An Analysis of the Fundamentals of Marketing (part 16)

Freud and Psychoanalysis (part B)

by

Charles Lamson

The Preconscious and the Unconscious

In The Ego and the Id (1923) Freud made the distinction between the 'preconscious', ideas which an individual can bring to consciousness almost at will and 'unconscious' thought which because of its disturbing nature is not easily made conscious although it still may indirectly influence behavior. Freud posited that people may consciously censor and repress, display or project such threatening ideas. As an instance of 'repression' Freud offers the case history of  'Anna O'. Despite the summer heat, Anna refused to drink water. She often raised the glass to her lips only to repel it with an air of disgust. No one, including Anna herself, knew the source of this sudden malady. It was only several days later when under hypnosis that Anna revealed that she had gone into someone else's room and had seen a dog drinking out of a glass. She had felt revulsion and disgust at the sight. Once she had described this situation Anna felt better and was able to drink. Freud's explanation of Anna's predicament was that this image had so revolted Anna's sensibilities that she had unconsciously repressed all knowledge of the scene and had converted this repressed disgust into a phobia concerning drinking.

Repression is a form of ego defense whereby images which are thought of as being disturbing are shut out of consciousness. Such disturbing images may be related to the outward expression of desires that are considered abnormal by society. By contrast to repression, 'displacement' occurs when an unconscious impulse is redirected towards a more acceptable target.

Displacement can take many forms, but that which is of most interest for consumer behavior assessment is 'sublimation'. Sublimation involves the displacement of sexual energy, known as 'libido', to non-sexual ends in a manner which not only avoids conflict. It actively promotes a person's adjustment to his or her social context. Oriented toward the reality principal, the ego plays a key role in sublimating id demands by channeling id energy away from the pure investment in immediate gratification demanded by the pleasure principal towards a more socially acceptable response (see last post for a better description of id, superego and ego). A Freudian explanation would suggest that within Western European culture, consumer goods play an ever increasing role in sublimating those desires expressed by Eros. Freud's idea of 'sexuality' is different from that used generally. For Freud libido is essentially a drive whose object is the stimulation of various bodily areas or 'erotogenic zones'. In order to understand what Freud means by sexual energy and the developmental process by which this is attained, there needs to be further discussion.

Researching Consumer Motivation

The Institute for Motivation Research, started by Dichter around 1940, employed Freudian concepts to understand consumer desire better. Dichter (1960) argued that the key to desire lies in an understanding of the unconscious motives that often lie behind it. He considered that the desire for freedom and discovery can be expressed through the glamour of a new car. Dichter pioneered a number of forms of research, including the focus group. He recalls the institute's first study on Ivory soap. By means of detailed observation researchers learned what others had ignored, that when buying soap people do not simply look at it but often sniff it and hold it; that consequently the smell, feel and shape of the soap bar are important. Researchers carried out 100 non-directive interviews in the US inquiring why people take a bath or shower. They found that taking a bath or shower before a romantic date had more significance; interviewees bathed more carefully and took longer. People made the choice to buy based not on attributes such as price, appearance, lather and color but on a combination of these factors, plus an 'intangible' element which Dichter labeled the personality of the soap. The researchers found that Ivory soap had a somber, utilitarian, thoroughly cleansing character. Dichter linked brand identity to personal identity by arguing that individuals project themselves on to products. In buying a car they actually buy an extension of their own personality (Dichter, 1964). Likewise when they are 'loyal' to a commercial brand they are 'loyal' to themselves. In discussing areas such as brand personality and social marketing he was well ahead of his time. Dichter (1964) later published a handbook of consumer motivations that contained findings from 2,500 studies of motivation carried out by the Institute.

Later Freud: Id-Ego-Superego

It was mentioned above that Freud's theory is hydraulic to the extent that energy plays a vital part in his explanation and provides a key role in understanding motivation. In his later work he associated this energy with the powerful instinctual forces that are produced within the id, which Freud likens to a huge reservoir of psychic energy. The id is:

[A] cauldron full of seething excitations ... it is filled with energy reaching it from the instincts, but it has no organization, produces no collective will, but only a striving to bring about the satisfaction of instinctual needs subject to the observance of the pleasure principle.

(Freud, 1933) 

According to Freud, biological instincts drive the production of energy according to two main principals over the life of the human subject, the life drive, Eros, and the death drive, Thanatos. Eros 'naturally' should prevail over the birth and growth phases of life, to be replaced as a person grows older by the equally pervasive power of Thanatos. During the period of the predominance of Eros the instinctual drives push all the behavior in the direction of immediate gratification of biological life-giving needs, the instinctual drives of hunger and sex. Freud's definition of 'sex' differs from the common view, a point which will be expanded upon later. The biological forces of the id are especially powerful during infancy and into early childhood.

