product brands are also available. Since consumers are aware of the skin diseases and skin allergies therefore, they demand quality products. To save the interest of consumers, Colipa was formed which is the European Cosmetics Organization. In order to ensure that customers are being given high quality and safe products, the industry has employed various scientists with better knowledge and expertise (Colipa, n.d.). The technology based companies are offering innovative products to teenagers and children thereby providing them new opportunities to learn, communicate and entertain. Since the technology can be used either in good or bad ways, therefore, concerns are raising in the society. To save the interest of children and teenagers, different regulations have been developed, which the technological organizations have to follow. For example, Canadian Marketing Organization has set a code of ethics and standards for practice for all the organizations operating in Canada. The amendments in the policies were made in 2002, with the emergence of technology especially the expansion of internet and they aim to ensure that companies are giving limited access to the teenagers. Another thing which supports the hidden power of the consumers to form the organizations is the strategic decisions of the company. Each company before making a strategic plan conducts a marketing and industry analysis. To understand what customers exactly desire for and what they really want companies conduct surveys and marketing campaigns before launching their products. Companies from all over the world spend millions of dollars to understand the likings and disliking of their customers. Apart from the increasing competition and availability of substitutes, another factor which is making the companies conscious about the customers’ needs and demands is the consumers’ awareness. The consumer behavior of a human predicts that a human wants to make a purchase to fulfil his demands or needs. Therefore, the chance of a successful sale depends on the degree to which a specific product appeals the customers because of its packaging, features, price etc. The idea is that companies have to come at the level of customers, and they have to make decisions accordingly. In short, even if the customers are not given direct power to control the demand of products in the market, still they plan a very significant role thereby, affecting the decisions of the organization. Corporate Social Responsibility: Increasing awareness of the organizations regarding corporate social responsibility is one of the areas which show the consumers power in the society. In 2005, Public relations firm Fleishman-Hillard along with the National Consumers League, which is a consumer advocacy group, conducted a survey in the U.S. to understand the attitudes of consumers about the corporate social responsibility (CSR). During this research study a number of customers were interviewed and it was found that consumers want organizations to become more socially responsible. In the beginning, the corporate social responsibility was being considered as a financial contribution of a company to the society but today consumers expect organizations to do beyond making financial contributions. The study also found that consumers want government to make more contribution in ensuring the actions of the company related to society. Therefore, the study found that the concept of corporate social responsibility for consumers is the commitment to community (Lewis, 2008). The increasing efforts of the companies related to corporate social responsibility are showing the influence of consumers on these organizations. For example, the car companies are increasingly investing in green cars to reduce the environmental pollutions and manufacturing green cars is an important part of corporate strategy of General Motors. The cosmetic companies like Body Shop claim that they support corporate social responsibility by ensuring that animal skin is not used in the manufacturing of their cosmetic products. A cigarette manufacturing company advertize its products with a social message that smoking is injurious to health. Similarly, the concept of corporate social responsibility encourages the furniture companies to reduce the use of tree wood, so that destruction of natural wood can be avoided. Today, organizations are willing to invest millions of dollars on corporate social responsibility, only because they know that retaining customers can bring great profits to the company. It means just through their desire and need, customers can insist the organizations to take actions for the betterment of the society, thereby, playing a very significant role in forming the organizations and society. A survey shows that only 21 percent of consumers believe that U.S. Corporations are actually being socially responsible (Verschoor, 2006). Consumers have a very significant role in encouraging the organizations to increase their practices related to CSR. Nowadays, most of the leading companies are actually seeking to learn about the opinions and preferences of their customers, so that they may come up with the products which the customers want. If customers are conscious about the labour conditions at workplace, resources of products, environmental impact of products and other such issues, the corporations take more notice of such issues. Since, companies have been indulging in price and advertising wars for years, therefore, now they are trying to come up with something which may fulfill the needs of the customer. Through taking initiatives in corporate social responsibility, companies are trying to establish social image. From the above discussion, it is proved that consumers play a very important role in forming the organizations of their choice. Moreover, the impact of consumers on organizations and society has increased, with the increase in awareness of the consumers. The consumers and environment relationship is because of the threats posed to the natural environment. The issues of global warming, depletion of ozone