Download CONSUMER BEHAVIOUR, MARKETING AND

From a Village Marketing to Marketing to the Global
Village
JACQUES NANTEL, PhD.
Full Professor
École des HEC, Montreal
INTRODUCTION
In the next few decades, consumers will witness a radically changing
environment. Their decision-making processes, in particular the information search
mechanisms that they use, will consequently be transformed. Marketing strategies must
adapt accordingly. This presentation will demonstrate that owing to the substantial
impact of new information technologies, marketing in the 21st century may resemble
more closely that of the 19th than the 20th. We have thus evolved from a village
marketing approach to global village marketing.
MAJOR PHASES IN THE EVOLUTION OF MARKETING
To better understand the status of marketing in the Year 2000, it is useful to
examine how this corporate function has evolved over the years. Two major factors
account for the changes in marketing of goods and services. The first is the availability
of goods and a company’s capacity to adapt its offer. At the turn of the century, the
industrial world was still in its adolescence. In many domains, the offer was limited, and
relative inflexibility was especially common. The technological developments that
followed World War Two, along with the emergence of new fabrication and distribution
methods such as flexible production, the “Just-in-Time” supply system and EDI have
resulted in the current ability to produce and deliver precisely what customers demand.
Second, merchants today can better understand the needs of their clientele. In this
respect, the evolution of marketing information systems has brought about the transition
from a local marketing mode centred on understanding the needs of local consumers, or
village marketing, to a marketing mode that can be just as adapted and personalized, but
this time is tailored to global markets; it can be dubbed global village marketing.
The village
In most pre-industrial societies, the village merchant knew his customers very
well. He could thus foresee each customer’s demand. Furthermore, when a supplier
offered him new products, he knew precisely whether or not he could sell them. In fact,
the problem facing the general merchant of the village was not determining his
customers’ needs, but rather assessing his capacity to satisfy these needs. The
availability of products and, to a greater extent, procurement difficulties were the most
formidable constraints of pre-war marketing.
Mass marketing.
The advent of mass production, coupled with unprecedented development of the means
of distribution and communication media, including television, has spawned the
emergence of a new form of marketing: mass marketing. The primary goal of this
approach is to be present on as many markets as possible, by using the largest number of
distribution networks and vast communication resources. It is this form of marketing that
lies at the origin of the advertising industry, as it largely exists today. This was the era of
“Share of Voice, Share of Mind” and “There’s no such thing as bad publicity.”
Essentially, the dominant philosophy of this marketing method is not adapting to
customers’ needs, but rather attempting to reach and hoping to convince the largest
possible number of customers. For example, in Canada, total advertising investment in
1994 exceeded $26 billion, corresponding to slightly more than $1,000 per consumer. It
is disconcerting to note that, even today, very few companies are concerned with
measuring the profitability of these investments.
Segmentation marketing and direct marketing
Two phenomena have prompted companies to carefully target their marketing
strategies. First, consumer markets, at least in developed nations, have tended to reach
the saturation point. As a result, corporate growth can be achieved only at the expense of
rival companies’. The rules of the game are no longer to harness market growth, but
rather to increase one’s market share. Less skilled at this more challenging game, certain
large multinationals which have been losing their domestic market share have been
turning to international markets to fuel their growth. While this strategy is ideal over the
short term, it should not prevent the companies from ultimately envisioning the
penetration of micromarkets. The second factor that explains the trend toward segmented
marketing is that certain forms of marketing, including direct marketing, allow
companies to better track the profitability of their investments. Nonetheless, it is
important to bear in mind that this approach is effective only to the extent that the
company possesses extensive information about its current and potential clientele. In the
past few decades, progress in the area of information technology has led to a better
understanding of consumer behaviour. Consequently, today no company can afford to
overlook targeted and adapted strategies.