The powerful demand of the id for immediate satisfaction is progressively countered by an equally powerful force that only becomes internalized following the resolution of the Oedipus complex at adolescence. This internalized image of society is known as the superego, which in the early years consists of parental control. Parents pass on their language, customs and cultural values to their children which subsequently are internalized by the child following a period of struggle in adolescence. The third important aspect of the self is the ego, which stands between the id and the superego. The ego has a fragile existence as it plays the role of arbitrator and mediator between the demands of biology and society by seeking to bring the influence of the external world to bear on the id. The ego aims to substitute the reality principal for the pleasure principal which governs the id.

The above relates to consumer behavior by providing an explanation of the dynamics underlying selfhood. Psychoanalytic theory can help explain the role played by goods and services in the make-up of ourselves. Freud's theory offers an explanation which focuses on the investment of psychic energy (motive force) into consumer goods. Why is such energy invested into consumer goods? It relates to the contradictory nature of the demands of biology and society and how these are partly resolved by means of consumption. Psychoanalytic theory suggests that often individuals are unaware of the motives which govern their decisions, as these are largely unconscious. This means that the importance of the unconscious in directing thoughts and behavior should be explored.

Sexuality and Development

Freud theorized that Eros is composed of ego and sexual instincts. While survival depends on fairly immediate gratification of ego instincts, libido or sexual drive is infinitely more malleable. His theory is developmental to the extent that he explains how the needs of children change as they grow older. According to this theory, children pass through a number of stages of development on their passage towards adulthood and at each stage a different erotogenic zone becomes the focus for sexual energy. Either excessive gratification or frustration of this desire will have major consequences for the individual in later life. They will help to determine not only the style of the child's sexual satisfaction in later life but also their personality and emotional character. If the child receives too much or too little gratification during a particular stage this creates anxiety that may result in a fixation on this zone; in adulthood they may even regress to this stage of development as the result of some trauma.

Oral Stage

in the first year of life the mouth of the child is the zone of interest and the breast of the mother (or its substitute) is the object of interest. The child obtains most gratification from sucking and when teeth develop, pleasure comes from biting. If the mother responds by either over or under gratifying the demands of the child, then the child may develop great tension and anxiety about feeding. This anxiety may reach intolerable levels, at which stage the ego may act to repress the impulses which are responsible for this tension. The ego must expend large amounts of energy in repressing this anxiety. In focusing on the mouth the adult may experience pleasure, engaging in oral activities such as smoking, drinking or perhaps a preoccupation with the preparation and consumption of food. However, a severe trauma such as the death of a relative may so stretch the resources of the ego that it can no longer contain the repressed anxieties of childhood which return in full force. This can result in a neurotic disorder where the person regresses back to the oral stage and may exhibit a wide range of disorders associated with eating.

Anal Stage

The next phase, which lasts from around one year old to the age of 3 is the anal phase. By this time the child's sphincter control has reached the point where s/he can take pleasure in holding on to or letting go of bodily wastes. Freud's theory suggests that children who are fixated at the anal stage may well develop as adults the character traits which reflect his or her difficulties in resolving this stage. Such adults may develop an obsessive regard for order and cleanliness, value hoarding and saving and have a stubborn nature.


Phallic Stage

The phallic stage which lasts from between 3 to 5 years of age culminates in the emotional crisis known as the 'Oedipus complex'. Prior to the Oedipus complex (named after the famous Greek myth), both boys and girls identify with their mother. Boys see their father as a rival for the mother's affections but come to fear the power of the father. Their terror of the father becomes so great that eventually the boy splits his affections away from the mother and identifies himself with the father. It is by means of such an identification that the boy child achieves a male identity. In identifying with the father and 'introjecting', or internalizing,the father's values the boy develops a new structure, the superego or conscience, which replaces the external control his parents exercised over him.

The transition for girls is not so simple. Girls seek to identify with the father and come to see the mother as a rival for his affections. However, the girl's physical resemblance to the mother means that she cannot physically identify with the father or with his power. As a result, Freud thought, the development of the female superego was a more difficult process. Those who become fixated at the phallic stage become obsessed with power and those things which symbolize power. For example, this may be expressed through the purchase of products which are recognized as signifying prestige and power, i.e. anything from powerful sports cars to expensive watches or the latest technological toys. In recent years women executives who mimic male dress codes in business, e.g. by wearing suits which have jackets with wide shoulders, and sometimes even shirts and ties, have acquired the label 'power dressers'.