etc. has created the awareness among the consumers that risks to the natural environment are posing threats to the health and safety of consumers. Similarly, the businesses have a strong association with the environment because they get resources from environment and their operations directly influence the environment. Now, in the second part of this report, the sovereignty of consumers will be highlighted through regression analysis. Research Question The research question that has been developed from the above qualitative analysis is as follows: “Do Consumers have a strong influence on organizations and society, if yes, and then it what ways they may impact and how are the organizations derived by their attitude?” Hypothesis At Industry Level To investigate this research question at Micro and Macro level, I have developed two sets of hypotheses. To determine the impact of consumers’ power at Macro level, three hypotheses have been created. Hypothesis 1: The sales of an industry are affected by changes in prices and income level of consumers At Organizational Level To determine the impact of consumers’ power at macro level, again three hypotheses have been developed. Hypothesis 2: The sales of a company are affected by population size, energy prices and awareness of consumers about green concerns At Macro Level Interpretation of Collected Data In order to evaluate the impact of consumers at macro level, the agriculture industry has been selected. The data of agriculture land sales and prices for the period 1993-2004 has been collected. Total three variables have been identified to run the regression analysis. The dependent variable is the sales of agriculture land in England, whereas, the independent variables are the average prices of the land and income level of consumers. In order to run regression, few assumptions have been also made. First, the average prices of agriculture lands have been taken in Hectares and it has been assumed that the agriculture land is sold and demanded in Hectares. Secondly, instead of taking real values of income level of people during this period, dummy figures have been used. Moreover, it has been assumed, that when income level of consumers is greater than £18,000 then they are willing to buy agriculture land, therefore, dummy variable= 0 when income level is £18,000 whereas, when income level is greater than £18,000 the dummy variable = 1 (Table 1). Table 1: Agricultural Land Sales And Prices In England; Quarter Ended 31st December 2005   Individuals     Number of sales Average Price (£ per Ha) Dummy Variable 1993 2,359 3,833 0 1994 2,426 4,322 0 1995 2,428 4,783 0 1996 2,874 5,902 0 1997 3,403 6,477 1 1998 2,863 6,038 1 1999 2,918 6,281 1 2000 2,715 6,967 1 2001 2,195 7,490 1 2002† 2,619 7,020 1 2003† 2,092 7,349 1 2004† 1,329 8,033 1 Data Source: Valuation Office Agency and DEFRA Analysis of Regression Results y = 5069.527826 - 0.498489133 P + 915.1749544 D Where, y = sales in units, P = prices and D = dummy variable The regression line shows that with the increase in average prices, the sales of the agriculture land declines. The positive sign of dummy variable signifies that with the increase in income level of people, the sales of the agriculture land increases. Both of these relations are actually highlighting one important aspect and that is the demand of agriculture lands in England. According to Macroeconomic concepts, the increase in prices reduces the demand of consumers for a particular product, thereby, lowering its sales. Similarly, the increase in income level of consumers enhances their power to purchase the agriculture lands, thereby, increasing the sales. The residual values of regression show that for regression, in order to be linear, the “residual values needs to be added or subtracted. The R-square value of coefficient of determination shows that 37.7 percent of the original variability has been explained through this analysis, which is quite significant. Regression Table SUMMARY OUTPUT                                   Regression Statistics                 Multiple R 0.614386061               R Square 0.377470232               Adjusted R Square 0.22183779               Standard Error 479.2551944               Observations 11                                 ANOVA                   Df SS MS F Significance F       Regression 2 1114156.579 557078.3 2.425396 0.150189819       Residual 8 1837484.331 229685.5           Total 10 2951640.909                                 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 5069.527826 1169.282541 4.335588 0.002493 2373.157453 7765.898198 2373.157453 7765.898198 Prices -0.498489133 0.227115811 -2.19487 0.059468 -1.022219132 0.025240867 -1.02221913 0.025240867 Dummy Variable 915.1749544 549.881441 1.664313 0.134617 -352.8539214 2183.20383 -352.853921 2183.20383 Residual Data Observation Predicted 2359 Residuals 1 2915.231183 -489.23118 2 2685.365075 -257.36508 3 2127.403742 746.59626 4 2756.027654 646.97235 5 2974.924013 -111.92401 6 2853.758147 64.241853 7 2511.701422 203.29858 8 2250.920567 -55.920567 9 2485.274299 133.7257 10 2321.226686 -229.22669 11 1980.167212 -651.16721 Therefore, based on the above regression analysis, the first hypothesis is proved that sales of an industry are affected by changes in prices and income level of consumers. Therefore, by proving this hypothesis, the consumers’ decision making power appears, Interpretation of Collected Data In order to evaluate the impact of consumers at micro level, the automobile industry has been selected. General Motors Europe has been selected for the analysis, and its data of sales has been taken. Total four variables have been identified to run the regression. The dependent variable is the sales of GM Motors in Europe, whereas, the independent variables are population size, fuel prices and green concerns of consumers. In order to run regression, few assumptions have been also made. First, because of unavailability of few population statistics, some of the figures have been taken as constant, such as during 2005-2007, the population has been assumed as