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Implication of Stakeholder Engagement on Business Performances
Based on the Research Article: From Customer to Actor to Stakeholder Engagement: Taking Stock, Conceptualization and Future Directions
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By Linda D. Hollebeek, V. Kumar and Rajendra K. Srivastava
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Published in the Journal of Service Research in 2020
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Summarised by Minal Agarwal, Manager ISB-CBM
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Customer engagement has been a key agenda for managers in recent years. Brands invest their resources on the customer engagement to derive desirable customer outcomes. However, considering a narrow focus on the customer’s engagement by the brand, a recent study has recognized the importance of extending the customer’s engagement to any market player or actor’s engagement (AE) including suppliers, distributors, customers, employees and others. That is, each type of participant in an ecosystem must be engaged in providing a solution and is therefore a partner to the other players in providing product-service solutions.
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In this context, the service-dominant (S-D) logic-informed AE concept focuses on this networked actor’s value co-creation. These actors, however, have potentially diverging goals which may result in conflict of interest. For example, a manufacturer may focus on the interest of a distributor by compromising on a retailer’s interest which could result in destroying value for the retailer. Different actors may be getting differing level of value from their interactions with focal actors which may act against their interests. To address this gap, researchers have developed an integrative concept of stakeholder theory/S-D logic informed stakeholder engagement (SE) by extending the existing S-D logic-informed AE research.
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There are five core SE tenets identified by the researchers to define stakeholder theory which recognizes various marketing actors’ potentially different interests. Some of the managerial implications identified based on the five core SE tenets are listed hereunder:
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- The networked actors play different roles and engage in different behaviours pertinent to that role which may be undesirable to actors’ other roles. The SE’s role-based nature thus requires the stakeholder’s role definition and a clear understanding to minimize role ambiguity and to execute their roles effectively.
- There can be lot of fluctuation in the SE due to its nature. The researchers therefore recommend managers to adopt an agile and flexible stance which can accommodate the stakeholders’ potential SE swings.
- SE is often constrained by the stakeholder or service system factors though it also contains an element of the focal stakeholder’s free will that is deployed to create role-related value. The managers are therefore advised to focus on nurturing highly volitional SE for creating higher value.
- The stakeholders invest their resources to get greater value from their role in future. These are role-related investments to advance their future role value. The stakeholders also incur expenses to maintain their role’s status quo. The managers therefore are advised to offer role investment opportunities to secure salient stakeholders’ role.
- Finally, the SE is an interactive concept in which even if the actors do not participate in any interaction, they still influence each other. Therefore, managers not only require an understanding of the stakeholders’ own role-related engagement, but also of that of their associates and broader surrounding systems which can affect the SE.
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Please click the following link to access the complete article here:
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Consumer Stockpiling and Competitive Promotional Strategies
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Based on the research article: Consumer Stockpiling and Competitive Promotional Strategies
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By Manish Gangwar, Nanda Kumar and Ram C. Rao
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Published in the Journal of Marketing Science, by the Institute for Operations Research and the Management Sciences (INFORMS)
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Summarised by Astha Sharma, ISB-Centre for Business Markets
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The most common strategies strategy adopted by repeatedly purchased fast-moving consumer good brands to boost sales is offering discounts to consumers. Increased sales during promotional periods could come from two sources: (1) total category demand expansion or (2) more likely the sales increase may come at the expense of other brands; some consumers may switch and buy the discounted low-priced brand. Although firms’ short-term sales and profit may increase, competitors eventually follow through and offer their own discounts to attract the consumers, leading to overall lower margins for the category. It is very difficult for firms to give up the discounting strategy unless they have carved a nice brand for themselves. The presence of switching consumers (consumers with weak brand preferences) and the lure of attracting them at a discounted price to increase short-term sales is too strong to pass. And thus, promotions are here to stay. In some categories, retailers have observed that a dip follows higher sales during promotional periods. One of the reasons for post-promotion dip in sales is inter-temporal shift in demand due to the consumer strategic behaviour. Some consumers buy more than usual at deep discounts and stockpile goods for future consumption. Given the consumer switching across brands for better deals and stockpiling at deep discounts, it is not clear that promotions benefit firms in the medium- to long term. This research paper addresses whether promotions lead to increased profitability for the firms in the long term. How should brands adjust their promotional strategies (frequency and depth of discount) to mitigate the undesirable effects of promotion?