Following the phallic stage there is a period of quiescence known as 'latency' which may last between 5 years of age and puberty. The beginnings of adult sexuality are observed in the 'genital period' when the individual's self-love or 'narcissism' becomes channeled into the love of others.

What can be learned from Freud in terms of the role which goods play in people's lives? Firstly the id is the source of all true needs, providing the energy and motive force for the demand for need satisfaction. The id demands satisfaction in line with the requirements of Eros, the life drive. Individuals are motivated to satisfy directly those needs for hunger and thirst and safety which are directly linked with survival. The sex drive is another major motive force which demands satisfaction. However, within Freud's explanation this comes into conflict with the restraining force of the superego which in its capacity as a proxy for 'civilized' society reins in the desire for direct sexual satisfaction and replaces such actions with others which are more socially acceptable. In a consumer society, one outlet for the sublimation of sexual desire is through the purchase of consumer goods and services.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 74-78*

END

An Analysis of the Fundamentals of Marketing (part 15)

Freud and Psychoanalysis (part A)

by

Charles Lamson

Freud's chosen topic was the human condition; how the individual comes to 'be' someone, a subject of immense scope and one which provides formidable obstacles to full appreciation. During the twentieth century Freud's theories had an immense impact on the study of psychology, linguistics and social theory that continues to this day.

Freud's relevence to the understanding of consumer behavior is diverse. His early writings put forward a psychodynamic notion of selfhood that relates to a conception of the human organism as comprising a storehouse of energy that develops and grows through the investment of energy into objects (people and things) and its return to the self that it nourishes. Problems can arise when the energy that has been invested is cut off. Freud's concept of the activity of the unconscious raises the question of consumer motivation. If desire is an unconscious process, then consumers are often not aware of their real motives for desiring things. In his later writings, Freud developed a complex explanation for the topography of the human mind. In this explanation, the self is a complex and conflicted entity which is comprised of three agencies. The id represents the demands of biology for immediate gratification. Pitted against the id, the superego represents the internalized demand of society for civilized conduct. In the middle is the ego that must constantly seek to reconcile the demands of the powerful forces of biology and society in attending to the survival and gratification of the person.

The Extended Self

Freud was an acute observer and one of the things he noticed which intrigued him was that infants and those who are ill or disappointed in love tend to be almost totally self-absorbed. In his earlier work on infant development (Freud, 1911) he had reasoned the existence of two principals; the pleasure principal and the reality principal. From birth infants are governed by the pleasure-unpleasure principal to the extent that they will strive towards those people and things that provide them with pleasure and will avoid those that do not. If satisfaction is not immediately forthcoming, the infant must learn slowly and painfully to accommodate herself to the demands of reality, for example by learning to defer gratification. Even so the lure of the pleasure principal is ever present, particularly for those adults who find that reality is so unbearable that they turn away from it to live instead in a fantasy world.

In a later paper Freud (1914) argued the same point in a different way by highlighting the role played by sexual energy or libido in the process. From the start the infant invests all his libido or sexual energy into her 'self'.' This self-absorbed or narcissistic self is an amorphous concept that includes the objects (by objects Freud means people and things) that provide her with satisfaction. as she grows older she must learn not only to defer gratification but to repress those instinctual impulses that come into conflict with the requirements of society. In order to do so she sets up an ideal inside herself, the ego ideal, which is modeled on a parent or another caregiver. The energy that was previously invested into the narcissistic ego is now invested into the ego-ideal, which constitutes an image of perfection that the child then strives to become. Development of a healthy ego consists in a departure from narcissism brought about by displacement of libido to an ego-ideal, imposed from without and satisfaction comes from fulfilling this ideal. Linked with the ego ideal is the superego, a censoring agency that constantly watches the ego and measures it by the standards of the ego ideal. Freud then had to consider what happened to the sexual instinct at this point. Overt expression of sexual desire is forbidden by most if not all societies and so societal pressure makes itself felt through increased superego control, leaving the ego the possibility of making one of two choices. Either desire is repressed from consciousness, in which case it retains the potential to be severely disruptive in later life; or the desire can be sublimated, i.e. the energy is directed towards an aim other than, and remote from, sexual satisfaction. Freud argues that some of society's greatest achievements; including all the great works of human culture, are the product of sublimation.