constant. Secondly, dummy figures have been used to show the ‘to go green’ concerns of the consumers. The value of dummy variable is zero when the awareness to the consumers to go green was less; however, it is 1 when the awareness of consumers to go green has increased over time (Table 2). Table 2: GM Sales Data, Europe Population, Fuel Prices and Dummy Variable for Period 2000-2008 Year Sales in units Population Fuel Prices Dummy variable 2000 20.16 729 34.45 0 2001 19.76 726 $28.16 0 2002 19.34 728 $27.46 0 2003 19.54 729 $32.62 0 2004 20.63 730 $43.17 0 2005 19.83 731 $55.47 1 2006 20.02 731 $62.65 1 2007 21.82 731 $66.97 1 2008 20.93 732 $91.77 1 Analysis of Regression Results y = 4.534190487 + 0.01957812 Pop + 0.032892398 FP - 0.47733834 D Where, y = sales in units, Pop = population size, FP = Fuel prices and D = dummy variable The regression line shows that with the increase in population size, the sales of industry increase. Similarly, the average fuel prices are also directly related with the sales, however, in reality this is not the case, however, the value of intercept is very small showing the less significance of this relation. The negative sign of dummy variable signifies that with the increase in consciousness level of people, the sales of the company are declining. The negative coefficient of dummy variable shows that with the increase in conscious level of consumers about the going green concept, the sales of other vehicles have been declining, therefore, GM and other companies are investing in green technology. The R-square value of coefficient of determination shows that 48.17 percent of the original variability has been explained through this analysis, which is very significant. Moreover, the residual values are very small which shows the linearity of the regression line. Regression Table SUMMARY OUTPUT                                   Regression Statistics                 Multiple R 0.694103198               R Square 0.48177925               Adjusted R Square 0.1708468               Standard Error 0.710894633               Observations 9                                 ANOVA                   Df SS MS F Significance F       Regression 3 2.349166 0.783055 1.549466 0.311410225       Residual 5 2.526856 0.505371           Total 8 4.876022                                 Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0% Intercept 4.534190487 197.8639 0.022916 0.982604 -504.091198 513.15958 -504.091198 513.159579 Population 0.01957812 0.27237 0.071881 0.945484 -0.6805701 0.7197263 -0.6805701 0.71972634 Fuel Prices 0.032892398 0.028552 1.152006 0.301406 -0.04050359 0.1062884 -0.04050359 0.10628839 Dummy variable -0.47733834 0.995918 -0.47929 0.651958 -3.03742672 2.08275 -3.03742672 2.08275004 Residual Values Observation Predicted Sales in units Residuals 1 19.93978336 0.220217 2 19.67415581 0.085844 3 19.69028737 -0.35029 4 19.87959027 -0.33959 5 20.24618319 0.383817 6 20.19299946 -0.363 7 20.42916688 -0.40917 8 20.57126204 1.248738 9 21.40657163 -0.47657 Therefore, based on the results of this regression analysis, it can be argued that GM operations have been influenced by the consumers. Therefore, hypothesis 3 is also proved. Conclusion Therefore, based on our qualitative and quantitative analysis, it is pretty much clear that the increasing dependence of organizations on consumers, is increasing the consumers sovereignty. The changing market structure and transformation of business environment from monopoly kind of structure to competitive structure, is enhancing the consumers bargaining power in most of the industries. Today, in order to be successful, organizations have to read the minds of consumers, therefore, the tools such as marketing analysis has been introduced. The organizations which have been successful in pursuing the right strategies have been able to attract consumers and survive. Therefore, apart from the government regulations, consumers themselves can play a very significant role in forming a welfare society. References Canadian Marketing Association. (n.d.) Protecting Your Privacy. [Online] Available from: http://www.the-cma.org/?WCE=C=47%7CK=224218 [Accessed 28 March 2010]. Colipa. (n.d.) Protecting Consumers through Innovation. [Online] Available from: http://www.colipa.eu/safety-a-science-colipa-the-european-cosmetic-cosmetics-association/innovation/protecting-consumers-through-innovation.html [Accessed 28 March 2010]. Centre for Applied Research. (n.d.) Nike “Just Do It” Advertising Campaign. [Online] Available from: http://www.cfar.com/Documents/nikecmp.pdf [Accessed 28 March 2010]. General Motors. (2009) GM sales by Country. [Online] Available from: http://www.gm.com/europe/corporate/sales/country/ [Accessed 30 March 2010]. High Tech Strategies. (n.d.)Mobilizing Skilled Workers. [Online] Available from: http://www.hightech-strategie.de/en/883.php [Accessed 28 March 2010]. Lewis. (2008) Corporate Social Responsibility. [Online] Available from: http://social-corporate-responsibility.suite101.com/article.cfm/corporate_social_responsibility_csr [Accessed 29 March 2010]. Mbogo, S. (2010) Insurance Companies Seek New Strategies to Attract Customers. [Online] Available from: http://allafrica.com/stories/201003091137.html [Accessed 28 March 2010]. Microsoft. (2007) Financial Services: Identifying, Attracting and Retaining Profitable Clients. [Online] Available from: http://webcache.googleusercontent.com/search?q=cache:Hll0MHZ80OwJ:download.microsoft.com/documents/australia/BUSINESS/financialservices/FinancialServicesBrochure_US.PDF+organizations+attract+customers+filetype:pdf&cd=5&hl=en&ct=clnk&gl=pk [Accessed 28 March 2010]. Verschoor, C. C. (2006) Customers Consider the Importance of Corporate Social Responsibility. [Online] Available from: http://www.imanet.org/pdf/8ethics.pdf [Accessed 29 March 2010]. Valuation Office Agency and DEFRA. (2006) Agricultural Land Sales And Prices In England; Quarter Ended 31st December 2005. [Online] Available from: http:// www.defra.gov.uk/evidence/statistics/foodfarm/.../agrilandsales/.../alp.xls [Accessed 30 March 2010]. Read More