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To address this question, researchers developed a stylized game-theoretical model that considered the market as a symmetric oligopoly (a market structure where a few large firms dominate the market). Brands compete to serve the needs of the consumers who differ in terms of their brand preferences and price sensitivity. Some consumers buy only their favourite brand, whereas some consumers switch brand based on discounts offered by alternative brands. Some of the strategic switching consumers may use deep promotions offered by brands to stockpile products for future consumption to reduce overall category expense. The researchers in this paper present a unique model that incorporates multiple perspectives. It considers customer’s responses to the discounts, the firm’s response to stockpiling by the customer, competition and direct and indirect effects of the market characteristics in capturing equilibrium pricing strategy.
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Key Insights
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- The price at which the consumers hoard goods, although is determined by the consumers, the firms’ promotional strategies play an important role. Even though the consumers do not know what the product’s price will be in the future, they are sophisticated enough to rationalize an economic trade-off between current spending and future spend. For example, a product that is never sold at a discount is more likely to be stockpiled if available at a 30% discount compared to a product that is frequently sold at a discounted rate and may be available at a 50% discount. This example illustrates why firms should consider the direct and indirect effects of the consumer’s stockpiling threshold in their pricing policy.
- The intensity and frequency of discounts offered by the firms depend on the intensity of the discount offered by any competing firm in the previous period. Even if one firm in the market offers deep discounts, the more price-sensitive buyers will flock to this seller and stockpile for future. As a result, the total demand coming from the price-sensitive buyers is far less in the next period. What then happens to the demand coming from price-insensitive buyers (quality sensitive high brand preference consumers)? Well, by the trait of relative price insensitivity, they are willing to buy at higher prices. Therefore, it is in the firms’ best interest to charge higher average prices in the following period to maximize profits from this segment of the consumers.
- To mitigate the effects of the consumer stockpiling firms, adjust their promotional strategies; offer a deeper discount but less frequently. Inducing an interesting cycle of intense competition (deep discounts) in one period followed by harvesting (shallow discounts) in the next period should be the preferred strategy.
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The research paper presents an excellent multi-dimensional model that presents a case for why stockpiling does not result in higher profits for the firms.
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To read the entire research paper, refer to Manish Gangwar, Nanda Kumar, Ram C. Rao (2014). Consumer Stockpiling and Competitive Promotional Strategies. Marketing Science 33(1):94–113. https://doi.org/10.1287/mksc.2013.0814
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Outsource or Not?
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Based on the research article: The Performance Impact of Core-Component
Outsourcing: Insights from the LCD TV Industry
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By Madhu Viswanathan, Prokriti Mukherji, Om Narasimhan and Rajesh Chandy
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Published in the Journal of Marketing Research, American Marketing Association
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Summarised by Astha Sharma, ISB-Centre for Business Markets
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Outsourcing practices have been a source of controversy for a while. Proponents of outsourcing highlight cost savings and ability of firms to reallocate these savings to a firm’s core capabilities. Critiques of outsourcing showcase the inherent loss of knowledge from the firm and the inability of the firms to be innovative. What is surprising is the lack of empirical evidence on this practice. Further, most discussion on this topic overlooks the impact of end customers and competition. Do customers value innovation over price? How much of the cost savings are passed through and what is the role of competition in product positioning? These are the questions that are addressed in this research paper. The researchers, utilising the liquid crystal display (LCD) television (TV) industry, answer these questions.
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The research study finds that outsourcing of the core component has a negative impact on profits as it reduces their innovation ability, which in turn influences the buying decision of the customers. On the other hand, outsourcing also reduces costs allowing the firms to compete on price which increases sales. The decision of whether to outsource or not, ultimately depends on competition and a firm’s current position on the technology frontier. Depending on the number of competitors in the market and their technological expertise, the outsourcing decision may lead to increase or decrease of the firm’s profits.
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The researchers have classified the impact of outsourcing into the following three broad categories for managerial relevance:
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- Firm-level: Outsourcing has two effects: a drop in the cost and a reduction in the technological ability; both of which impact the firm in opposite ways. However, a reduction in technological ability affects the firm in the long run as it also reduces the ability of the firm to assimilate external and develop internal knowledge. This problem is critical for high-technology industries, where the innovation ability is essential to create a portfolio of cutting-edge products to accomplish the ‘technology-frontier’ Dependency on the suppliers also reduces the negotiating power of the firm when procuring advanced products.