If one conceives of the 'self' as being constituted through investment of energy then being in love represents a flowing over of ego-libido on to the object (a person or a thing). We invest energy into those people and things that we love, i.e. those things that bring us satisfaction. When a person dies we do not simply mourn their passing but also our own diminution, because we are also mourning the loss of our own life force that we had invested in that person. This can be true of any object that is important to us: the pet that dies; the coat that is lost or stolen. If death is tragic then Freud marks out the melancholia that arises when one is slighted by another in love as being even worse.

Freud's explanation is challenging in that it affirms that the self is not confined in a container but is distributed among a range of people and objects. In this view the notion of a healthy 'self' is associated with a diverse range of investments in other people. From Freud's explanation that narcissism or self-absorption is the normal state for very young children it is assumed that only gradually will one learn to invest in others. This point is illustrated by Csikszentmihalyi and Rochberg-Halton (1981), who cite the different ways in which children of different ages in their study related to a refrigerator. The authors interviewed a 12 year old girl and her 15 yer old brother. Each of the children had independently mentioned the refrigerator as being special. The young girl would go to the refrigerator when she was unhappy and said she would feel better already at the thought of being able to fix herself a snack. The boy, on the other hand, said that the refrigerator gave him a good feeling because when his friends came over to visit he could open it and treat them to food or drink. Thus even at the age of 12 the younger girl is still relatively narcissistic in being primarily self-oriented, by viewing the refrigerator as a means of satisfying her own individual needs. By contrast her older brother expands the self outwards in considering how the refrigerator can create social bonds. The authors found that as adolescents mature so the relation with commodities changes. Youth tends to value objects which are associated with action and experience, for example musical instruments, sports equipment, pets and vehicles. Gradually, the boundaries of the self extend or expand outwards as energy is invested in friendships and partnerships such as marriage, so that others (husband, wife, children) become assimilated into the self-concept  (Csikczentmahlyi and Rochberg-Halton, 1981). Whereas children focus very much on experiencing objects in relation to their individual self, older people cherish objects which link them to others and which recall memories. Objects such as painting and photographs are particularly valued as vehicles for contemplation.

If possessions can be regarded as part of the self then an unintentional loss of possessions should be regarded as a loss or lessening of self. Goffman (1961) discusses how institutions such as mental hospitals, homes for the aged and prisons seek to strip away a person's identity by systematically depriving them of all personal possessions such as clothing or money. Csikszentmihalyi and Rochberg-Halton view that our 'selves' are constructed in proportion to the amount of psychic energy which we invest. We should mourn for treasured objects which are taken away from us in a similar manner to the way that we mourn for our loved ones who die. The theory is that we are mourning our own loss of self, that bit of us which we have invested so much energy into and which has now been taken away from us. Belk (1988) reports that in a small-scale test which he carried out with burglary victims they not only felt anger but also reported feelings of invasion and violation. It can be imagined that in contemporary society, which is becoming progressively individualized, where possessions take the role of people and vice versa, that the investment of psychic energy into things is greater than ever before.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 71-74*

END

An Analysis of the Fundamentals of Marketing (part 14)

Consumer Buyer Behavior

by

Charles Lamson

Introduction

As was mentioned in an earlier post, the study of consumer behavior is an important part of the managerialist approach to marketing. Underpinning this notion is the belief that if academics and industrialists can come to a better understanding of why people behave as they do, it should be possible to develop products which have a better chance of success in the market place. Over and above the interests of firms, there is a societal interest in seeking to understand consumer behavior. For the first time, many consumers live in societies where the impact of consumption has much wider implications than those of the transaction between buyer and seller. Many people in the world live in consumer societies where goods and services play much more than a simple economic role. In this post the economic explanation is briefly explained. The three powerful psychological explanations based on psychoanalytic theory, behaviorism and cognitive learning theory, are discussed. Table 3.1 summarizes some of the key aspects relating to each explanation (Kotler, 1965).

Table 1. Key Relations Between Different Explanations

Consumer type	Individual	Period	Discipline
Rational consumer	Marshall	Late 1800s	Economics
Unconscious consumer	Freud	Early 1900s	Psychology
Conditioned consumer	Watson/Skinner	Early 1990s	Psychology
Problem-solving consumer	Simon	Mid 1990s	Psychology

Economic Theory

The abstraction of homo economicus, 'rational economic man', is the point at which the theory of consumer behavior begins. This account considers human behavior over the course of about 100 years. Since the 1970s, With the rise of behavioral economics, many of the following assumptions have been modified. Nevertheless, this forms a useful point of departure for understanding different accounts of consumer behavior. In classical economic terms homo economicus is a rational actor who is aware of the scope of the choices available and who acts alone to evaluate each potential choice of action on the basis of perfect information to maximize his or her utility or satisfaction. When economists say that consumers act 'rationally' they mean they act rationally from their point of view. This may seem to be irrational to others but is intelligible once the circumstances of the person are known. For example, leavitt (1958) suggested the following:

Man is an irrational animal, if by irrational we mean that he does not always do what we think is best for him, but though irrational there is an internal logic to his behavior. So we can understand it if we look at it from the inside rather than the outside and if we try to deal with it all at once instead of in pieces.

