The Relationship of Internal Governance and Consumer Demand - Term Paper Example

 The Relationship of Internal Governance and Consumer Demand Introduction Businesses that sell products or services to the consumer must consider elements associated with internal governance and its relationship to buyer behavior. Consumers can be considered externalities at the macro-level or highly internalized based on shifting demand on the demand curve. Why is this? Consumer behavior in a market has the capability of revolutionizing internal politics, structure and operational guidelines in order to gain equilibrium between supply and demand. When costs are attached to the products or services, be them tradeoffs, opportunity costs, or representing a marginal cost of conducting operations, the consumer is internalized based on their buying habits. Marketing, therefore, becomes a micro level concern involving job roles, product variety, and balancing inventories. It should be said that consumers are one of the most prominent microeconomic issues concerning businesses with product and service offerings. Price Sensitivity and Scarcity In reference to consumption, Rowe (2010) offers that consumer trends have driven a new pricing sensitivity due to economic conditions. In order for a restaurant to adapt, smaller portion sizes are being offered at a lower price. Valenza Restaurant in Atlanta, Georgia offers such selections as gorgonzola-stuffed olives, rabbit liver mousse, and roast figs on their small plate specials. Why foods services and how does this relate to the microeconomic environment? New price sensitivity is driven by market conditions and households or certain environmental conditions that change a behavior. Because of this change, consumers have new substitute goods options based on pricing. This promotes internal adaptive behavior in relation to pricing without sacrificing the quality of service and product that requires innovation in marketing or perhaps even operational. Shifts in consumer demand, based on pricing differences, disrupts the equilibrium between supply and demand. If the restaurant in this case study had not adapted the menu to meet issues with consumer considerations of substitutes or tradeoffs, it would lose its comparative advantage. If the restaurant performs restructuring internally in order to make an adaptive menu based on demand cycles, and can do it at a low opportunity cost, this advantage is present. On a different side of the micro issue is the linkage between consumer substitution and scarcity is another factor that drives internal business mechanics. Callahan (2010) describes the efforts of DuPont to involve NASCAR in its marketing campaigns as the celebrity involved is able to interact with consumers across the country. The company finds this linkage satisfactory and has no plans to change these efforts since it meets with positive consumer sentiment (Callahan). In this case, the celebrity entails a scarcity of product, the situation occurring when there is less of something demanded at a zero price. Meet and greet mentality is a zero cost effort for this pursuit. Therefore, customers consider this NASCAR representative to be an economic good since it a scarce resource available for such efforts on a limited basis; per function. Businesses are then able to consider this celebrity to be a labor resource as well as something by which to alter demand positively to meet with supply simply due to its scarcity on the market. Again, the consumer, even when offered limited supply, provides the support desired by DuPont’s strategic marketing objective for means of rational self-interest and therefore supports better equilibrium between supply and demand. Changing Demand and Internal Restructuring Consumer trends toward their consumption of paper also changes the internal direction of companies, in this case in terms of research and development. Busch (2010) reminds that paper has been a reliable form of communications for hundreds of years and this demand is still one that is predictable despite changes to how information is distributed digitally. However, the environment in this case drives the consumer to new uses for the product that forces internal changes. In some industries, this might require a complete organizational restructuring to support a new production process, however supply must adjust to changing consumer demand. In this case, there might be opportunity costs associated by sacrificing a strategic expansion project in order to use resources for new production assets. However, it is consumer driven and therefore a micro-level concerns at the operational stage, development and inventory. Marginal costs associated with these activities, such as new shelving for a new stock method, could be driven and absorbed by the company based on demand factors. Foster (2010) describes how businesses also have a progressive mentality and work to create their own demand through restructuring. Many businesses have constructed a flatter hierarchy with a more efficient management structure, new skills and responsibilities, and more reliance on information technology. The end result of these efforts is giving customers more choice. In this case, the business has used a strategic approach by adjusting the desired amount of supply and increasing it for long-term advantage. Creating demand where none exist allows for pricing fluctuations, the ability to strategize cost reductions over a period of