- Consumer-level: Being on the ‘technology-frontier’ influences the consumer’s buying decision, as consumers perceive such firms to be innovative, giving them an edge over their competitors.
- Competitive level: If the firm has superior innovation ability, it can add new features to its product line and differentiate itself from its competitors, thereby moving away from the need to fight on prices.
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In conclusion, the firms that have established themselves as technology leaders and market leaders may benefit from outsourcing, as by selling more units, they can compensate for the reduced prices. However, the firms that have not differentiated themselves on quality may get hurt on profitability due to outsourcing, as they will find themselves competing only on the price.
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Please read the full research article at https://doi.org/10.1177/00222437211010766 for detailed insights.
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Effectively handling consumer data
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Based on the research article: Insight is power: Understanding the terms of the consumer-firm data exchange
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By Manfred Krafft, V. Kumar, Colleen Harmeling, Siddharth Singh, Ting Zhu, Jialie Chen, Tom Duncan, Whitney Fortin and Erin Rosa
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Published in the Journal of Retailing by Elsevier Inc. on behalf of New York University
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Summarised by Astha Sharma, ISB-Centre for Business Markets
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We have all walked into many retail stores and given our names, contact numbers, birthdays and other information at the check-out counters. We have also received messages from these stores about promotional offers, new stock arrival and personalised discounts on birthdays and anniversaries.
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Consumer data is as essential to companies as products, services, resources and skills. With the increase in the usage of social media platforms and other digital solutions, an enormous amount of data is generated and collected these days. The correct usage of this data can generate valuable insights for the companies and provide them a competitive advantage in the market. However, the incorrect usage of this data can have severe repercussions for the companies.
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Consumers’ data can be accessed in the following three ways:
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Direct request to the customer: Usually, consumers are willing to share data with the retailers in exchange for appropriate incentives. Offering monetary benefits to the consumers in exchange for the data can attract the consumers not availing the products or the services of the company. Such data may not be beneficial to the company. Designing the right incentives for the customers is essential to attract the right customers and engage them meaningfully for a more extended period. When the data is collected directly, the consumers are more inclined to reveal more information about themselves and their network.
In this scenario, the consumers expect the data to be used explicitly for the purpose communicated by the retailer. The use of this data for any other purpose can have adverse effects on the retailer-consumer relationship.
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Consumer initiated data disclosure: These days, the consumers disclose personal information on social media platforms. However, this data is easily accessible to the companies as it is openly available; the customers disclose this data for a broader audience and do not consider companies to be the intended audience for this data.
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Passive data disclosure: This is the data that the consumers unconsciously provide as part of their day-to-day activity on digital media such as web searches, page clicks, etc. The companies use this data to provide more personalised communications to the consumers.
The following are the different aspects of data collection that need to be understood by the retailers to get the full benefit of data and maintain customer relationships.
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Data ownership: Who owns customer data?
Data intimacy: What is the depth of the data shared and used by the retailer?
Data permanence: How long will the consumer data be stored and used by the retailer?
Data value: What is the value of the consumer data to the retailer, and what benefits does the consumer expect to exchange with this data?
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Depending on how the retailer acquired the consumer data, the consumer expectations on the above aspects might change.
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Companies often struggle to use the consumer data meaningfully. High-quality consumer data and sophisticated data analytics tools can improve the company’s performance only when the insights are shared across different departments. Companies also need to be agile to respond quickly to the opportunities arising from the insights derived from the consumer data. Companies can also consider inter-firm collaboration for the exchange of data to improve customer experience.
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Despite all the sophisticated tools to collect and analyse data, data breaches continue to make the consumers wary of sharing their data with the companies. Many companies with data breach incidents have had severe financial setbacks and loss of brand image.
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Conclusion: The consumer data can provide useful insights to stakeholders across the value chain if the stakeholders maintain transparency on accessing and using the consumer data.
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Please click the following link to access the complete article: https://www.sciencedirect.com/science/article/pii/S0022435920300725?via%3Dihub
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Minal Agarwal (MA), Manager at the ISB-Centre for Business Markets, spoke to Prof. Siddharth S. Singh (SS), Associate Professor, Marketing; Associate Dean-Digital Transformation, e-Learning and Marketing and Executive Director-EFPM Programme. Scroll down to read the full text of the interview.