To monitor customers, marketing information systems require three sources of
information. The first source is scanner data. Optic lenses in retailers’ cash registers
allow monitoring of consumer behaviour. The company that fully harnesses the power of
this information is able to determine who purchases which product, at which time, under
which conditions (on special or not, on display or on the shelf, etc.), and in conjunction
with which complementary products. This type of information is currently
revolutionizing the retailing sector by introducing concepts such as management by
product category, a management method that underlies the success of Wal-Mart.
Retailers who possess this information have enhanced their power within the distribution
network, a gain achieved at the expense of manufacturers who have too often ignored the
scope of this type of information. The proliferation of house brands such as Metro,
President’s Choice or Expériences reflects the power granted to retailers by consumer
behaviour monitoring.
The second source of information that enables managers to better follow their
markets consists of public databases such as those of Statistics Canada, Compusearch and
Claritas. These databases enable companies to better identify the profiles of their
clientele and consequently target their strategies more effectively. Today, a company that
neglects the power of these tools cannot hope to enter the next marketing era.
The third and final source of indispensable information is a company’s internal
databases. This source, generally used in combination with the two others, enables
managers to identify its current or potential customers by name, along with their wants.
These records, crucial to direct marketing, tell companies who is likely to buy what and
how. To compile this data, companies initially opted for approximately targeted
communication that invariably allows the possibility of direct contact with customers,
such as toll-free lines. From advertisements and infomercials, companies generate lists of
current and potential clients that they then use in marketing campaigns. These lists can
subsequently be resold to other companies, based on the purchasing profile of the
customers on the list. This form of marketing is the ultimate example of marketing that
combines both product availability and virtually perfect information on customers.
Nonetheless, this marketing method carries with it the seeds of its own destruction:
Although it has swelled over 300% in the past five years, direct marketing, often in the
form of postal mailing or unwanted telephone solicitation, operates on the principle that
the customer is a passive being who must be approached and lured. However, if this
logic is taken to the extreme, it becomes clear that direct marketing, as we know it, may
soon reach its saturation point. For example, Canadian consumers make an average of 20
purchasing decisions each day; consider that each of these decisions is between four rival
products, all equally effective and able to directly solicit the customer. Assuming that
each consumer can devote an average of 10 seconds to processing the information
presented, the total decision time is 26 minutes per day. The time invested in this activity
is thus greater than the average time a North American spends doing exercise, and is only
slightly below the time spent with children or spouses!
To summarize, in light of the saturation of what can be called the solicitation
market, and given the possibilities offered by electronic commerce, marketing
professionals should rethink their basic assumptions. It is no longer a question of passive
customers and active merchants, but rather active customers and “passive” merchants.
The ground rules for merchants will consist, more than ever, in offering the right
information in the right sequence at the right places.
Marketing in the global village
The information superhighway will have a significant impact on consumer
behaviour. For example, it will enable individuals to perform active and thorough
searches for information before making a purchase. Customers can thus find the best
product at the best price, under the best conditions. To do so, they will no longer be
limited to comparing two or three products at a time by a few suppliers closest to their
homes or by retailers who solicit them. Instead, they will have access to all retailers who
operate in cyberspace. Through tools such as the WWW, the comparison will be much
simpler. Already, companies such as CD-Now (http://cd-now.com) have captured a
sizeable CD market share. Moreover, consumers can now make purchases not only
based on information provided by retailers, but also on information from other consumers
who are already grouping together on the Web to express a litany of complaints or
compliments regarding certain manufacturers or retailers
(http://www.Laggroup.com/mz/lemon/). In short, the Internet allows manufacturers,
retailers and consumers alike to bypass the linear communication and distribution
networks that have characterized marketing to date. In this respect, the main changes are
linked to the fact that the distribution and communication networks will merge together.
The electronic store will double as the retailer’s place of business, and maybe even the
manufacturer’s, as well as their main communication channel. Consumers can thus query
various servers in real time to find the product or service best suited to their needs, based
on criteria they define. Admittedly, in this universe the notion of advertising must be
adapted. Although there will always be a place for mass advertising, to increase the
notoriety of a name or a product image, for example, conventional means will no longer
be used to promote the prices or the objective attributes of products. In addition, on the
information superhighway, each customer becomes in turn a source of information for
other customers. This is a new reality with which companies must learn to contend.
