Understanding Marketing System - Case Study Example

1. Understanding Marketing System A marketing system can be defined as a network of various entities, which can be an individual, a group individuals, a corporate, a network or a combination of these, related either directly or indirectly, in a sequence or together, participating in exchange of goods or services against some value, which leads to fulfillment of demand of that goods or services from customer or end users. Primarily, it may happen that, a marketing system may be conceptualized at one or multiple levels of aggregation. In such cases, the entities comprising the network are themselves marketing systems. However, while modeling any marketing system, the selection of various entities that need to be included, becomes a crucial step. This is crucial as these selections further decide the boundaries of the system and defines its input and output. In marketing parlance, assortment can be depicted as the demand leveling or smoothing functionality. This usually correlates to the diversity of product lines that a manufacturer provides, or that a retailer stocks. Product assortment refers to the length of offerings, i.e. the number of products in the product line or it can refer to the product breadth, i.e. the number of product lines that a company offers. It can also refer to the product depth, i.e. the different varieties of product in the product line. Another important aspect of product assortment is consistency of product line. Consistency often depicts the relationship between products in their final destination. A network in marketing system is the distribution arrangement that is connecting the various marketing entities so that the goods and services reach the customer or end user. It can be understood as a web of associations among a manufacturer or service provider and its supporting stakeholders like customers, employees, wholesalers, retailers etc. A product or a service can be provided through a unique link in the network or it can be provided through multiple levels also. A marketing channel can be defined as a business structure comprising of interdependent entities, which extends in its reach from point of production to the end user or consumer. The primary purpose of any marketing channel is to physically move the products to the place of its final consumption. Thus marketing channels create an uninterrupted supply chain that performs or supports the marketing channel functions (Stern et al, 2001). Channel members offer economies to the supply process in the form of specialization and division of labor, overcoming inconsistency in quantity, assortment, time, and space, and providing contact efficiency. Entities in any marketing system execute one of the three important functions. The first and foremost is transactional functions, which involves connecting and advertise, negotiating, and risk taking. The second one is that of logistical functions and involves physical distribution, storing, and sorting etc. The last but not the least is the facilitating functions like financing or carrying out marketing research etc. Figure 1: Key marketing flows in a Marketing System Let us understand the marketing system with a real life example and for the same let us take the case of ‘Amway’. This globally rebound brand has been famous on account of its uniqueness in terms of successful multi-level marketing system. The company mainly deals in cosmetic and health care products which are sold by levels of entities connected through a network. The exchange logic is here is the sale of the products against the commission paid to the various members as per their level. The company if would have sold the product through other stores, it would anyway had spend on the commission. But the marketing and advertisement cost is being saved as this role is being played by the network members itself. Moreover, the members also carry some inventory with them and hence execute the flow of sorting and transfer of physical passion. Thus at core of this marketing system, the organizing principle can be the social networking. The consumer buys product from an acquaintance and hence the element of trust builds up with every sale and hence provides sustainability to the overall marketing system. There is also a range of assortment not only in terms of the product verticals and product lines but also in terms of the way the products are finally provided to the end user. Ultimately the well being through consumption of quality product is achieved for the end user. The sales layer also benefited through a coordinated effort in terms of recurring commissions. Also they are able to gain trust of the consumers over the period of time. 2. Brief Explanation of Case Uncle Tobys is Australasia's largest food processor and it currently has manufacturing, marketing, and distribution operations in over 30 countries worldwide. The cereals and grains division of Uncle Tobys contributes significantly to its overall sales. Apart from the cereals and grain based products, Uncle Tobys also markets product line for edible oils, food ingredients, and poultry, under various brand names like Buttercup bread, White Wings cake mixes, Bluebird snacks, Meadow Lea margarine, and Steggles chickens. Uncle Tobys, in early 90s, entered the organic food network by introducing the organic breakfast cereal under brand name "Organic Vita Brits". For the production of this organic line of breakfast cereal, Uncle Tobys started procuring organic wheat for the production. It was then indicated by the company that this particular shift towards organic production was on account of its growing concern for the environment as well as a pioneering