It is the idea of the 'inside' rationality that is the basis of economic rationality. Some of the other assumptions underpinning the idea of rational economic man are that:

• The principal of pure competition where each agent acts as an autonomous individual and where the market place is composed of many small buyers and sellers.
• Consumers have complete information and foresight about economic conditions including the future about which there exists no uncertainty.
• Consumers have fixed preferences and can effectively signal these to producers.
• Consumers act to maximize their utility.
• Firms are able to satisfy every need expressed as a want for a particular product.
• Consumers act rationally and comprehensively to evaluate every choice alternative prior to action.

It is true that in contemporary societies many people operate alone in conducting transactions. However, Leavitt (1958) felt that consumers can best be viewed as interdependent, arguing that if consumers can best be viewed as interdependent, arguing that if consumers are treated as if they act solely by themselves 'our predictions about him will go pretty far wrong'. It can be asked how often individuals really act alone. Often goods are purchased with the direct and indirect help of others. It could be argued that consumption is paradoxical. Individuals partake in the mass market with millions of others buying mass-produced goods while also combining these mass-produced goods into 'unique' combinations which provide individuals with a sense of distinctiveness from other people. In a way all consumption is social to the extent that the goods that are purchased are bought for the consumption of others, those others who look at us and judge us in terms of what we have bought. Consumers often act mimetically through vicarious learning by imitating the choices of others.

Economists also assume that individuals consciously are aware of their needs. A 'need' for this purpose is a loss of equilibrium, a change in state which indicates a lack. It is assumed that there is conscious awareness of this lack and of the means of filling it. While cognitive theorists by and large share this view, this is contested by Freudians, who would argue that instead needs often emerge as a result of unconscious conflicts and that they represent a sublimation of such conflict. Behaviorists protest that too much emphasis is placed on the importance of internal mental states in determining choice processes. They would argue for the importance of considering the environmental setting in which behavior occurs.

The economic assumption that preferences are fixed holds some truth. However, there is a growing belief also that preferences are constructed rather than revealed. The idea of constructed preferences denies that consumers simply refer to a master list of preferences in memory when making a choice. Cognitive theorists are busy researching how preferences are generated. They suggest that sometimes consumers may use the forms of weighting assumed by economists, although more often than not they will use a much simpler method.

Following from the above, the traditional economic view suggests that individuals evaluate goods and services in relation to their needs. They consider these in the light of key attributes to which are attached utilities; those goods which maximize their return in terms of subjective expected utility are the ones which individuals will choose. This presupposes that it makes sense to break down personal beliefs and evaluations in a systematic manner. Cognitive learning theorists do not simply assume that this is the case but actively explore the conditions in which it occurs and when it fails to occur. In any event, the reality of everyday behavior is that most purchase behavior is relatively routine and habitual. Cognitive psychologists argue that when managers and consumers do engage in problem-solving behavior they do not exhaustively analyze every alternative but instead use simple rules of thumb.

That a world of perfect information does not exist means firms must actively seek to anticipate the needs and wants of consumers. Firms do not respond to every perceived need and want. They are constrained by the environment in which they operate and must make some form of return which covers their outgoings. In any event one might also choose to question the extent to which people act rationally and comprehensively in evaluating different offerings.

One may summarize the discussion with respect to the economic model of the consumer. It presents an over-rationalized and over-individualized view of the consumer. It does not provide an understanding of what things mean to people and how they come to have that meaning. It is poor at recognizing or explaining the intrinsic value of things to people.