Furthermore, for companies who know how to adapt, this new environment offers
unprecedented opportunities to boost marketing activities. First, given that Internet
navigation leaves a trail, retailers can determine who visits their electronic stores, and
those of the competition. Such information, valuable as it may be, need not be
nominative to be useful. The firm A. C. Nielsen already offers
(http://www.nielsen.com.au/webaudit/samplelog/sample.htm) a system that compiles the
sociodemographic, geographic and purchasing profiles of consumers who enter an
electronic site. This information enables companies to quickly adapt their
communication and marketing strategies. In addition, companies can reach each other to
offer precise segments an optimal mix of products and services. Virtual shopping centres
are already being “built” or “modified”; their structure and composition is changing as
understanding of the segment served increases.
Current magnitude of electronic commerce
Today, electronic commerce does not represent the end of traditional commerce,
as some have claimed, nor is it merely a passing fad. Electronic commerce is here to
stay. It is a growing force to be reckoned with. In the United States, the penetration rate
in autumn 1997 was an estimated 34% of households (Yankelovich, Cybercitizen study),
whereas the Canadian proportion was estimated at 24% (A.C. Nielsen). For the Québec
market, a study by the RISQ (http://www.risq.qc.ca/enquete/3/intro/methodologie.html)
revealed that nearly a quarter of the participants in the third study have already ordered or
paid for a product on the Internet. The main purchases, corroborating the American and
Canadian findings, were computer products (software and computer equipment),
followed by entertainment products (books, CDs, trips and magazines). For now, the
transmission of credit card numbers on the Internet is the most widely used payment
method, although a majority of consumers report that they are still uncomfortable with
this payment method.
Impact of the information superhighway on the commerce structure
If the information superhighway has an impact on the way in which consumers
procure their goods and services, it will necessarily have a major influence on the way in
which these products are marketed. Four key areas of change will be examined below:
market globalization, reduction of entry barriers, radical transformation of certain types
of retailers and the growth of distribution logistics.
Market globalization
Since the advent of NAFTA and the formation of blocs such as the European
Union and the Pacific Rim, market globalization is becoming more prevalent than ever.
The exchange-centred rationale of these agreements advocates that a company can gain
considerably from targeting a precise segment, even at the world-wide scale, rather than
attempting to capture an entire, often heterogeneous, local market. Although it is
impeccable, this business strategy must be backed by a series of market studies conducted
throughout the world, and companies must put in place an octopus-like distribution
network. The information superhighway will change this constraint and will
consequently reduce entry barriers for new players. In the coming years, competition is
expected to intensify exponentially in all sectors, including those of current consumption.
Conceivably, a customer who purchases $500 worth of coffee per year and who is
already used to purchasing in large quantities at warehouse stores such as Price Club may
purchase directly from a Colombian seller who could ship the coffee four times year at a
fraction of the price. This service already exists at the international level. Furthermore,
the electronic superhighway can be considered merely the latest link in the “Just-inTime” concept chain, which began with the advent of EDI, which adjusts manufacturers’
supply with retailers’ demands. The next stage was ECR, which creates the same
relationship between retailers and customers.
Impact on the structure of commerce
Although it is difficult to estimate the proportion of commerce that will be served
by the information superhighway by the end of the century, one can confidently assume
that the Internet will have a significant effect on certain types of commerce. As
mentioned above, every product or service that can be digitized can be distributed
electronically. The first foreseeable consequence is the drop in demand for rental space.
In terms of consumer goods, certain products will undergo metamorphosis. For
example, consider daily newspapers. In this industry, what the customer purchases is not
paper but news. The price of a daily is largely dictated by paper and distribution costs.
In the future, a distribution system will be put in place whereby dailies are disseminated
via email. This system can offer customers selected portions of various dailies.