prospect to market their product. Thus Uncle Tobys through its effort was trying to persuade its “Green” consumers (Lockie, 1997). A way out for sourcing the organic wheat, Uncle Tobys has put in place some casual contract based association with the farmers. These associations were established particularly in two regions in Australia, i.e. Queensland and New South Wales. All the producers of the organic wheat as well as the processing plants were certified. These two prominent strategies i.e. sourcing organic wheat and certifying processing facilities had then marked the entry of Uncle Tobys into the organic food market. However, it is important to notice that the organic wheat based "Vita Brits" was in fact an easy product to produce from the perspective that it required only wheat as an organic ingredient. The other products, which required multiple ingredients were not part of organic strategy as was difficult to source so many organic ingredients like fruits, nuts grains etc. Thus Uncle Tobys organic line of products was not diversified beyond "Vita Brits". However, with mismatched demand supply, resulting into dramatic escalation in price of organic wheat as compared to the conventional one, the cost of producing "Organic Vita Brits" also went up rising. Over period of time, it became economically unviable for Uncle Tobys to continue production of organic cereals. Ultimately in 1996, Uncle Tobys halted the sourcing of organic wheat, and by early 1997 "Organic Vita Brits" were no longer found on the megastore shelves. Thus Uncle Tobys was out of organic food network. 3. Role of Marketing System There have been various school of thoughts put forward to analyze the influence of marketing system in economic well being and on overall quality of life. One of the prominent models put forward is that of Layton’s. It has tried putting emphasis on the well being of marketing system which in turns have significant effect on the quality of life and hence the overall economic well being of society in general. It argues that without an efficient marketing system in place, the advantage of technological knowhow, robust pro development institutional framework and desirable division of labor cannot achieve the required growth in the quality of life. Thus while all other factors are desirably important, the existence of an efficient marketing system becomes mandatory for achieving the economic well being in the society (Layton, 2009). Figure 2: Basic Layton’s Model for Quality of Life This becomes more important with markets maturing. When the trade specialization increases, the network of trade, which connects various stakeholders, also starts becoming increasingly complex. This further leads to development of more specialized roles for the trade. This will in turn lead to increased specialization within market, the marketing structure and the marketing functions in tandem. The pace of acquisition of specialization is compounded by factors like innovation in technology, improved labor skills and institutional development. Layton’s in its deliberations has strongly advocated for a social cause for a marketing system. A marketing system can be outdated, emerging, planned, or focused, but they should have one main social role to play that is to offer assortments that should fulfill the needs of various stakeholders comprising the system itself. It would be interesting to focus on the measurement of the quality of life which is influenced by the marketing system. Usually, the quality of life or economic well being is measured in terms of various economic parameters like Gross Domestic Product or per capita income etc. However, these economic criterions would be myopic in study of marketing systems. Thus the criterions of success need to be redefined in right perspective. In marketing parlance, the success or failure of any marketing system is concerned with provision of accessible, affordable and relevant assortments of desired quality by the marketing system to the society in general, so that the needs are fulfilled. The involvement of various entities in the marketing system however would be governed by fulfillment of their respective goals, be it for profit, surplus or for utility. In a nutshell it can be said that the marketing system would succeed in delivering the desired assortment if the aforesaid goals are achieved. The overall health of marketing system would thus depend on performance both in a particular economic sense and in general social sense (Shultz, 2007). As a matter of fact, it is always helpful to analyze things from different perspective. As such, let us take this from the perspective of another school of through for analyzing the marketing systems. This has been put forward by William Wilkie. William has emphasized more on particular economic sense of the stakeholders rather than the general social well being. Advocating the free market theory, this school of thought believes that individual well being in broader sense bring the social well being. According to this theory, the market is not perfect and thus cannot be expected to walk the tight rope of social well being on its own. Moreover, bringing regulation or policing the various marketing functions, actually end up retarding the benefit delivery. Thus competition in the marketing system works as panacea. The individual goals of the entities in the competitive market tend to improve as everyone strives for competitive advantage. This leads to continuous improvement in the marketing system. A part of the financial or utility gains, made by the various stakeholders ultimately flow to the government in form of taxes which in turns helps building other peripheral infrastructure, bringing