In the upcoming series of posts three different alternatives to the economic explanation are discussed, namely:

• The Freudian tradition which held sway from the 1930s to the early 1960s and which remains influential in some quarters to this day.
• The behaviorist tradition which was also influential in the 1930s but which had its heyday in the 1960s
• The cognitive tradition which remains the mainstream explanation of consumer behavior today.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 69-71*

END

Consumer type

Individual

Period

Discipline

Rational consumer

Marshall

Late 1800s

Economics

Unconscious consumer

Freud

Early 1900s

Psychology

Conditioned consumer

Watson/Skinner

Early 1990s

Psychology

Problem-solving consumer

Simon

Mid 1990s

Psychology

An Analysis of the Fundamentals of Marketing (part 13)

Organization and the Marketing Environment

by

Charles Lamson

This post returns to the functionalist approach to the role of marketing. It assumes that the firm is an organism whose main goal is to survive by taking advantage of the opportunities and by avoiding the threats that are present in the environment, including responding to competitor actions. The organization is purposive. In order to survive, decision makers seek to attend rationally to environmental problems and opportunities. The problem-solving process involves analyzing the current situation, developing goals and strategies to achieve those goals, and, finally, providing feedback to gauge whether goals have been successfully achieved. The organizational problem solving process is analogous to the individual problem-solving process. For example, any individual who wishes to solve any problem must consider where they are, where they want to be and how to get there. The individual questions and related organizational terms are shown in table 1.

Table 1. Marketing Strategy Process: Problem-Solving Process

Questions to be asked	Analyses to be undertaken
Where are we now?	Situation analysis Gap analysis
Where do we want to be?	Mission and objectives
How do we get there?	Strategy formation Strategy evaluation Strategy implementation ‘4 Ps’ (price, product, promotion and place)
How did we do?	Feedback

Levels of Planning: From Corporate to Business Plans

It may be useful to consider firms as organisms for the sake of analysis, but it must be recognized that these are extremely complex organism. For example, Wal-Mart has a turnover of hundreds of billions of dollars and employs hundreds of thousands of workers. Such complex entities can be organized in different ways, including functional, divisional and matrix forms of organization. A common procedure is that those at the top level of the organization conduct a corporate-level strategic analysis that, in turn, will inform analysis at the business level. Functional plans, including the marketing plan will be drafted at each level. For example, it can make sense for a vehicle manufacturer to divide its businesses into cars and trucks as it could be argued that these face quite different market places and challenges. for such a business the top team will devise a corporate plan which will set out the vision and mission of the organization in addition to spelling out the goals for executives in the Strategic Business Units (SBUs) comprising trucks and cars. The executives in each SBU will then work within the constraints established by the corporate plan in setting more precise objectives and in devising strategies of how to achieve these objectives. The corporate marketing plan will be a subset of the main plan focusing on providing the long-term direction of the organization regarding the markets and needs that will be served and will set goals for the SBUs. Managers within each SBU will devise more specific marketing objectives and programs in the light of this plan.

Marketing Audit: External and Internal Analyses

The marketing audit involves a systematic and comprehensive analysis of the business marketing environment. Why begin with the environment? If a systems approach is used as a starting point, it is possible to view the organization as an organism which must adapt to changing environmental conditions or die. Organizations are engaged in a battle for survival, which has a dual imperative to meet the needs of customers (Hooley and Lynch, 1985: Kohli and Jaworski 1990: Narver and Slater 1990) and to fend off the competition. The logic is simple. How otherwise could a firm know where it wants to be and compute how it wants to get there if it does not know where it is now and how it got there?

Taking the perspective of the organization, if it is to survive in the long run, managers must continually scan the environment to obtain early warning of opportunities that can be taken advantage of, as well as of potential threats to survival. The process of matching is summed up in the simple acronym Strengths, Weakness, Opportunities and Threats (SWOT) analysis. Managers seek to identify the most relevant opportunities and threats that are present in the external environment and to match these with perceived internal strengths and weaknesses.

Auditing the External Environment

Consider a brewery that is considering investing in the Chinese market. How are its managers to decide which environmental issues are relevant? There is an acronym available which can help in summarizing the key elements of the environment that are of importance to the marketer. Managers should analyze:

PEST + C + C

The task is to examine the likely impact of the:

• Political environment.
• Economic environment.
• Social environment.
• Technological environment. 

      In addition to:

• Consumer environment.
• Competitive environment.

This list is not comprehensive. For example, one glaring omission is the physical environment. However rudimentary it is, it is still useful. Before proceeding to look at these different aspects of the environment in detail, it is appropriate to consider some general environmental trends.

Chinese Beer Market: A Case For Expansion

Consider this case from the point of view of a major brewing company which is wishing to establish an operation in China. PEST + C + C are used below to identify the different factors which can influence the decision to invest market development.

