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Why are firms differentially effective and what this means in terms of efficiency - Essay Example

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Even though all strategic and tactical decisions of firms are based on concrete projections, historical data, budgeting and costing, yet the effectiveness of the same measures may be different. In other words, apart from numbers and sound business logic, "External Factors" play a role in determining the rate of success.
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Why are firms differentially effective and what this means in terms of efficiency
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Q1. Why are firms differentially effective and what this means in terms of efficiency Even though all strategic and tactical decisions of firms are based on concrete projections, historical data, budgeting and costing, yet the effectiveness of the same measures may be different. In other words, apart from numbers and sound business logic, "External Factors" play a role in determining the rate of success.
Some of these factors are:
1. Political changes: This applies to countries with a dynamic and volatile political scenario and in countries where policies of one leader are different from policies of another leader. A good example would be a country like Pakistan where investment inductive policies are being followed for example removal of import duty on vehicles. However, if next year, the government decides to implement duties again, the manufacturers exporting their vehicles to Pakistan will suffer and undoubtedly all the marketing efforts of the manufacturers would be less effective as compared to previous years.
2. Consumer preferences: Consumer Behavior is a variable prone to changes anytime, which is why the saying has it "change is the only constant". A good example would be from the Fast Moving Consumer Goods Market (FMCG's) which generally tend to be low involvement goods and the prices are a smaller percentage of consumer spending power. A marketing campaign for "SOFT-goat milk whitening soap" might have been effective in the early nineties but would not be effective in year 2008 when the awareness about animal testing is high and public opinion is against products of companies that use animal testing. An old marketing campaign in such circumstances would fail.
3. Industry Dynamics: This refers to the industry in itself and the changing relationships with the various stakeholders for example distributors, suppliers, investors and competitors. For example Unilever is the market leader in beauty Soaps category has maintained its leadership in market for over ten years. The tendency of Unilever would be to provide lesser margins to its retailers and distributors. Supposedly a Chinese beauty Soap manufacturer enters the market with a comparatively low soap price and double the retailer margin, the distributor and retailer in this case would push the Chinese soap in the market. Thus, availability of Chinese soap would increase as compared to availability of Unilever soap and thus the Above the Line (ATL) efforts of Unilever may fail. In such case, only a focus on (Below The Line)BTL activities will be successful with a careful analysis of value chain and relationship building exercises with distributors and retailers.
Impact of Differential Effectiveness of Firms on Efficiency
The market demand basically refers to historical demand for e.g. if demand for soaps in July2006 was 1000 bars, in 2007 it rose to 2000 bars we would estimate the demand for soaps in July 2008 to be 3000 bars. However, if due to external factors, the demand suddenly drops or rises, the demand estimation would fail and would lead to operational inefficiencies. For example, if the demand drops, the company would be overstocked and if suddenly demand rises the company would be short of stock. Thus, inefficiencies would exist due to presence of external factors. In this regard, proper inventory management has to be carried out with contingency planning and maintenance of buffer stock should be given priority.
Q2.Marketing Mix: 4 P's
The four P's of marketing are: Product, Price, Place and Promotion.
I would like to base my discussion on the following:-
1. All products are different in nature thus same marketing strategy can not apply to all of them
2. Consumers of different products have different tastes thus the same approach can not be applied to appeal to them.
3. Income Groups are different leading to different availability of target markets.
4. Marketing budget is limited but options are unlimited thus we have to tradeoff one option for the other , a concept that forms the media plan
Trading Things Out:
A good example would be a comparison of Foton Buses with Unilever. Both are companies having high marketing budgets but their strategies would be completely different for the reason that their products are very different in nature, the price structure is different, and their target segments are different and for this purpose the marketing plan would be different. Unilever would target at young girls and working women meanwhile Foton buses would target just the CNG and automobile sector. A major chunk (80%) of Unilever budget goes on above the line (ATL) activities like television spots, print advertising in magazines and Radio Spots. However, with the rising popularity of BTL activities including Hoarding, Billboards and Business-consumer exhibitions, Unilever has started dedicating 20% budget to these activities. Due to this lets suppose Unilever chooses to organize International Film fare Awards, it will start curtailing its ATL activities in order to allocate a larger proportion of budget to the awards which is an expensive brand building exercise. This would be a good example of trading one option for another.
On the other hand, Foton buses are capital goods requiring very targeted advertising .Thus 80% of their budget will go to Business to Business exhibitions and selective advertising in special interest journals.
Mixing things together to form an offer:
A good example would be Unilever offering 20% extra soap at the same price of the new product variation, a new soap with "Beauty Crystals "in it. In this offer, Unilever is spending heavily on its product packaging, the product itself and is providing a price advantage to consumers. Thus, it would compromise on certain ATL activities for example it would cut it's spend on magazines and focus entirely on television advertising to reinforce its offer. This would be a good example of using different percentages of the marketing mix elements i.e. product, price, place and promotion. Read More
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