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Day and date: Thursday, 17 June 2021
Interview performed digitally
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MA: Could you please tell us something about your book on ‘Digital Marketing: Strategy and Tactics’ and how it will be helpful for corporates?
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SS: There are many books on digital marketing. However, most are written by practitioners who are focused on tactical issues. A good company treats the marketing function as one that involves both strategic and tactical issues. Our book deals with the topic of digital marketing as integrated into the wider marketing strategy. It also focuses on the tactical issues of digital marketing strategy implementation. Therefore, we feel our book is more complete and useful to corporates.
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MA: We see a digital transformation trend in businesses these days; however, the success rate of digital transformation is very low. Research has shown that less than one-third of the organizational transformations succeed at improving business performances. According to you, what are some of the key factors that companies can adopt and implement for successful digital transformation?
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SS: Digitization and digital transformation are too often confused in practice. Digitization is taking an existing process and incorporating digital into it to improve performance on one or more dimensions. Digital transformation on the other hand should start with the end objective in mind. It then involves design of processes that best achieve the end objectives. And finally, it involves incorporation of digital technologies into the processes appropriately to achieve the objectives in a superior manner.
I believe digital transformation is necessary for an organization to compete successfully in our world today and going forward. The challenges are all about doing it right. And not many organizations know how, leading to a low success rate. Too often organizations are adopting technologies to digitize existing processes in an ad hoc manner.
Over time, this approach leads to major challenges in integrating processes for superior benefits that come from proper digital transformation. The approach proves not only costly in the long run but also prohibitive in achieving full digital transformation goals due to ad hoc contracts, employee adoption, accumulated data migration issues, inertia, etc. Therefore, a company must follow a design thinking approach as mentioned earlier in its effort towards digital transformation.
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MA: You have also co-authored a book ‘Managing Marketing: An Applied Approach’ which talks about developing market strategy, implementing market offerings and managing the marketing process. Please tell us about the new ideas and differentiated approach that marketers can adopt to reach their customers.
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SS: Good marketing rests on fundamental factors that do not change. However, how they are applied in practice continues to change albeit at a much faster pace today. Therefore, deep understanding of these factors and the evolving context are necessary to create differentiated and successful offerings for consumers.
Understanding consumer needs and behaviour and crafting a superior value proposition for them using that knowledge and available technology is the key to a differentiated and successful offering in the market. The challenge for marketers today is the fast pace of change in technologies and resulting changes in consumer behaviour and expectations. This requires companies to be highly innovative to respond to customer needs. Marketers must create superior value by providing better, easier, faster and more engaging solutions to consumers.
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MA: Your research area focuses a lot on the customer loyalty programme and building relationships with customers. What are some of the ways by which companies can engage with their customers effectively?
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SS: The foundation of customer engagement lies in providing superior value to customers and establishing trust with them. Beyond this, a company must make the overall experience of customers easy, pleasant and delightful if possible. Short-term promotions might increase customer acquisition; however, long-term sustained engagement comes from customer satisfaction with the offerings of the company and the customer-company interactions over time.
Since customer touch points with a company are increasing due to digital technologies, maintaining and improving customer experiences across all touch points has become a huge challenge that has to be met successfully for successful engagement. This has also necessitated the establishment of trust with consumers. Given the diversity among consumers and the complexity in their journey through their interactions with the firm towards the first purchase and beyond, errors are bound to happen. No company can be perfect. If the consumers trust a company, they will tolerate and overlook minor errors. Thus, trust acts as a cushion for the company from damages. However, establishing such trust is not easy and takes time.
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MA: The market has changed significantly after the COVID-19 pandemic. What skill sets should middle- and senior-level leaders in organizations focus on to be successful in a constantly evolving ecosystem?
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SS: New contexts require new knowledge, skills, attitudes and habits. And that requires an ability to adapt and embrace changes. Everyone must develop an ability and attitude to learn. It is easy to get involved in day-to-day work and not focus on learning new things. Over time, one loses both the interest and ability to learn. I feel the evolving context poses a challenge for everyone. Keeping abreast of new developments and asking yourself how you can add value to your organization in the changing context is likely to be helpful.
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