Analyzing the P: Political and Legal Environment

Government regulation and legislation are major aspects of the contemporary business scene and must be paid due attention to by any organization. No corporation is beyond the law, as Microsoft has found out in being brought before the US courts to explain alleged antitrust violations involving its Windows Web browser. Countries differ in the extent that they bind their nationals in webs of legislation. In the US the Federal Trade Commission (FTC) is the main body which regulates restraint of trade and enforces rules against unfair methods of competition and deceptive business practices. The FTC had many of its powers removed during the Reagan administration. However, in addition to the huge amount of federal legislation, organizations must also cope with state legislation. By comparison with the US, the tendency in the UK is for voluntary codes of practice for the regulation of the media and advertising.

It is obviously in the organization's interests to be mindful of government actions that may have an effect on its operations. Within the European Union (EU) there is a huge range of national and supranational legislation which may be directly relevant, on issues ranging from government  budgetary policies to legislation on packaging and labeling and on deceptive advertising. Larger companies have legal departments which can be consulted on a wide range of issues. Smaller companies may seek to actively exert an influence on government policy but may lack the resources to do so. In the UK this can be achieved by banding together under an umbrella such as the Association of Independent Companies or the Forum for Private Business which lobby government in the collective interests of their members. In the discussion of the Chinese beer market, the potential investor should become familiar with the national and regional laws which regulate the brewing industry in China. Investors might also wish to consider the effects which political changes might have on the regulatory framework in the medium term.

Analyzing the E: Economic Environment

The economic environment is of key importance to marketers. Aggregate consumer expenditure on goods and services is a major indicator, as is growth in personal disposable income. One major development since the 1960s has been the growth in the electronic circulation of capital. The evidence so far is that this development has contributed to the destabilization of international markets, which have seen massive swings in the fortunes of stocks and currencies as electronic cash pours in and out of stocks and currencies at the press of a button.

Since the end of the 1960s governments have perceived the rate of inflation as the major economic indicator to control. Increasingly, observers have become worried the prospect for the return of deflation, a phenomenon which has not been witnessed since the 1930s. Marketers are keen to track market indicators such as growth in aggregate demand (the total demand for final goods in an economy at a given time), consumer spending and changes in consumer demographics.

With respect to the investor which is considering opening a brewery in China information would be sought on inflation, interest rates, employment trends and wage rates, particularly within those areas that might effect production and the market place.

Analyzing the T: Technological Environment

The global technological environment has witnessed major change and this change is set to continue. Even the most remote parts of the globe can be reached via satellite with visual and aural communications, by phone, television and spy satellites. In 'developed' countries the installation of fiber optics networks has led to the development of video-conferencing. Changes in technology have had a profound effect on organizational structure, leading to the creation of more distributed forms of organization. With the advent of various 'loyalty' cards, retailers and others are able to observe and track consumer purchase behavior and react to each consumer and are almost in a position to treat each consumer as an individual. Technological know-how is a major barrier to entry into many mass-market operations.

With respect to the brewing company seeking an investment opportunity in China, one would need to analyze the technologies currently used by potential competitors in China. Is the technology mored advanced? Do consumer tastes demand particular technological solutions? On the other hand, one might enquire as to whether the technological infrastructure could support planned operations.

Analyzing the Socio-Cultural Environment

Aspects of change in the socio-cultural environment are of major importance to marketers, especially, those aspects which impinge on individual's sense of identity. These include changes in social class which are considered in a later post in addition to changes in the cultural mix and the creation of new subcultures. For example, in Europe already the ageing population known as the 'grey market' is having a marked impact on the marketing strategies of producers and retailers.

One important demographic change in China has been the reduction in the population of those under 20 - the 'little emporers'  who have resulted from the governmental one child policy. some of the demographic changes which have been taking place in china have been discussed above, most notably that related to the 'little emperors'. However, other social factors are highlighted in the brewing case. for example, baiju fulfills an important social function which the government hopes to replace with beer. Other important social factors to take into account are guanxi, guo quing and houmen which collectively signify how business is done in practice in China.

Guanxi refers to the importance of networking and relationships and is a means of getting round the formidable obstacles presented by red tape. the right guanxi with distributors is a key to market success. Guanxi is linked to the concept of 'houmen' or the 'back door' as a means of smoothing relations with state bodies. Guo qing is a blanket term for distinctively Chines characteristics of which a foreigner should be aware. For example, they should be aware of the 'one-child' policy and of the Chinese preference for prosperous sounding brand names (Mak, 1998).

Analyzing the Competitive Environment

While the direct competition must be analyzed, it is also important to assess any competition that may come from substitutes and alternatives. In analyzing the competitive environment the degree of industry concentration is important to know. In the Chinese beer case, the industry still tends to be relatively fragmented, with a large number of breweries. The top ten brewers still account for less than 20 percent of all output. Added to this is the knowledge that the idea of competition is new to producers in this sector, but that the competition is learning quickly. Indirect competition comes from substitutes for beer, e.g. other alcoholic and non-alcoholic drinks.