innovative technology and imparting skills to the work force (Moore and Wilkie, 2000). This theory discourages any attempt to inculcate social obligation in any marketing system by bringing overall efficiency as there are huge numbers of stakeholders involved and it would not be practical to manage them. As such, the effort would be futile. On the contrary, competition always propels the each and every stakeholder to always improve and make become more efficient as it is always a question of survival. At last, the competition helps the end user to be benefited with the desired utility at the highest possible efficiency. Unlike, Laytons model, marketing system in William’s model originates the required resources which in turn flow to build other elements. The buildup of these elements also improves the marketing system over period of time and at the end it achieves the social well being too. Thus in both the models of marketing systems, the social well being is achieved, however, the means to do the same differs as the priority of individual and social goals are different. 4. Critical Discussion Figure 3: Social Matrix of Layton’s Model of Marketing System Exchange Logics: In this case, the formation of aggregate and the motivation behind the same by on account of rise in the demand of organic food products. Various entities which came along to fulfill this demand were the organic wheat farmers, the final product manufacturer Uncle Tobys, the certifying agency (NASAA), the superstores and the consumers. All the entities except the end consumer and the certifying agency were driven by profit. The end consumers were driven by their personal health and to an extent environmental concerns, whereas, NASAA was driven by well-being of the environment and human race. Looking overall, the concern to protect the environment and the heath value of the organic products is the value proposition which is driving the exchange process. Flows & Roles: There are various market flows associated with this case which includes information, ownership, possession, financing, promotion and payments etc. However, the prominent among all these is the flow of information. Information has played a very crucial role from the perspective of makeover of marketing channel in the context of the case. Due to dissemination of information, there was prevalent concern among the consumers for healthy organic food and the constructive effect of its consumption on the environment. As a result, a distinct market evolved for organic food products which were positively affecting the health as well as their consumption helped in protecting the environment. This distinct market was a niche market and was ready to pay a premium over the convention food product to derive the said value proposition out of the organic food. Various roles being played by the involved entities in this case was like supplying (farmers), sourcing (Uncle Tobys), processing (Uncle Tobys), distribution and possession exchange (superstores) and governance (NASAA). However, there might be other roles being played by entities but these are the key ones. Networks & Organizing Principle: The network in the given case seems quite strait forward wherein the company was sourcing the organic wheat from farmers, processing it and distributing it through the superstores to the end users. However, this network dynamics changed when the company stopped sourcing organic wheat as it became economically unviable. The organic wheat farmers then developed their network overseas as well as to other companies serving the niche market for organic food. Here, it is very important to discuss the importance of governance as it regulates the network dynamics. Governance determines the way in which the network and the various entities deal with each other in the given marketing system. In the given case, the certifying agency played a vital role of governance, which was based on the principle of production of healthy food with a concern of protection of environment. It helped in checking the company to adhere to the laid down norms of sourcing and processing the organic food. Though, the company was driven by profit benefits, the certification on its products helped it to showcase its image as a corporate concerned for health of its consumers as well as for well being of the environment. Thus, governance apparently played a role to develop a relationship of trust among the company and the end consumers. Assortments to the buyers: In its essence, Layton’s idea of a marketing system is to innovate and come out with various assortments, so that market as a whole can be served along with deriving economic and social well-being for the entities as well as the society. Assortments are the varieties of products, services, ideas, values that are offered to the entities of the marketing system. In the given context of the case, the product variant was limited in terms that there was only on brand of organic cereal breakfast. However, there were plenty offered by Uncle Tobys in case of conventional line of products. But from the perspective of the values, the assortment can be considered rich as it was not only providing profit benefit to the suppliers and producers, it was delivering overall good heath to the consumer and environmental well being the society as well. Specialisation: Specialisation helps strengthen the marketing system and makes it sustainable. In the given case, the first level of specialisation was offered by framers of the organic wheat who were producing it due to increased demand in the market for the organic food product. The next level of specialisation was offered by Uncle Tobys which was able to process the organic wheat into