Distribution can include an offer to the effect that if the customer is willing to receive ten
advertisements per issue, pre-selected by the customer from a given number of suppliers,
the price can be reduced by half. Customers can then print, at their convenience, a
personalized newspaper in the format of their choice. They can also read the daily
onscreen. This type of offer would be profitable for the publisher, the consumer and, of
course, advertisers, who would be assured that their advertisement is reaching a targeted
readership. Therefore, this system would invariably reduce the costs associated with the
inefficiency of the current distribution system.
Convenience stores, in their current form, would also be affected by the advent of
the information superhighway. These businesses, already troubled by black market
cigarettes and beer price wars, generate a substantial portion of their income from the sale
of lottery products. However, in the foreseeable future a large share of lottery product
distribution will take place electronically, including validation of combinations, the
choice of numbers and interactive sales of “scratch-and-win” cards. Certain casino
games already exist on the Internet.
The sale and rental of CDs, books, video games, software and films will also be
affected. As all of these goods can be transmitted electronically, their distribution
method will change in the near future. Blockbuster, in concert with IBM, is developing a
distribution network that minimizes piracy of these products. It is already possible to
view, hear and read excerpts from these products on the Internet Final distribution is
only a few steps away.
Even department stores will feel the impact of electronic commerce. For
example, warehouse stores such as Price Club or “Category killers” such as Toys’R’Us
offer a variety of products at low prices. In contrast, the level of service is minimal. In
addition, customers of these stores often find themselves dragging home a purchase
volume that is imposing as well as cumbersome. In short, because these stores are
mainly vast catalogues, they are therefore highly vulnerable to the advent of electronic
commerce that could offer full product lines, viewing capacity, often in three dimensions,
and home delivery at the customer’s convenience.
Lastly, note that banks provide compelling proof that the commerce of tomorrow
can take place with minimal investment in real estate.
Distribution logistics: the future of marketing
Evidently, the marketing of tomorrow will enable merchants to offer customers a
nearly infinite array of goods and services while collecting rich and abundant information
on their target clientele. The main challenge of the marketing of tomorrow will be that of
distribution logistics. There is much to be done before these millions of consumers can
be shipped the products ordered that cannot be delivered electronically. Stores that have
a long tradition of catalogue sales, such as Sears, may have an advantage in this respect.
Other stores such as Wal-Mart may draw upon their “Just-in-Time” supply expertise to
evolve into redistribution centres. It should therefore come as no surprise to see these
types of stores reallocate a sizeable proportion of their space to transit warehouses, and
devote only a small portion of their area to traditional retail sales. Therefore, one piece of
advice I would give to students or managers who are beginning training in marketing
would be to focus their efforts on studying information systems and distribution logistics
rather than mass advertising or product development.
CONCLUSION
The environment in which companies evolve has changed considerably, and the
pace of these changes will accelerate in the years to come. Nonetheless, the basic
marketing principles will stay the same. This corporate function has always been and
will remain a function that is intended, first and foremost, to identify and monitor
customers’ requirements, and, second, to offer the product or service which would be best
adapted to these requirements. The advent of marketing via databases, along with direct
marketing, has pushed the consumer analysis market component to the extreme.
However, this approach postulates that the customer is a passive entity who must be
solicited. The exponential growth of this form of marketing is inexorably pushing this
strategy to its saturation point. In contrast, the advent of the information superhighway,
where customers can gather the information they seek in the format of their choice,
including information from other customers, is opening new horizons. In this
environment, companies will have access to practically pure and perfect information
about customer behaviour, along with customer segments. The challenge now facing
these companies is to find the ideal way to position their offer without interfering
counter-productively in customers’ decision-making processes. In this respect, marketing
in the 21st century should take on a more “passive” tone. Two major challenges
nonetheless exist over the short term: marketing modes must be made more user-friendly
and especially more secure. Consequently, security of confidential information will
become a pressing issue for the commerce of tomorrow.