GENESIS OF A POSTCRISIS PARADIGM OF A CONSUMER ESTIMATION OF COMPETITIVE ADVANTAGE OF THE GOODS

GENESIS OF A POSTCRISIS PARADIGM OF A CONSUMER ESTIMATION OF COMPETITIVE ADVANTAGE OF THE GOODS

Kiselev, V.M., Prof., Dr.

Krasyuk, I.N., Prof., Dr.

        Russian State University of Trade & Economic

Reference: Kiselev, V.M. Genesis of a postcrisis paradigm of a consumer estimation of competitive advantage of the goods/ V.M. Kiselev, I.N. Krasyuk // Current trends in commodity science: 10th International Commodity Science Conference. IGWT Symposium Series.- Poznań University of Economics; Polish Commodity Science Society, Poznań, Poland, 17th – 18th September 2009

Increased number of stock keeping units which appeared in the selling proposition of contemporary retailers over the last decade prior to the beginning of the current stage of the economic crisis (2008-2012) [1] has been accompanied by poorly expressed distinctions in their consumer properties. It has led to the aggravation of competition between manufacturers and suppliers of goods in last link of physical distribution, namely, in points of sale. Having no effective techniques of ensuring competitive advantages of their goods via non-price methods, manufacturers and suppliers strive to increase their sales turnover at the expense of price reduction. This phenomenon, which is quite common in Russia, as well as abroad, has lead to the overall decrease of economic efficiency among market participants in the sphere of commodity circulation, and in particular among retailers. Thus, retailers  entered the economic crisis of 2008 without any hypothetic  «safety cushion» or, in other words, without any accrued income which would keep the company afloat during „troublesome times“. This, obviously, compounds the consequences of the economic crisis and pushes retail industry into system collapse. Schumpeter „Innovation Storm“ [2]  in the sphere of product manufacturing and distribution appears to be the only way out from this current as well as future economic disaster.

Another consequence of such crunch is decreased buyer loyalty to points of sale and trademarks. The use of traditional commercial and technological tools  in order to mitigate the negative impact does not bring  about the desired effect to the participants of commodity circulation.

These circumstances have caused the necessity and expediency of the development of the such conceptual approach which would allow to effectively influence customer attention towards goods of specific  trademarks in the display area of retail outlets via effective visualization in points of sale.

Conducted research was based on the well-known fundamental studies of D.A. Aaker, N.Н. Borden, L. Bucklin, A.S.C. Ehrenberg, R.F. Lauterborn, A. Rives, Trout, E.H. Weber, etc.

The first sales paradigm in the form of distribution logistics (1902) which united  effective methods of  product sales in remote markets was born during genesis of serial commodity production[3].

Much later, professor Neil Borden (1964) further developed this concept to the understanding that product manufacturers can ensure effective product sales via various, yet similar tactical instruments[4].

Along with that, sales economy should be primarily based not on product flows but rather on the management of consumer perception of goods. Thus, the second sales paradigm was born in the depths of the first.  Outstanding American professor Theodore Levit (1988) noted in this regard that  in order to increase sales efficiency an individual manufacturer should concentrate his efforts not on trying to force consumers to desire their goods but rather on  forcing himself to produce goods desired by consumers [5].

In the context of this article we should note that the core of these efforts should be based on the long term and diverse relationships between manufacturers and other participants of product distribution such as suppliers, salesmen, buyers, and consumers, who all contribute to the understanding and  creation of mutually profitable conditions of commodity exchange. The 4C concept, suggested by Robert F. Lauterborn (1990) (Customer value, Customer cost, Convenience, Communication) appears to be the most attractive tool for product manufacturers who desire to establish such relationships [6]. These four concepts must be thoroughly considered by  manufactures  as early as product conceptualization stage. Fundamental research of Robert F. Lauterborn lead to the formalization of the third  (post-economic) sales paradigm: relationship paradigm.

For a long time this new concept was not considered as a new sales paradigm. It was viewed as one of the versions of the second paradigm. Professor Ian H. Gordon (1998) developed a tactic complex of measures of the second sales paradigm 4C expanding it to 11С: customer; categories; capabilities; cost, profitability and value; control of the contact to cash process; collaboration and integration; customization; communications; interaction and positioning; customer measurement; customer care; chain of relationships[7]. As it is obvious from the essence of the provided instrumental list, that primary focus of manufactures’ attention is geared towards consumers.

In his work «The next economy» Elliott Ettenberg (2001) defined the name of this third paradigm (post-economic) and reduced the long list of instruments suggested by professor Ian H. Gordon  to a short mnemonic 4R formula: relationship, relevancy, retrenchment and rewards [8]. As primary  tactic elements he also suggested the following: customer relationship, customer value to the company, reduction of unbeneficial customers and encouragement of beneficial.

Prerequisites of the genesis of post-economic paradigm of marketing relationships began to form  at the end of the ХХ-th century  in the response to the appearing at that time growth of commodities production and product distribution crisis.

The interaction of sales channels participants becomes their competitive advantage. Professor Peter Drucker  defined such  economic paradigm as «network community» (1991),  which was predetermined by  rapid growth of distribution networks [9]. The paradigm of network interaction is characterized by partnerships of industrial companies, strategic alliances and interoperation networks.