organic food product as per the laid down standards. It was also able to distribute the same to the mass consumers through superstores. The superstores also brought in their specialisation by providing the requisite reach for the distribution among the end consumer. Another aspect of specialisation was offered by the certification agency which had the know how to lay down the standards so that all the associated entities adhere to it for realizing the health and environmental well being. Growth & Well Being: Through the individual specialisation, the network benefited itself with association of each other. Thus a marketing system was able to deliver the individual benefits together with the overall social and economic well being. The overall idea to realize the economic benefits, consumer health and the protection of environment was only realized through sharing of the specialisation among the entities. The associating of the company with the organic food industry was based on three evident factors. These were the factors that influenced the end user demand of the product. The first factor was maximizing the economic efficiency. This was achieved to an extent by Uncle Tobys by getting into a casual contract directly with the producers of the organic wheat which was the only ingredient on the organic cereal. However, this arrangement was flawed as the company was not ring fenced against the risk of cost escalation of the organic wheat. Had it would been the case that the company would have reach to other geographical locations than the two designated one for sourcing the organic wheat, the impact of cost escalation would have been taken care off to some extent. The second factor was regarding maintaining the consumer health. Here the marketing system adopted was faulty from the perspective that the market positioning of the organic product line was wrong. It is in the sense that the product was proposed as niche but was being marketed and distributed for mass consumption i.e. breakfast cereals. As a matter of fact, almost all organically derived food products are costlier than their conventional counterparts (Vittino, 1988). Thus organic food products are positioned as niche product for niche markets. However, contracting to the very essence of this positioning, Uncle Tobys directed its only organic food product “Organic Vita Brits" towards mainstream or mass consumption. Viewing this in the perspective that generally, the products positioned for mass consumption are more affected more by cost, it was expected that the consumption of the Uncle Tobys organic product would be hit by escalation in cost. In any case, the consumer if not using the organic breakfast cereal would not compromise with their health to any noticeable extent. The third determining factor that shaped the actors involvement for this product was ensuring the environmental integrity. Uncle Tobys involvement in organic food line along with the conventional food line was targeted towards creating a corporate image that they are committed for the environment. However, Uncle Tobys failed to sustain this image as mainstream consumers are less responsive to issues related to the environment than that of cost. Further, it is worth analyzing that there was hardly any effort from Uncle Tobys towards dealing with this issue of cost escalation or economic viability of the organic food product. The company just switched to conventional product line and shelved off the organic product. It clearly indicated that the entire marketing effort that the company was putting forward was solely driven by notion of creating a non-real image (Lyons 1997). The company was hardly perturbed by closing the product line. Thus the factors responsible for the involvement of actors were no more valid. The dissociation of the same represents the systemic failure of the marketing system used for the organic product line. Moreover, the organic wheat farmers were adversely affected as they were unable to recover the incurred cost. Thus the social well being was not achieved at all from the perspective of growth in quality of life. 5. Conclusion It is a fact that marketing systems are affected and in turn affect the society in general. Though the effect can be felt either immediately or over a period of time. But the affect is imminent. Thus marketing system while being designed or build, the various elements and the resources should be given a futuristic thought. A sustainable marketing system is desired for a sustainable business. Else the goals, be it personal or social, would not be delivered. The given case of Uncle Tobys is a remarkable example of failure in aligning a right marketing system. Though there was hardly any problem with the structure of the system but leveraging the structure in line with the execution was the failing factor. The positioning was wrong. The decisive factors that were supposed to affect the actors’ involvement were faulty. The company lacked commitment in sticking to these factors. Moreover, the marketing system used was prone to risk. Further, the risk mitigation steps were not well though in advance. It was evident that Uncle Tobys venture on to the organic food line was superficially aligned with its image makeover strategy. It never gave a serious thought to the utility needs of the market it is going to serve. Not understanding the priorities of the stakeholders of any marketing system would have a detrimental effect on the desired outcome. The success of any marketing system should not only be assured from perspective of structure but should also be gauged from the view of desirable benefits expected by each stakeholder. 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