time, with all of this being part of the marketing product and service life cycle. If the goal is to extend the demand for a product through increased or decreased supply, so long as it can be reflected as a scarcity to the consumer group, the demand curve can remain relatively predictable. Therefore, risks associated with unpredictable consumer behavior are lessened and the marginal costs of operations can be avoided. Predictable cycles, in the event that the goal is extension of the product’s life cycle, allow for a more accurate financial forecast and supply schedule. The Adoption of Technology and Practical Marketing This same variety of micro-level analysis is being conducted by companies adopting new technology systems for customer support issues. One company, with a function of event ticket sales, recalls the ability of these systems to improve revenue by its relationship to consumer demand cycles. Innovation in this case allowed for 73,000 customers to call into a toll-free number at a designated time in order to purchase their economic good, the event ticket (Beck, 2010). Financially, this has proved important by reducing call duration. In this case, the business does not have to tradeoff or necessarily improve supply when, at a higher price, consumers are willing to purchase. The costs associated with automating systems outweighed the financial gains of changing supply in this service environment. It was simply restructured based on known information about consumer demand, at a specific price, and the technology was therefore considered a quality investment. Technology investments have given businesses the ability to avoid tradeoffs if they can predict consumer demand shifts ahead of time. However, in a service environment like that organization involved with ticket sales, the business has more flexibility in areas of supply with an idea of the price at which consumers will reject the service offering. Technology represents a capital goods investment that provides efficiency that is directly related to the consumer. Revenues would likely improve for the ticket sales organization simply because of the high demand for the scarce concert tickets, however marginal cost awareness represents a longer-term investment. The method behind this investment in innovation is supply management, something which would only apply to an industry in which there are no substitute products nor when there is another complementary good on the market to make it attractive. Even though the consumer is directly affected by this decision-making, it represents a sizeable shift in the ability to create demand, adjust supply and not incur a tradeoff scenario from the goal of selling tickets. One marketing professor at The Wharton School identifies that in order to be successful in marketing, marketers of the future “are going to have to speak the language of the rest of the organization” (Rooney, 2010, p.4 ). This is meant to suggest that marketers will need to have more functional knowledge of the business, including operations and specific divisional expertise in order to differentiate in competitive markets. Why is this? The relationship of customer demand and changes necessary to support demand that might be driven by macroeconomic factors becomes internalized. Marketers have relationships with consumers at the psychological level and consumers have considerable buying power with some products and services. Therefore in order to sell a product as a scarcity, using differentiation between other product offerings through marketing, the ability to alter consumer demand changes. In many ways, this process would seem to disrupt the predictability of the law of demand, giving the producing company more leverage in areas of price sensitivity and price increase/decrease policies. Though the consumer is driven by externalities, it is the organization that makes adaptations, sometimes with opportunity costs, in order to achieve more control over stable supply related to strategic objectives. Conclusion Businesses are gaining more control over consumer demand through practical marketing efforts and making proactive adjustments to internal production models and staffing objectives for better and more quality support of their business concept. Where tradeoffs were once common, technology assists in creating a predictable supply schedule and sustain a comparative advantage by avoiding high opportunity costs. The ability to influence demand and pilot new supply strategies based on known consumer price sensitivity is a new method of business that considers microeconomic factors first and foremost. References Beck, Koa. (2010). “Partly Cloudy”, Customer Relationship Management. 14(8), p.16. Busch, Melissa. (2010). “Oh Paper, Where Art Thou?”, Print Professional. 48(9), p.36. Callahan, Sean. (2010). “BtoB’s Best Marketers”, B to B. 95(12), p.S6. Foster, Jack. (2010). “MANA Manufacturer Works with Reps to Create Demand”, Agency Sales. 40(4), pp.10-14. Rooney, Jennifer. (2010). “For CMOs of the Future, Agility is Key to Success”, Advertising Age. 81(25), pp.4-6. Rowe, Megan. (2010). “Small Price, Big Impact”, Restaurant Hospitality, Cleveland. 94(1), p.24. Appendix A: Supply and Demand Illustration Using Food and Beverage The following represents the equilibrium price of $5 per drink, at a supply of 200, based on demand cycles estimated for each variety. This is following the law of demand where demand increases as price falls. Read More