The formation of post-economic sales paradigm   is accompanied by significant growth of research in the area of  relationship management, where primary importance is given to such non-economic categories as trust, loyalty to the relationship, communication and value. This has also shaped a new understanding of the competitive advantage of selling proposition which is formed  with the help of non-material assets of the company such as brand (the value of trademarks in the minds of consumers), positioning (special place of the trademark in minds of the target consumer audience),  creation of value for consumers (vs. a product) etc.

The key promoter of the establishment of such non-material assets has been Jack Trout, who, in cooperation with his colleagues  Al Ries and Steve Rivkin, developed a concept of product positioning in the mind of consumers. According to this concept, selling proposition should be viewed by consumers as unique, in other words - the only available. Besides, consumers themselves must be able to differentiate this selling proposition from the others[10]. Jack Trout and others defined the first principle  of commodity production: «…It is better to be first in the mind than to be first in the market…».

To be fair we should note that positioning concept, defined as an imperative of the new economy, was first introduced as USP concept (Unique Selling Proposition/Point) by the advertising luminary Rosser Reeves (1960). It was geared towards maximum consideration of the psychology of perception of the selling proposition by the target consumer audience [11].

The heuristic paradigm of mutual relationships represents a continuous process of definition and creation of new value, which also involves buyers and is followed by joint acquisition and distribution of benefits resulting from interaction between participants. This paradigm also includes understanding, focused attention and  management of joint activity of suppliers and selected customers for joint creation and use of values through mutual dependence and adjustment of organizations.

Formation of the third paradigm to a great extent was influenced by the following theories: theory of the resource dependency  (vertical integration of supply chains), developed by professor Louis P. Bucklin (1966) [12], and network theory (penetrating cooperation as primary method of organization of interaction between the participants of  network structures), described by professor Jagdish N. Sheth (1988) [13].

The third sales paradigm implies direct participation of buyers in value chain. It blurs the boundary between buyers and manufactures/supplies, and re-organizes the company in a new way, thus, changing the system of material  incentives of employees and  rearranging all aspects of company’s activity in order to  better connect business processes with product buyers. Professor Paul Temporal (2001) in his  joint publications in regards to the matter figuratively defined such paradigm as   «romancing the customer», while multiple relationships between suppliers, sellers, buyers and consumers he described by his well known phrase Je t'aime! (fr.) [14].

Relationship paradigm might be defined as a process of determination and  satisfaction of consumer needs in a way that is better than competitors in order to achieve company’s goals. Product manufactures create a new value for consumers and recognize the key role of buyers in determining the value that they would ultimately like to receive.

Thus, value is created together with consumers  instead of being created for them. Years earlier it was assumed that companies  independently determine and provide  the value of what they consider as «products». Now, following their business strategy and concentrating their attention on consumers, manufacturers create and adjust their business processes, communications, technology and personnel training in accordance with the value which is desired by customers. They strive to establish a chain of relationships between the company itself and its partners in the supply chain, including suppliers and intermediate agents in distribution channel.

Relationship paradigm has been widely recognized by scientists and experts of various countries and continents, including North America, Europe, Australia, Asia. It has a wide area of application involving a wide spectrum of neighboring sales industries, including distribution channels, analysis of sales possibilities etc.

Based on the abovementioned facts we may conclude that today’s market environment offers all objective conditions necessary for the full-scale application of methods and principles of partnership relationships between sellers and buyers/consumers.

The development of network theory of trade channels and customer relations has lead to significant extension of these channels and their penetration into the global market. Product proposal has increased in geometrical proportion, having reached hundreds of thousands of  stock keeping units within one retail complex.

The end of the XX –th century had a tendency of efficiency decline in marketing communications, which reflected changes occurring in the society such as growth of the role of informatization, wide-scale impact of mass media on the society, increased customer knowledge and experience in regards to the consumed goods, as well as the growing cost of communication.

New  cutting-edge formats of retail enterprises (retail and entertainment centers or shopping malls) appeared everywhere with new possibilities of marketing communication through specific determinants of the physical environment of goods. Honored American professor Kotler, Philip (1973) was one of the first to determine that one of the attributes of each product is the atmosphere of the point of sale [15]. Later Philip Kotler brilliantly predicted that in client communication occurring in points of sale, the emphasis should be made on buyer impression from the selling proposition [16].

Thus, a new (the forth in succession) marketing paradigm was created, which was called ‘The Experience Economy». The name of this new marketing paradigm was later given by  American consultants Pine II, B. Joseph & Gilmor, James H. (1999) [17]. They predicted evolutionary growth of economic proposals from the physical  attributes to impressions: «… when a person buys impressions, he pays for the unforgettable minutes of his life prepared by the company, in other words, for his own feelings and perceptions …». With that, market value of the selling proposition increases several times.

Thus, manufactures, suppliers and consumers should concentrate their efforts on the impression that is associated with the use of their products. The center of attention of the empiric economy has shifted from just the consumer to also consumer behavior, and his emotional condition during the use of products. This should be the primary concern of those manufacturers, whose products are currently not in demand or dramatically loosing it.

Тhus, earlier cited Pine B.D (II) and J Gilmor D.H were able to foresee the rapid evolution of the paradigm of empiric economy into the transformation paradigm, which is based on the theory of behaviorism and implies not only creation in consumers of feelings and impressions but also their learning (training), and supervisory assistance for better perception of the impression and fullness of their experience from purchase and consumption of goods (transformation of impression perception) [17].

Reference:

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