Analyzing the Customer Environment

From a marketer's point of view the customer environment is the most important one to consider. The rise of the global market may be regarded as a major opportunity for marketers. One simple calculation involves estimating potential demand for products by obtaining data about relative consumption patterns around the world. Two factors are important, per capita consumption and overall consumption. While the former provides information on the individual use rate, which may aid decision makers in estimating the scope for market development, decision makers are also interested in the overall market size.

For example, estimates of per capita consumption of beer in China range betwee 14 litres(l) and 19 l, which is low when compared with Western Europe, where it is of the order of 70 l per head. Consumption in those countries where beer and not wine is the traditional choice is even higher, e.g. in the Czech Republic around 160 l per person! Despite the relatively low levels of per capita beer consumption, the Chinese market, at 25 billion litres (Plato Logic, 2005), has overtaken the US market to become the largest beer market in the world. Importantly given the size of the Chinese population, this indicates strong potential for further sustained growth in this market. However, marketers need to know a lot more than patterns of aggregate demand. It is also very important to have sufficient knowledge of the market so as to be able to segment the market place. Just as in Europe, geographical variation between different regions must be taken into account, as these reflect wide differences in wealth, consumption patterns and tastes. In particular, there is likely to be a marked difference in consumption between urban and rural areas; beer consumption in urban centers such as Shanghai and Beijing is reported to be three to four times the national average.

While geography provides a basic menas of segmenting the market place, this could be greatly enhanced if marketers could combine this knowledge with that about the demographics of consumers, constituting age and gender differences in consumption of beer, and socio-economics, or income. The brewery would also wish to know more about the way in which beer is consumed in China. For example, is it an everyday drink or something which is reserved for special occasions? Other questions might include:

• Who drinks beer (and who does not) and why?
• Who are heavy users and why?
• Why do people drink beer (as opposed to some other drink)?

It is only by asking such questions that an understanding of the behavior of consumers in the market place can be obtained. This is why the study of consumer behavior and marketing research are given such prominence.

Implementing Strategies

In terms of implementing strategies the marketer must fashion a unique marketing mix, which is aimed at the market place. The basic ingredients of the marketing mix (or the '4 Ps') are:

• Product.
• Price.
• Promotion.
• Place

In the Chinese beer example, the brewer may wish to concentrate on serving the needs for beer of 20-30 year old single males, living in urban areas.

The product is not only the beer itself, although it would be a good idea for the product development team to conduct some marketing research blind taste tests to see how favorably the market responded to the beer. Additionally, the team should consider important elements such as the packaging, e.g. should this beer be in a can or a bottle? If this was to be a premium beer and if the market perception was that premium beers only come in bottles, then it may be a mistake for the team to consider launching its beer packaged in a can. The product is not only the physical product, image also matters.

Price conveys much information about the perceived quality of the product.. If this beer is to be perceived as a prestige product then it is important to find out what the market expectation for the likely price potential customers would expect such a prestige product to be. This can be difficult, as setting a price which is below expectation can have just as damaging an effect as too high a price for prestige products.

Promotion, or marketing communication,  will include advertising, public relations and sales promotions. Once the beer is in a position to be launched, it may be a good idea to invite journalists who work for newspapers and broadcast media and, in particular, those who are favorites of the target market to inspect the beer being marketed. This could involve a tour of the production facility and tasting demonstrations showing the superiority of the brand over others. It could generate some useful publicity for the new brand, although care needs to be taken to minimize unwanted effects which could achieve much higher publicity. For example, it would be a major blow if the journalists thought that the beer was inferior to others. Hopefully, that would not be the case, provided sound research had been undertaken beforehand.

Place, or channels of distribution of the beer, is vitally important. If it is to be a premium beer then should it be widely distributed or sold only through exclusive outlets? If it is to be sold through exclusive outlets then there would need to be a built-in extra margin on price to secure the additional premium demanded by such outlets. A good system of physical distribution would need to be in place.

*SOURCE: FUNDAMENTALS OF MARKETING, 2007, MARILYN A. STONE AND JOHN DRESMOND, PGS. 56-66*

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Questions to be asked

Analyses to be undertaken

Where are we now?

Situation analysis

Gap analysis

Where do we want to be?

Mission and objectives

How do we get there?

Strategy formation

Strategy evaluation

Strategy implementation ‘4 Ps’ (price, product, promotion and place)

How did we do?

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